Cooperation And Development Agreement

PRIVILEGED AND CONFIDENTIAL


COOPERATION AND DEVELOPMENT AGREEMENT


This Cooperation and Development Agreement (this "AGREEMENT") is entered into and effective as of June 2, 2000, (the "EFFECTIVE DATE"), by and between MICROSOFT CORPORATION, a Washington corporation located at One Microsoft Way, Redmond, Washington, 98052 ("MICROSOFT"), and NET2PHONE, INC., a Delaware corporation located at 171 Main Street, Hackensack, New Jersey, 07601 ("NET2PHONE"). In this Agreement, Microsoft and Net2Phone are sometimes referred to collectively as the "PARTIES" and individually as a "PARTY".


RECITALS


WHEREAS, Microsoft desires to include PC-to-PC and PC-to-Phone voice capabilities in its MSN Messenger Service and other MS Products;


WHEREAS, Net2Phone has developed N2P Deliverables and provides services technology and equipment necessary for PC-to-PC and PC-to-Phone voice transmission and delivery over the Internet, N2P Managed Network and other public networks; and


WHEREAS, the Parties desire to enter into a relationship to (a) integrate the N2P Deliverables into the MSN Messenger Service in order to provide MSN Messenger Service with voice transmission and receipt capabilities for inclusion in a new version of the MSN Messenger Service (referred to herein as the MSN Messenger 3.0) to be released on the Target Launch Date and (b) permit Microsoft to integrate and distribute the N2P Deliverables in other MS Products.


NOW THEREFORE, in consideration of the premises and mutual covenants set forth herein, the adequacy of which is hereby acknowledged, the Parties agree as follows:


AGREEMENT


1. DEFINITIONS AND OBJECTIVES


1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings ascribed to them in this Agreement or in Exhibit A hereto, as the case may be.


1.2 Objectives. In accordance with the terms and conditions of this Agreement, Microsoft and Net2Phone desire to provide End Users of the MSN Messenger Service with the ability to make and receive PC-to-PC and PC-to-Phone voice transmissions. Microsoft currently owns and operates the MSN Messenger Service. Net2Phone has developed, owns or has licensed from third parties N2P Deliverables and will provide Microsoft with rights specified herein to integrate, use, debug and distribute such N2P Deliverables in conjunction with the MSN Messenger Service and other MS Products. Net2Phone will provide the N2P Deliverables to Microsoft for integration into the MSN Messenger Service and other MS Products. Microsoft will integrate the N2P Deliverables into the MSN Messenger Service and endeavor to release such functionality as MSN Messenger 3.0 on the Target Launch Date. Other than the N2P Deliverables integrated therein, Microsoft shall be solely responsible for the development, design, implementation and launch of the MSN Messenger 3.0. Microsoft may, in its sole discretion, debug the [****], but Microsoft shall have no other rights to use or modify the [****] 2
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and Net2Phone shall own all bug fixes, including those, if any, made by Microsoft to the [****]. Along with delivering the N2P Deliverables, Net2Phone shall, in accordance with the terms of this Agreement, (a) transmit and deliver voice communications over the Internet, the N2P Managed Network and other public networks; (b) maintain and service the N2P Deliverables and the N2P Managed Network; (c) provide second tier customer support to End Users; and (d) host and maintain web pages in order to provide billing services to End Users.


2. DEVELOPMENT COOPERATION


2.1 General. Microsoft and Net2Phone shall each assign appropriate resources and use commercially reasonable efforts to cooperate in the development and release, on the Target Launch Date, of the MSN Messenger Service with PC-to-PC and PC-to-Phone voice capabilities in accordance with the specifications attached hereto as Exhibit B (the "MS VOICE SPECIFICATIONS").


2.2 Microsoft Development Obligations. Microsoft shall (a) develop, code, and build the MSN Messenger Service to contain all of the user interface necessary for voice transmissions using the N2P Deliverables; (b) develop, code and build the user interface design, including the layout and other features of the MSN Dial-Up Window, to allow End Users to utilize voice functionality on the MSN Messenger Service; and (c) develop, code and build all set-up programs required to install and operate the N2P Deliverables on the MSN Messenger Service.


2.3 Net2Phone Deliverables. Net2Phone shall deliver the N2P Deliverables to Microsoft in accordance with the schedule set forth in Exhibit C. Microsoft will only use the N2P Deliverables in accordance with the terms and conditions of this Agreement.


2.4 Updates


2.4.1 As used herein [****] means an [****].


2.4.2 As used herein [****] means each [****].


2.4.3 Net2Phone shall offer all [****] to Microsoft, and Microsoft, in its sole discretion, may accept and/or implement any [****]. In the event that Microsoft implements any [****], then such [****] will be deemed part of the N2P Deliverables licensed to Microsoft pursuant to Article 3.


2.5 Updated Schedules. The Parties from time to time may agree on updated schedules for the N2P Deliverables. These updated schedules shall take into account the desire to launch the MSN Messenger 3.0 by the Target Launch Date, the availability of components, the Parties' internal development schedules and the timing of development activities to test deployment.


2.6 Control of Software. Microsoft shall use the N2P Deliverables only as specifically licensed in Article 3. In all cases, Microsoft shall treat all Net2Phone object and source code as Confidential Information and with respect to the [****], shall comply with the additional procedures set forth in Exhibit P related to source code control. Microsoft shall use and modify the [****] only as specifically licensed to do so in Section 3.2.


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3. LICENSE GRANTS


3.1 N2P Deliverables. During the Term of this Agreement, except for the [****], Net2Phone hereby grants to Microsoft a worldwide, non-exclusive and [****] right and license to use, distribute and sublicense the N2P Deliverables in object code form integrated into the MSN Messenger Service and/or, subject to Section 6.2.3, any other MS Product.


3.2 [****]. During the Term of this Agreement, Net2Phone hereby grants to Microsoft a worldwide, non-exclusive [****] right and license to use the [****] solely for the purposes of debugging the N2P Deliverables integrated into the MSN Messenger Service and/or, subject to Section 6.2.3, any other MS Product. Microsoft shall provide Net2Phone with all Bug Fixes and any such Bug Fixes shall be owned by Net2Phone. Net2Phone hereby grants Microsoft a world-wide, non-exclusive and [****] right and license to use, modify and develop any Bug Fixes and to distribute and sublicense, in object code form as integrated into the N2P Deliverables, any Bug Fixes.


3.3 Modification. Microsoft shall not modify, disassemble, or reverse compile any object code provided as part of the N2P Deliverables.


3.4 Sublicense Terms. Any sublicense of the N2P Deliverables to End Users shall be made by Microsoft only pursuant to the end-user license terms listed in Exhibit N.


3.5 Proprietary Notices. Microsoft shall not remove or grant any third party permission to remove any copyright or other proprietary rights notices from any of the N2P Deliverables.


3.6 Distribution Without MS Product. Microsoft shall not sell, lease or otherwise distribute the N2P Deliverables as a standalone software program or as a component or components of a software program, except as part of the MSN Messenger Service or other MS Product.


4. ONSITE COOPERATION


4.1 Cooperation.


4.1.1 To accomplish the development objectives under this Agreement, Microsoft may determine it is desirable and request Net2Phone to send Net2Phone developers to the Microsoft Premises on a temporary basis not to exceed two (2) weeks during each month for the duration of the Term of this Agreement. Net2Phone agrees to so provide Net2Phone employees for development purposes in reasonable numbers upon any request made by Microsoft under this Agreement.


4.1.2 Microsoft shall allocate and provide, as deemed necessary in Microsoft's sole discretion, Microsoft developers to develop the MSN Messenger Service to allow integration of the N2P Deliverables. Microsoft shall not modify the N2P Deliverables, but may request Net2Phone developers to make modifications to the N2P Deliverables to facilitate integration of the N2P Deliverables into the MSN Messenger Service.


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4.2 Onsite Requirements. In the event the Net2Phone developers are located at the Microsoft Premises, Net2Phone is not authorized to use, and agrees that it shall not use its location on the Microsoft Premises, or its access to Microsoft employees or facilities, to obtain information or materials from sources at Microsoft, other than as expressly authorized by Microsoft. For example, although a Net2Phone employee may be given security card access to select facilities at Microsoft, it is Microsoft's intent to grant access to only the office space allocated to Net2Phone and such other spaces as may be designated by Microsoft from time to time. It is not Microsoft's intent to grant Net2Phone employees full access to all areas of the Microsoft Premises accessible by security card or to other floors of such premises. Net2Phone agrees to direct its employees not to access areas of the Microsoft Premises other than those specifically designated by Microsoft. Net2Phone's employees shall abide by all Microsoft rules, regulations, and security measures while present at the Microsoft Premises, provided that in the event of any inconsistency between such rules, regulations and security measures and this Agreement, this Agreement shall prevail with respect to confidentiality and ownership of and rights to Intellectual Property.


4.3 Personnel. Each Party shall ensure that all members (including, in the case of Microsoft, all developers that have access to the [****]) of its development team working on the integration of the N2P Deliverables into the MSN Messenger Service and other MS Products, shall execute and return to the other Party a copy of the Programmer Confidentiality Agreement attached hereto as Exhibit Q and, in the case of Microsoft developers that have access to the [****], comply with the Source Code Control Procedures set forth in Exhibit P.


5. MSN MESSENGER 3.0 COMMITMENTS


5.1 Net2Phone Commitment. Net2Phone hereby covenants that it will provide development, voice transmission and delivery, customer support and other services in the Territory as set forth in this Agreement so that Microsoft may release MSN Messenger 3.0, which operates in accordance with the MS Voice Specifications, to the general public on the Target Launch Date.


5.2 Microsoft Commitment. Microsoft intends to release MSN Messenger 3.0 with the N2P Deliverables to the general public on or before the Target Launch Date. However, Microsoft reserves the right to delay the release of MSN Messenger 3.0 or not to release MSN Messenger 3.0 due to Net2Phone's failure or inability to provide N2P Deliverables or services in accordance with the terms and conditions of this Agreement. Microsoft shall not release MSN Messenger 3.0 on or before the Target Launch Date with any technology (other than the N2P Deliverables) that performs similar functions to the N2P Deliverables.


5.3 No Obligation. After the Launch Date and notwithstanding any other provision in this Agreement, Microsoft shall have no obligation to market, sell or otherwise distribute the N2P Deliverables in any MS Product, including, but not limited to the MSN Messenger Service. Other than as expressly provided for in Section 5.2, nothing in this Agreement shall be construed as restricting Microsoft's ability to acquire, license, develop, manufacture or distribute for itself, or have others acquire, license, develop, manufacture or distribute for Microsoft, independent of the technology provided by Net2Phone, similar technology performing the same or similar


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functions as the technology contemplated by this Agreement or to market and distribute such similar technology in addition to, or in lieu of, the technology contemplated by this Agreement.


5.4 [****]


6. FUTURE OPPORTUNITIES


6.1 Future Cooperation. At Microsoft's request and subject to further agreement by the Parties, the Parties agree to use [****] to cooperate in the development of additional voice features for the MSN Messenger Service and to explore opportunities to include PC-to-PC and PC-to-Phone voice functionality in other MS Products such as "MSN Communities/Chat", "Yellow Pages" and "Hotmail".


6.2 Paid Calls.


6.2.1 Microsoft shall use [****] to release a new version of the MSN Messenger Service with capabilities for making paid PC-to-Phone voice transmissions using the N2P Deliverables ("PAID CALL CAPABILITY") on or before [****]. Upon such a new release of the MSN Messenger Service with Paid Call Capability and for the [****] thereafter, Microsoft shall cause [****] of the paid PC-to-Phone voice traffic generated by such MSN Messenger Service to be directed to Net2Phone's transmission and delivery services; provided, that Net2Phone is able to provide such transmission and delivery services in accordance with the terms and conditions set forth in Article 7.


6.2.2 In the event that Microsoft does not release a new version of the MSN Messenger Service with Paid Call Capability on or before [****], then, beginning on [****] and on the first day of each month thereafter during such time as a new version of the MSN Messenger Service with Paid Call Capability has not been released by Microsoft, (a) the number of months termination notice required to be given by (i) Microsoft pursuant to Section 18.2.1 shall be increased by [****]; provided, that the notice period for Microsoft may not be increased to a period greater than [****]; and (ii) the number of months termination notice required to be given by Net2Phone pursuant to Section 18.3.1 shall be decreased by [****]; provided, that the notice period for Net2Phone may not be decreased to a period of less than [****]; and (b) the number of months of dedicated paid PC-to-Phone traffic specified in Section 6.2.1 shall be increased by [****]. The provisions of the preceding sentence shall not apply in the event that the release of the MSN Messenger Service with Paid Call Capability results from Net2Phone's inability to deliver in a timely manner any development assistance, software, modifications and/or services which may be necessary to release the MSN Messenger Service with Paid Call Capability in conformance with such specifications and standards as may be required by Microsoft, except where such inability to deliver results from Microsoft's failure to notify Net2Phone of such requirements on or before [****]. At such time as Microsoft releases a new version of the MSN Messenger Service with Paid Call Capability, the notice periods required under Sections 18.2.1 and 18.3.1 shall revert back to the original periods set forth in this Agreement.


6.2.3 [****]


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6.3 Additional MS Products. The Parties acknowledge and agree that Microsoft, at its sole discretion, may integrate the N2P Deliverables into other MS Products and release such MS Products under this Agreement. Microsoft shall provide reasonable notice to Net2Phone regarding the release of any such additional MS Products with N2P Deliverables. Subject to the limitations set forth in Section 7.2.3, Net2Phone shall provide voice transmission and delivery services for such additional MS Products that include the N2P Deliverables in accordance with the terms and conditions of Article 7.


7. VOICE TRANSMISSION AND DELIVERY


7.1 Net2Phone Responsibilities. As between Microsoft and Net2Phone and subject to Section 23.5, Net2Phone shall be solely responsible for the transmission and completion over the Internet, the N2P Managed Network and other public networks of PC-to-Phone and PC-to-PC voice transmissions in the Territory generated from the N2P Deliverables included in the MSN Messenger 3.0, and, subject to the limitations set forth in Section 7.2.3, any other MS Product.


7.1.1 Net2Phone shall provide such voice transmission and delivery services as are set forth in the N2P Quality of Service Level Agreement attached hereto as Exhibit D.


7.1.2 In order to transmit and complete PC-to-PC and PC-to-Phone voice transmissions pursuant to this Agreement, Net2Phone shall (a) develop, provide and maintain all necessary equipment; (b) enter into and maintain any agreements with third parties, including, but not limited to, telecommunication providers and internet service providers, necessary to transmit and deliver voice transmissions; (c) subject to Section 7.6, obtain and keep in effect any and all Governmental Authorizations necessary to fulfill its responsibilities under this Article 7; and (d) be solely responsible for any and all costs and expenses incurred in maintaining, operating and transmitting voice communications under this Agreement.


7.2 Voice Traffic Requirements.


7.2.1 In order to assist Net2Phone with planning for anticipated voice traffic requirements, Microsoft shall provide Net2Phone with [****] setting forth Microsoft's "base" and "aggressive" projections with respect to the aggregate amount of End Users using voice features of MS Products and the aggregate amount of minutes of voice traffic ("VOICE TRAFFIC") that Microsoft anticipates will require transmission and delivery services from Net2Phone during [****]. Microsoft shall prepare such projections in good faith and using its best efforts. Exhibit R sets forth Microsoft's Voice Traffic projections for [****].


7.2.2 Net2Phone shall ensure that at all times, its voice transmission and delivery services are able to accommodate, carry and complete the minimum amount of voice transmissions equal to the Minimum Service Level. "MINIMUM SERVICE LEVEL" shall mean for any given month [****].


7.2.3 In the event that Microsoft desires to release additional MS Products with the N2P Deliverables, then, provided that the additional voice traffic projected by the release of such additional MS Product does not exceed the Minimum Service Level (as modified in accordance with Section 7.2.1 from time to time) then Net2Phone shall provide voice transmission and delivery services for such MS Products in accordance with Article 7. In the


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event that a proposed release of additional MS Products with the N2P Deliverables would, in the good faith opinion of Net2Phone, increase the voice traffic beyond the applicable Minimum Service Level, then the Parties hereto shall enter into good faith negotiations to determine a commercially reasonable solution for releasing such additional MS Products. In the event that the Parties are not able to mutually agree upon terms and conditions for Net2Phone transmitting and delivering the increased voice traffic above the Minimum Service Level projected by additional MS Products, then the N2P Deliverables shall not be incorporated into such other MS Products and Net2Phone shall not be obligated to provide voice transmission and delivery services for calls created by such additional MS Products.


7.3 Quality. Net2Phone shall ensure that, at all times, the quality of the voice transmission and delivery for PC-to-Phone and PC-to-PC voice transmissions using the N2P Deliverables in the MSN Messenger 3.0 and/or other MS Products: (a) meets or exceeds the requirements and standards set forth in the Quality of Service Level Agreement; and [****].


7.4 Fees.


7.4.1 [****]


7.4.2 [****]


7.4.3 [****]


7.4.4 [****]


7.4.5 [****] The rates which shall be charged to End Users for paid PC-to-Phone voice transmissions shall be mutually agreed upon by the Parties, and shall be in accordance with the terms and conditions of Sections 6.2.1 and 7.4.6. [****]


7.4.6 [****]


7.5 [****]


7.6 Limitation of Responsibilities.


7.6.1 During the Term of this Agreement, in the event that in any country within the Territory for which voice transmission services are provided by Net2Phone pursuant to this Agreement, Net2Phone or the services provided by Net2Phone become subject to regulation by the United States Federal Communications Commission ("FCC") or any other domestic or foreign Governmental Body, either as a telecommunications carrier under the Communications Act of 1934 (47 U.S.C. 151 et seq.) as amended, and the rules and regulations promulgated by the FCC thereunder, or under any similar foreign law, rule or regulation, or any other regulation that has, or would have, a materially adverse effect on the business interests of Net2Phone under this Agreement or materially increases, or would materially increase, Net2Phone's costs associated with providing such services in a country of the Territory (collectively, a "REGULATED ENTITY EVENT"), Net2Phone shall promptly so notify Microsoft in writing. Microsoft agrees to work together in good faith with Net2Phone to amend this Agreement to ensure that Net2Phone is not materially adversely impacted as a result of such


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Regulated Entity Event. If Net2Phone and Microsoft are unable to agree in good faith to amend this Agreement within fifteen (15) business days of such notice (or such shorter time period as may be required to avoid violating such law, rule or regulation, or to mitigate any damages or penalties that may be incurred as a result of any actual or prospective violation), Net2Phone shall have the right to terminate services which it provides pursuant to this Agreement for such country upon fifteen (15) days prior written notice to Microsoft (or such shorter time period as may be agreed upon by the Parties to avoid violating such law, rule or regulation, or to mitigate any damages or penalties that may be incurred as a result of any actual or prospective violation), and upon the effective date of such notice, such country shall no longer be considered part of the Territory. Discontinuation of services in any country pursuant to this Section 7.6.1 shall not relieve Net2Phone of any of its obligations to provide services under this Article 7 to the remainder of the Territory.


7.6.2 Net2Phone shall use reasonable efforts to monitor whether any Governmental Body has adopted or proposes to adopt any laws, rules or regulation which may adversely affect Net2Phone or its services, or any End User of any MS Product which incorporates the N2P Deliverables. Net2Phone shall promptly inform Microsoft about any such adopted or proposed law, rule or regulation of which it becomes aware.


8. NET2PHONE SUPPORT SERVICES


8.1 Maintenance and Quality Fix Engineering Support. Microsoft shall be responsible for supporting and maintaining the MSN Messenger Service. Notwithstanding the foregoing, during the Term of this Agreement, Net2Phone shall be solely responsible for the maintenance and quality fix engineering support of the N2P Deliverables, including fixing any defects, inefficiencies or bugs that are related to the [****], including its interaction with any Microsoft software, in order to ensure that the N2P Deliverables conform in all material respects to the functional specifications set forth in the MS Voice Specifications and any agreed upon amendments thereto. Net2Phone shall provide such maintenance and support services as are specified in Exhibit E.


8.2 Second Tier Support. Net2Phone shall be solely responsible for providing second tier customer support ("SECOND TIER SUPPORT") to End Users for the PC-to-PC and PC-to-Phone services in connection with the MSN Messenger 3.0. Net2Phone shall provide such Second Tier Support Services as are specified in Exhibit F.


8.3 Billing Services. If and when future releases of MSN Messenger 3.0 and/or other MS Products provide Paid Call Capability, Net2Phone shall create, develop, implement and maintain, through the Co-Branded Pages, billing services for all paid calls using the Net2Phone voice features of the MSN Messenger 3.0 and, if applicable, other MS Products, in accordance with Article 9.


9. MSN/N2P WEB SITE; BILLING SERVICES; PRIVACY


9.1 MSN/N2P Web Site. Microsoft and Net2Phone shall develop and implement a co-branded Web site (the "MSN/N2P WEB SITE") which initially will provide End Users of the PC-to-PC and PC-to-Phone features of the MSN Messenger 3.0 with pertinent information


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regarding the MSN Messenger 3.0 voice capabilities. The Parties shall develop and implement the MSN/N2P Web Site concurrently with the release of MSN Messenger 3.0 in accordance with this Section 9.1.


9.1.1 Microsoft shall be solely responsible for hosting and maintaining the MSN/N2P Web Site and shall retain all ownership rights to the MSN/N2P Web Site, except that Microsoft shall not have any rights in the N2P Deliverables or any Net2Phone Licensed Marks, other than those rights explicitly granted herein.


9.1.2 The MSN/N2P Web Site will be co-branded by Microsoft and Net2Phone. Microsoft shall have sole discretion with respect to the design, content, layout and features, including the size and positioning of any trademarks or other references to Microsoft and Net2Phone on the MSN/N2P Web Site and the Web Pages contained therein.


9.1.3 Microsoft shall use reasonable efforts to accommodate Net2Phone's requests regarding the layout and content of the MSN/N2P Web Site; provided, however, that in the event that the Parties are not able to agree on any matters regarding the layout or content of the MSN/N2P Web Site, Microsoft's decision with respect to the layout and content of the MSN/N2P Web Site shall be final. Microsoft shall supply Net2Phone with suitable specimens of use of the Net2Phone Licensed Marks in connection with the MSN/N2P Website, as and when requested by Net2Phone. Microsoft shall cooperate fully with Net2Phone to facilitate periodic reviews of Microsoft's use of the Net2Phone Licensed Marks and of Microsoft's compliance with the quality standards described herein.


9.2 Web Site Billing Services. If and when future releases of the MSN Messenger 3.0 and/or other MS Products provide Paid Call Capability, Net2Phone shall host pages ("CO-BRANDED PAGES") co-branded with the Microsoft Licensed Marks on its Web Site (the "NET2PHONE WEB SITE") to enable billing of End Users. The Co-Branded Pages shall provide End Users with the ability to access and use on line support, billing and account management features, including the ability to see a history of their calls, to place money on their account, to see their updated balances and to provide additional information or purchas ...