Letter of Intent Between Net2Phone, Inc. and SpeechWorks International, Inc. for Investment, Software Licensing, and Services

Summary

Net2Phone, Inc. and SpeechWorks International, Inc. have agreed to enter a business relationship where Net2Phone will invest $4 million in SpeechWorks and receive a license to use SpeechWorks' software, along with related professional services. The agreement outlines payment terms, revenue sharing, and conditions for further collaboration, including joint marketing. Some terms are binding, while others depend on signing additional agreements by a specified date. If the parties do not finalize these agreements, Net2Phone must pay certain fees, and either party can terminate the letter with limited obligations.

EX-10.15 5 0005.txt LETTER OF INTENT EXHIBIT 10.15 SpeechWorks International, Inc. has omitted from this Exhibit 10.15 portions of the Agreement for which SpeechWorks International, Inc. has requested confidential treatment from the Securities and Exchange Commission. The portions of the Agreement for which confidential treatment has been requested have been filed separately with the Securities and Exchange Commission. June 29, 2000 SpeechWorks International, Inc. 695 Atlantic Ave., Boston, MA 02111 Attention: Joe Murphy Dear Joe; This letter ("Letter") will serve to confirm that NET2PHONE, INC. ("N2P") and SPEECHWORKS INTERNATIONAL, INC. ("SWI") are entering into a business relationship whereby: (i) N2P has agreed to invest $4.0 million in SWI pursuant to the terms of that certain Common Stock Purchase Agreement dated as of even date herewith (together with the other agreements contemplated thereby); (ii) SWI will provide to N2P certain software as described in Exhibit A-1, attached and made a part of this Letter; (iii) SWI will provide certain professional services, including but not limited to, (a) platform integration and (b) application development in connection with N2P's global VoIP network; and (iv) the parties may pursue certain joint marketing efforts as further agreed upon in an executed License Agreement proposed in this Letter. Part I of this Letter is intended by the parties to be binding and Part II of this Letter shall be non-binding and expressly subject to the execution and delivery of (1) a definitive Professional Services Agreement (the "PSA") and Statement(s) of Work ( an "SOW") which shall be executed and delivered no later than [ ], or a subsequent date as extended and mutually agreed upon by the parties (the "Contract Date"). If for any reason the parties are unable to consummate the License Agreement (as defined below) and the PSA, by the Contract Date, the obligations set forth in this Letter, including but not limited to Part I, and in that certain Non-Disclosure Agreement dated as of _______________, 2000 ("NDA"), by and between the parties, the terms of such NDA which by their nature survive, then either party may, upon written notice to the other, terminate this Letter, and in the event of such termination, the parties agree that Net2Phone's sole obligation and SWI's sole and exclusive remedy shall be that Net2Phone shall pay SWI the License Fee as described in Paragraph A below in the amount of [ ] US Dollars ($[ ]) and all reasonable professional service fees accrued hereunder as of the date of such termination, under the current fee schedule as described in Exhibit C, attached and made a part hereof. Page 1 Part I. BINDING TERMS. A. License Fees. (1) Initial Order. N2P hereby agrees to pay to SWI an amount equal to [] Dollars ($[]) in consideration for the grant of a license (the "License Fee") to N2P of the SpeechWorks software set forth on Exhibit A (the "SWI Software"). The terms of the license would be contained in a mutually agreed upon Master Software License Agreement ("License Agreement"), a draft form of which has been provided to N2P and which the parties agree to negotiate the terms of such License Agreement in good faith with the intent to execute and deliver said License Agreement no later than the Contract Date. The License Agreement would have a term of [] ([]) years (the "Term"). The $[] License Fee described in this paragraph A is a guaranteed and non-refundable payment. (1) Subsequent Orders. Notwithstanding SWI's then-current fee schedule, SWI agrees taht for the Term of the LIcense AGreement, for all subsequent orders received during the initial [ ] year term (counting the [ ] ([ ]) Ports ordered in the initial order), the following perport discount schedule shall apply. AGGREGATE NUMBER OF PORTS IN THE INITIAL TERM PRICE PER PORT --------------------------------------------- -------------- [ ] - [ ] $[ ] [ ] - [ ] $[ ] [ ] - [ ] $[ ] [ ] - [ ] $[ ] more than [ ] $[ ] B. Revenue Share. In addition to the provisions described above, the parties hereby agree that the License Agreement shall contain the following provisions regarding the sharing of revenue. GENERAL N2P and SWI will share net revenue, as defined hereunder generated by or through the Facilities Services (defined below), as further defined in the proposed License Agreement and as outlined below. In accordance with the License Agreement revenue will only be comprised of those fees due to [ ] from [ ] to [ ] by [ ]. In addition to the foregoing license fees, N2P agrees to pay to SWI the following fees (the "Utilization Fees") for each [ ] in connection with the [ ] (the "Facilities Services"). (1) [ ] percent ([ ]%) of any net revenue N2P derives directly from [ ] or [ ] ("[ ]"); and (2) [ ] percent ([ ]%) (net of the costs outlined in Exhibit B; "Infrastructure Costs") for all revenue derived from [ ] (or [ ]). Page 2 Further, in the event that either of the following conditions occur (in a manner to be verified under procedures to be agreed to in the License Agreement) the applicable [] terms set forth below would apply: 1. [] into an [] that []; or 2. [] to [] a [] or [] or [] with [.] In the event that the applicable condition precedent above is satisfied, N2P would pay to SWI an amount equal to: (1) [] percent ([]%) of any net revenue N2P derives directly from [] or [("[]")]; and (2) the lesser of (x) $[] per [ ] and (y) []% (net of the costs outlined in "Infrastructure Costs") for all revenue derived from [] (or []). Each N2P customer-specific [] transaction would provide for [] ([]) years of payments to SWI and such obligation may survive the expiration of the [] ([ ]) year term of the License Agreement. Page 3 C. Most Favored Pricing The following fee provisions shall apply to the License Fees, SWI professional services fees requested by N2P, and text-to- speech (TTS) (if and when available) licenses which may be contracted by N2P in the License Agreement or in any mutually agreed upon agreements. During the term of the License Agreement or any other agreement mutually agreed upon between the parties, SWI agrees that it shall provide the [] to N2P [] in a transaction (considering all relevant material terms) in which [] or []. In the event that SWI [], it shall thereafter [] and [] and [] to be []. D. Roll Over Rights SWI hereby agrees that the covenant set forth in Section C above with respect to license fees shall be extended to all entities of which N2P owns (or acquires such interest in during the Term), at the relevant time, more than []% of the voting shares. Further, in the event that N2P owns an equity interest in a third party which is []% or less, then: (i) in the event that such third party is already a customer of SWI, then SWI agrees that it shall allow (1) such third party to pay to SWI the difference between (x) the [] fees [] ([]") and (ii) the [] fees [] and (2) [ ] to pay []; and (ii) in the event that such third party is not already a customer of SWI, then SWI may in its discretion enter in to a license agreement with such third party and in the event that such third party and SWI agree on the applicable license fees, then N2P shall [] fee [] as contemplated by clause (i) above. The parties agree that the revenue share provisions set forth above shall apply to any party described in this Section D which is licensing SWI software or using the Facilities Services. E. Professional Services. (1) Retainer. In order to secure the commitment of SWI Ito provide certain professional services, N2P hereby agrees to pay to SWI an amount equal to [] Thousand US Dollars ($[]) under the PSA ("Retainer"). Unless otherwise agreed upon by the parties in the PSA or an applicable SOW, this amount is subject to the terms of Paragraph F below, shall be due and owing to SWI no later than [] regardless of whether N2P accrues services fees in such amount prior to such date. (2) Work Authorization. Upon execution of this Letter, N2P shall be deemed to have authorized SWI to commence certain professional services activities as directed by N2P related to the initial project, and N2P agrees to pay SWI for services rendered in accordance with its current fee schedule up to an amount not to exceed the Retainer described above. Any amounts accrued under this interim Work Authorization section will be applied against the fees agreed to in the applicable SOW. Additionally, any travel expenses accrued may be billed for the amount incurred, assuming that any required travel is approved in advance by N2P. In the event N2P and SpeechWorks execute a mutually acceptable PSA, such PSA will fully supersede, and make null void, this paragraph (2). N2P acknowledges and agrees that any deliverable developed in connection with the services rendered hereunder shall not be delivered to N2P until such time as a PSA has been executed. Page 4 F. Unused Services Fees Allowance. In the event that the aggregate fees accrued for the project(s) covered under an initial SOW, if any, equal an amount less than [] Thousand US Dollars ($[]), SWI shall allow N2P to apply the balance thereof to the purchase of additional licenses under the terms of the License Agreement; such application, if any, shall occur no later than [ ]. G. Joint Obligations. Each party agrees it may undertake the following marketing and publicity activities in order to promote the relationship: o CUSTOMERS - Each company agrees to explore the use of their existing customers to identify interested implementers of the Voice ASP service. 1. CO-MARKETING - N2P and SWI will work together, in good faith, to use commercially reasonable efforts to perform the following: o N2P and SpeechWorks will work together to issue a formal, joint press release on the equity investment, and N2P will also supply a quotation to be used in the Open Speech Web announcement (to be complete Wednesday, June 28th) o N2P and SpeechWorks will jointly participate in press and analyst briefings regarding Net2Phone's equity investment in SpeechWorks o N2P will promote the "[]" program in relevant Marketing promotions and collateral o SpeechWorks will promote the N2P Voice ASP service in relevant Marketing promotions and collateral o N2P and SpeechWorks agree to work together for joint promotion of the N2P Voice ASP commercial launch and subsequent Voice ASP (post-GA) milestones o N2P and SpeechWorks agree to make to cite each other in relevant press releases and/or announcements. Specifically: o SpeechWorks will cite N2P as an investor-partner, ASP-provider and provider of yet-to-be-specified speech- based services where commercially appropriate, o N2P will cite SpeechWorks in announcements relating to their speech-based initiatives where commercially appropriate. Page 5 Part II. NON-BINDING TERMS. The following terms are agreed by the parties to be non-binding and shall only express the intent of the parties as to activities which shall only be agreed upon in a definitive License Agreement, PSA and Applicable SoWs. 1. CROSS-MEDIA PROMOTIONS & ATTRIBUTION: Subject to prior written approval, not to unreasonably withheld or delayed: o Each company can use the other company's logo/name in any web listings (i.e., customer/partner lists) o N2P agrees to work with SpeechWorks to pursue cooperative advertising with both parties contributing equally to the associated costs. o N2P agrees to SpeechWorks' usage of the N2P logo on demand- generation vehicles (WSJ advertising, other advertising, direct mail, etc.) o N2P agrees to let SpeechWorks use the N2P name and logo in IPO-related filings (eg: S-1) o N2P agrees to participate in the SpeechWorks Conversations User/Partner conference in Laguna Niguel, CA, as a speaker 2. REFERENCABILITY: Pending N2P satisfaction with SpeechWorks performance against measurable success criteria and N2P internal policies, N2P agrees to be a reference for i.) other SpeechWorks prospects. Additionally, at N2P's sole discretion N2P may participate in a Case Study 3. STANDARDS SETTING: N2P and SpeechWorks agree to work together jointly develop, market, and offer as De Facto Standards to the market: o VoiceXML and voice browsers o SpeechLinks o SpeechCookies o Content and scripting tools o SpeechSpot U.I. spec and implementation The parties agree that the following terms would provide the basis for an initial SOW: A. PLATFORM INTEGRATION SERVICES: SWI shall perform the following with the reasonable cooperation of N2P: 1. Convert Audio Driver to use N2P protocol and convert IP packets into u-law PCM. This would essentially be re-writing of Prompt DLL and Record DLL 2. Switch the TTS API to use SWI implementation of Lucent TTS. Done through SAPI. 3. Provide an operational VXML browser. SWI will ship voice browser source code to N2P. 4. Provide training on any SWI implementation of VXML, in classroom setting 5. Provide tools to convert applications to VXML operation. SWI will make available to N2P all internal tools that are currently used as well as any commercially sold tools when they are general release. 6. Provide SpeechWorks licensed software and the VMXL browser software on SCO Unixware 7. 7. Support SpeechLinks as a platform capability for Net2Phone speech services SWI agrees that any costs associated with SWI's performance obligations, shall be at SWI's sole expense. Page 6 B. APPLICATION DEVELOPMENT 1. Provide interface documentation and assistance with the implementation of the namedialer module (database, grammar generation and storing and again the TTS interface) in order to enable N2P personal voice dialing application. This will be delivered from SWI solutions group and follow the SADL process as with all application development projects. This will need to have a SCOPE OF WORK defined in order to accurately describe exact costs and time estimates for delivery. 2. Provide Speech Site for internal use 3. Speech Web Directory - provide infrastructure for N2P to run the application to enable any organization to register their site in Open Speech Web Directory. Part II of this Letter is non-binding and is intended to facilitate negotiation and preparation of the License Agreement and PSA that will embody the final understanding between the parties. Except as otherwise specifically provided for herein, the obligations of the parties to consummate the transaction contemplated by this Letter shall be subject in all respects to the negotiation, execution and delivery of a definitive License Agreement and PSA . Notwithstanding the foregoing, the $[] License Fee payment obligation of N2P set forth in Paragraphs 1A of Part I is agreed to be binding. Please indicate your acceptance of the terms hereof by signing the enclosed copy of this Letter on the line provided and returning it to the undersigned. Net2Phone, Inc. By: /s/ Jon Fram ------------------------ Name: Jon Fram Title: President Acknowledged and agreed: SPEECHWORKS INTERNATIONAL, INC. By: /s/ Stuart R. Patterson ------------------------------ Stuart R. Patterson, President and Chief Executive Officer Date: June 29, 2000 Page 7 EXHIBIT A ---------- Initial Order

TOTAL LICENSE FEES: $[ ] The term "Recognition Port" shall mean the number of telephone channels enabled with the software included in SpeechWorks DialogModule Bundle B that is capable of either recognizing spoken words or performing "barge-in" for a discrete period of time. SWI acknowledges that telephone lines or ports can be configured with or without speech recognition dynamically, and as such, charges are based on the maximum number of simultaneous speech recognition ports currently configured in the total system. The term "system seats" shall mean the number of end-users permitted to concurrently access and use, at the same time, the SpeechWorks Tools and Grammar Libraries. PAYMENT SCHEDULE: The License Fee to be paid by N2P under the License Agreement shall be due and payable within thirty (30) days from the date appearing on an applicable invoice prepared and delivered by SWI to N2P following the execution of the License Agreement between the parties. If mutually agreed upon in the License Agreement SWI may impose a late fee of 1.5% per month on any amounts which remain unpaid thirty (30) days after they are due. Page 8 Exhibit A-1 DESCRIPTION OF LICENSED SOFTWARE SpeechWorks(R) is a solution for speech-enabling transactional applications over the telephone. packaged as six functional components: 1. SpeechWorks SMARTRecognizer(TM) recognizes words or phrases from individual vocabularies in the call flow and provides processing of phrases and sentences. This engine supports a range of hardware platforms and scales to thousands of phone lines. Its features include: 2. SPEECHWORKS DIALOGMODULES(TM) are high-level building blocks representing frequently used caller interactions that developers can assemble and integrate into applications. Each DialolgModule encapsulates a particular task such as capturing a "yes" or "no" response or creating a voice menu. The DialogModules are made available in three bundles/packages. A. BASE: Includes recognition kernel, reporting tools, and the following DialogModules: AlphaNumeric String - Collects a string of connected (pauses are not required) numbers and letters. Patterns or a list of valid strings can be specified. Continuous Digits - Recognizes a string of connected digits only. Constraints such as string length or the allowed values can be specified. Item List - Lets callers speak words or phrases from a list (up to 250 words), e.g. "Please say the name of the person you are calling?" or "What stock would you like to buy?" VoiceMenu - Lets callers choose a word or phrase from a list (maximum of 20). Menus are similar to ItemLists, but shorter so that the prompt can read each item to the caller. YesNo - Performs the essential function of identifying affirmative and negative responses from callers. B. EXTENDED: Includes Base DialogModules, recognition kernel, reporting tools, and the following DialogModules: CreditCardNumber - Collects a credit card number. Can understand the major credit cards and many private label cards from retailers CCExpDate - Collects the expiration date for a credit card, usually month and year. It recognizes the last day of a given month as well. Currency - Lets callers speak a monetary value in a natural way, e.g., "One hundred twenty-five dollars and thirty two cents. Non US dollars can be customized. Date - Collects dates in several formats, e.g., June Fourth or 6/4/70, nicknames can be mapped, e.g., Christmas or today, allowing callers to speak a date in a natural way ItemList - Up to 2,500 words NaturalNumbers - Collects whole numerical amounts; callers can say "fifty four hundred". Vocabulary for units can also be added, as in "a thousand boxes". SocialSecurityNumber - Collects a 9-digit US Social Security number. Illegal numbers, such as those beginning with three zeroes, are screened out Spelling - Recognizes individual letters so that callers may choose to spell out a request. Page 9 TimeOfDay - Collects a naturally spoken time of day. Callers can use 12- hour or 24-hour times, as well as prefix words such as "about" and "around" TelephoneNumber - Collects a phone number in the "North American Numbering Plan" consisting of ten, seven or three digits. It allows common phrases such as "area code" and "one eight hundred". ZipCode - Recognizes a five and/or nine digit United States ZIP code C. PROFESSIONAL NL (NATURAL LANGUAGE): Includes Extended DialogModules, recognition kernel, reporting tools, and the following DialogModules: ItemList - Greater than 2,500 words or phrases CustomContext - Provides the ability to run the results of custom modules created with the Software Development Kit. The Professional NL will typically require some level of SpeechWorks custom development services or development support. Name - Available with Release 6.0 making it easier to collect a person's first, last or first and last names where the names are completely unknown. Speech Attendant apps should continue using the ItemList DialogModules 3. SPEECHWORKS REPORTING AND ANALYSIS TOOL is bundled with each of the DialogModule packages. The tool generates text diagnostic reports about applications based on call logging data. The reports included are: Call-Start - displays a percentage breakdown by one hour time period of when calls are initiated helping to identify peaks in system usage. Call-Length - displays a percentage breakdown of calls by duration tracking the efficiency of user interface improvements that result in the reduction of call length. Module Transaction Results - summarizes execution results for each DialogModule presenting an overall success rate. Success rates lower than 90% indicate problem areas. Module Callflow Results - summarizes results of each attempt to collect the primary DialogModule data from the caller. High values for denied confirmation and rejection indicate that recognition is not performing well. Context Results - summarizes the result of each recognition event. This report illustrates a complete picture of the caller experience at the transaction level. Module Vocabulary Results - summarizes results classified by the answer returned by the recognizer via a DialogModule. This report can be used to give an indication of a) how effective the system recognized a caller's utterance and b) how easily callers were able to clarify/confirm what was said. Context Stats - summarizes various additional statistics for each recognition context. This report allows quick identification of problem contexts indicating that improvements are required 4. SPEECHWORKS SOFTWARE DEVELOPMENT KIT (SDK) includes the following suite of editors and utilities for configuring DialogModules, providing service management functions, and supporting ongoing tuning and maintenance: Vocabulary Editor (VED), Grammar Development Tools and Application Tuning Tools. Included with the SDK are Four (4) Professional NL Run Time Port licenses, for development purposes only. 5. SPEECHWORKS VOCABULARY LIBRARIES supply pre-packaged and continuously maintained language contexts for spoken words/phrases. The User Interface for the application using these libraries is not included. The following libraries are currently available: (i) Stock Names & Symbols Vocabulary and (ii) Mutual Fund Names & Symbols Vocabulary. Page 10 EXHIBIT B INFRASTRUCTURE COSTS GENERAL N2P and SWI will [] generated by or through the facilities services. For the License Agreement, [] will only comprise that generated from [] to [] by [ ] and [] in a []. GROSS REVENUE Gross Revenue is [] in [ ] that are [] on [ ]. This definition excludes [] from [] that [] that are [], and do [] to []. Notwithstanding anything contained in this Exhibit or the Letter to which it is attached, [] that [] and [] associated with the [] and [] and [] shall not [] to be [] hereunder. IDENTIFICATION OF EXPENSES For the purpose of this [ ] calculation, only [] with [] will be considered. These [] will include: Network Traffic Charges ----------------------- This [] includes the [] with (a) [], (b) [], and (c) []. These [] are [] and can [] as the following: [], [], [], [], etc. Recurring Provisioning and Leased-Line Costs -------------------------------------------- This [] includes [] with [] a [ ] and [] or [] used []. [] include the [] to [] as [] / [], [], and []. These [] typically [] and are based on [], but they may also include []. [] include the [] (such as []) that might be used to []. Fraud and Charge-backs ---------------------- Net2Phone will recapture any fraudulent generated refunds or bad debts. Net2Phone will use reasonable care and practices to minimize such occurrences. Taxes ----- To the extent Taxes are not charged to the customer, Net2Phone will pay such charges directly. NET REVENUE AVAILABLE FOR SHARE BY NET2PHONE AND SWI [] is [] as [], as defined above. Page 11 EXHIBIT C Current Time and Materials Fees

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