<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______
FORM 10-Q
[-] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[T] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 000-22575
_______
CONCENTRIC NETWORK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0257497
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1400 Parkmoor Avenue
San Jose, California 95126
(Address of principal executive offices, including zip code)
(408) 817-2800
(Registrant's telephone number, including area code)
_______
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. Yes [-] No [T]
The number of issued and outstanding shares of the Registrant's Common Stock,
$0.001 par value, as of June 30, 1999, was 41,433,205.
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CONCENTRIC NETWORK CORPORATION
<TABLE>
Page
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<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1999 and December 31, 1998............................ 3
Condensed Consolidated Statements of Operations for the three and six month periods ended
June 30, 1999 and 1998.................................................................................. 4
Condensed Consolidated Statements of Cash Flows for the six month periods ended
June 30, 1999 and 1998.................................................................................. 5
Notes to Unaudited Condensed Consolidated Financial Statements.......................................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 10-27
PART II--OTHER INFORMATION
Item 1. Legal Proceedings....................................................................................... 30
Item 2. Changes in Securities and Use of Proceeds............................................................... 30
Item 3. Defaults Upon Senior Securities......................................................................... 30
Item 4. Submission of Matters to a Vote of Security Holders..................................................... 30
Item 5. Other Information....................................................................................... 31
Item 6. Exhibits and Reports on Form 8-K........................................................................ 31
Signatures.............................................................................................. 32
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
CONCENTRIC NETWORK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 245,202 $ 98,988
Short term investments................................................................. 55,240 52,226
Current portion of restricted cash..................................................... 19,125 19,125
Accounts receivable, net............................................................... 18,452 13,714
Other current assets................................................................... 6,112 3,058
--------- ---------
Total current assets................................................................ 344,131 187,111
Property and equipment, net............................................................ 69,634 64,268
Restricted cash, net of current portion................................................ 8,483 17,113
Goodwill and other intangible assets................................................... 17,582 20,364
Other assets........................................................................... 23,002 9,401
--------- ---------
Total assets........................................................................ $ 462,832 $ 298,257
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................................................... $ 23,231 $ 26,342
Accrued compensation and other employee benefits....................................... 3,451 2,024
Other current liabilities.............................................................. 5,602 4,559
Current portion of capital lease obligations........................................... 6,284 6,543
Deferred revenue....................................................................... 4,593 3,104
--------- ---------
Total current liabilities........................................................... 43,161 42,572
Capital lease obligations, net of current portion........................................ 8,017 10,434
Notes payable............................................................................ 146,243 146,021
Other long term liabilities.............................................................. 98 --
Commitments
Redeemable exchangeable preferred stock.................................................. 167,420 156,105
Convertible redeemable preferred stock................................................... 38,060 --
Stockholders' equity (deficit):
Common stock........................................................................... 358,316 190,076
Accumulated deficit.................................................................... (297,773) (246,055)
Deferred compensation.................................................................. (710) (896)
--------- ---------
Total stockholders' equity (deficit)..................................................... 59,833 (56,875)
--------- ---------
Total liabilities and stockholders' equity (deficit)..................................... $ 462,832 $ 298,257
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
CONCENTRIC NETWORK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue..................................................... $ 33,027 $ 19,662 $ 63,093 $ 36,146
Costs and expenses:
Cost of revenue........................................... 30,920 20,204 59,183 37,928
Development............................................... 2,712 1,798 5,357 3,305
Marketing and sales....................................... 12,401 9,291 23,574 17,785
General and administrative................................ 3,423 2,412 6,744 4,264
Amortization of goodwill and other intangible assets...... 1,392 843 2,783 1,349
Acquisition related charges............................... -- 1,291 -- 1,291
Write off of in-process technology........................ -- -- -- 5,200
-------- -------- -------- --------
Total costs and expenses.................................... 50,848 35,839 97,641 71,122
-------- -------- -------- --------
Loss from operations........................................ (17,821) (16,177) (34,548) (34,976)
Net interest expense and other.............................. (2,635) (4,025) (5,855) (8,495)
-------- -------- -------- --------
Loss before extraordinary item.............................. (20,456) (20,202) (40,403) (43,471)
Extraordinary gain on early retirement of debt.............. -- -- -- 3,042
-------- -------- -------- --------
Net loss.................................................... (20,456) (20,202) (40,403) (40,429)
Preferred stock dividends and accretion..................... (5,762) (1,277) (11,315) (1,277)
-------- -------- -------- --------
Net loss attributable to common stockholders................ $(26,218) $(21,479) $(51,718) $(41,706)
======== ======== ======== ========
Net loss per share:
Loss before extraordinary item............................ $ (0.50) $ (0.70) $ (1.07) $ (1.52)
Extraordinary gain........................................ -- -- -- 0.10
-------- -------- -------- --------
Net loss.................................................. (0.50) (0.70) (1.07) (1.42)
Preferred stock dividends and accretion................... (0.14) (0.04) (0.30) (0.04)
-------- -------- -------- --------
Net loss per share attributable to common stockholders.... $ (0.64) $ (0.74) $ (1.37) $ (1.46)
======== ======== ======== ========
Shares used in computing net loss and net loss per share
attributable to common stockholders........................ 40,920 28,876 37,717 28,594
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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CONCENTRIC NETWORK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Operating Activities
Net loss.................................................................................................... $(51,718) $(41,706)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation............................................................................................. 12,880 10,980
Amortization of deferred interest, cost of revenue and marketing and sales related to issuance of
warrants............................................................................................. 818 608
Amortization of goodwill and other intangible assets..................................................... 2,783 1,349
Amortization of deferred financing costs................................................................. 269 258
Amortization of other deferred assets.................................................................... 1,032 875
Amortization of deferred compensation.................................................................... 186 186
Preferred stock dividends and accretion.................................................................. 11,315 1,277
Gain on early retirement of debt......................................................................... -- (3,042)
Write-off of in-process technology....................................................................... -- 5,200
Changes in current assets and liabilities:
Accounts receivable...................................................................................... (4,738) (1,812)
Other current assets..................................................................................... (1,175) 593
Prepaid expenses......................................................................................... (2,343) (15)
Accounts payable......................................................................................... (3,111) 153
Accrued compensation and other employee benefits......................................................... 1,427 (146)
Deferred revenue......................................................................................... 1,489 (234)
Other current liabilities................................................................................ 1,391 (706)
-------- --------
Net cash used in operating activities....................................................................... (29,495) (26,182)
Investing Activities
Additions of property and equipment......................................................................... (17,633) (6,279)
Proceeds from sale of property and equipment................................................................ 135 --
Decrease in note receivable................................................................................. 170 --
Net change in short term investments........................................................................ (3,014) --
Net change in long term investments......................................................................... (15,206) --
Cash investment in InterNex Information Services, Inc., net of cash acquired................................ -- (15,452)
-------- --------
Net cash used in investing activities....................................................................... (35,548) (21,731)
Financing Activities
Net change in restricted cash............................................................................... 8,630 8,128
Repayment of notes payable.................................................................................. -- (1,960)
Repayment of lease obligations to a related party........................................................... -- (5,148)
Repayment of lease obligations to a related party-early retirement of debt.................................. -- (24,750)
Repayment of lease obligations.............................................................................. (3,673) (1,297)
Proceeds from issuances of stock and warrants............................................................... 156,300 622
Proceeds from issuances of redeemable exchangeable preferred stock.......................................... -- 144,250
Proceeds from issuances of convertible redeemable preferred stock........................................... 50,000 --
Deferred financing costs.................................................................................... -- (200)
-------- --------
Net cash provided by financing activities................................................................... 211,257 119,645
-------- --------
Increase in cash and cash equivalents....................................................................... 146,214 71,732
Cash and cash equivalents at beginning of period............................................................ 98,988 119,959
-------- --------
Cash and cash equivalents at end of period.................................................................. $245,202 $191,691
======== ========
Supplemental Disclosures of Noncash Investing and Financing Activities:
Capital lease obligations incurred with a related party..................................................... $ -- $ 5,119
Capital lease obligations incurred.......................................................................... $ 959 $ 19
Supplemental Disclosures of Cash Flow Information
Interest paid............................................................................................... $ 10,522 $ 11,924
</TABLE>
5
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CONCENTRIC NETWORK CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These unaudited condensed consolidated financial statements and the related
footnote information have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the accompanying unaudited interim condensed financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the periods presented.
The results for the interim period ended June 30, 1999 are not necessarily
indicative of results to be expected for the entire year ending December 31,
1999 or future operating periods.
All share and per share information presented herein, except as noted, and in
the Company's condensed consolidated financial statements has been retroactively
restated to reflect a two-for-one stock split of the Company's common stock on
May 21, 1999, paid in the form of a stock dividend, to holders of record on
April 30, 1999.
2. Cash, Cash Equivalents and Short Term Investments
The Company considers all highly liquid investments with an original maturity
(at date of purchase) of three months or less to be the equivalent of cash for
the purpose of balance sheet and statement of cash flows presentation.
Investments with maturities between three and twelve months are considered to be
short term investments. Management determines the appropriate classification of
its investments in debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The Company's debt securities have
been classified and accounted for as available-for-sale. These securities are
carried at fair value and unrealized gains and losses have not been material to
date. Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in interest income and
have not been material to date. Cash and cash equivalents are held primarily
with four financial institutions.
3. Net Loss Per Share
Basic and diluted net loss per share have been computed in accordance with the
Financial Accounting Standards Board issued Statement No. 128, "Earnings Per
Share". Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common stock equivalent shares from stock
options and warrants are not included as the effect is antidilutive.
4. Stockholders' Equity
In January 1999 SBC Communications Inc. purchased, prior to the stock split,
806,679 shares of common stock for an aggregate purchase price of approximately
$19.5 million pursuant to an agreement reached between the two companies in
October 1998. In connection with the agreement, the Company has issued to SBC a
warrant to purchase an additional pre-split 906,679 shares. The warrant expires
three years from the date of issuance and is exercisable at $21.00 per share.
The Company deemed the fair market value of the warrant, using the Black-Scholes
method, to be $1.9 million which will be amortized as a marketing cost over the
life of the agreement.
In February 1999 the Company effected a public offering of its common stock
pursuant to a Registration Statement on Form S-3 filed with the Securities and
Exchange Commission. The Company issued and sold 2,830,500 shares prior to the
split at $44.50 per share for net proceeds of approximately $119.4 million.
Certain selling stockholders exercised warrants to purchase directly from the
Company 800,000 shares of pre split common stock having an aggregate purchase
price of approximately $10.2 million, which shares were also registered and sold
in the public offering by such stockholders.
6
<PAGE>
In June 1999 the Company issued a warrant to Microsoft Corporation
("Microsoft"), in conjunction with Microsoft's $50 million purchase of preferred
stock (see Note 8), to purchase 500,000 shares of its common stock. The warrant
expires four years from the date of issuance and is exercisable at $33.27 per
share.
In June 1999 the Company amended an agreement with TMI Telemedia
International, Ltd. ("TMI") and in connection with the agreement, the Company
issued a warrant to purchase 50,000 shares of its common stock. The warrant
expires in January 2001 and is exercisable at $25.1875 per share. The Company
deemed the fair market value of the warrant, using the Black-Scholes method, to
be $504,000, which was written off as other expense in June 1999.
5. Equity Investments
In January 1999 the Company purchased approximately $10.0 million of common
stock from Covad Communications, Inc. ("Covad") and certain Covad stockholders
at Covad's initial public offering price. In April 1999 the Company purchased
approximately $5.0 million of Class B Common Stock from NorthPoint
Communications Group, Inc. ("NorthPoint").
6. Acquisition
On February 5, 1998, the Company acquired all of the outstanding stock of
InterNex Information Services, Inc. ("InterNex"). The transaction was accounted
for using the purchase method of accounting. The total purchase price of
approximately $23.9 million consisted of a $15.5 million cash payment upon
closing and the assumption of approximately $8.4 million of InterNex's
liabilities (including acquisition costs).
A summary of the purchase price allocation is as follows (in thousands):
<TABLE>
<S> <C>
Current and other assets....................................... $ 1,348
Computer and telecommunications equipment...................... 4,784
Goodwill....................... ............................... 9,496
Other intangible assets........................................ 3,080
Write-off of in process technology............................. 5,200
-------
Total purchase price allocation............................. $23,908
=======
</TABLE>
Goodwill is being amortized over five years. Other intangible assets include
developed technology, assembled workforce and customer lists and are being
amortized over their useful lives ranging from two to four years.
In May 1998, the Company acquired Delta Internet Services, Inc. ("DeltaNet")
in a transaction that was accounted for as a pooling of interests. The Company
issued approximately 452,000 shares of its common stock to DeltaNet shareholders
in exchange for all outstanding DeltaNet shares. The Company also assumed
outstanding DeltaNet options and warrants which were converted to options and
warrants to purchase approximately 196,000 and 14,000 shares, respectively, of
the Company's common stock. The consolidated results of operations for the
three and six months ended June 30, 1998 include an acquisition related charge
of $1.3 million primarily related to severance costs, reserves for redundant
facilities and assets and professional fees.
In August 1998, the Company acquired all of the outstanding stock of AnaServe,
Inc. ("AnaServe"). The transaction was accounted for using the purchase method
of accounting. The total purchase price of approximately $13.0 million consisted
of a $9.6 million cash payment upon closing and the assumption of approximately
$3.4 million of AnaServe's liabilities (including acquisition costs).
A summary of the purchase price allocation is as follows (in thousands):
<TABLE>
<S> <C>
Current and other assets................................... $ 467
Computer and telecommunications equipment...................... 497
Goodwill....................................................... 11,630
Other intangible assets........................................ 416
-------
Total purchase price allocation............................. $13,010
=======
</TABLE>
7
<PAGE>
Goodwill is being amortized over five years. Other intangible assets include
developed technology, assembled workforce and customer lists and are being
amortized over their useful lives ranging from one to four years.
7. Early Retirement of Debt
On March 31, 1998, the Company retired a portion of debt in the form of
capital lease obligations to a related party. The Company paid $24.8 million for
extinguishment of debt. The Company recognized an extraordinary gain of $3.0
million in connection with this transaction.
8. Convertible Redeemable Preferred Stock
In June 1999, the Company issued 50,000 shares of Series C 7% Convertible
Redeemable Preferred Stock due 2010 ("Series C Preferred") to Microsoft for $50
million. Each share of Series C Preferred has a liquidation preference of
$1,000 per share. Dividends on the Series C Preferred accrue at the rate of 7%
per annum of the liquidation preference thereof and are payable quarterly in
arrears commencing on September 1, 1999. Dividends are payable in cash, except
that on each dividend payment date dividends may be paid, at the Company's
option, by the issuance of additional shares of Series C Preferred having an
aggregate liquidation preference equal to the amount of such dividends.
The Series C Preferred is redeemable at the option of the Company, in whole
or in part, at any time on or after June 1, 2003 at redemption rates commencing
with 105.125% declining to 100% on June 1, 2010. The Series C Preferred is
subject to mandatory redemption at its liquidation preference, plus accumulated
and unpaid dividends on September 1, 2010. The holder of any Series C Preferred
has the right, at its option, to convert at any time any shares of Series C
Preferred into shares of common stock at the conversion price of $39.924.
The Company is accreting the Series C Preferred to its liquidation
preference through the due date of the Series C Preferred. The accretion for the
quarter and year-to-date period ended June 30, 1999 was not material. In
connection with the issuance of the Series C Preferred the Company issued a
warrant to purchase 500,000 shares of its common stock. The Company deemed the
fair market value of the warrants, using the Black-Scholes model, to be
approximately $11.9 million and is accreting this value over eleven years.
9. Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"). No provision for income taxes is
expected for 1999 as the Company expects to incur a net loss for the year and
does not meet the criteria for recognizing an income tax benefit under the
provisions of FAS 109.
10. Commitments
In May 1999, the Company signed an agreement to lease space in Irvine,
California for an office and data center. The lease expires in June 2004. The
average annual rent over the term of the lease is approximately $411,000.
In June 1999, the Company signed an agreement through which Microsoft will
provide services to certain of the Company's customers and the Company will
purchase $7.5 million worth of advertising during the term of the three year
agreement.
11. Subsequent Events
In July 1999, the Company purchased approximately $5.0 million of Series A
Convertible Preferred Stock from Register.com, Inc.
In August 1999, the Company purchased approximately $2.0 million of Series B
Convertible Preferred Stock from Asia Online, Ltd.
8
<PAGE>
In July 1999, the Company solicited and received consents of more than a
majority of the Company's outstanding 12 3/4% Senior Notes due 2007 ("12 3/4%
Senior Notes") and the outstanding 13 1/2% Series B Redeemable Exchangeable
Preferred Stock due 2010 ("Series B Preferred"). The consents allow the Company
to increase its permitted investments under the Indenture relating to the 12
3/4% Senior Notes and the Certificate of Designation relating to the Series B
Preferred. In August 1999, the Company paid consent fees of approximately $3.8
million to the holders who delivered consents prior to the expiration date of
such consents.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section and other parts of this Report contain forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the subsection entitled "Factors Affecting Operating
Results" commencing on page 16. The following discussion of the financial
condition and results of operations of the Company should be read in conjunction
with the Financial Statements and the Notes thereto included elsewhere in this
Report.
Overview
The Company was founded in 1991. From 1991 to mid-1993, the Company conducted
development and network services planning activities and realized no revenues.
Initially, the Company was focused on providing consumers with direct dial-up
connectivity to bulletin board services. Online gaming and entertainment
services for consumers were commenced in July 1993 through the utilization of a
third party network infrastructure. The Company commenced operation of its own
network in late 1994. In May 1995, new management led by Henry R. Nothhaft
redefined and broadened the Company's strategy to provide a range of Internet
and tailored, value-added Internet Protocol-based network services to consumers
and businesses.
The Company's revenue prior to 1996 was primarily generated from providing
Internet access to consumers. The Company's current focus is on developing and
deploying virtual private networks or VPNs and providing dedicated network
access and Web hosting services for enterprise customers. Contracts with
enterprise customers typically have a term ranging from one to three years. The
Company expects enterprise-related revenue to represent an increasing portion of
total revenue in future periods. The foregoing expectation is a forward-looking
statement that involves risks and uncertainties, and actual results could vary
as a result of a number of factors including the Company's operating results,
the results and timing of the Company's launch of new products and services,
governmental or regulatory changes, the ability of the Company to meet product
and project demands, the success of the Company's marketing efforts, competition
and acquisitions of complementary businesses, technologies or products.
In February 1998, the Company acquired InterNex, a provider of network
services, collocation services and Web hosting facilities to enterprise
customers. This acquisition was accounted for using the purchase method of
accounting. As a result of the acquisition, the Company incurred a charge of
$5.2 million relating to acquired in-process technology and recorded an
aggregate of $12.6 million of goodwill and other intangible assets, which will
be amortized on a straight-line basis over their estimated useful lives ranging
from two to five years.
In May 1998, the Company acquired DeltaNet, a provider of dial-up and
dedicated access services, Web hosting services and Web application development
and design. This transaction was accounted for as a pooling of interests. As a
result of the acquisition, the Company has incurred charges of approximately
$1.3 million in transaction costs consisting primarily of severance costs,
redundant facilities and assets and professional fees related to the
acquisition.
In August 1998, the Company acquired AnaServe, a provider of Web hosting
services. This acquisition was accounted for using the purchase method of
accounting. As a result of the acquisition, the Company has recorded an
aggregate of $12.0 million of goodwill and other intangible assets, which will
be amortized on a straight-line basis over their useful lives ranging from one
to five years.
The Company may acquire other complementary products or technology and if the
Company were to incur additional charges for acquired in-process technology,
amortization of goodwill and acquisition costs with respect to any future
acquisitions, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Factors Affecting Operating
Results--Our Acquisition Strategy Poses Several Risks" and "--Liquidity and
Capital Resources."
The Company has incurred net losses and experienced negative cash flow from
operations since inception and expects to continue to operate at a net loss and
experience negative cash flow at least through 2001. The Company's ability to
10
<PAGE>
achieve profitability and positive cash flow from operations is dependent upon
the Company's ability to substantially grow its revenue base and achieve other
operating efficiencies. The Company experienced net losses attributable to
common stockholders of approximately $66.4 million, $55.6 million and $94.1
million for the years ended December 31, 1996, 1997, and 1998, respectively and
$51.7 million for the six months ended June 30, 1999. We cannot assure you that
the Company will be able to achieve or sustain revenue growth, profitability or
positive cash flow on either a quarterly or an annual basis.
The Company expects to focus in the near term on building and increasing its
revenue base, which will require it to significantly increase its expenses for
personnel, marketing, network infrastructure and the development of new
services, and may adversely impact short term operating results. As a result,
the Company believes that it will incur losses in the near term and we cannot
assure you that the Company will be profitable in the future.
The Company's operating results have fluctuated in the past and may in the
future fluctuate significantly, depending upon a variety of factors, including
the timely deployment and expansion of the Concentric network and new network
architectures, the incurrence of related capital costs, variability and length
of the sales cycle associated with the Company's product and service offerings,
the receipt of new value-added network services and consumer services
subscriptions and the introduction of new services by the Company and its
competitors. Additional factors that may contribute to variability of operating
results include: the pricing and mix of services offered by the Company;
customer retention rate; market acceptance of new and enhanced versions of the
Company's services; changes in pricing policies by the Company's competitors;
the Company's ability to obtain sufficient supplies of sole- or limited-source
components; user demand for network and Internet access services; balancing of
network usage over a 24-hour period; the ability to manage potential growth and
expansion; the ability to identify, acquire and integrate successfully suitable
acquisition candidates; and charges related to acquisitions. In response to
competitive pressures, the Company may take certain pricing or marketing actions
that could have a material adverse affect on the Company's business. As a
result, variations in the timing and amounts of revenues could have a material
adverse affect on the Company's quarterly operating results. Due to the
foregoing factors, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future performance. In the event that the
Company's operating results in any future period fall below the expectations of
securities analysts and investors, the trading price of the Company's common
stock would likely decline.
Results of Operations
Revenue. Revenue totaled approximately $33.0 million for the three month
period ended June 30, 1999, a $13.3 million increase over revenue of
approximately $19.7 million for the three month period ended June 30, 1998.
Revenue for the six month period ended June 30, 1999 was approximately $63.1
million, a $27.0 million increase over revenue of approximately $36.1 million
for the six month period ended June 30, 1998. This increase reflects growth in
revenue from:
. the Company's broadened product offerings to its enterprise customers;
. the Company's marketing arrangements with its strategic partners; and
. revenues from acquired operations.
The Company expects revenue growth from Internet access customers to flatten
over time. Revenue from WebTV increased to 26.5% of the Company's net revenue
for the three month period ended June 30, 1999 compared to 25.1% for the three
month period ended June 30, 1998. WebTV accounted for approximately 28.2% of net
revenue for the six months ended June 30, 1999 as compared to 27.7% for the
comparable period in 1998. The Company expects revenue from WebTV to decrease
as a percentage of revenue. The foregoing expectation is a forward looking
statement that involves risks and uncertainties and the actual results could
vary materially as a result of a number of factors including those set forth
under the caption "Factors Affecting Operating Results--The Loss of Any of Our
Major Customers Could Severely Impact Our Business."
Cost of Revenue. Cost of revenue consists primarily of personnel costs to
maintain and operate the Company's network, access charges from local exchange
carriers, backbone and Internet access costs, depreciation of network equipment
and amortization of related assets. Cost of revenue for the three month period
ended June 30, 1999 was approximately $30.9 million, an increase of $10.7
million from cost of revenue of $20.2 million for the three month period
11
<PAGE>
ended June 30, 1998. This increase is attributable to the overall growth in the
size of the network and costs associated with acquired operations. As a
percentage of revenue, such costs declined to 93.6% of revenue in the three
month period ended June 30, 1999, down from 102.8% of revenue in the year
earlier period, due to increased network utilization associated with the
Company's revenue growth and lower per port costs of the Company's network
architecture. Cost of revenue for the six months ended June 30, 1999 was
approximately $59.2 million compared to $37.9 million for the six months ended
June 30, 1998. As a percentage of revenue, costs declined to 93.8% of revenue in
the six months ended June 30, 1999 from 104.9% of revenue in the year earlier
period. The Company expects its cost of revenue to continue to increase in
dollar amount, while declining as a percentage of revenue as the Company expands
its customer base. The foregoing expectation is a forward looking statement that
involves risks and uncertainties and the actual results could vary materially as
a result of a number of factors, including those set forth under the captions
"Factors Affecting Operating Results--We Have a Limited Operating History and
Expect Continuing Operating Losses," "Factors Affecting Operating Results--Our
Growth and Expansion May Strain Our Resources" and "Factors Affecting
Operating Results--We Depend Upon New and Uncertain Markets."
Development Expense. Development expense consists primarily of personnel and
equipment related expenses associated with the development of products and
services of the Company. Development expense was approximately $2.7 million and
$1.8 million for the three month periods ended June 30, 1999 and 1998,
respectively. This higher level of development expense reflects an overall
increase in personnel to develop new product offerings, to manage the overall
growth in the network and from acquired operations. Development expense as a
percentage of revenue declined to 8.2% for the three month period ended June 30,
1999 from 9.1% for the three month period ended June 30, 1998 as a result of the
Company's increased revenue. Development expense for the six month periods
ending June 30, 1999 and 1998 was approximately $5.4 million and $3.3 million,
respectively. As a percentage of revenue, development expense declined to 8.5%
for the six months ended June 30, 1999 from 9.1% for the six months ended June
30, 1998. The Company expects its development spending to continue to increase
in dollar amount, but to decline as a percentage of revenue. The foregoing
expectation is a forward looking statement that involves risks and uncertainties
and the actual results could vary materially as a result of a number of factors,
including those set forth below under the captions "Factors Affecting Operating
Results--We Have a Limited Operating History and Expect Continuing Operating
Losses" and "Factors Affecting Operating Results--We Depend Upon New and
Enhanced Services."
Marketing and Sales Expense. Marketing and sales expense consists primarily
of personnel expenses, including salary and commissions, costs of marketing
programs and the cost of 800 number circuits utilized by the Company for
customer support functions. Marketing and sales expense was approximately $12.4
million for the three month period ended June 30, 1999 and $9.3 million for the
three month period ended June 30, 1998. The $3.1 million increase in 1999
reflects an expansion of the customer support, marketing and sales organizations
necessary to support the Company's expanded customer base. This increase also
reflects a growth in subscriber acquisition costs, related to both increased
direct marketing efforts as well as commissions paid to distribution partners.
Marketing and sales expense as a percentage of revenue declined to 37.5% for the
three month period ended June 30, 1999 from 47.3% in the year earlier period as
a result of the Company's increased revenue. For the six months ended June 30,
1999 and 1998, marketing and sales expense was approximately $23.6 million and
$17.8 million, respectively, and was 37.4% and 49.2% of revenue, respectively.
The Company expects marketing and sales expenditures to continue to increase in
dollar amount, but to decline as a percentage of revenue. The foregoing
expectation is a forward looking statement that involves risks and uncertainties
and the actual results could vary materially as a result of a number of factors
including those set forth under the captions "Factors Affecting Operating
Results--We Depend on New and Uncertain Markets" and "Factors Affecting
Operating Results--Our Growth and Expansion May Strain Our Resources."
General and Administrative Expense. General and administrative expense
consists primarily of personnel expense and professional fees. General and
administrative expense was approximately $3.4 million for the three month period
ended June 30, 1999 and $2.4 million for the three month period ended June 30,
1998. This higher level of expense reflects an increase in personnel and
professional fees necessary to manage the financial, legal and administrative
aspects of the business. General and administrative expense as a percentage of
revenue declined to 10.4% for the three month period ended June 30, 1999 from
12.3% in the year earlier period as a result of the Company's increased revenue.
For the six months ended June 30, 1999 and 1998, general and administrative
expense was approximately $6.7 million and $4.3 million, respectively. General
and administrative expense as a percentage of revenue declined to 10.7% in the
six months ended June 30, 1999 from 11.8% for the comparable period in 1998.
The Company expects general and administrative expense to increase in dollar
amount, reflecting its growth in operations, but to decline as a percentage of
revenue. The foregoing expectation is a forward looking statement that involves
risks and uncertainties and the actual results could vary materially as a result
of a
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number of factors including those set forth under the captions "Factors
Affecting Operating Results--We Depend on New and Uncertain Markets" and
"Factors Affecting Operating Results--Our Growth and Expansion May Strain Our
Resources."
Amortization of Goodwill and Other Intangible Assets. For the three month
periods ended June 30, 1999 and June 30, 1998, respectively, the Company
recorded amortization of goodwill and other intangible assets of $1.4 million
and $843,000. Amortization of goodwill and other intangible assets for the six
month period ended June 30, 1999 was $2.8 million as compared to $1.3 million
for the comparable period in 1998. The increase is primarily the result of the
acquisition of AnaServe in August 1998.
Acquisition-Related Charges. For the three month and six month periods ended
June 30, 1998, the Company charged to operations one-time acquisition costs of
$1.3 million related to the DeltaNet acquisition.
Write-off of In-Process Technology. In the six month period ended June 30,
1998, the Company wrote-off $5.2 million of in-process technology related to the
acquisition of InterNex.
Net Interest Expense and Other Expense. Net interest expense and other
expense was approximately $2.6 million and $4.0 million for the three month
periods ended June 30, 1999 and 1998, respectively. For the six months ended
June 30, 1999 and 1998, net interest expense and other expense was $5.9 million
and $8.5 million, respectively. The decrease is primarily due to the early
retirement of debt in the form of capital lease obligations in March 1998 and
higher levels of cash, cash equivalents and short term investments in the three
and six months ended June 30, 1999. During the three and six month periods
ended June 30, 1999, the Company wrote off $504,000 related to the issuance of a
warrant to TMI.
Extraordinary Gain. For the six month period ended June 30, 1998, the
Company realized an extraordinary gain of $3.0 million related to the early
retirement of debt in the form of capital lease obligations.
Preferred Stock Dividends and Accretions. For the three month periods ended
June 30, 1999 and 1998, the Company recorded dividend and stock accretion of
$5.7 million and $1.3 million, respectively, related to the Series A 13 1/2%
Redeemable Exchangeable Preferred Stock due 2010 ("Series A Preferred") issued
in June 1998 and the Series B 13 1/2% Redeemable Exchangeable Preferred Stock
due 2010 ("Series B Preferred") issued in September 1998 in exchange for all
outstanding shares of Series A Preferred. Dividend and stock accretion for the
six months ended June 30, 1999 and 1998, was $11.3 million and $1.3 million,
respectively.
Net Loss Attributable to Common Stockholders. The Company's net loss
attributable to common stockholders increased to approximately $51.7 million for
the six month period ended June 30, 1999 as compared to approximately $41.7
million for the six month period ended June 30, 1998. For comparative purposes,
the net loss attributable to common stockholders for the six month period ended
June 30, 1999 included $11.3 million of dividends and accretion related to the
preferred stock issued in June 1998. The net loss attributable to common
stockholders for the six month period ended June 30, 1998 included a $5.2
million write-off of in-process technology partially offset by an extraordinary
gain of $3.0 million on early retirement of debt.
Liquidity and Capital Resources
To date, the Company has satisfied its cash requirements primarily through the
sale of capital stock, debt financings and capitalized lease financings. The
Company's principal uses of cash are to fund working capital requirements and
capital expenditures, to service its capital lease and debt financing
obligations, to finance and fund acquisitions, to provide for the early
retirement of debt and to finance equity investments in strategic partners. Net
cash used in operating activities for the six month periods ended June 30, 1999
and 1998 was approximately $29.5 million and $26.2 million, respectively. Cash
used in operating activities in both periods was primarily affected by the net
losses, caused by increased costs related to the expansion of the Company's
network and organizational infrastructure.
Net cash used in investing activities for the six month periods ended June 30,
1999 and 1998 was approximately $35.5 million and $21.7 million, respectively.
Net cash used in investing activities for the six month period ended June 30,
1999 consisted primarily of $10.0 million used for an equity investment in Covad
Communications, Inc., $5.0 million used for an equity investment in NorthPoint
Communications, Group, Inc. and $17.6 million used for purchases of capital
equipment to support the Company's expanded network infrastructure. In the same
period, approximately $3.0 million was used to
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purchase short term investments. For the six month period ended June 30, 1998,
net cash used in investing activities was primarily used for the InterNex
acquisition of $15.5 million and $6.3 million for purchases of capital
equipment.
For the six month period ended June 30, 1999, net cash of $211.3 million was
provided from financing activities. Net proceeds from the public stock offering
in February 1999 was $119.0 million, net proceeds from the issuance of Series C
Preferred was approximately $50.0 million, net proceeds from the sale of stock
to SBC was $19.5 million and net proceeds from other stock issuances, including
the sale of stock to stockholders exercising warrants was $17.8 million. For the
six month period ended June 30, 1998, net cash of approximately $119.6 million
was provided by financing activities, of which $144.3 million was the net
proceeds from the issuance of Series A Preferred and $24.7 million was used for
the early retirement of capital lease obligations.
The net cash increase for the six month period ended June 30, 1999 was $146.2
million as compared to a net cash increase for the six month period ended June
30, 1998 of $71.7 million.
At June 30, 1999, the Company had cash and cash equivalents of approximately
$245.2 million, short term investments of $55.2 million, restricted cash of
$27.6 million and working capital of $301.0 million. The Company expects to
incur additional operating losses and will rely primarily on its available cash
resources to meet its anticipated cash needs for working capital and for the
acquisition of capital equipment through June 2000. However, the Company may
require additional financing within this time frame. The Company's forecast of
the period of time through which its financial resources will be adequate to
support its operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially as a result of a number
of factors, including those set forth under the caption ''Factors Affecting
Operating Results--We May Need Additional Capital in the Future and Such
Additional Financing May Not Be Available.'' The Company may be required to
raise additional funds through public or private financing, strategic
relationships or other arrangements. We cannot assure you that such additional
funding, if needed, will be available on terms attractive to the Company, or at
all.
In July 1999, the Company used approximately $5.0 million in cash to purchase
Series A Convertible Preferred Stock of Register.com, Inc. In August 1999, the
Company used approximately $2.0 million in cash to purchase Series B Convertible
Preferred Stock of Asia Online, Ltd.
Disclosures About Market Risk
The following discusses the Company's exposure to market risk related to
changes in equity prices. This discussion contains forward-looking statements
that are subject to risks and uncertainties. Actual results could vary
materially as a result of a number of factors including those set forth under
the caption "Factors Affecting Operating Results--We May Need Additional
Capital in the Future and Such Additional Financing May Not Be Available."
Equity Price Risk
The Company owns 833,334 shares of the common stock of Covad, purchased in
January 1999 at a split adjusted price of $12.00 per share and 277,840 shares of
Class B Common Stock of NorthPoint purchased in April 1999 at $18.00 per share.
The Company values these investments using the lower of cost or market method,
and thus continues to value them at their cost of $10.0 million and $5.0
million, respectively. If the price per share of these stocks were to decline
below the cost per share and such decline was considered to be other than
temporary, the Company would be required to write-down the value of these
investments. The Company is generally restricted from selling these shares for
at least one year from the date of purchase. The Company does not hedge against
equity price changes.
Impact of The Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of normal business activities. The Company
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is currently in the process of reviewing its products and services, as well as
its internal management information systems in order to identify and modify
those products, services and systems that are not year 2000 compliant.
Based on the Company's assessment to date, the Company has determined that its
internally developed software, including much of its operational, financial and
management information systems software is year 2000 compliant. The Company's
operational, financial and management information systems software which have
not been internally developed have been certified as year 2000 compliant by the
third party vendors who have supplied the software. The equipment and software
that runs the Company's data centers are supplied by Microsoft, Nortel/Bay
Networks and Sun Microsystems. The Company has implemented software patches
supplied by Microsoft so that the Microsoft software in these data centers no
longer contains any material year 2000 deficiencies. The Company implemented
similar patches for the software supplied by Sun Microsystems at the end of 1998
and expects to complete the replacement of Bay Networks equipment and software
by the end of September 1999 with versions which do not contain any material
year 2000 deficiencies. The Company expects such modifications will be made on a
timely basis and does not believe that the cost of such modifications will have
a material effect on the Company's operating results. Additionally, the Company
is continuing to assess the year 2000 compliance of its products and services.
To date, most newly introduced products and services of the Company do not
contain material year 2000 deficiencies, however some of the Company's customers
are running earlier product versions that are not year 2000 compliant. The
Company has been encouraging such customers to migrate to current product
versions. The Company estimates that the capital and other costs associated with
the upgrade and conversion of its existing products, services and systems
relating to the year 2000 issue will not be material. The Company does not
separately track internal costs incurred to assess and remedy deficiencies
related to the year 2000 problem, however, such costs are principally the
payroll costs for its information systems group. The Company does not have and
is not developing a contingency plan in the event its systems fail as a result
of year 2000 related problems.
The Company's products, services and systems operate in complex network
environments and directly and indirectly interact with a number of other
hardware and software systems. The Company faces risks to the extent that
suppliers of products, services and systems purchased by the Company and others
with whom the Company transacts business on a worldwide basis, including those
which form significant portions of the Company's network and may be sole- or
limited-source suppliers, do not have business systems or products that comply
with year 2000 requirements. The Company has not received significant assurances
from its suppliers that their networks are year 2000 compliant. If these
networks fail, the Company's business will be significantly impacted.
The Company's expectation that it will be able to upgrade its products,
services and systems to address the year 2000 issue and its expectation
regarding the costs associated with these upgrades are forward-looking
statements subject to a number of risks and uncertainties. Actual results may
vary materially as a result of a number of factors. There can be no assurance
that the Company will be able to timely and successfully modify such products,
services and systems to comply with year 2000 requirements. Any failure to do so
could have a material adverse effect on the Company's operating results.
Furthermore, despite testing by the Company and its vendors, the Company's
products, services and systems may contain undetected errors or defects
associated with year 2000 date functions. In the event any material errors or
defects are not detected and fixed or third parties cannot timely provide the
Company with products, services or systems that meet the year 2000 requirements,
the Company's operating results could be materially adversely affected. Known or
unknown errors or defects that affect the operation of the Company's products,
services or systems could result in delay or loss of revenue, interruption of
network services, cancellation of customer contracts, diversion of development
resources, damage to the Company's reputation, and litigation costs. There can
be no assurance that these or other factors relating to year 2000 compliance
issues will not have a material adverse effect on the Company's business,
operating results or financial condition.
Factors Affecting Operating Results
As described by the following factors, past financial performance should not
be considered a reliable indicator of future performance and investors should
not use historical trends to anticipate results or trends in future periods.
We Have a Limited Operating History and Expect Continuing Operating Losses
We were incorporated in 1991, commenced network operations in 1994 and
completed initial deployment of our current network architecture and use of an
advanced ATM backbone network in late 1996. Accordingly, we have a limited
operating history upon which an evaluation of our prospects can be based. Our
prospects must be considered in light of the
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risks, expenses and difficulties frequently encountered by companies in new and
rapidly evolving markets. To address these risks, we must, among other things:
. respond to competitive developments;
. continue to attract, retain and motivate qualified personnel; and
. continue to upgrade our technologies and commercialize network services
incorporating such technologies.
We cannot assure you that we will be successful in addressing the risks we
face. The failure to do so could have a material adverse effect on our business,
financial condition and results of operations.
We have incurred net losses and experienced negative cash flow from operations
since inception. We expect to continue to operate at a net loss and experience
negative cash flow at least through 2001. Our ability to achieve profitability
and positive cash flow from operations is dependent upon our ability to
substantially grow our revenue base and achieve other operating efficiencies. We
experienced net losses attributable to common stockholders of approximately
$66.4 million for the year ended December 31, 1996, $55.6 million for the year
ended December 31, 1997, $94.1 million for the year ended December 31, 1998 and
$51.7 million for the six month period ended June 30, 1999. At June 30, 1999, we
had an accumulated deficit of approximately $297.8 million. We cannot assure you
that we will be able to achieve or sustain revenue growth, profitability or
positive cash flow on either a quarterly or an annual basis.
Our estimates of the periods of time in which we expect to continue to operate
at a net loss, experience negative cash flow and not generate taxable income are
forward-looking statements that involve risks and uncertainties. Actual results
could vary materially as a result of a number of factors, including those set
forth in this Factors Affecting Operating Results section.
Our Operating Results Fluctuate and Could Decline
Our operating results have fluctuated in the past and may fluctuate
significantly in the future. Our operating results fluctuate due to a variety of
factors, including the following:
. timely deployment and expansion of our network and new network
architectures;
. the incurrence of capital costs related to network expansion;
. variability and length of the sales cycle associated with our product and
service offerings;
. the receipt of new value-added network services and consumer services
subscriptions;
. the introduction of new services by us and our competitors;
. the pricing and mix of services offered by us;
. our customer retention rate;
. market acceptance of new and enhanced versions of our services;
. changes in pricing policies by our competitors;
. our ability to obtain sufficient supplies of sole- or limited- source
components;
. user demand for network and Internet access services;
. balancing of network usage over a 24-hour period;
. the ability to manage potential growth and expansion;
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. the ability to identify, acquire and successfully integrate suitable
acquisition candidates; and
. charges related to acquisitions.
Variations in the timing and amounts of revenues due to these actions could
have a material adverse effect on our quarterly operating results. Due to the
foregoing factors, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful. Such comparisons cannot be relied upon
as indicators of future performance. If our operating results in any future
period fall below the expectations of securities analysts and investors, the
market price of our securities would likely decline.
The Loss of Any of Our Major Customers Could Severely Impact Our Business
We currently derive a substantial portion of our total revenue from WebTV.
Revenue from WebTV accounted for 10.1% of our revenue for the year ended
December 31, 1996, 33.4% of our revenue for the year ended December 31, 1997,
26.8% of our revenue for the year ended December 31, 1998 and 28.2% of our
revenue for the six month period ended June 30, 1999.
WebTV may terminate our current agreement at will after December 31, 2002.
While we expect revenue from WebTV to decrease as a percentage of revenue in
future periods, we believe that revenue derived from a limited number of
customers may continue to represent a significant portion of our revenue. As a
result, the loss of one or more of our major customers could have a material
adverse effect on our business, financial condition and results of operations.
In addition, we cannot assure you that revenue from customers that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or will reach or exceed historical levels in any future period.
Our Growth and Expansion May Strain Our Resources
Our business and service offerings have grown rapidly since our inception. The
growth and expansion of our business and our service offerings have placed, and
are expected to continue to place, a significant strain on our management,
operational and financial resources. In addition, we recently expanded and
upgraded our network to use an ATM backbone. We plan to continue to
substantially expand our network in 1999 and future periods. To manage our
growth, we must, among other things:
. continue to implement and improve our operational, financial and management
information systems, including our billing, accounts receivable and payable
tracking, fixed assets and other financial management systems;
. hire, train and retain qualified personnel; and
. continue to expand and upgrade our network infrastructure.
We are currently in the process of replacing or updating our operational,
financial and management information systems. The systems being replaced or
updated include our billing, provisioning and other financial management
systems. We began to replace our information systems facilities in the fourth
quarter of 1998 and these efforts will continue throughout 1999. We also
consolidated our Silicon Valley operations in a new, larger facility in the
fourth quarter of 1998 and will transfer our remaining Silicon Valley data
centers to this facility during the first three quarters of 1999. Additionally,
we will be consolidating two facilities in Southern California into one by the
end of 1999. Management of the transition of our information systems and of the
personnel and operational equipment to the new facilities is expected to place
additional strain on our resources. We cannot assure you that these transitions
will be completed successfully or on a timely basis.
We cannot assure you that we will be able to expand our network or add
services at the rate or according to the schedule presently planned by us. We
had 96 employees and 47 independent contractors as of December 31, 1996, and
have grown to 579 employees and 82 independent contractors as of June 30, 1999.
We cannot assure you that we will be able to effectively manage this growth in
personnel. Additionally, we cannot assure you that we will be able to hire,
train and retain sufficient numbers of qualified personnel to meet our
requirements.
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Our expanding customer base demands the rapid growth of our network
infrastructure and technical support resources. We may in the future experience
difficulties meeting the demand for our access services and technical support.
We cannot assure you that our technical support or other resources will be
sufficient to facilitate our growth. We are striving to increase total network
utilization and to optimize this utilization by targeting both business and
consumer users to balance the network's usage throughout a 24-hour period. There
will be additional demands on our customer support, sales and marketing
resources as we pursue this utilization strategy. If we fail to manage our
growth effectively, our business, financial condition and results of operations
could be materially adversely affected.
Our Acquisition Strategy Poses Several Risks
We have completed three acquisitions to date and may seek to acquire
additional assets, technologies and businesses complementary to our operations.
The completed acquisitions are and any subsequent acquisitions would be
accompanied by the risks commonly encountered in such transactions. Such risks
include, among other things:
. difficulties integrating the operations and personnel of acquired
companies;
. the additional financial resources that may be needed to fund the
operations of acquired companies;
. the potential disruption of our business;
. our management's ability to maximize our financial and strategic position
by the incorporation of acquired technology or businesses into our service
offerings;
. the difficulty of maintaining uniform standards, controls, procedures and
policies;
. the potential loss of key employees of acquired companies;
. the impairment of relationships with employees and customers as a result of
changes in management; and
. the incurrence of significant expenses in consummating acquisitions.
Any of the above risks could prevent us from realizing significant benefits
from our acquisitions. In addition, the issuance of our common stock in
acquisitions will dilute our stockholder interests in our company, while the use
of cash will deplete our cash reserves. Finally, if we are unable to account for
our acquisitions under the ''pooling of interests'' method of accounting, we may
incur significant, one-time write-offs and amortization charges. These write-
offs and charges could decrease our future earnings or increase our future
losses.
Our Future Success Depends Upon Third-Party Distribution and Engineering
Relationships
An important element of our strategy is to develop relationships with leading
companies to enhance our distribution and engineering efforts. We have
agreements with Netscape and Microsoft pursuant to which we distribute and
modify their browsers. Our customization of browsers is an integral part of our
current tailored VPN offerings. The Netscape agreement may be terminated at any
time upon 60 days notice and the Microsoft agreement expires in March 2000. We
have an agreement with Intuit for the development, operation and maintenance of
a VPN that is the integrated access, dial-up network and infrastructure used by
purchasers of Quicken, Turbo Tax and other Intuit software products. Intuit
customers use this VPN to access the Quicken Financial Network Website and the
Internet. The Intuit contract may be terminated at the election of Intuit upon
six months prior notice of an election to terminate. We have also recently
entered into strategic agreements with SBC and Teligent for the delivery of
private-labeled services to their customers. We rely on these relationships for
the acquisition of enterprise and consumer customers. Our inability to
capitalize on these agreements, the termination of or failure to renew any of
these agreements or our inability to enter into similar relationships with
others could have a material adverse effect on our business, financial condition
and results of operation.
We have an outsourcing agreement with Williams Technology Solutions, a
subsidiary of Williams Communications Group, Inc., that enables us to use
Williams employees for the operational support of our network. Our use of
Williams employees and Williams engineering expertise was integral to the
development of our network and continues to be integral to the ongoing operation
of our network operations center. Pursuant to the agreement with Williams, all
of the Williams
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employees currently working for us will become our employees when the agreement
terminates in December 2000. Termination of any of these agreements or our
failure to renew any of the agreements upon termination on terms acceptable to
us could have a material adverse effect on our business, financial condition and
results of operations.
We Depend Upon New and Uncertain Markets
We offer tailored, value-added network services for enterprises and consumers,
including Internet access. These markets are in the early stages of development.
It is difficult to predict the rate at which the market will grow, if at all,
because these markets are relatively new and current and future competitors are
likely to introduce competing services or products. New or increased competition
may result in market saturation. Certain critical issues concerning commercial
use of tailored, value-added services and Internet services, remain unresolved
and may impact the growth of such services. These issues include, among others,
security, reliability, ease and cost of access, and quality of service. Our
business, financial condition and results of operations would be materially
adversely affected if the markets for our services, including Internet access:
. fail to grow;
. grow more slowly than anticipated; or
. become saturated with competitors.
We Depend Upon New and Enhanced Services
We have recently introduced new enterprise service offerings, including the
introduction of value-added, IP-based communication services to enterprises and
a new line of DSL services in limited areas. The failure of these services to
gain market acceptance in a timely manner or at all, or the failure of the DSL
service in particular, to achieve significant market coverage could have a
material adverse effect on our business, financial condition and results of
operations. If we introduce new or enhanced services with reliability, quality
or compatibility problems, then market acceptance of such services could be
significantly delayed or hindered. Such problems or delays could adversely
affect our ability to attract new customers and subscribers.
Our New or Enhanced Services May Have Errors or Defects
Our services may contain undetected errors or defects when new services or
enhancements are first introduced. We cannot assure you that, despite testing by
us or our customers, errors will not be found in new services or enhancements
after commencement of commercial deployment. Such errors could result in:
. additional development costs;
. loss of, or delays in, market acceptance;
. diversion of technical and other resources from our other development
efforts; and
. the loss of customers and subscribers.
Any of these consequences could have a material adverse effect on our
business, financial condition and results of operations.
We Need to Balance Network Use to Provide Quality Service
If we do not achieve balanced network utilization over a 24-hour period, our
network could become overburdened at certain periods during the day, which could
adversely affect our quality of service. Conversely, due to the high fixed cost
nature of our infrastructure, under-utilization of our network during certain
periods of the day could adversely affect our
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ability to provide cost- efficient services at other times. Any failure to
achieve balanced network utilization could have a material adverse effect on our
business, financial condition and results of operations.
We Depend Upon Our Suppliers and Have Sole- and Limited-Sources of Supply for
Certain Products and Services
We rely on other companies to supply certain key components of our network
infrastructure. These components include critical telecommunications services
and networking equipment, which, in the quantities and quality demanded by us,
are available only from sole- or limited-sources. AT&T Corp., MCI WorldCom,
Inc., PacWest Telecomm, Inc. and Williams are our primary providers of data
communications facilities and capacity. AT&T is currently the sole provider of
the frame relay backbone of our network. MCI WorldCom and Williams are currently
the providers of the ATM backbone of our network. We are also dependent upon
LECs to provide telecommunications services to us and our customers. We
experience delays from time to time in receiving telecommunications services
from these suppliers. We cannot assure you that we will be able to obtain such
services on the scale and within the time frames required by us at an affordable
cost, or at all. Any failure to obtain such services on a sufficient scale, on a
timely basis or at an affordable cost would have a material adverse effect on
our business, financial condition and results of operations.
We purchase our Nortel/Bay, Cisco Systems, Netopia, Lucent Technologies, Sun
Microsystems and other vendor equipment either directly from the manufacturer or
via systems integrators including Milgo Solutions, Inc. and Williams. Some of
these vendors are sole-source suppliers. We purchase these components pursuant
to purchase orders placed from time to time with our suppliers. We do not carry
significant inventories of these components and have no guaranteed supply
arrangements for such components. Our suppliers also sell products to our
competitors and may in the future themselves become our competitors. We cannot
assure you that our suppliers will not enter into exclusive arrangements with
our competitors or stop selling their products or components to us at
commercially reasonable prices, or at all.
The expansion of our network infrastructure is placing, and will continue to
place, a significant demand on our suppliers. Some of these suppliers have
limited resources and production capacity. In addition, some of our suppliers
rely on sole-or limited-sources of supply for components included in their
products. Failure of our suppliers to meet increasing demand may prevent them
from continuing to supply components and products in the quantities and quality
and at the times required by us, or at all. Our inability to obtain sufficient
quantities of sole- or limited-source components or to develop alternative
sources, if required, could result in delays and increased costs in expanding,
and overburdening of, our network infrastructure. Any such delay, increased
costs or overburdening would have a material adverse effect on our business,
financial condition and results of operations.
We also depend on our suppliers' ability to provide necessary products and
components that comply with various Internet and telecommunications standards.
These products and components must also interoperate with products and
components from other vendors. Any failure of our suppliers to provide products
or components that comply with Internet standards or that interoperate with
other products or components used by us in our network infrastructure could have
a material adverse effect on our business, financial condition and results of
operations.
Some of our suppliers, including the RBOCs and other LECs, currently are
subject to tariff controls and other price constraints that in the future may be
changed. In addition, regulatory proposals are pending that may affect what the
RBOCs and other LECs charge us. Any such regulatory changes could result in
increased prices of products and services, which could have a material adverse
effect on our business, financial condition and results of operations.
We Depend Upon Our Network Infrastructure
Our success depends upon the capacity, reliability and security of our network
infrastructure. We currently derive a significant portion of our revenue from
customer subscriptions. We expect that a substantial portion of our future
revenue will be derived from the provision of tailored, value-added network
services to our enterprise customers. We must continue to expand and adapt our
network infrastructure as the number of users and the amount of information they
wish to transfer increase and as customer requirements change. We currently
project our network utilization will require rapid expansion of the network
capacity to avoid capacity constraints that would adversely affect system
performance. The expansion and adaptation of our network infrastructure will
require substantial financial, operational and management resources in 1999 and
future periods. We cannot assure you that we will be able to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
requirements on a timely basis, at a commercially reasonable cost, or at all. In
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addition, if demand for network usage were to increase faster than projected or
were to exceed our current forecasts, the network could experience capacity
constraints, which would adversely affect the performance of the system. Our
business, financial condition and results of operations could be materially
adversely affected if, for any reason, we fail to:
. expand our network infrastructure on a timely basis;
. adapt our network infrastructure to changing customer requirements or
evolving industry trends; or
. alleviate capacity constraints experienced by our network infrastructure.
Currently, we have transit agreements with MCI WorldCom, Sprint and UUNet and
we have peering agreements with America Online, PSINet and other network
providers to support the exchange of traffic between our network and the
Internet. We also have public peering arrangements with multiple smaller
Internet service providers. These public peering arrangements also support the
exchange of traffic between our network and the Internet. The failure of the
networks with which we have public peering, private peering or private transit,
or the failure of any of our data centers, or any other link in the delivery
chain, or any inability to successfully integrate new network resources into our
existing infrastructure, and resulting interruption of our operations would have
a material adverse effect on our business, financial condition and results of
operations.
Our Market Is Extremely Competitive
The market for tailored value-added network services is extremely competitive.
There are no substantial barriers to entry in this market, and we expect that
competition will intensify in the future. We believe that our ability to compete
successfully depends upon a number of factors, including:
. market presence;
. the capacity, reliability, low latency and security of our network
infrastructure;
. technical expertise and functionality, performance and quality of services;
. customization;
. ease of access to and navigation of the Internet;
. the pricing policies of our competitors and suppliers;
. the variety of services;
. the timing of introductions of new services by us and our competitors;
. customer support;
. our ability to support industry standards; and
. industry and general economic trends.
Our competitors generally may be divided into four groups: telecommunications
companies, online service providers, Internet service providers and Web hosting
providers. Many of our competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than those available to us. As a result, they may be able to develop and expand
their communications and network infrastructures more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
we can. In addition to the competitors discussed above, various organizations
have entered into or are forming joint ventures or consortiums to provide
services similar to those of our company.
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We believe that new competitors will enter the value-added network services
market. Such new competitors could include large computer hardware, software,
media and other technology and telecommunications companies. Certain
telecommunications companies and online services providers are currently
offering or have announced plans to offer Internet or online services or to
expand their network services. Certain companies, including America Online, BBN,
PSINet and Verio, have also obtained or expanded their Internet access products
and services as a result of acquisitions. Such acquisitions may permit our
competitors to devote greater resources to the development and marketing of new
competitive products and services and the marketing of existing competitive
products and services. In addition, the ability of some of our competitors to
bundle other services and products with virtual private network services or
Internet access services could place us at a competitive disadvantage. Certain
companies are also exploring the possibility of providing or are currently
providing high-speed data services using alternative delivery methods such as
over the cable television infrastructure, through direct broadcast satellites
and over wireless cable.
As a result of increased competition and vertical and horizontal integration
in the industry, we could encounter significant pricing pressure. This pricing
pressure could result in significant reductions in the average selling price of
our services. For example, telecommunications companies that compete with us may
be able to provide customers with reduced communications costs in connection
with their Internet access services or private network services, reducing the
overall cost of their solutions and significantly increasing price pressures on
us. We cannot assure you that we will be able to offset the effects of any such
price reductions with an increase in the number of our customers, higher revenue
from enhanced services, cost reductions or otherwise. In addition, we believe
that the Internet access and online services businesses are likely to encounter
consolidation in the near future. Consolidation could result in increased price
and other competition in these industries and, potentially, the virtual private
networks industry. Increased price or other competition could result in erosion
of our market share and could have a material adverse effect on our business,
financial condition and results of operations. We cannot assure you that we will
have the financial resources, technical expertise or marketing and support
capabilities to continue to compete successfully.
We Must Keep Up With Rapid Technological Change and Evolving Industry Standards
The markets for our services are characterized by rapidly changing technology,
evolving industry standards, changes in customer needs, emerging competition and
frequent new product and service introductions. Our future success will depend,
in part, on our ability to:
. effectively use leading technologies;
. continue to develop our technical expertise;
. enhance our current networking services;
. develop new services that meet changing customer needs;
. advertise and market our services; and
. influence and respond to emerging industry standards and other
technological changes.
All this must be accomplished in a timely and cost-effective manner. We cannot
assure you that we will be successful in effectively using new technologies,
developing new services or enhancing our existing services on a timely basis. We
cannot assure you that such new technologies or enhancements will achieve market
acceptance. Our pursuit of necessary technological advances may require
substantial time and expense. We cannot assure you that we will succeed in
adapting our network service business to alternate access devices and conduits
as they emerge.
We believe that our ability to compete successfully is also dependent upon the
continued compatibility and interoperability of our services with products and
architectures offered by various vendors. Although we intend to support emerging
standards in the market for Internet access, we cannot assure you that industry
standards will be established. If industry standards are established, we cannot
assure you that we will be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Specifically, our
services rely on the continued widespread
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commercial use of TCP/IP. Alternative open protocol and proprietary protocol
standards have been or are being developed. If any of these alternative
protocols become widely adopted, there may be a reduction in the use of TCP/IP,
which could render our services obsolete and unmarketable. In addition, we
cannot assure you that services or technologies developed by others will not
render our services or technology uncompetitive or obsolete.
An integral part of our strategy is to design our network to meet the
requirements of emerging standards such as 56.6 Kbps modems and applications
such as IP-based interactive video and voice conferencing communications. Our
initial deployment of 56.6 Kbps modem technology was difficult for some of our
customers, including WebTV, due to compatibility problems between the software
and their modems. We had to remove the software from the network and modems to
fix the problem. A modified version of the software was deployed in the network
in the first quarter of 1999. If we fail, for technological or other reasons, to
develop and introduce the 56.6 Kbps modem technology or other new or enhanced
services that are compatible with industry standards and that satisfy customer
requirements, then our business, financial condition and results of operations
would be materially adversely affected. See "Business--The Concentric
Network."
We face the risk of fundamental changes in the way Internet access is
delivered. Internet services are currently accessed primarily by computers
connected by telephone lines. Several companies have announced the development
and planned sale of cable television modems, wireless modems and satellite
modems to provide Internet access. Cable television, satellite and wireless
modems can transmit data at substantially faster speeds than the modems we and
our subscribers currently use. In addition, wireless modems have the potential
to reduce the cost of network services. As the Internet becomes accessible
through these cable television, wireless and satellite modems and by screen-
based telephones, televisions or other consumer electronic devices, or
subscriber requirements change the way Internet access is provided, we will have
to develop new technology or modify our existing technology to accommodate new
developments such as:
. Internet access through cable television, satellite and wireless modems;
. Internet access through screen-based telephones, televisions or other
consumer electronic devices; or
. subscriber requirements that change the way Internet access is provided.
Our pursuit of these technological advances may require substantial timeand
expense. We cannot assure you that we will succeed in adapting our Internet
access business to alternate access devices and conduits.
Our Network System Could Fail
Network expansion and growth in usage will place increased stress upon our
network hardware and traffic management systems. Our network has been designed
with redundant backbone circuits to allow traffic re-routing. We cannot assure
you, however, that we will not experience failures relating to individual
network POPs or even catastrophic failure of the entire network. Moreover, our
operations are dependent upon our ability to protect our network infrastructure
against damage from power loss, telecommunications failures and similar events.
A significant portion of our computer equipment, including critical equipment
dedicated to our Internet access services, is located at our facilities in
Chicago, Illinois, and San Jose, California. In addition, our modems and routers
that serve large areas of the United States are located in these cities. Our
network operations center, which manages the entire network, is in St. Louis,
Missouri. Despite our precautions, a natural disaster, such as an earthquake, or
other unanticipated problem at the network operations center, at one of our hubs
(sites at which we have located routers, switches and other computer equipment
that make up the backbone of our network infrastructure) or at a number of our
POPs has from time to time in the past caused, and in the future could cause,
interruptions in our services. In addition, our services could be interrupted if
our telecommunications providers fail to provide the data communications
capacity in the time frame required by us as a result of a natural disaster or
for some other reason. Any damage or failure that causes interruptions in our
operations could have a material adverse effect on our business, financial
condition and results of operations.
Our System May Experience Security Breaches
Despite the implementation of network security measures, the core of our
network infrastructure is vulnerable to computer viruses,
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break-ins and similar disruptive problems caused by our customers or Internet
users. Computer viruses, break-ins or other problems caused by third parties
could lead to interruptions, delays or cessation in service to our customers and
subscribers. Furthermore, inappropriate use of the network by third parties
could also potentially jeopardize the security of confidential information
stored in our computer systems and our customer's computer systems. We may face
liability and may lose potential subscribers as a result. Although we intend to
continue to implement industry-standard security measures, such measures
occasionally have been circumvented in the past. We cannot assure you that our
security enclosures will not be circumvented in the future. The costs and
resources required to eliminate computer viruses and alleviate other security
problems may result in interruptions, delays or cessation of service to our
customers that could have a material adverse effect our business, financial
condition and results of operations.
We Depend Upon Key Personnel and May be Unable to Timely Hire and Retain
Sufficient Numbers of Qualified Personnel
Our success depends to a significant degree upon the continued contributions
of our executive management team, including Henry R. Nothhaft, the Company's
Chairman, President and Chief Executive Officer, and John K. Peters, the
Company's Executive Vice President and General Manager, Network Applications
Services Division. The loss of the services of Mr. Nothhaft or Mr. Peters could
have a material adverse effect on us. We have Executive Continuity Agreements
with five senior officers, including Mr. Nothhaft and Mr. Peters. These
agreements provide for compensation, certain expense reimbursement and continued
option vesting for these officers in the event of involuntary termination
without cause or constructive termination without cause within 18 months of a
change of control. We do not carry key man life insurance on the life of any
such persons. Our success will also depend upon the continued service of the
other members of our senior management team and technical, marketing and sales
personnel. Competition for qualified employees is intense. Our employees may
voluntarily terminate their employment with us at any time. Our success also
depends upon our ability to attract and retain additional highly qualified
management, technical, sales and marketing and customer support personnel.
Locating personnel with the combination of skills and attributes required to
carry out our strategy is often a lengthy process. The loss of key personnel, or
the inability to attract additional, qualified personnel, could have a material
adverse effect upon our results of operations, development efforts and ability
to complete the expansion of our network infrastructure. Any such event could
have a material adverse effect on our business, financial condition and results
of operations.
We Have Incurred Substantial Indebtedness and May Not Be Able to Service Our
Debt
We are and will continue to have a significant amount of outstanding
indebtedness. We have significant debt service requirements as a result of this
indebtedness. At June 30, 1999, our total debt (including current portion) was
$160.5 million, and stockholders' equity was $59.8 million. Interest on such
indebtedness totals approximately $19.1 million per year. We also issued 150,000
shares of preferred stock in June 1998 with dividends which accrue at the rate
of 13 1/2 % per year and 50,000 shares of preferred stock in June 1999 with
dividends which accrue at the rate of 7% per year. At June 30, 1999, cumulative
dividends and accretion on the preferred stock totaled approximately $22.7
million. Dividends and accretion will total approximately $24.7 million in 1999
and are expected to grow in each successive year. To date, we have paid such
dividends in shares of preferred stock, rather than in cash. We must also redeem
both issuances of the preferred stock in 2010. As a result of these and other
features, the preferred stock is substantially equivalent to debt. Our debt,
including the preferred stock, has important consequences for our company and
for you, including the following:
. our ability to obtain additional financing in the future, whether for
working capital, capital expenditures, acquisitions or other purposes, may
be impaired;
. a substantial portion of our cash flow from operations is dedicated to the
payment of interest on our debt, which reduces the funds available to us
for other purposes;
. our flexibility in planning for or reacting to changes in market conditions
may be limited; and
. we may be more vulnerable in the event of a downturn in our business.
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Our ability to meet our debt service and preferred stock dividend
obligations will depend on our future operating performance and financial
results. This ability will be subject in part to factors beyond our control.
Although we believe that our cash flow will be adequate to meet our interest
and dividend payments, we cannot assure you that we will continue to generate
sufficient cash flow in the future to meet our debt service and preferred
stock requirements. If we are unable to generate cash flow in the future
sufficient to cover our fixed charges and are unable to borrow sufficient
funds from other sources, then we may be required to:
. refinance all or a portion of our existing debt; or
. sell all or a portion of our assets.
We cannot assure you that a refinancing would be possible. We cannot assure
you that any asset sales would be timely or that the proceeds which we could
realize from such asset sales would be sufficient to meet our debt service
requirements. In addition, the terms of our debt and preferred stock restrict
our ability to sell our assets and our use of the proceeds from any such asset
sale.
We May Need Additional Capital in the Future and Such Additional Financing May
Not Be Available
We currently anticipate that our available cash resources will be sufficient
to meet our anticipated working capital and capital expenditure requirements
through June 2000. However, we cannot assure you that such resources will be
sufficient for anticipated or unanticipated working capital and capital
expenditure requirements. We may need to raise additional funds through public
or private debt or equity financings in order to:
. take advantage of unanticipated opportunities, including more rapid
international expansion or acquisitions of complementary businesses or
technologies;
. develop new products or services; or
. respond to unanticipated competitive pressures.
We may also raise additional funds through public or private debt or equity
financings if such financings become available on favorable terms. We cannot
assure you that any additional financing we may need will be available on terms
favorable to us, or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to take advantage of
unanticipated opportunities, develop new products or services or otherwise
respond to unanticipated competitive pressures. In such case, our business,
results of operations and financial condition could be materially adversely
affected. Our forecast of the period of time through which our financial
resources will be adequate to support our operations is a forward looking
statement that involves risks and uncertainties, and actual results could vary
materially as a result of a number of factors, including those set forth above.
We Face Risks Associated with International Expansion
A key component of our strategy is to expand into international markets. The
following risks are inherent in doing business on an international level:
. unexpected changes in regulatory requirements;
. export restrictions;
. export controls relating to encryption technology;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
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. longer payment cycles;
. problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates;
. seasonal reductions in business activity during the summer months in Europe
and certain other parts of the world; and
. potentially adverse tax consequences that could adversely impact the
success of our international operations.
We cannot assure you that one or more of such factors will not have a material
adverse effect on our future international operations and, consequently, on our
business, financial condition and results of operations.
We have an agreement with TMI Telemedia International, Ltd., a subsidiary of
the leading Italian telecommunications company, Telecom Italia, SpA, to
establish an international network based on our network technology and expertise
and TMI's existing telecommunications infrastructure. In exchange, we granted
TMI certain exclusive rights in critical markets, including Europe. In June 1999
we amended the agreement to release TMI's exclusive rights in all but Italy,
Spain and Austria. While the goal of this effort is to deliver a range of
compatible network services worldwide, to date we have had only limited
deployment of services under this agreement. Our experience in developing
versions of our products and marketing and distributing our products
internationally is limited. Our international strategy has not developed as
rapidly as anticipated and may be further delayed if:
. we cannot successfully develop satisfactory relationships with other
partners;
. we cannot successfully deploy our technology over our partners'
infrastructure;
. we cannot transfer our knowledge to our partners' employees; or
. our partners do not devote sufficient management, technological or
marketing resources to this project.
Our business, results of operation or financial condition could be materially
adversely affected if delays in our international strategy continue or worsen.
We have entered into roaming agreements with third parties to allow our
customers to access their Internet accounts from Japan and certain other foreign
countries. We provide Web hosting and extranet services for GX Networks' United
Kingdom customers pursuant to an agreement signed in August 1998. We also
acquired Web hosting facilities in Stockholm, Sweden, Tokyo, Japan and Hong Kong
in February 1998 as a result of our acquisition of Internex. We cannot assure
you that we will be able to successfully market, sell and deliver our products
in these markets.
We Could Face Government Regulation
The Federal Communications Commission ("FCC") currently does not regulate
value-added network software or computer equipment related services that
transport data or IP-based voice messages over telecommunication facilities as
telecommunications services. We provide value-added IP-based network services,
in part, through data transmissions over public telephone lines. Operators of
these types of value-added networks that provide access to regulated
transmission facilities only as part of a data services package are classified
for regulatory purposes as providers of "information services" and are
currently excluded from regulations that apply to "telecommunications
carriers." As such, we are not currently subject to direct regulation by the
FCC or any other governmental agency, other than regulations applicable to
businesses generally. However, future changes in law or regulation could result
in some aspects of our current operations becoming subject to one or more forms
of telecommunication regulation by the FCC or other regulatory agencies.
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The FCC currently is reviewing its regulatory positions on data transmissions
over telecommunications networks and could seek to impose some form of
telecommunications carrier regulation on the network transport and
telecommunications functions of an enhanced or information services package.
Further, the FCC could conclude that our protocol conversions, computer
processing and interaction with customer-supplied information are insufficient
to afford us with the benefits of the enhanced or information service regulatory
classification. If the FCC reaches such conclusions, it may seek to regulate
some segments of our activities as telecommunications services. One significant
example of the type of regulation some incumbent LECs would like to have the FCC
impose on IP-based services is typified by a recent Petition for Expedited
Declaratory Ruling filed by US West seeking an FCC ruling that IP-based
Telephony services provided over interexchange carrier networks not be
considered information services, but telecommunications services subject to
incumbent LEC-imposed interstate access charges. While the FCC has not taken
action to date on the US West Petition, its filing indicates that there are
telecommunications carriers anxious to reclassify exempt information services to
be regulated telecommunications services.
State public utility commissions generally have declined to regulate enhanced
or information services. Some states, however, have continued to regulate
particular aspects of enhanced services in limited circumstances, such as where
they are provided by incumbent LECs that operate telecommunications networks.
Moreover, the public service commissions of some states continue to review
potential regulation of such services. We cannot assure you that regulatory
authorities of states where we provide Internet access, intranet and VPN
services will not seek to regulate aspects of these activities as
telecommunications services. The prices at which we may sell our services could
be affected by regulatory changes:
. in the Internet connectivity market;
. that indirectly or directly affect telecommunications costs; or
. that increase the likelihood or scope of competition from the RBOCs.
We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business and we cannot assure you that future regulation
or regulatory changes will not have a material adverse effect on our business,
results of operations or financial condition.
We Depend On Our Proprietary Technology and Technological Expertise
Our success and ability to compete is dependent in part upon our technology.
In this regard, we believe our success is more dependent upon our technical
expertise than our proprietary rights. We rely upon a combination of copyright,
trademark and trade secret laws and contractual restrictions to protect our
proprietary technology. It may be possible for a third party to copy or
otherwise obtain and use our products or technology without authorization or to
develop similar technology independently. We cannot assure you that such
measures have been, or will be, adequate to protect our proprietary technology.
Our competitors may also independently develop technologies that are
substantially equivalent or superior to our technology.
We operate a material portion of our business over the Internet. The Internet
is subject to a variety of risks. Such risks include but are not limited to the
substantial uncertainties that exist regarding the system for assigning domain
names and the status of private rules for resolution of disputes regarding
rights to domain names. We cannot assure you that we will continue to be able to
employ our current domain names in the future or that the loss of rights to one
or more domain names will not have a material adverse effect on our business and
results of operations.
Third Parties May Claim We Infringe Their Proprietary Rights
Although we do not believe we infringe the proprietary rights of any third
parties, we cannot assure you that third parties will not assert such claims
against us in the future or that such claims will not be successful. We could
incur substantial costs and diversion of management resources to defend any
claims relating to proprietary rights, which could have a material adverse
effect on our business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block our ability to license our products in the United States or
abroad. Such a judgment would have a material adverse effect on our business,
financial condition and results of operations. In addition, we are obligated
under certain
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agreements to indemnify the other party for claims that we infringe on the
proprietary rights of third parties. If we are required to indemnify parties
under these agreements, our business, financial condition and results of
operations could be materially adversely affected. If someone asserts a claim
relating to proprietary technology or information against us, we may seek
licenses to such intellectual property. We cannot assure you, however, that we
could obtain licenses on commercially reasonable terms, if at all. The failure
to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.
We Could Face Liability for Information Disseminated Through Our Network
The law relating to the liability of online service providers, private network
operators and Internet service providers for information carried on or
disseminated through the facilities of their networks is continuing to evolve
and remains unsettled. In the past, at least one court has ruled that Internet
service providers could be found liable for copyright infringement as a result
of information disseminated through their networks. Such claims have been
asserted against us in the past and we cannot assure you that similar claims
will not be asserted in the future. Federal laws have been enacted, however,
which, under certain circumstances, provide Internet service providers with
immunity from liability for information that is disseminated through their
networks when they are acting as mere conduits of information. A Federal Court
of Appeals has recently held that the Telecommunications Act of 1996 creates
immunity from liability on the part of Internet service providers for libel
claims arising out of information disseminated over their services by third
party content providers. In addition, the Digital Millennium Copyright Act,
which was enacted in 1998, creates a safe-harbor from copyright infringement
liability for Internet service providers that meet certain requirements. These
requirements include certain technical measures and registering with the
Copyright Office the identity of the provider's Designated Infringement Agent
who is to receive notice of any claims of copyright infringement. We cannot
assure you, however, that the Digital Millennium Copyright Act or any other
legislation will protect us from copyright infringement liability.
The Child Online Protection Act of 1998 prohibits and imposes criminal
penalties and civil liability on anyone engaged in the business of selling or
transferring, by means of the World Wide Web, material that is harmful to minors
without restricting access to such material by persons under seventeen years of
age. Numerous states have adopted or are currently considering similar types of
legislation. The imposition upon us, Internet service providers or Web server
hosts of potential liability for such materials carried on or disseminated
through our systems could require us to implement measures to reduce our
exposure to such liability. Such measures may require the expenditure of
substantial resources or the discontinuation of certain product or service
offerings. Further, the costs of defending against any such claims and potential
adverse outcomes of such claims could have a material adverse effect on our
business, financial condition and results of operations. The Child Online
Protection Act of 1998 has been challenged by civil rights organizations in part
on the grounds that it violates the First Amendment. A similar statute was held
unconstitutional by the United States Supreme Court in 1997. On February 1, 1999
a United States District Court preliminarily enjoined enforcement of the law
pending final resolution of the case.
Our Stock Price Has Been and May Continue to Be Volatile
The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new products or services offered by us or our competitors;
. changes in financial estimates by securities analysts;
. conditions or trends in the network services market;
. our announcement of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
. additions or departures of key personnel;
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. sales of common stock; and
. other events or factors that may be beyond our control.
In addition, the stock markets in general, and the Nasdaq National Market and
the market for network services and technology companies in particular, have
experienced extreme price and volume fluctuations recently. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. The trading prices of many technology companies' stocks are at
or near historical highs and these trading prices and multiples are
substantially above historical levels. These trading prices and multiples may
not be sustained. These broad market and industry factors may materially
adversely affect the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation often
has been instituted against that company. Litigation like this, if instituted,
could result in substantial costs and a diversion of management's attention and
resources.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
In June 1999, the Company issued 50,000 shares of Series C 7% Convertible
Redeemable Preferred Stock due 2010 ("Series C Preferred") to Microsoft for $50
million. Each share of Series C Preferred has a liquidation preference of
$1,000 per share. Dividends on the Series C Preferred accrue at the rate of 7%
per annum of the liquidation preference thereof and are payable quarterly in
arrears commencing on September 1, 1999. Dividends are payable in cash, except
that on each dividend payment date dividends may be paid, at the Company's
option, by the issuance of additional shares of Series C Preferred having an
aggregate liquidation preference equal to the amount of such dividends.
The Series C Preferred is redeemable at the option of the Company, in
whole or in part, at any time on or after June 1, 2003 at redemption rates
commencing with 105.125% declining to 100% on June 1, 2010. The Series C
Preferred is subject to mandatory redemption at its liquidation preference, plus
accumulated and unpaid dividends on September 1, 2010. The holder of any Series
C Preferred has the right, at its option, to convert at any time any shares of
Series C Preferred into shares of common stock at the conversion price of
$39.924.
In connection with the issuance of the Series C Preferred the Company
issued a warrant to purchase 500,000 shares of its common stock. The shares of
Series C Preferred and the warrant to purchase common stock were issued to
Microsoft in reliance on the exemption from registration under Section 4(2) of
the Securities Act of 1933 (the "Act").
In June 1999 the Company amended an agreement with TMI Telemedia
International, Ltd. (TMI) and in connection with the agreement, the Company
issued a warrant to purchase 50,000 shares of its common stock. The warrant
expires in January 2001 and is exercisable at $25.1875 per share. The warrant to
purchase shares of common stock was issued to TMI in reliance on the exemption
from registration under Section 4(2) of the Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 5, 1999, prior to the
stock split, at which the following matters were submitted to a vote of the
stockholders:
1. An election was held with Gary E. Rieschel being elected to the
Board of Directors as a Class I director with 16,486,376 shares voting
in favor and 91,276 shares withheld. Vinod Khosla was elected to the
Board of Directors as a Class II director with 16,542,622 shares voting
in favor and 35,032 shares withheld.
2. A proposal to amend the Company's 1997 Stock Plan to increase the
number of shares available for issuance thereunder by 1,000,000 shares
to an aggregate of 3,250,000 shares was approved with 9,531,135 shares
voting for, 4,509,952 shares voting against, 7,478 shares abstaining
and 2,529,089 broker non-votes.
3. A proposal to amend the Company's 1997 Stock Plan to provide for an
annual increase in the number of shares reserved for issuance
thereunder equal to the lesser of (i) 1,000,000 shares, (ii) 4% of the
outstanding shares of common stock of the Company or (iii) a number of
shares determined by the Board of Directors was approved with 9,057,306
shares voting in favor, 4,979,878 shares voting against, 11,381 shares
abstaining and 2,529,089 broker non-votes.
30
<PAGE>
4. A proposal to ratify the appointment of Ernst & Young LLP as
independent auditors for the Company for the fiscal year ending
December 31, 1999 was approved with 16,521,043 shares voting in favor,
52,786 shares voting against and 3,825 shares abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.3 Certificate of Designation of Voting Power
10.51 Definitive Agreement between SBC Operations, Inc. and the
Company, dated April 1, 1999
10.52 WebTV 2000 Pricing Term Sheet, dated June 18, 1999, between
WebTV and the Company
10.53 Agreement, dated June 18, 1999, between Microsoft Corporation
and the Company
27.1 Financial data schedule
(b) Reports on Form 8-K.
Not applicable.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1999
CONCENTRIC NETWORK CORPORATION
By: /s/ Henry R. Nothhaft
-------------------------------
Henry R. Nothhaft,
President, Chief Executive
Officer and Director
By: /s/ Michael F. Anthofer
-------------------------------
Michael F. Anthofer,
Senior Vice President and
Chief Financial Officer
32
<PAGE>
EXHIBIT 4.3
AMENDED CERTIFICATE OF DESIGNATION OF VOTING
POWER, DESIGNATION PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND
LIMITATIONS AND RESTRICTIONS OF 7% SERIES C
SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2010
OF CONCENTRIC NETWORK CORPORATION FILED IN THE OFFICE OF THE
SECRETARY OF STATE OF DELAWARE ON JUNE 28th, 1999.
Concentric Network Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, pursuant
to Section 151(g) of the Delaware General Corporation Law
DOES HEREBY CERTIFY:
1. The name of the corporation is Concentric Network Corporation.
2. That a Certificate of Designation of Voting Power was filed by the
Secretary of State of Delaware on June 29, 1999.
3. No shares of Series C 7% Convertible Redeemable Preferred Stock Due
2010 have been issued thereunder.
4. The Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations and Restrictions of Series C 7% Convertible
Redeemable Preferred Stock Due 2010 of Concentric Network Corporation is hereby
amended and restated in its entirety with the Amended Certificate of Designation
of Voting Power, Designation Preferences and Relative, Participating, Optional
and Other Special Rights and Qualifications, Limitations and Restrictions of
Series C 7% Convertible Redeemable Preferred Stock Due 2010 of Concentric
Network Corporation as Exhibit A hereto.
5. The designation of the Series C 7% Convertible Redeemable Preferred
Stock Due 2010 is not being changed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed by Michael F. Anthofer, Senior Vice President and Chief Financial
Officer of the Company and attested by Peter Bergeron, Secretary of the
Company, this 28th day of June, 1999.
CONCENTRIC NETWORK CORPORATION
By:
-------------------------------------
Name: Michael F. Anthofer
Title: Senior Vice President and
Chief Financial Officer
ATTEST:
By:
--------------------------------
Name: Peter Bergeron
Title: Secretary
-2-
<PAGE>
EXHIBIT A
- ---------
AMENDED CERTIFICATE OF DESIGNATION OF VOTING POWER,
DESIGNATION PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS
OF
SERIES C 7% CONVERTIBLE REDEEMABLE PREFERRED STOCK DUE 2010
OF
CONCENTRIC NETWORK CORPORATION
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
Concentric Network Corporation, a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in ARTICLE FOURTH of its
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Company at a meeting duly called and held on June 3, 1999, duly approved and
adopted the following resolution which resolution remains in full force and
effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue of one series of
Series C Preferred Stock having a par value of $1.00 per share, which shall be
designated as Series C 7% Convertible Redeemable Preferred Stock due 2010 (the
"Series C Preferred Stock") consisting of 110,000 shares, and each share of
Series C Preferred Stock shall have the following voting powers, preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
Affiliate: The term "Affiliate" of any specified Person shall mean any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person means the
power to direct or cause the direction of the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
3
<PAGE>
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
Applicable Redemption Price: The term "Applicable Redemption Price means a
price per share equal to the redemption price specified below (expressed as
percentages of the Liquidation Preference thereof), in each case together with
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period) to the date of redemption if
redeemed during the 12-month period commencing on June 1 of each of the years
set forth below:
Year Redemption Price
------ -----------------
2003 105.125%
2004 105.125
2005 105.125
2006 104.100
2007 103.075
2008 102.050
2009 101.025
and thereafter, 100%.
Board of Directors: The term "Board of Directors" shall mean the Board
of Directors of the Company or a committee of such Board duly authorized to act
for it hereunder.
Business Day: The term "Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which the banking
institutions in San Jose, California are authorized or obligated by law or
executive order to close or be closed.
Closing Price: The term "Closing Price" shall have the meaning
specified in Section 7(e)(7).
Commission: The term "Commission" shall mean the Securities and
Exchange Commission.
Common Stock: The term "Common Stock" shall mean any stock of any
class of the Company which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to redemption
by the Company. Subject to the provisions of Section 7(f), however, shares
issuable on conversion of Series C Preferred Stock shall include only shares of
the class designated as common stock of the Company at the date of this
Certificate of Designation or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
4
<PAGE>
Company: The term "Company" shall mean Concentric Network Corporation,
a Delaware corporation, having its principal office at 10590 N. Tantau Avenue,
Cupertino, CA 95014 and shall include its successors and assigns.
Conversion Price: The term "Conversion Price" shall have the meaning
specified in Section 7(d).
Convertible Security: The term "Convertible Security" shall be any
security that, by its terms, is convertible into Common Stock at the option of
the holder thereof.
Exchange Act: The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, as in effect from time to time.
Person: The term "Person" shall mean a corporation, an association, a
partnership, a limited liability corporation, an individual, a joint venture, a
joint stock company, a trust, an unincorporated organization or a government or
an agency or a political subdivision thereof.
Restricted Securities: The term "Restricted Securities" shall have
the meaning specified in Section 2.5.
Securities Act: The term "Securities Act" shall mean the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Series B Preferred Stock: The term "Series B Preferred Stock" shall
mean the Company's 13 1/2% Series B Senior Redeemable Exchangeable Preferred
Stock due 2010.
Series C Preferred Stock: The term "Series C Preferred Stock" shall
mean the Company's Series C 7% Redeemable Preferred Stock due 2010.
Share register: The term "Share register" shall have the meaning
specified in Section 2(e).
Trading Day: The term "Trading Day" shall have the meaning specified
in Section 7(e)(6).
Trigger Event: The term "Trigger Event" shall have the meaning
specified in Section 7(e)(4).
2. Issue, Designation and Form
(a) The Series C Preferred Stock shall be designated as "Series C 7%
Redeemable Convertible Series C Preferred Stock due 2010."
(b) The certificates evidencing shares of Series C Preferred Stock
shall be substantially in the form set forth in Exhibit A, which is incorporated
---------
in and made a part of this Certificate of Designation. Any of certificates may
have such letters, numbers or other marks of
5
<PAGE>
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Certificate of Designation, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or
regulation of any securities exchange or automated quotation system on which
the Series C Preferred Stock may be listed, or to conform to usage.
(c) The Series C Preferred Stock shall be issuable in registered form
in denominations of $1000.00 Liquidation Preference and integral multiples
thereof including Shares of Series C Preferred Stock issued by the Company
pursuant to Section 4(a). Every certificate evidencing Series C Preferred Stock
shall be dated the date of its execution.
(d) The certificates evidencing shares of Series C Preferred Stock
shall be signed in the name and on behalf of the Company by the facsimile
signature of its Chief Executive Officer, President, any Executive or Senior
Vice President or any Vice President (whether or not designated by a number or
numbers or word or words added before or after the title "Vice President") and
attested by the facsimile signature of its Secretary or any of its Assistant
Secretaries or Treasurer or any of its Assistant Treasurers (which may be
printed, engraved or otherwise reproduced thereon, by facsimile or otherwise).
(e) The Company shall maintain a register (the "Share register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of shares of Series C Preferred Stock and of
transfers of shares of Series C Preferred Stock. The Share register shall be in
written form or in any form capable of being converted into written form within
a reasonably prompt period of time. Upon surrender for registration of transfer
of any shares of Series C Preferred Stock to the Share registrar or any co-
registrar, and satisfaction of the requirements for such transfer set forth in
this Section 2(e), the Company shall execute, one or more new certificates
evidencing shares of Series C Preferred Stock of any authorized denominations
and of a like aggregate Liquidation Preference and bearing such restrictive
legends as may be required by this Certificate of Designation.
(f) Shares of Series C Preferred Stock may be exchanged for other
shares of Series C Preferred Stock of any authorized denominations and of a like
aggregate Liquidation Preference, upon surrender of the Series C Preferred Stock
to be exchanged at any such office or agency maintained by the Company for such
purposes. Whenever any shares of Series C Preferred Stock are so surrendered
for exchange, the Company shall execute the shares of Series C Preferred Stock
which the holder making the exchange is entitled to receive bearing registration
numbers not contemporaneously outstanding. All certificates evidencing Series C
Preferred Stock presented or surrendered for registration of transfer or for
exchange, redemption or conversion shall (if so required by the Share registrar)
be duly endorsed, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company. No service charge shall be made
for any registration of transfer or exchange of shares of Series C Preferred
Stock, but the Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge that may be imposed in connection with
any registration of transfer or exchange of such shares. Neither the Company
nor any Share registrar shall be required to exchange or register a transfer of
(a) any shares of Series C Preferred Stock for a period of fifteen (15) days
next preceding any selection of shares of Series C Preferred Stock to be
redeemed or (b) any shares of Series C Preferred Stock called for redemption
pursuant to
6
<PAGE>
Section 4 or (c) any shares of Series C Preferred Stock surrendered for
conversion pursuant to Section 7 or (d) during the period of time from a
Record Date until the next succeeding Dividend Payment Date.
(g) Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any certificate evidencing shares of Series C Preferred Stock (and all
securities issued in exchange therefor or substitution thereof, other than
Common Stock, if any, issued upon conversion thereof, which shall bear the
legend set forth in Section 2(h), if applicable) shall bear a legend in
substantially the following form, unless such Series C Preferred Stock has been
sold pursuant to a registration statement that has been declared effective under
the Securities Act (and which continues to be effective at the time of such
transfer), or unless otherwise agreed by the Company in writing:
THE SERIES C PREFERRED STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR
(B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE SERIES C
PREFERRED STOCK EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES
THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SERIES C PREFERRED STOCK EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE SERIES C PREFERRED STOCK EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH SERIES C PREFERRED STOCK WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT (A) TO
CONCENTRIC NETWORK CORPORATION OR ANY SUBSIDIARY THEREOF, (B) TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO CONCENTRIC NETWORK CORPORATION, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE SERIES C PREFERRED STOCK EVIDENCED HEREBY, (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE), IT WILL
FURNISH TO CONCENTRIC NETWORK CORPORATION, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION
7
<PAGE>
REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THE SERIES C PREFERRED STOCK EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE
PROPOSED TRANSFEREE IS A PURCHASER WHO IS NOT A UNITED STATES PERSON OR
AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO CONCENTRIC NETWORK CORPORATION, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE SERIES C PREFERRED STOCK EVIDENCED HEREBY PURSUANT TO
CLAUSE 2(D) ABOVE OR UPON ANY TRANSFER OF THE SERIES C PREFERRED STOCK
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION). THE SHARES OF SERIES C PREFERRED STOCK EVIDENCED
HEREBY MAY NOT BE SOLD, DISPOSED OF OR OTHERWISE TRANSFERRED TO ANY
PERSON OTHER THAN TO MICROSOFT CORPORATION OR ANY OF ITS AFFILIATES PRIOR
TO DECEMBER 18, 2000.
Any Series C Preferred Stock (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms or as to the conditions for removal of the foregoing
legend set forth therein have been satisfied may, upon surrender of such Series
C Preferred Stock for exchange to the Share registrar in accordance with the
provisions of this Section 2(g), be exchanged for a new Series C Preferred
Stock, of like tenor and Liquidation Preference, which shall bear a restrictive
legend containing only the final sentence of the above legend.
(h) Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any stock certificate representing Common Stock issued upon conversion of such
Series C Preferred Stock shall bear a legend in substantially the following
form, unless such Common Stock has been sold pursuant to a registration
statement that has been declared effective under the Securities Act (and which
continues to be effective at the time of such transfer) or such Common Stock has
been issued upon conversion of Series C Preferred Stock that have been
transferred pursuant to a registration statement that has been declared
effective under the Securities Act, or unless otherwise agreed by the Company in
writing with written notice thereof to the transfer agent:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT
UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
8
<PAGE>
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT (A)
TO CONCENTRIC NETWORK CORPORATION OR ANY SUBSIDIARY THEREOF, (B) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER
FURNISHES TO CHASEMELLON SHAREHOLDER SERVICES, LLC, AS TRANSFER AGENT (OR
A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT,
AS APPLICABLE), (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (D) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 1(D) ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES,
LLC, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) IT WILL DELIVER
TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
PURSUANT TO CLAUSE 1(D) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK
EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION). THE SECURITY EVIDENCED
HEREBY MAY NOT BE SOLD, DISPOSED OF OR OTHERWISE TRANSFERRED TO ANY
PERSON OTHER THAN TO MICROSOFT CORPORATION OR ANY OF ITS AFFILIATES ON OR
PRIOR TO DECEMBER 18, 2000.
Any such Common Stock as to which such restrictions on transfer shall have
expired in accordance with their terms or as to which the conditions for removal
of the foregoing legend set forth therein have been satisfied may, upon
surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like number of
shares of Common Stock, which shall not bear the restrictive legend required by
this Section 2(h).
Any Series C Preferred Stock or Common Stock issued upon the conversion or
exchange of any Series C Preferred Stock that, prior to the expiration of the
holding period applicable to sales
9
<PAGE>
thereof under Rule 144(k) under the Securities Act (or any successor
provision), is purchased or owned by the Company or any Affiliate thereof may
not be resold by the Company or such Affiliate unless registered under the
Securities Act or resold pursuant to an exemption from the registration
requirements of the Securities Act in a transaction which results in such
Series C Preferred Stock or Common Stock, as the case may be, no longer being
"restricted securities" (as defined under Rule 144).
(i) In case any certificate representing shares of Series C Preferred
Stock shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute a new certificate representing shares of Series C
Preferred Stock, bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated certificate, or in lieu of and in
substitution for the certificate so destroyed, lost or stolen. In every case
the applicant for a substituted certificate shall furnish to the Company, such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company, evidence to their satisfaction of the
destruction, loss or theft of such certificate and of the ownership thereof.
(j) Following receipt by the Company of satisfactory security or
indemnity and evidence, as described in the preceding paragraph, any such
substituted certificate and make available for delivery such certificate. Upon
the issuance of any substituted certificate, the Company may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses connected therewith. In case
any certificate which has been called for redemption or has been tendered for
redemption (and not withdrawn) or is about to be converted into Common Stock
shall become mutilated or be destroyed, lost or stolen, the Company may, instead
of issuing a substitute certificate, pay or authorize the payment of or convert
or authorize the conversion of the same (without surrender thereof except in the
case of a mutilated certificate), as the case may be, if the applicant for such
payment or conversion shall furnish to the Company such security or indemnity as
may be required by them to save each of them harmless for any loss, liability,
cost or expense caused by or connected with such substitution, and, in case of
destruction, loss or theft, evidence satisfactory to the Company of the
destruction, loss or theft of such certificate and of the ownership thereof.
(k) All certificates representing shares of Series C Preferred Stock
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Stock registrar or any conversion agent, be surrendered to the
Company and promptly canceled by it, or, if surrendered to the Company, shall
be promptly canceled by it, and no Series C Preferred Stock shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Certificate of Designation.
(l) The Company in issuing the Series C Preferred Stock may use
"CUSIP" numbers, and may use "CUSIP" numbers in notices of redemption as a
convenience to holders.
3. Ranking.
The Series C Preferred Stock shall rank, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Company, (i) senior to all
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classes of common stock of the Company and to each other class of capital
stock of the Company the terms of which expressly provide by their terms that
such class or series rank, or will rank on a junior to the Series C Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company (collectively referred to with the
common stock of the Company as "Junior Securities"); (ii) on a parity with any
additional shares of Series C Preferred Stock issued by the Company in the
future and any other class of capital stock or series of Series C Preferred
Stock issued by the Company in the future, the terms of which expressly
provide that such class or series will rank on a parity with the Series C
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred
to as "Parity Securities"); and (iii) junior to the Series B Preferred Stock
(the "Senior Securities") or other preferred stock of the Company by its terms
senior to the Series C Preferred Stock. The Company shall not issue any shares
of Senior Securities (other than additional shares of Series B Preferred Stock
issued as a dividend on any other Series B Preferred Stock or otherwise in
accordance with the Certificate of Designation governing the Series B
Preferred Stock) or Parity Securities (other than additional shares of Series
C Preferred Stock) without the consent of holders of at least seventy-five
percent (75%) of the outstanding Liquidation Preference of Series C Preferred
Stock (with shares held by the Company not being considered to be outstanding
for this purpose).
4. Dividends.
(a) The holders of shares of the Series C Preferred Stock (other than
shares as to which conversion is deemed effective pursuant to Section 7 and as
to which all accrued dividends have been paid) shall be entitled to receive,
when, as and if dividends are declared by the Board of Directors out of funds of
the Company legally available therefor, cumulative preferential dividends from
the Issue Date accumulating at the rate of seven percent (7%) of the Liquidation
Preference per share per annum, payable quarterly in arrears on each June 1,
September 1, December 1 or March 1 of each year or, if any such date is not a
Business Day, on the next succeeding Business Day (each, a "Dividend Payment
Date"), to the holders of record of such shares of Series C Preferred Stock as
of the next preceding May 15, August 15, November 15 or February 15 (each, a
"Record Date"). Dividends may be paid, at the Company's option, to any holder
of Series C Preferred Stock by the issuance of additional shares of Series C
Preferred Stock having an aggregate Liquidation Preference (rounded to the
nearest $1000.00) equal to the amount of such dividends payable on all shares of
Series C Preferred Stock held by such holder. The issuance of such additional
shares of Series C Preferred Stock shall constitute "payment" of the related
dividend for all purposes of this Certificate of Designation. The first dividend
payment on the Series C Preferred Stock shall be payable on September 1, 1999
(except with respect to shares of Series C Preferred Stock converted prior to
such date, if any). Dividends payable on the Series C Preferred Stock will be
computed on the basis of a 360-day year consisting of twelve 30-day months and
will be deemed to accumulate on a daily basis on the Liquidation Preference of
the Series C Preferred Stock. In the event a holder elects to convert shares of
Series C Preferred Stock into Common Stock pursuant to Section 7, on a date
other than a Dividend Payment Date, the Company shall have the right to pay all
accrued and unpaid dividends on such Series C Preferred Stock in cash through
the date of conversion.
(b) Dividends on the Series C Preferred Stock shall accrue whether or
not the Company has earnings or profits, whether or not there are funds legally
available for the payment
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of such dividends and whether or not dividends are declared. Dividends will
accumulate to the extent they are not paid on the Dividend Payment Date for
the period to which they relate.
(c) No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the Series
C Preferred Stock with respect to any dividend period unless all dividends for
all preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Series C Preferred Stock. Unless full cumulative dividends on all
outstanding shares of Series C Preferred Stock for all past dividend periods
shall have been declared and paid, or declared and a sufficient sum for the
payment thereof set apart, then: (i) no cash dividend (other than a dividend
payable solely in shares of any Junior Securities) shall be declared or paid
upon, or any sum set apart for the payment of dividends upon, any shares of
Junior Securities; (ii) no other distribution shall be declared or made upon, or
any sum set apart for the payment of any distribution upon, any shares of Junior
Securities, other than a distribution consisting solely of Junior Securities;
and (iii) no monies shall be paid into or set apart or made available for a
sinking or other like fund for the purchase, redemption or other acquisition or
retirement for value of any shares of Junior Securities by the Company or any of
its Subsidiaries, except in the ordinary course of the Company's business.
Holders of the Series C Preferred Stock will not be entitled to any dividends,
whether payable in cash, property or stock, in excess of the full cumulative
dividends as herein described.
5. Liquidation Rights.
Upon any voluntary or involuntary liquidation, dissolution or winding-
up of the Company or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Company's
capital stock (other than shares of Senior Securities), each holder of shares of
the Series C Preferred Stock will be entitled to payment out of the assets of
the Company available for distribution of an amount equal to the Liquidation
Preference per share of Series C Preferred Stock held by such holder, if any, to
the date fixed for liquidation, dissolution, winding-up or reduction or decrease
in capital stock, before any distribution is made on any Junior Securities,
including, without limitation, Common Stock of the Company. After payment in
full of the Liquidation Preference and all accumulated dividends, if any, to
which holders of Series C Preferred Stock are entitled, such holders will not be
entitled to any further participation in any distribution of assets of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Series C
Preferred Stock and all other Parity Securities are not paid in full, the
holders of the Series C Preferred Stock and the Parity Securities will share
equally and ratably in any distribution of assets of the Company in proportion
to the full Liquidation Preference and accumulated and unpaid dividends, if any,
to which each is entitled. However, neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
Persons will be deemed to be a voluntary or involuntary liquidation, dissolution
or winding-up of the Company or reduction or decrease in capital stock, unless
such sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding-up of the business of the Company or
reduction or decrease in capital stock.
6. Redemption by the Company.
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(a) On September 1, 2010 (the "Mandatory Redemption Date"), the
Company shall be required to redeem (subject to the legal availability of funds
therefor) all outstanding shares of Series C Preferred Stock at a price in cash
equal to the Liquidation Preference thereof, plus accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for any
partial dividend period) to the date of redemption. The Company shall not be
required to make sinking fund payments with respect to the Series C Preferred
Stock.
(b) Except as set forth below, the Series C Preferred Stock may not be
redeemed at the option of the Company prior to June 1, 2003. Each share of
Series C Preferred Stock will be subject to redemption at any time on or after
June 1, 2003, at the option of the Company at the Application Redemption Price;
provided, however, that the Series C Preferred Stock will not be redeemable at
the option of the Company on or after June 1, 2003, and before June 1, 2005
unless the arithmetic average of the Closing Price (determined as set forth in
Section 7(e)(6)) during the twenty-five Trading Days immediately prior to the
date notice of redemption is sent in accordance with Section 6(c) represents a
multiple of 2.5, or greater, times the Conversion Price.
(c) In case of redemption of less than all of the shares of Series C
Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected pro rata or by lot as determined by the Company in its sole discretion.
(d) Notice of any redemption shall be sent by or on behalf of the
Company not less than 30 nor more than 60 days prior to the date specified for
redemption in such notice (including the Mandatory Redemption Date, the
"Redemption Date"), by first class mail, postage prepaid, to all holders of
record of the Series C Preferred Stock at their last addresses as they shall
appear on the books of the Company; provided, however, that no failure to give
such notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Series C
Preferred Stock except as to the holder to whom the Company has failed to give
notice or except as to the holder to whom notice was defective. In addition to
any information required by law or by the applicable rules of any exchange upon
which Series C Preferred Stock may be listed or admitted to trading, such notice
shall state: (i) the Redemption Date; (ii) the Applicable Redemption Price;
(iii) the number of shares of Series C Preferred Stock to be redeemed and, if
less than all shares held by such holder are to be redeemed, the number of such
shares to be redeemed; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the Applicable Redemption Price; and
(v) that dividends on the shares to be redeemed will cease to accumulate on the
Redemption Date. Upon the mailing of any such notice of redemption, the Company
shall become obligated to redeem at the time of redemption specified thereon all
shares called for redemption.
(e) If notice has been mailed in accordance with Section 7(d) above
and provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be, and to continue to
be available therefor, then, from and after the Redemption Date, dividends on
the shares of the Series C Preferred Stock so called for redemption shall cease
to accumulate, and said shares shall no longer be deemed to be outstanding and
shall not have the status of shares of Series C Preferred Stock, and all rights
of the Holders thereof as stockholders
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<PAGE>
of the Company (except the right to receive from the Company the Applicable
Redemption Price) shall cease. Upon surrender, in accordance with said notice,
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Company shall so require and the notice shall so state),
such shares shall be redeemed by the Company at the Applicable Redemption
Price. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate or certificates shall be issued representing
the unredeemed shares without cost to the holder thereof.
(f) No Series C Preferred Stock may be redeemed except with funds
legally available for the purpose.
(g) All shares of Series C Preferred Stock redeemed pursuant to this
Section 7 shall be restored to the status of authorized and unissued shares of
Series C Preferred Stock, without designation as to series and may thereafter be
reissued as shares of any series of preferred stock other than shares of Series
C Preferred Stock.
7. Conversion
(a) Subject to and upon compliance with the provisions of this
Certificate of Designation, the holder of any Series C Preferred Stock shall
have the right, at its option, at any time after the date of this Certificate of
Designation to convert any shares of Series C Preferred Stock, into that number
of fully paid and non-assessable shares of Common Stock (as such shares shall
then be constituted) obtained by dividing the aggregate Liquidation Preference
on the shares of Series C Preferred Stock to be converted (plus, in the event
such shares are converted on a date other than a Dividend Payment Date, accrued
and unpaid dividends on such Series C Preferred Stock through the date such
Series C Preferred Stock is deemed to be converted in accordance with this
Section 7, unless the Company shall elect to pay such accrued and unpaid
dividend in cash as set forth in Section 4(a) above) by the Conversion Price in
effect at such time, by surrender of the certificate evidencing such shares of
Series C Preferred Stock so to be converted in the manner provided. A holder of
Series C Preferred Stock is not entitled to any rights of a holder of Common
Stock until such holder has converted shares of Series C Preferred Stock to
Common Stock, and only to the extent such Series C Preferred Stock are deemed to
have been converted to Common Stock under this Section 7.
(b) In order to exercise the conversion privilege with respect to any
shares of Series C Preferred Stock, the holder of shares to be converted shall
surrender such shares, duly endorsed, at an office or agency maintained by the
Company for such purposes, and shall give written notice of conversion in the
form provided on the certificate evidencing Series C Preferred Stock (or such
other notice which is acceptable to the Company) to the office or agency that
the holder elects to convert shares of Series C Preferred Stock. Such notice
shall also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, and shall be accompanied by transfer taxes,
if required pursuant to Section 7(g) which shall be Microsoft Corporation or an
Affiliate thereof if such conversion occurs on or before 18 months after the
date hereof. Each share of Series C Preferred Stock surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Series C Preferred Stock, be duly endorsed by,
or be accompanied by instruments of transfer in form satisfactory to the Company
duly executed by, the holder or his duly authorized attorney. As promptly as
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<PAGE>
practicable after satisfaction of the requirements for conversion set forth
above, subject to compliance with any restrictions on transfer if shares
issuable on conversion are to be issued in a name other than that of the holder
(as if such transfer were a transfer of the Series C Preferred Stock), the
Company shall issue and shall deliver to such holder at the office or agency
maintained by the Company for such purpose, a certificate or certificates for
the number of full shares of Common Stock to be issued by the Company upon the
conversion of shares of Series C Preferred Stock accordance with the provisions
of this Section 7 and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as provided in
Section 7(c), and, if the Company elects to pay accrued and unpaid dividends on
such shares pursuant to Section 4(a), a check or cash in respect of such
amounts. In case any Series C Preferred Stock of a denomination greater than
$1000.00 shall be surrendered for partial conversion, the Company shall execute
and deliver to the holder of the Series C Preferred Stock so surrendered,
without charge to him, a new certificate evidencing the unconverted shares of
Series C Preferred Stock evidenced by the surrendered certificate.
Each conversion shall be deemed to have been effected as to any such
Series C Preferred Stock on the date on which the requirements set forth above
in this Section 7(b) have been satisfied as to such Series C Preferred Stock,
and the Person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Series C Preferred Stock shall be surrendered.
(c) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of Series C Preferred Stock.
If any fractional share of stock would be issuable upon the conversion of any
share or shares of Series C Preferred Stock, the Company shall make an
adjustment and payment therefor in cash at the current market price thereof to
the holder of such shares. The current market price of a share of Common Stock
shall be the Closing Price on the last Business Day immediately preceding the
day on which the Series C Preferred Stock is deemed to have been converted.
(d) The conversion price applicable to the Series C Preferred Stock
shall be $39.924 (herein called the "Conversion Price"), subject to adjustment
as provided in this Section 7.
(e) The Conversion Price shall be adjusted from time to time by the
Company as follows:
(1) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become
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<PAGE>
effective immediately after the opening of business on the day following the
date fixed for such determination. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company. If any dividend or distribution of the type described in this Section
7(e)(1) is declared but not so paid or made, the Conversion Price shall again
be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
(2) In case the Company shall issue rights or warrants to all holders
of its outstanding shares of Common Stock entitling them (for a period expiring
within forty-five (45) days after the date fixed for determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined below) on the date fixed for determination of
stockholders entitled to receive such rights or warrants, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date fixed
for determination of stockholders entitled to receive such rights or warrants by
a fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for determination of
stockholders entitled to receive such rights and warrants plus the number of
shares which the aggregate offering price of the total number of shares so
offered would purchase at such Current Market Price, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date fixed for determination of stockholders entitled to receive such rights and
warrants plus the total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made whenever
any such rights and warrants are issued, and shall become effective immediately
after the opening of business on the day following the date fixed for
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that such
rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such date
fixed for the determination of stockholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate offering price
of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such rights or warrants, the value of
such consideration, if other than cash, to be determined by the Board of
Directors.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
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(4) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which Section 7(e)(1)
applies) or evidences of its indebtedness or assets (including securities, but
excluding any rights or warrants referred to in Section 7(e)(2), and excluding
any dividend or distribution (x) paid exclusively in cash or (y) referred to in
Section 7(e)(1) (any of the foregoing hereinafter in this Section 7(e)(4) called
the "Securities")), then, in each such case (unless the Company elects to
reserve such Securities for distribution to the holders upon the conversion of
the shares of Series C Preferred Stock so that any such holder converting shares
will receive upon such conversion, in addition to the shares of Common Stock to
which such holder is entitled, the amount and kind of such Securities which such
holder would have received if such holder had converted its shares of Series C
Preferred Stock into Common Stock immediately prior to the record date (as
defined in Section 7(e)(7) for such distribution of the Securities)), the
Conversion Price shall be reduced so that the same shall be equal to the price
determined by multiplying the Conversion Price in effect on the record date with
respect to such distribution by a fraction of which the numerator shall be the
Current Market Price per share of the Common Stock on such record date less the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive, and described in a resolution of the Board if Directors) on
the record date of the portion of the Securities so distributed applicable to
one share of Common Stock and the denominator shall be the Current Market Price
per share of the Common Stock, such reduction to become effective immediately
prior to the opening of business on the day following such record date;
provided, however, that in the event the then fair market value (as so
determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price of
the Common Stock on the record date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder shall have the right to
receive upon conversion the amount of Securities such holder would have received
had such holder converted each share of Series C Preferred Stock on the record
date. In the event that such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such dividend or distribution had not been declared.
If the Board of Directors determines the fair market value of any distribution
for purposes of this Section 7(e)(4) by reference to the actual or when issued
trading market for any securities, it must in doing so consider the prices in
such market over the same period used in computing the Current Market Price of
the Common Stock.
In the event that the Company implements a stockholders' rights plan
("Rights Plan"), such Rights Plan must provide that, subject to customary
exceptions, upon conversion of the shares of Series C Preferred Stock the
Holders will receive, in addition to the Common Stock issuable upon conversion,
such rights whether or not such rights have separated from the Common Stock at
the time of such conversion.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"): (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 7(e) (and no adjustment to the Conversion Price under
this Section 7(e) will be required) until the occurrence of the earliest Trigger
Event, whereupon such rights and warrants shall be deemed to
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have been distributed and an appropriate adjustment (if any is required) to
the Conversion Price shall be made under this Section 7(e)(4). If any such
right or warrant, including any such existing rights or warrants distributed
prior to the date of this Certificate of Designation, are subject to events,
upon the occurrence of which such rights or warrants become exercisable to
purchase different securities, evidences of indebtedness or other assets, then
the date of the occurrence of any and each such event shall be deemed to be
the date of distribution and record date with respect to new rights or
warrants with such rights (and a termination or expiration of the existing
rights or warrants without exercise by any of the holders thereof). In
addition, in the event of any distribution (or deemed distribution) of rights
or warrants, or any Trigger Event or other event (of the type described in the
preceding sentence) with respect thereto that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this Section 7(e) was made, (1) in the case of any such rights or
warrants which shall all have been redeemed or repurchased without exercise by
any holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger Event,
as the case may be, as though it were a cash distribution, equal to the per
share redemption or repurchase price received by a holder or holders of Common
Stock with respect to such rights or warrants (assuming such holder had
retained such rights or warrants), made to all holders of Common Stock as of
the date of such redemption or repurchase, and (2) in the case of such rights
or warrants which shall have expired or been terminated without exercise by
any holders thereof, the Conversion Price shall be readjusted as if such
rights and warrants had not been issued.
For purposes of this Section 7(e)(4) and Sections 7(e)(1) and 7(e)(2),
any dividend or distribution to which this Section 7(e)(4) is applicable that
also includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights or warrants (and
any Conversion Price reduction required by this Section 7(e)(4) with respect to
such dividend or distribution shall then be made) immediately followed by (2) a
dividend or distribution of such shares of Common Stock or such rights or
warrants (and any further Conversion Price reduction required by Sections
7(e)(1) and (2) with respect to such dividend or distribution shall then be
made), except (A) the record date of such dividend or distribution shall be
substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution" and "the date fixed for such
determination" within the meaning of Sections 7(e)(1) and (2) and (B) any shares
of Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
within the meaning of Section 7(1).
(5) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock, or to all holders of any series of preferred
stock or other equity security with respect to which dividends are payable, cash
(excluding (x) any quarterly cash dividend on the Common Stock to the extent the
aggregate cash dividend per share of Common Stock in any fiscal quarter does not
exceed the greater of (A) the amount per share of Common Stock of the next
preceding quarterly cash dividend on the Common Stock to the extent that such
preceding quarterly dividend did not require any adjustment of the Conversion
Price pursuant to this Section 7(e)(5) (as adjusted to reflect subdivisions or
combinations of the Common Stock), and (B) 1.75% in the case of Common Stock or
any Convertible Security, or 3.75% in the case of any series of preferred stock
or other equity security to which this Section 7(e)(5) applies which
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is not a Convertible Security, of the arithmetic average of the Closing Price
(determined as set forth in Section 7(e)(6)) during the twenty-five Trading
Days immediately prior to the date of declaration of such dividend, and (y)
any dividend or distribution in connection with the liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary), then, in such
case, the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on such record date by a fraction of which the
numerator shall be the Current Market Price of the Common Stock on the record
date less the amount of cash so distributed (and not excluded as provided
above) applicable to one share of Common Stock and the denominator shall be
such Current Market Price of the Common Stock, such reduction to be effective
immediately prior to the opening of business on the day following the record
date; provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or greater
than the Current Market Price of the Common Stock on the record date, in lieu
of the foregoing adjustment, adequate provision shall be made so that each
holder shall have the right to receive upon conversion the amount of cash such
holder would have received had such holder converted each share of Series C
Preferred Stock on the record date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. If any adjustment is required
to be made as set forth in this Section 7(e)(5) as a result of a distribution
that is a quarterly dividend, such adjustment shall be based upon the amount
by which such distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant hereto. If an adjustment is required to be
made as set forth in this Section 7(e)(5) above as a result of a distribution
that is not a quarterly dividend, such adjustment shall be based upon the full
amount of the distribution.
(6) In case the Company shall issue additional shares of Common Stock
or Convertible Securities, issued for no consideration or for a consideration
per share less than the Conversion Price (determined on an "as converted" basis
in the case of a Convertible Security) (other than shares of Common Stock issued
or issuable (i) upon conversion or exercise of warrants or other convertible
securities outstanding as of June 21, 1999 and (ii) pursuant to stock incentive
or option plans approved by the Company's Board of Directors) then and in such
event, the Conversion Price for the Series C Preferred Stock shall be reduced,
concurrently with such issue, by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Company for the total
number of additional shares of Common Stock so issued would purchase at such
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such additional shares of
Common Stock so issued; provided, however, that if the additional shares of
Common Stock are issued pursuant to a firmly underwritten public offering than
the foregoing adjustment shall be made only if the consideration per share is
less than the Current Market Price of the Common Stock. For the purpose of the
above calculation, the number of shares of Common Stock outstanding immediately
prior to such issue shall be calculated on a fully diluted basis, as if all
shares of Series B or C Preferred Stock and all convertible securities had been
fully converted into shares of Common Stock immediately prior to such issuance
and any outstanding warrants, options or other rights for the purchase of shares
of stock or convertible securities had been fully exercised immediately prior to
such issuance
19
<PAGE>
(and the resulting securities fully converted into shares of Common Stock, if
so convertible) as of such date.
(7) For purposes of this Section 7(e), the following terms shall have
the meaning indicated:
a. "Closing Price" with respect to any securities on any day
shall mean the closing sale price regular way on such day
or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices,
regular way, in each case on the NASDAQ National Market
("NNM"), or, if such security is not listed or admitted to
trading on NNM, on the principal national security exchange
or quotation system on which such security is quoted or
listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange
or quotation system, the average of the closing bid and
asked prices of such security on the over-the-counter market
on the day in question as reported by the National Quotation
Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as
furnished by any National Association of Securities Dealers
firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the
Board of Directors or, to the extent permitted by applicable
law, a duly authorized committee thereof, whose
determination shall be conclusive.
b. "Current Market Price" shall mean the average of the daily
Closing Prices per share of Common Stock for the twenty-five
consecutive Trading Days immediately prior to the date in
question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event that requires an
adjustment to the Conversion Price pursuant to Section
7(e)(1), (2), (3), (4), (5) or (6) occurs during such twenty-
five consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the
same fraction by which the Conversion Price is so required
to be adjusted as a result of such other event, or (2) if
the "ex" date for any event that requires an adjustment to
the Conversion Price pursuant to Section 7(e)(1), (2), (3),
(4), (5) or (6) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and
prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is
so required to be adjusted as a result of such other event.
For purposes of any computation under Section 7(e)(5), the
Current Market Price of the Common Stock on any date shall
be deemed to be the average of the daily Closing Prices per
share of Common Stock for such day and the next two
20
<PAGE>
succeeding Trading Days. For purposes of this paragraph, the
term "ex" date, (1) when used with respect to any issuance
or distribution, means the first date on which the Common
Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained
without the right to receive such issuance or distribution,
and (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date
on which the Common Stock trades regular way on such
exchange or in such market after the time at which such
subdivision or combination becomes effective.
c. "fair market value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's length
transaction.
d. "record date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the
holders of Common Stock have the right to receive any cash,
securities or other property or in which the Common Stock
(or other applicable security) is exchanged for or converted
into any combination of cash, securities or other property,
the date fixed for determination of stockholders entitled to
receive such cash, securities or other property (whether
such date is fixed by the Board of Directors or by statute,
contract or otherwise).
e. "Trading Day" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock
Exchange or another national security exchange, a day on
which the New York Stock Exchange or another national
security exchange is open for business or (y) if the
applicable security is quoted on the NNM, a day on which
trades may be made on thereon or (z) if the applicable
security is not so listed, admitted for trading or quoted,
any day other than a Saturday or Sunday or a day on which
banking institutions in the State of California are
authorized or obligated by law or executive order to close.
(8) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 7(e)(1), (2), (3), (4), (5) or (6) as the
Board of Directors considers to be advisable to avoid or diminish any income tax
to holders of Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to
time may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) days, the reduction is irrevocable during the
period and the Board of Directors shall have made a determination that such
reduction would be in the best interests of the Company, which determination
shall be conclusive. Whenever the Conversion Price is reduced pursuant to the
preceding sentence, the Company shall mail to holders of record of the Series C
Preferred Stock a notice of the reduction at least fifteen (15) days prior to
the date the reduced Conversion Price
21
<PAGE>
takes effect, and such notice shall state the reduced Conversion Price and the
period during which it will be in effect.
(9) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least one percent
(1%) in such price; provided, however, that any adjustments which by reason of
this Section 7(e)(9) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 7 shall be made by the Company and shall be made to the nearest cent or
to the nearest one-hundredth (1/100) of a share, as the case may be. No
adjustment need be made for rights to purchase Common Stock pursuant to a
Company plan for reinvestment of dividends or interest. To the extent the
Series C Preferred Stock become convertible into cash, assets, property or
securities (other than capital stock of the Company), no adjustment need be made
thereafter as to the cash, assets, property or such securities. Interest will
not accrue on the cash.
(10) Whenever the Conversion Price is adjusted as herein provided, the
Company shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the date on which each
adjustment becomes effective and shall mail such notice of such adjustment of
the Conversion Price to each holder of Series C Preferred Stock at his last
address appearing on the Share register, within twenty (20) days after the
effectiveness thereof. Failure to deliver such notice shall not affect the
legality or validity of any such adjustment.
(11) In any case in which this Section 7(e) provides that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
holder of any Series C Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Stock issuable upon such conversion before giving
effect to such adjustment and (ii) paying to such holder any amount in cash in
lieu of any fraction pursuant to Section 7(c).
(12) For purposes of this Section 7(e), the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(f) If any of the following events occur, namely (i) any
reclassification or change of the outstanding shares of Common Stock (other than
a subdivision or combination to which Section 7(e)(3) applies), (ii) any
consolidation, merger or combination of the Company with another corporation as
a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, or (iii) any sale or conveyance of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing corporation, as the case may be, shall amend this
Certificate of Designation to provide that such shares of Series C Preferred
Stock shall be convertible into the kind and
22
<PAGE>
amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance by a holder of a number of shares of
Common Stock issuable upon conversion of such shares of Series C Preferred
Stock (assuming, for such purposes, a sufficient number of authorized shares
of Common Stock available to convert all such shares of Series C Preferred
Stock) immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming such holder of Common Stock
did not exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided that, if the kind or amount
of securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance is not the same for each share
of Common Stock in respect of which such rights of election shall not have
been exercised ("nonelecting share")), then for the purposes of this Section
7(f), the kind and amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance for
each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares. Such amendment
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section. The Company shall
cause notice of the amendment of this Certificate of Designation to be mailed
to each holder of Series C Preferred Stock, at its address appearing on the
Share register, within twenty (20) days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of such
amendment. The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances. If this Section 7(f) applies to any event or
occurrence, Section 7(e) shall not apply.
(g) The issue of stock certificates on conversions of shares of Series
C Preferred Stock shall be made without charge to the converting holder for any
tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the holder of
any share of Series C Preferred Stock converted, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
Person or Persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(h) The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient shares of
Common Stock to provide for the conversion of the shares of Series C Preferred
Stock from time to time as such are presented for conversion. Before taking any
action which would cause an adjustment reducing the Conversion Price below the
then par value, if any, of the shares of Common Stock issuable upon conversion
of the Series C Preferred Stock, the Company will take all corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue shares of such Common Stock at such adjusted
Conversion Price. The Company covenants that all shares of Common Stock which
may be issued upon conversion of Series C Preferred Stock will upon issue be
fully paid and non-assessable by the Company and free from all taxes, liens and
charges with respect to the issue thereof.
(i) In case:
23
<PAGE>
(1) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Price pursuant to Section 7(e); or
(2) the Company shall authorize the granting to the holders of
all or substantially all of its Common Stock of rights or warrants to
subscribe for or purchase any share of any class or any other rights or
warrants; or
(3) of any reclassification or reorganization of the Common Stock
of the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value,
or from no par value to par value), or of any consolidation or merger to
which the Company is a party and for which approval of any stockholders of
the Company is required, or of the sale or transfer of all or substantially
all of the assets of the Company;
the Company shall cause to be mailed to each holder of Series C Preferred Stock
at his address appearing on the Share register provided for in Section 2(e) of
this Certificate of Designation, as promptly as possible but in any event at
least fifteen (15) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
8. Consolidation; Merger; Sale of Assets. Nothing contained in this
Certificate of Designation shall prevent any consolidation or merger of the
Company with or into any other corporation or corporations (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance or lease (or successive sales, conveyances or
leases) of all or substantially all of the property of the Company, to any other
corporation (whether or not affiliated with the Company), authorized to acquire
and operate the same and which shall be organized under the laws of the United
States of America, any state thereof or the District of Columbia; provided that
upon any such consolidation, merger, sale, conveyance or lease, the due and
punctual payment of the Liquidation Preference and any dividends on all of the
Series C Preferred Stock, according to their terms shall be expressly assumed by
the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property, and such amendment shall provide for the
applicable conversion rights set forth in Section 7(f).
24
<PAGE>
9. Voting Rights. Except as otherwise provided in this Designation or as
required by law, the holders of record of shares of the Series C Preferred Stock
shall have no voting rights.
10. Amendment.
(a) The Company shall not, without the affirmative vote or consent of
the holders of at least seventy-five percent (75%) of the outstanding
Liquidation Preference of Series C Preferred Stock then outstanding (with shares
held by the Company or any of its Affiliates not being considered to be
outstanding for this purpose) voting or consenting as the case may be, as one
class, amend or otherwise alter this Certificate of Designation (including the
provisions of this Section 10) in any manner that adversely affects the
specified rights, preferences, privileges or voting rights of holders of Series
C Preferred Stock.
(b) Without the consent of each holder affected, an amendment or
waiver of the Company's Certificate of Incorporation or of this Certificate of
Designation may not (with respect to any shares of Series C Preferred Stock held
by a non-consenting holder):
(i) reduce the number of shares of Series C Preferred Stock
whose holders must consent to an amendment, supplement or waiver;
(ii) reduce the Liquidation Preference of or change the
Mandatory Redemption Date of any share of Series C Preferred Stock or
alter the provisions with respect to the redemption of the Series C
Preferred Stock;
(iii) reduce the rate of or change the time for payment of
dividends on any share of Series C Preferred Stock;
(iv) make any share of Series C Preferred Stock payable in any
form other than that stated in this Certificate of Designation;
(v) make any change in the provisions of this Certificate of
Designation relating to waivers of the rights of holders of Series C
Preferred Stock to receive the Liquidation Preference and dividends on
the Series C Preferred Stock;
(vi) waive a redemption payment with respect to any share of
Series C Preferred Stock (except as provided with respect to Section
10 hereof); or
(vii) make any change in the foregoing amendment and waiver
provisions.
(c) The Company in its sole discretion may without the vote or consent
of any holders of the Series C Preferred Stock amend or supplement this
Certificate of Designation:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Series C Preferred Stock in
addition to or in place of certificated Series C Preferred Stock;
25
<PAGE>
(iii) to make any change that would provide any additional
rights or benefits to the holders of the Series C Preferred Stock or
that does not adversely affect the legal rights under this Certificate
of Designation of any such holder; or
(iv) to make any amendment required by Section 7(f) or 8.
Except as set forth above, the creation, authorization or issuance of,
or the increase or decrease in the authorized amount of, capital stock of any
class, including any Series C Preferred Stock, shall not require the consent of
the holders of the Series C Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges, special rights or voting rights
of holders of shares of Series C Preferred Stock.
11. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series C
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate of Designation (as amended from time to time) and
in the Certificate of Incorporation. The shares of Series C Preferred Stock
shall have no preemptive or subscription rights.
12. Provision for Financial Information.
The Company will, within 15 days of each file with the Commission the
annual reports, quarterly reports which the Company would have been required to
file with the Commission pursuant to Section 13(a) or 15(d), transmit by mail to
all holders, as their names and addresses appear in the Share register, without
cost to such holders copies of the annual reports, quarterly reports documents
which the Company is required to file with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act.
13. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
14. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series C Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as such resolution may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series C Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series C Preferred Stock
and qualifications, limitations and restrictions thereof shall, nevertheless,
remain in full force and effect, and no voting powers, preferences and
relative, participating, optional or other special rights of Series C
Preferred Stock and qualifications, limitations and restrictions thereof
herein set forth shall be deemed dependent upon any other such voting powers,
preferences and relative, participating, optional or other special rights of
26
<PAGE>
Series C Preferred Stock and qualifications, limitations and restrictions
thereof unless so expressed herein.
[The Remainder of this Page is Intentionally Left Blank]
27
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be duly
executed by Michael F. Anthofer, Senior Vice President and Chief Financial
Officer of the Company and attested by Peter Bergeron, Secretary of the Company,
this 28th day of June, 1999.
CONCENTRIC NETWORK CORPORATION
By:
_______________________________________
Name: Michael F. Anthofer
Title: Senior Vice President and Chief
Financial Officer
ATTEST:
By:
_________________________________
Name: Peter Bergeron
Title: Secretary
28
<PAGE>
EXHIBIT 10.51
DEFINITIVE AGREEMENT
BETWEEN
SBC OPERATIONS INC.
AND
CONCENTRIC NETWORK CORPORATION
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc. (and its
Affiliated Companies) and Concentric Network Corporation only and is not for
disclosure without prior written approval.
-1-
<PAGE>
PART I - DEAL TERMS ...................................... 8
- -------------------
1. SCOPE AND STRUCTURE OF RELATIONSHIP................. 8
2. DEFINITIONS......................................... 8
3. PRODUCT SPECIFICATION AND PLANNING.................. 8
3.1 SBC Acceptance of Products..................... 8
3.2 Damages for delay.............................. 9
4. NEW PRODUCTS AND SERVICES........................... 9
4.1 New Products Committee......................... 10
4.3 Upgrades....................................... 10
6. USE OF SBC TRANSPORT................................ 10
7. NATURE OF THE RELATIONSHIP.......................... 10
7.2 Non-Exclusive Relationship..................... 11
8. PRICING AND PRICE PROTECTION........................ 11
8.1 Systems and Billing............................ 11
8.2 [*]............................................ 13
9. REPORTING........................................... 13
10. CHANNEL SYNERGIES AND CONFLICT...................... 13
10.1 Channel Plan.................................. 14
10.2 RFP Responses................................. 14
10.3 Employee Conduct.............................. 14
[*]...................................................... 14
12. FORECASTING AND FUTURE NETWORK COVERAGE............. 14
13. BRANDING............................................ 15
[*]...................................................... 15
15. CUSTOMER CARE/TECH SUPPORT.......................... 15
16. SALES TRAINING...................................... 15
17. TERM OF AGREEMENT................................... 15
18. TERMINATION......................................... 15
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
-2-
<PAGE>
18.1 Termination at End of Term.................... 15
18.2 Termination For Convenience................... 16
18.3 Termination for Cause......................... 16
18.4 Termination evolving from Regulatory
Contingencies................................. 17
19. CUSTOMER TRANSITION PROVISIONS...................... 17
19.1 Customer Transition Plan...................... 17
19.2 Customer Migration............................ 17
20. STEERING COMMITTEE AND STRATEGIC RELATIONSHIP....... 17
20.1 Steering Committee............................ 17
20.2 Additional Areas for Cooperation.............. 17
20.3 Technology Committee.......................... 17
21. NETWORK OPERATIONS.................................. 18
22. PUBLICITY........................................... 18
PART II - STANDARD TERMS AND CONDITIONS................... 18
- ---------------------------------------
1. DEFINITIONS......................................... 18
2. BENEFIT OF AGREEMENT EXTENDING TO SBC AFFILIATES.... 21
3. NO INTERLATA ACTIVITIES BY SBC..................... 21
4. REPRESENTATIONS AND WARRANTIES...................... 22
4.1 Authorization.................................. 22
4.2 Compliance with Specifications................. 22
4.3 Year 2000...................................... 22
4.4 Warranty Limits................................ 23
5. LIABILITY LIMITS.................................... 23
6. INDEMNIFICATION AND INFRINGEMENT.................... 23
6.1 Infringement................................... 23
6.2 Indemnification................................ 25
7. INSURANCE........................................... 26
8. CUSTOMER INFORMATION................................ 27
9. NON-SOLICITATION OF SBC CUSTOMERS................... 28
10. INTELLECTUAL PROPERTY RIGHTS........................ 28
10.1 CNC Software.................................. 28
10.2 SBC Software.................................. 29
10.3 Trademarks.................................... 29
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations Inc.
(and its Affiliates Companies) and Concentric Network Corporation only
and is not for disclosure without prior written approval.
-3-
<PAGE>
10.4 New Developments.............................. 30
10.5 General....................................... 31
11. CONFIDENTIAL INFORMATION............................ 32
11.1 SBC's Information............................. 32
11.2 CNC's Information............................. 32
13. RECORDS AND AUDITS.................................. 33
14. CURE................................................ 34
15. DISPUTE ESCALATION.................................. 34
16. ARBITRATION......................................... 34
17. GOVERNING LAW....................................... 35
18. RELATIONSHIP OF PARTIES............................. 35
19. REMEDIES............................................ 35
20. AMENDMENT AND WAIVER................................ 35
21. RELEASES VOID....................................... 36
22. FORCE MAJEURE....................................... 36
23. ASSIGNMENT.......................................... 37
24. CONFLICT OF INTEREST................................ 37
25. LIENS PROHIBITED.................................... 38
26. SEVERABILITY........................................ 38
27. SURVIVAL............................................ 38
28. COMPLIANCE WITH LAWS/REGULATORY CONTINGENCY......... 38
28.1 Compliance With Laws.......................... 38
28.2 Regulatory Contingency........................ 39
29. TAXES............................................... 39
30. ACCESS TO PREMISES.................................. 40
31. USE OF SBC SYSTEMS.................................. 41
32. WORK DONE BY OTHERS................................. 41
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations Inc.
(and its Affiliates Companies) and Concentric Network Corporation only
and is not for disclosure without prior written approval.
-4-
<PAGE>
33. SECURITY............................................ 41
34. INSPECTIONS......................................... 41
35. INDEPENDENT CONTRACTOR/ SBC AGENT................... 42
36. DIVERSION OF EMPLOYMENT............................. 43
37. UNIVERSAL DESIGN.................................... 43
38. HEADINGS............................................ 43
39. NOTICES............................................. 44
40. ENTIRE AGREEMENT/RELATIONSHIP AMONG DOCUMENTS....... 44
41. SIGNATURES.......................................... 47
ATTACHMENTS............................................... 47
- -----------
1. MARKETING SERVICE DESCRIPTION........................ 47
2. TECHNICAL SERVICE DESCRIPTION........................ 47
3. DEPLOYMENT AND DELIVERY.............................. 47
4. USE OF SBC TRANSPORT................................. 47
5. CNC'S EXISTING STRATEGIC RELATIONSHIPS............... 47
6. BILLING.............................................. 47
7. SYSTEMS.............................................. 47
8. PRICING.............................................. 47
9. PERFORMANCE COMMITMENTS AND REPORTS.................. 47
10. SALES CHANNEL CONFLICTS.............................. 47
11. FORECASTING.......................................... 47
12. BRANDING............................................. 47
13. CUSTOMER CARE AND TECHNICAL SUPPORT.................. 47
14. SALES TRAINING AND SUPPORT........................... 47
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations Inc.
(and its Affiliates Companies) and Concentric Network Corporation only
and is not for disclosure without prior written approval.
-5-
<PAGE>
15. NETWORK MANAGEMENT AND MONITORING.................... 47
16. PROVISIONING......................................... 47
17. SERVICE LEVEL AGREEMENTS............................. 47
18. WHOLESALE DIAL ACCESS................................ 47
19. EXECUTIVE ORDERS AND ASSOCIATED REGULATIONS.......... 47
20. CONSULTING SERVICES.................................. 47
21. ACCEPTANCE TEST PLAN AND PROCEDURES.................. 47
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations Inc.
(and its Affiliates Companies) and Concentric Network Corporation only
and is not for disclosure without prior written approval.
-6-
<PAGE>
This Definitive Agreement ("Agreement"), effective as of April 1, 1999 (the
"Effective Date"), is made between SBC Operations Inc., a Delaware corporation,
(herein referred to as "SBC") with offices located at 175 East Houston Street,
San Antonio, TX 78215 and Concentric Network Corporation ("CNC"), a Delaware
corporation, with offices located at 1400 Parkmoor Avenue, San Jose, CA 95126.
For the purpose of this Agreement, SBC and CNC are each a "Party" and
collectively, the "Parties."
This Agreement is made with reference to the following facts, which form the
basis for this Agreement:
A. SBC is one of a group of companies affiliated which share the parent company
SBC Communications, Inc. providing telecommunications and network services to
individual and business end-users worldwide. Affiliates of SBC offer internet
access and network services on a IntraLATA basis (hereinafter defined).
B. CNC is a network and Internet service provider offering IntraLATA and
InterLATA (hereinafter defined) services, with particular emphasis on Virtual
Private Network ("VPN") and similar services offered to small and medium sized
business customers.
C. The Parties previously have entered into the Trial Agreement dated October
19, 1998 pursuant to which the Parties are operating a trial of certain
cooperatively offered products and services, the Stock Purchase Agreement dated
October 19, 1998 pursuant to which SBC has acquired a certain percentage of
CNC's stock, and the Web Hosting General Agreement dated October 9, 1998
("Hosting GA") pursuant to which CNC is providing web hosting services to SBC,
its affiliates and customers. The Parties also have had discussions regarding a
broader strategic relationship.
D. The Parties wish to formalize their previous discussions regarding a
strategic relationship pursuant to which SBC will purchase certain IntraLATA
products and services from CNC, and make such IntraLATA products and services
available to end user customers of SBC. The products and services delivered to
SBC's customers through this strategic relationship are intended to be
competitive offerings, achieved through successful planning, implementation and
improvement of technology, business processes, and strategic deployment of the
Parties' integrated products and services, with the goal of enhancing
competition and offering end user customers compelling, quality products and
services in a highly competitive, rapidly evolving marketplace. In addition,
the Parties wish to set forth in this Agreement (including the attachments and
schedules attached hereto) all the terms and conditions governing the strategic
relationship between them.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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PART I - DEAL TERMS
- -------------------
1. SCOPE AND STRUCTURE OF RELATIONSHIP
CNC hereby agrees to provide SBC with the Products and Services described in
ATTACHMENT 1, Marketing Service Description, on the terms and conditions set
forth herein. In addition, CNC agrees to make available to SBC for resale to end
users all enhancements and upgrades to Products and Services, as well as new
products and services which are related or complementary to the Products and
Services, as set forth in Part I, Section 4 below.
2. DEFINITIONS
All capitalized terms not otherwise defined will have the meaning set forth in
Part II, Section 1, Definitions.
3. PRODUCT SPECIFICATION AND PLANNING
All Products and Services to be delivered by CNC hereunder will conform in all
material respects to the descriptions and specifications set forth in ATTACHMENT
2, Technical Service Description, as such Attachment 2, Technical Service
Description or other applicable attachments, may be modified from time to time
by the express written agreement of the Parties. CNC will provide electronic
and hard copies of all descriptions of the Products and Services and their
functionality, including all sales and technical materials prepared by CNC,
subject to the licensing requirements herein, including third party obligations.
SBC will have access to these Service descriptions and sales material and
authority to adapt, brand and publish them for use with its sales force and
other SBC personnel and SBC customers.
3.1 SBC Acceptance of Products
CNC will deliver new Products and Services, as well as upgrades to Products
and Services in accordance with ATTACHMENT 2, Technical Service Description
or other applicable attachments, on or before the initial launch, new
product or upgrade dates set forth in ATTACHMENT 3, Deployment and
Delivery. A Product or Service or upgrade will be deemed delivered when SBC
reasonably determines that the performance and reliability of such Product
or Service conforms in all material respects to the descriptions and
specifications set forth in ATTACHMENT 2, Technical Service Description, or
other applicable attachments. Failure by SBC to respond or test the product
within thirty (30)
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
days from the date the Product or Service is delivered to SBC for testing,
will relieve CNC from Damages for Delay. Notwithstanding any implication to
the contrary, if after SBC accepts a Product or Service and it does not
perform to its required specifications, CNC will bring such Product or
Service into compliance as specified by the warranty provisions of this
Agreement without cost to SBC. If, prior to acceptance by SBC, any of the
Products or Services are found conform in all material respects with
ATTACHMENT 2, Technical Service Description, SBC may require CNC to
correct, at CNC's sole expense, any problems and otherwise ensure that the
applicable Product or Service conforms in all material respects to
ATTACHMENT 2, Technical Service Description, and damages for delay, as set
forth in Part I, Section 3.2, Damages for Delay, will apply until
acceptance by SBC.
3.2 Damages for delay
CNC understands that the achievement of the dates for development,
delivery and launch of Products and Services is critical for SBC's plans
to provide Products and Services to its customers as rapidly as possible
and for the success of the Parties' relationship. CNC agrees to take all
commercially reasonable actions to ensure that the planned delivery
schedules are met for launch by SBC of the Products and Services set forth
on ATTACHMENT 3, Deployment and Delivery. Because it may be difficult to
quantify the consequences of a failure to meet mutually agreed upon launch
dates, the Parties agree to the penalties set forth on ATTACHMENT 3,
Deployment and Delivery, for delays in commercial availability of Products
and Services, where the delay has not been caused by SBC or its agents
failing to timely perform its or their obligations expressly set forth
under ATTACHMENT 2, Technical Service Description, or other applicable
attachments.
4. NEW PRODUCTS AND SERVICES
It is the intention of the Parties mutually to benefit from the relationship
established by this Agreement by giving SBC advance notice of, and the
opportunity to offer comments on, and potentially participate in the development
of, enhancements and upgrades to the Products and Services covered hereunder
(collectively "Upgrades") as well as new products and services related to or
complementary to the Products and Services hereunder, including without
limitation Virtual Private Network products and services (collectively "New
Products").
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
4.1 New Products Committee
The Parties will establish a New Products Committee, composed of
representatives from both CNC and SBC. The New Products Committee will meet
from time to time as the Parties determine, but no less frequently than
quarterly during the term of this Agreement. The purpose of the New
Products Committee will be for CNC to keep SBC apprised of potential
Upgrades and New Products, and for SBC to offer comments and suggestions
with respect to product development. If the Parties mutually agree, SBC may
participate in financing or developing Upgrades or New Products, but such
participation shall take place only pursuant to a fully executed Statement
of Work pursuant to Attachment 20, Consulting Services or other written
agreement of the Parties, addressing ownership of the developed
intellectual property and other material issues.
[*]
4.3 Upgrades
CNC agrees to make available to SBC for resale to end users all Upgrades,
including without limitation upgraded or improved SLA's applicable to
Products and Services, as soon as practicable, but no later than such
upgrades are made available to any third party or offered to end users by
CNC. Upgrades to any Product or Service will, when made available pursuant
to the previous sentence and accepted by SBC pursuant to mutually approved
criteria, be considered Products and Services hereunder.
[*]
6. USE OF SBC TRANSPORT
Products and Services offered hereunder will incorporate transport components
(e.g., T1 and other high speed access lines, frame relay, and local access
transport components) provided by Affiliates of SBC, as set forth in more detail
in, and subject to the conditions contained in, ATTACHMENT 4, or [*]
7 NATURE OF THE RELATIONSHIP
[*]
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
7.2 Non-Exclusive Relationship
Except as set forth in Section 7.1 above, the relationship created by this
Agreement is non-exclusive, and nothing contained herein will be deemed to
restrict either Party from quoting, offering to sell or selling products or
services to or acquiring products or services from others, entering into
agreements with other entities for the provision of products and services.
Furthermore, nothing in this Agreement will be deemed to restrict the
prices at which any service may be offered or sold outside of this
Agreement, or affect or influence in any way CNC's provision of InterLATA
Products and Services.
8. PRICING AND PRICE PROTECTION
8.1 Systems and Billing
(a) SBC is responsible for billing and collection of payment for all
Products and Services, as specified in ATTACHMENTS 6 Billing and 7
Systems. CNC will provide SBC with billing information for Products
and Services to allow SBC to accurately bill Customers. CNC will
invoice SBC for SBC Products and Services CNC provides directly to
SBC. CNC will provide customer invoice data to SBC for InterLATA
Products and Services received. In connection with the billing of
Customers, CNC agrees to comply with any rules, regulations, terms and
conditions to which SBC may be subject, due to regulatory
considerations.
(b) CNC will render an invoice in duplicate on a monthly basis, for all
Products and Services purchased by SBC hereunder and will
simultaneously provide SBC with all information necessary to allow SBC
to bill on behalf of CNC with respect to all InterLATA Services. The
invoice will conform in all respects to the requirements specified in
ATTACHMENTS 6, Billing and 7, Systems, and will comply with any legal
or regulatory requirements of which SBC notifies CNC from time to
time. SBC will pay CNC within sixty (60) days of the date of such
invoices.
(c) CNC acknowledges that it is vital to SBC's relationship with end user
customers that invoices to such customers be presented on a timely
basis, in order to minimize customer inquiries and associated costs.
Accordingly, CNC will use its best efforts to supply SBC with invoices
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
within 30 days after delivery of products and Services. SBC will have
no obligation to pay untimely invoices which are defined, for the
purpose of this Section 8.1(C) as: (I) usage invoices received by SBC
more than thirty (30) days after such usage is incurred and (ii)
monthly recurring and non-recurring charge invoices received more than
one hundred twenty (120) days after the delivery of Products or
Services. Provided, however, that if SBC in fact receives payment
from end users on account of any such untimely CNC invoices, SBC will
make payment to CNC of the corresponding amounts otherwise due to CNC
hereunder. If SBC disputes any invoice rendered or amount paid, SBC
will so notify CNC and the Parties will use their best efforts to
resolve such dispute expeditiously. Notwithstanding the foregoing,
the expectation is that all upgrades and changes to a Customer's
Products or Services resulting in changes to recurring and non-
recurring charges will be made by the Customer through SBC, so that
SBC has adequate information to accurately bill such upgrades and
changes, as specified in Attachment 6, Billing.
(d) All amounts payable to CNC hereunder, with respect to any InterLATA
products and services as to which SBC bills end users on behalf of
CNC, will be reduced by any bad debts and amounts uncollectible from
end users. SBC will bear the risk of all bad debts and uncollectible
amounts in connection with IntraLATA Products and Services; provided,
however, that the Parties will take the following steps to reduce the
severity of customer complaints and associated churn and uncollectible
amounts:
(i) From time to time and on a case by case basis, the Parties will
cooperate in good faith to accommodate Customer complaints,
including by means of credits and discounts, to the extent
reasonable and necessary to maintain Customer satisfaction and
reduce Customer terminations.
(ii) Without limiting subsection (I) above, from time to time and on
a case by case basis, the Parties will adjust the Product and
Service installation date for Customer billing purposes, if
delays in installation for such Customer are attributable to
CNC.
(iii) The Parties will cooperate in good faith to develop an
equitable plan for billing start dates and allocations for
Customers with multiple sites.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
(iv) The Parties will cooperate in good faith to develop procedures
to implement subsections (i) and (ii), including establishing a
single point of contact, escalation procedures, and regular
reviews of customer feedback
(e) All claims for moneys due from SBC will be subject to deduction by SBC
for any credit due from CNC. Notwithstanding the foregoing sentence,
if credits have arisen under another contract between the Parties, the
credits may be applied to this Agreement only if purchases under such
other contract have ended, either as a result of expiration or
termination of such contract. Any amount due SBC that is not so
applied against CNC's invoices for any reason will be paid to SBC by
CNC within forty-five (45) days after demand by SBC.
8.2 [*]
(e) The Parties will establish single points of contact for pricing
related issues and an escalation procedure for resolving pricing
disputes.
(f) Notwithstanding anything to the contrary herein, including the
foregoing Sections, nothing in this Section 7.2, will apply to
the provision of InterLATA services by CNC. SBC will have no
authority over any InterLATA transport charges to Customers, all
of which will be established solely by CNC.
[*]
9. REPORTING
The Parties have defined reports which will be issued for use by Customers, and
for each of the Parties' internal use. These reports will be issued when a
Customer's Service is launched and will continue for the duration of the
Service. A list of such reports is attached and specified in ATTACHMENT 9,
Performance Commitments and Reports. Such reports include but are not limited
to, web enabled customer facing reports and reports to each of the Parties' for
internal management needs.
10. CHANNEL SYNERGIES AND CONFLICT
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
10.1 Channel Plan
SBC will be responsible for the sales and marketing of the Products and
Services. The Parties will resolve RFP conflicts as provided below in
Section 10.2 and channel conflicts as provided in ATTACHMENT 10, Sales
Channel Conflicts. Any sales conflicts not resolved as provided herein,
will be referred to the Steering Committee specified in Part 1, Section 20,
Steering Committee.
10.2 RFP Responses
The Parties acknowledge that the spirit of the relationship established by
this Agreement calls for CNC to involve SBC in RFP responses, and both
Parties agree to use good faith efforts to cooperate to accomplish such
objective. Without limiting the foregoing, CNC will, whenever reasonably
possible, respond to RFP's with proposals which utilize SBC products,
services and transport components in addition to those required to be
utilized by CNC in providing service to CNC customers pursuant to
Attachment 4, Use of SBC Transport hereto.
10.3 Employee Conduct
The employees of each Party will not disclose the strategic relationship
between SBC and CNC in sales efforts, press releases, marketing materials,
or other media unless mutually agreed in writing in advance. The Parties
recognize that in the marketplace, the Parties' channels may overlap and
that selling on a comparative basis is not necessarily a violation of this
Section 9.3. In particular, employees of each of the Parties will be
allowed to comparatively sell Products and Services.
[*]
12. FORECASTING AND FUTURE NETWORK COVERAGE
ATTACHMENT 11, Forecasting, details a process by which SBC and CNC will use
reasonable efforts to accurately forecast Customer acquisition and network
usage. ATTACHMENT 3, Deployment and Delivery, details CNC network coverage and
expansion and deployment plans.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
13. BRANDING
[*]
[*]
15. CUSTOMER CARE/TECH SUPPORT
Subject to the Act and as specified in ATTACHMENT 13, Customer Care/ Technical
Support, SBC and CNC will provide Customer Care (herein after defined in
ATTACHMENT 13, Customer Care/ Technical Support) on all Products and Services.
CNC will provide customer care on InterLATA Products and Services. If, as a
result of a call to either SBC or CNC, it is determined that the trouble is not
attributable to the IntraLATA Products and Services, the call will be referred
to CNC for Customer Care. Each Party will bear its own costs with respect to
the Customer Care inquiries it handles unless otherwise provided in a separate
agreement.
16. SALES TRAINING
CNC will provide SBC with supplemental sales performance training on a monthly
basis, to help improve the capabilities of the sales team. SBC sales trainers
will be instructed in this sales performance training, as specified in
ATTACHMENT 14, Sales Training and Support, and at the fees identified therein,
where applicable.
17. TERM OF AGREEMENT
This Agreement is effective upon the Effective Date and unless sooner terminated
as provided herein, will remain in full force and effect for an initial term of
three (3) years following the Effective Date. Thereafter, the Agreement will be
automatically renewed for three (3) successive one (1) year terms, unless either
party has provided the other party with notice of termination, in accordance
with Part I, Section 18, Termination, herein. Termination is complete only upon
each Parties' satisfaction of its obligations under this Agreement.
18. TERMINATION
18.1 Termination at End of Term
Either Party may terminate this Agreement without penalty by providing not
less than sixty (60) days written notice to the other Party, provided that
the
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
termination date does not become effective until the completion of the
initial three year term or any extension thereof.
18.2 Termination For Convenience
Commencing six (6) months after the Effective Date, SBC may, at its sole
option, terminate this Agreement, or unilaterally modify ATTACHMENTS 1,
Marketing Service Description and 2 Technical Service Description, in order
to remove from the scope of this Agreement any Product or Service offered
pursuant to this Agreement, at any time. SBC acknowledges that if SBC
terminates the IntraLATA portion of the Products and Services, CNC will
terminate its arrangements with end-user customers to provide the InterLATA
portion of all Products and Services, subject to an appropriate transition
period which matches the transition period provided for IntraLATA Products
and Services provided in Part I, Section 19.1, Customer Transition Plan.
Upon termination, pursuant to this Section18.2, (other than pursuant to
Attachment 9, Performance Commitments), as liquidated damages for such
termination, SBC will compensate CNC for the difference between the amount
of revenue CNC would have received on the total number of outstanding
Customer term contracts (including set-up and monthly fees) had a greater
term discount not been applied.
[*]
18.3 Termination for Cause
Either Party may terminate this Agreement in the event of a material breach
of contract which remains unremedied for a period of thirty (30) days
following written notice of such breach. If SBC terminates this Agreement
on account of an uncured CNC breach, then SBC will have no further
obligations to CNC hereunder, including without limitation pursuant to Part
I, Sections 5 SBC Revenue Commitment and 19.2, and Termination for
Convenience, except for any invoices due and owing to CNC for services
provided. If CNC terminates this Agreement on account of an uncured SBC
breach, then CNC will have no further obligations to SBC hereunder, except
as provided in Part 1, Section 19, Customer Transition Provisions.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
18.4 Termination evolving from Regulatory Contingencies
Through no fault of either Party, there may be instances in which this
Agreement terminates due to government laws or regulations. Such
termination is addressed in Part II, Section 27.7, Regulatory Contingency.
19. CUSTOMER TRANSITION PROVISIONS
19.1 Customer Transition Plan
[*]
19.2 Customer Migration
[*]
20. STEERING COMMITTEE AND STRATEGIC RELATIONSHIP
20.1 Steering Committee
The Parties have established a "Steering Committee" consisting of two (2)
representatives of management from each Party who will collectively oversee
and address issues relating to the continuation of the contractual
relationship. The Steering Committee will meet from time to time to ensure
that the goals of the relationship are being met. Each Party may change
its representative to the Steering Committee from time to time in its sole
discretion.
20.2 Additional Areas for Cooperation
[*]
20.3 Technology Committee
The Steering Committee will establish a technology committee, to meet no
less frequently than quarterly, with the intention that, subject to all
applicable legal and regulatory requirements, the Parties will engage in
joint discussions to allow coordination of technology issues and
integration of technology, hardware and software to maintain
interoperability and otherwise enhance the Parties' ability to perform
their respective obligations under this Agreement and to provide
competitive, innovative, high quality services to end users.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
21. NETWORK OPERATIONS
21.1 As specified in ATTACHMENT 15, Network Management and Monitoring, SBC
will provide all single points of contact ("SPOCs") and tier one
network operations support for IntraLATA transmission elements, non-
transmission oriented services, and administrative services, provided
that SBC may, in its discretion, require CNC to provide network
operations support where the problem is isolated to Products and
Services developed by CNC. CNC will provide network operations
support for InterLATA Products and Services, for CNC's network and for
network elements leased by CNC from a third party to deliver InterLATA
Products and Services.
21.2 Each Party will bear its own costs with respect to network operations
support it handles. The Parties have established processes to
coordinate network operations support to be provided by the Parties
under this Agreement. Such processes are specified in ATTACHMENT 15,
Network Management and Monitoring/Network Operations Center.
22. PUBLICITY
Neither Party will use the other Party's name or any language, pictures or
symbols which could imply the other Party's identity in any (i) written or oral
advertising presentation or communication, or (ii) brochure, press release,
newsletter, book or other written material of whatever nature, without the other
Party's prior written consent. To the extent CNC believes that the execution of
any of the potential agreements discussed in this Agreement is a financially
disclosable event, CNC will notify SBC, with the exception of confidentiality
constraints in accordance with SEC regulations and laws, of CNC's opinion in
advance of execution of such agreement.
PART II - STANDARD TERMS AND CONDITIONS
- ---------------------------------------
1. DEFINITIONS
All capitalized terms not otherwise defined will have the meaning set forth
below:
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
-18-
<PAGE>
"Act" - means the Telecommunications Act of 1996 (47 U.S.C. 151 et seq.), Pub.
L. No. 104-104, 110 Stat. 56, as amended from time to time.
"Affiliate" - means (i) any corporation or other entity owning, either directly
or indirectly, today or in the future, a majority of the outstanding stock of a
Party ("Parent"), or (ii) any corporation or other entity in which a majority of
the ownership interest is held, either directly or indirectly, today or in the
future, by the Parent of a Party or by such Party; but only so long as such
majority ownership exists.
"Confidential Information" - means non-public information treated by the
disclosing Party as confidential, including trade secrets, technical, financial
and business information, names of existing and potential customers or partners,
existing and potential business ventures, reports, plans, technology, products,
services, processes, methods, data or any other confidential and proprietary
information. In order to be treated as confidential hereunder, information must
be: (i) reduced to tangible form and marked clearly as confidential or
proprietary, or (ii) with respect to any oral presentation, such presentation
must deal with information previously or concurrently designated in writing as
confidential. Confidential information will not include any information in the
public domain other than as a result of a Party's failure to comply with its
obligations hereunder, information already known to or in the possession of the
disclosee, information independently developed by the disclosee or information
which is obtained by the disclosee without restriction on disclosure.
"Consulting Services"- means any work, direction of work, technical information,
technical consulting, or other technical services (including but not limited to
design services, analytical services, quality assurance, and other specialized
services furnished by CNC under this Agreement as specified in a mutually agreed
Statement of Work.
"Customer" - means any person or business who purchases Products and Services
(hereinafter defined) from SBC, as described in this Agreement.
"Customer Information"- means information which identifies a Customer which
includes but is not limited to name, phone number, email address, IP address,
Customer call records, data transmitted by the Customer, credit card account
information, street address, or any other information which is unique to
individual Customers.
"Documentation"- means all material associated with Products, Services and
InterLATA (all hereinafter defined) Products and Services, including, but not
limited to, test data, flow charts, documentation, manuals, data file listings,
input and output
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
-19-
<PAGE>
formats, user instructions, training materials and any other written documents
normally supplied to customers of CNC.
"Global Service Provider" or "GSP" means a provider of communication services
for InterLATA transport of Customer data.
"Hosting General Agreement" -means the agreement signed between Southwestern
Bell Communications Internet Services and Concentric Network Corporation on
October 9, 1998 for the provision of Web Hosting and Consulting Services.
"IntraLATA" - means those services, revenues, and functions related to
telecommunications originating and terminating within a single Local Access and
Transport Area ("LATA") within SBC's Service Region (hereinafter defined).
"InterLATA" - means those services, revenues, and functions related to
telecommunications originating in one LATA and terminating in another LATA or
outside of a LATA. "InterLATA" will have the same meaning as "InterLATA
Services" as used in Section 3(21) of the Communications Act of 1936, as amended
by the Act.
"Marketing Service Description or MSD" -means the most current version of the
Marketing Service Description written by SBC, as mutually agreed from time to
time, which is attached and incorporated to this Agreement as ATTACHMENT 1,
Marketing Service Description ("MSD").
"Order" - means a SBC document executed hereunder ordering s (hereinafter
defined) and/or Products (hereinafter defined) and will be deemed to incorporate
(i) the provisions of this Agreement (including the Attachments attached
hereto), as it may from time to time be amended, (ii) the specifications
applicable to such Order and (iii) any subordinate documents attached to or
referenced in this Agreement, such specifications or such Order.
"Product"- means any Service (hereinafter defined) or data Product and
associated Documentation, purchased, or ordered by SBC or SBC's customers
pursuant to Orders issued hereunder by SBC.
"SBC's Service Region" - means all geographical areas in which SBC offers
telecommunications services or internet services, whether by wire line or
wireless transmission, including without limitation, SBC's eight state region,
which includes California, Texas, Missouri, Oklahoma, Nevada, Arkansas, Kansas,
and Connecticut, as such may be expanded by mergers and/ or acquisitions or
otherwise.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
"Service"- means a data service deployed by SBC on CNC's network or in CNC's
hosting facilities for which SBC is requesting branding, provisioning,
maintenance and performance guarantees as detailed in this Agreement or its
attachments.
"Service Level Agreements or SLAs" - means specific levels of performance agreed
to be provided by CNC to either SBC customers, SBC or both for the performance
of CNC Products or Services where a credit may attach for failure to meet
performance levels.
"Statements of Work" - means a document executed hereunder pursuant to which SBC
will order Consulting Services to be provided in connection therewith which will
be deemed to incorporate (i) the provisions of this Agreement as it may, from
time to time, be amended, (ii) the agreed upon specifications applicable to such
Statement of Work and (iii) any subordinate documents attached to or referenced
in this Agreement, such specifications or such Statements of Work.
"Technical Service Description or TSD" -means the most current version of the
Technical Service Description written by SBC, as mutually agreed from time to
time, which is attached and incorporated to this contract as ATTACHMENT 2,
Technical Service Description ("TSD").
2. BENEFIT OF AGREEMENT EXTENDING TO SBC AFFILIATES
SBC Affiliates may place Orders which incorporate the terms and conditions of
this Agreement, either directly or, in the event the Parties mutually determine
that a direct relationship between CNC and such SBC Affiliate would be
inappropriate, through one or more SBC Affiliates designated by the Parties
from time to time to place Orders on behalf of other SBC Affiliates. All
amounts payable to CNC pursuant to such SBC Affiliate Orders will be considered
Revenues for the purposes of Part I, Section 5, SBC Revenue Commitment. An
SBC Affiliate placing Orders under this Agreement will be responsible for its
own obligations, including but not limited to, all charges incurred in
connection with such Order. The provisions of this Agreement will not be
construed as requiring SBC to indemnify CNC, or to otherwise be responsible, for
any acts or omissions of an Affiliate, nor will any provision of this Agreement
be construed as requiring an Affiliate to indemnify CNC, or to otherwise be
responsible, for the acts or omissions of SBC.
3. NO INTERLATA ACTIVITIES BY SBC
CNC is responsible for all InterLATA portions of the Products and Services.
Without limiting the foregoing, CNC will provide status and resolution
information on all trouble
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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tickets and status and disposition of customer service activities, for the
InterLATA portion of the Products and Services. Nothing in this Agreement
authorizes SBC to act as a reseller of InterLATA Products and Services.
Notwithstanding anything to the contrary contained herein, SBC will not (i)
establish the criteria, (ii) establish prices, terms or conditions, (iii) serve
as the exclusive marketing agent or (iv) serve as the initial point of contact
for customer care issues, of the InterLATA Products and Services.
4. REPRESENTATIONS AND WARRANTIES
4.1 Authorization
(a) CNC warrants that it is a corporation duly existing in good
standing in its state of incorporation, and is duly authorized to
enter into and perform all of its obligations hereunder.
(b) SBC warrants that it is a corporation duly existing in good
standing in its state of incorporation, and is duly authorized to
enter into and perform all of its obligations hereunder.
4.2 Compliance with Specifications
CNC hereby represents and warrants to SBC that the Products and Services
will perform in all material respects in the manner specified in
ATTACHMENTS 1, Marketing Service Description, 2, Technical Service
Description, and 9, Performance Commitments and Reports, or other
applicable attachments.
4.3 Year 2000
CNC hereby represents and warrants to SBC that the hardware and software
that comprise CNC's Products and Services provided pursuant to this
Agreement will include Year 2000 Capabilities. CNC will obtain warranties
from its non-compliant third party software providers as soon as they are
commercially available. All warranties for hardware and software will
survive inspection, payment, and use according to the terms hereof.
Additionally, CNC currently has a program in place to address Year 2000
compliance, such that CNC will operate Year 2000 compliant Products and
Services prior to October 31, 1999.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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4.4 Warranty Limits
THE WARRANTIES SET FORTH IN THIS SECTION ARE THE SOLE AND EXCLUSIVE
WARRANTIES MADE BY THE PARTIES. THE PARTIES MAKE NO OTHER WARRANTIES OF ANY
KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS AND SERVICES OR ANY
RELATED SERVICES OR SOFTWARE. WITH THE EXCEPTION OF THE WARRANTIES
SPECIFIED IN THIS SECTION 4, THE PARTIES EXPRESSLY DISCLAIM ANY WARRANTIES:
(A) OF DESIGN, MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR
PURPOSE, EVEN IF THEY HAVE BEEN INFORMED OF SUCH PURPOSE; OR (B) THAT THEIR
SERVICES OR ANY RELATED SERVICES OR SOFTWARE WILL BE ERROR-FREE, SECURE OR
WITHOUT INTERRUPTION, (EXCEPT AS SPECIFIED HEREIN).
5. LIABILITY LIMITS
IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOSS OF PROFITS OR
ANY INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY
CLAIMS OR DEMANDS BROUGHT AGAINST THE OTHER PARTY, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING ANY PROVISIONS
CONTAINED IN THIS AGREEMENT TO THE CONTRARY, CNC'S ENTIRE LIABILITY TO SBC
CONCERNING PERFORMANCE OR NONPERFORMANCE BY CNC OR IN ANY WAY RELATED TO THE
SUBJECT MATTER OF THIS AGREEMENT, AND REGARDLESS OF WHETHER A CLAIM IS BASED IN
CONTRACT, NEGLIGENCE OR IN TORT, WILL NOT EXCEED TWENTY-FIVE MILLION DOLLARS
($25,000,000) OR THE AMOUNT RECEIVED BY CNC FROM SBC DURING THE TERM, WHICHEVER
IS GREATER. SBC'S ENTIRE LIABILITY TO CNC IS CAPPED AT THE MONETARY VALUE OF
THE AMOUNT RECEIVED BY CNC FROM SBC DURING THE TERM. THE FOREGOING LIMITATION
WILL NOT REDUCE EITHER PARTIES OBLIGATIONS UNDER PART II, SECTION 6,
INDEMNIFICATION, OR LIABLITY FOR PERSONAL INJURY.
6. INDEMNIFICATION AND INFRINGEMENT
6.1 Infringement
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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(a) In the event of any claim or allegation against SBC for any
infringement or misappropriation of any third party copyright, patent,
trademark, trade secret by reason of, and in the exercise by SBC of
the rights and licenses granted herein with respect to Products and
Services provided by CNC, hereunder, CNC will, at its expense,
indemnify SBC and defend such claim, and pay any costs, expenses and
finally awarded damages in connection therewith, including the
reasonable fees and expenses of the attorneys for such defense
provided that SBC will cooperate with CNC in connection therewith and
notify CNC of such claim or action within a reasonable time. The
foregoing will not limit SBC's ability to participate in any such
action at its own expense, and CNC will keep SBC informed of, and will
consult with, any independent attorneys appointed by SBC, regarding
such litigation. CNC may not agree to any settlement that would or
might have any effect upon SBC or its affiliates without first
obtaining SBC's consent in writing.
(b) If the permitted use by SBC of Products and Services provided by CNC,
has become, or in CNC's opinion is likely to become, the subject of
any claim of such infringement, CNC may at its option and expense
either (i) procure for SBC the right to continue using the Products
and Services provided by CNC , (ii) replace or modify Products and
Services provided by CNC to make them non-infringing, provided that
such modified Products and Services are equal or superior to the
unmodified Products and Services in all material respects, (iii)
substitute an equivalent for Products and Services provided by CNC
provided that such replacement Products and Services are equal or
superior to the original Products and Services in all material
respects . In the event CNC does not comply with the foregoing, SBC
may terminate or modify this Agreement and without limiting SBC's
other remedies, CNC will reimburse SBC for any damages related to
replacement of infringing Products and Services.
(c) CNC will not have any liability to SBC if any allegation of
infringement is based upon (a) the interconnection and/or modification
and/or use of Products or Services, or associated documentation in
combination with other devices not furnished by CNC and which have not
been disclosed to CNC as part of SBC's proposed configuration where
the Product, Service or associated documentation would not by itself
be infringing, or (b) if the infringement arises out of compliance
with SBC's specifications or designs or out of modifications made to
the Product or Service or associated documentation, unless such
modifications are made by CNC.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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(d) SBC will, at its expense, indemnify CNC and defend claims of
infringement, and pay any costs, expenses and finally awarded damages
in connection with SBC provided third party software for which and to
the extent that SBC has received indemnification from the applicable
third party and SBC proprietary software utilized in connection with
the Products and Services including the reasonable fees and expenses
of CNC attorneys for such defense.
6.2 Indemnification
(a) CNC will indemnify, defend and hold harmless SBC (including its
agents, employees, officers, and directors) from and against any and
all liability, loss, finally awarded damages, court cost, attorneys'
fees or other expense of any kind which arises out of any claim,
demand, suit for damages, injunction or other relief, on account of,
but not limited to, (a) injury to or death of any person, (b) damage
to any property, including theft, or (c) any lien, caused by,
resulting from or attributable to the Products and Services provided
by CNC hereunder or (d) the acts or omissions resulting from the
negligence or misconduct of CNC (including any of its agents, or
subcontractors but excepting the active negligence or willful
misconduct solely of SBC or its employees, subcontractors or agents)
in furnishing the Products and Services hereunder.
(b) CNC agrees to defend SBC, at no cost or expense to SBC, against any
such liability, claim, demand, suit or legal proceeding. SBC agrees
to notify CNC within a reasonable time of any written claims or
demands against SBC for which CNC is responsible under this clause.
The foregoing will not limit SBC's ability to participate in any such
action at its own expense, and CNC will keep SBC informed of, and will
consult with, any independent attorneys appointed by SBC, regarding
such litigation.
(c) CNC agrees not to implead or bring any action against SBC or SBC's
employees based on any claim by any person for personal injury or
death that occurs in the course or scope of employment of such person
by CNC and that arises out of the Products and Services furnished
under this Contract.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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(d) SBC will indemnify, defend and hold harmless CNC (including its
agents, employees, officers, and directors) from and against any and
all liability, loss, damage, court cost, attorneys' fees or other
expense of any kind which arises out of any claim, demand, suit for
damages, injunction or other relief, on account of acts or omissions
resulting from the gross negligence or willful misconduct of SBC
employees, contractors, and agents. SBC agrees to defend CNC, at no
cost or expense to CNC, against any such liability, claim, demand,
suit or legal proceeding.
7. INSURANCE
7.1 With respect to performance hereunder, and in addition to CNC's
obligation to indemnify, CNC agrees to maintain, at all times during
the term of this Agreement, the following minimum insurance coverages
and limits and any additional insurance and/or bonds required by law:
(a) Workers' Compensation insurance with benefits afforded under the
laws of the state in which the Products and Services are to be
performed and Employers Liability insurance with minimum limits
of $100,000 for Bodily Injury-each accident, $500,000 for Bodily
Injury by disease-policy limits and $100,000 for Bodily Injury by
disease-each employee.
(b) Commercial General Liability insurance with minimum limits of:
$2,000,000 General Aggregate limit; $1,000,000 each occurrence
sub-limit for all bodily injury or property damage incurred in
any one occurrence; $1,000,000 each occurrence sub-limit for
Personal Injury and Advertising; $2,000,000 Products/Completed
Operations Aggregate limit, with a $1,000,000 each occurrence
sub-limit for Products/Completed Operations. Fire Legal
Liability sub-limits of $300,000 are required for lease
agreements. SBC and its Affiliates will be named as an
Additional Insured on the Commercial General Liability policy.
(c) If use of a motor vehicle is required, Automobile Liability
insurance with minimum limits of $1,000,000 combined single
limits per occurrence for bodily injury and property damage,
which coverage will extend to all owned, hired and non-owed
vehicles.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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7.2 SBC and its Affiliates requires that companies affording insurance
coverage have a B+ VII or better rating, as rated in the A.M. Best Key
rating Guide for Property and Casualty Insurance Companies.
7.3 A certificate of insurance stating the types of insurance and policy
limits provided the CNC must be received prior to commencement of any
work.
7.4 CNC will also require all subcontractors who may enter upon the work
site to maintain the same insurance requirements listed above.
7.5 To the extent that SBC employees are on CNC's location or performing
services hereunder, SBC will provide similar coverage by self
insurance methods with additional insurance coverage beyond self
insurance.
8. CUSTOMER INFORMATION
8.1 All SBC Customer Information is owned by SBC including any knowledge
base and contents therein used to support the activities contemplated
by this Agreement. SBC Customer Information may be provided to CNC
for day to day management of the business, but will remain the
property of SBC.
8.2 SBC Customer Information will be transmitted and maintained securely
as confidential and guarded with methods and practices acceptable to
SBC in accordance with the confidentiality provisions of this
Agreement. SBC Customer Information will not be shared with third
parties or used by CNC, either during or after the Term, for marketing
purposes unless approved by SBC in advance in writing. Notwithstanding
the above, CNC may share aggregate CNC customer information that
includes aggregate SBC Customer Information, so long as individual or
aggregate SBC Customer Information is not separable from such
aggregate CNC customer information.
8.3 All Customer Information is to be returned to SBC upon termination of
this Agreement and CNC will not retain or have access to any SBC
Customer Information unless agreed in advance by SBC in writing as
part of a transition plan.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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8.4 It is acknowledged that CNC will have a direct relationship with
Customers in order to provide CNC's InterLATA Products and Services
associated with the Products and Services offered under this
Agreement, and such relationship may result in CNC obtaining
information regarding Customers equivalent to all or part of the SBC
Customer Information with respect to such Customers ("CNC InterLATA
Customer Information"). CNC agrees to use such CNC InterLATA Customer
Information solely to provide Products and Services to Customers under
this Agreement, and without limiting the foregoing, such CNC InterLATA
Customer Information will not be shared with third parties or used by
CNC, either during or after the Term, for marketing purposes unless
approved by SBC in advance in writing.
9. NON-SOLICITATION OF SBC CUSTOMERS
CNC agrees that during the term of this Agreement and for a period of three (3)
years from any expiration or termination of this Agreement, CNC will not solicit
business from any end user Customers of SBC who purchase Products or Services by
or including any means which targets or identifies such Customers as SBC
Customers. This provision is not meant to prevent CNC from soliciting such
customers incidentally as part of a broad marketing campaign not directed at
Customers, but is intended to prevent the targeting by CNC of Customers by
virtue of their status as Customers, even if such targeting is a subpart of a
broader marketing campaign, e.g. by means of including Customers as a group as
targets of a broader marketing campaign.
10. INTELLECTUAL PROPERTY RIGHTS
10.1 CNC SOFTWARE
For the Term, CNC hereby grants to SBC and Customers under this Agreement,
and SBC hereby accepts, a nonexclusive, nontransferable license to use and
distribute CNC software for use solely with providing Products and
Services to Customers.
(a) CNC warrants that third party software is licensed in accordance with
the license agreement supplied by the supplier of such software, and
that SBC's use and distribution of such software will not violate such
license. CNC will provide SBC applicable licensing information for any
third party software provided, such that SBC may determine its ability
to comply. Upon acceptance of the third party software, SBC will
comply
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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with the terms of such licenses. SBC will not be permitted to
translate, transform, decompile, reverse engineer, disassemble, or
otherwise determine or attempt to determine source code from the
executable code of any software provided by CNC pursuant to this
Agreement or to permit or authorize a third party to do so.
(b) Notwithstanding the foregoing paragraph, SBC will be permitted to
reproduce or modify software provided by CNC pursuant to this
Agreement but only in a manner approved by CNC in advance.
Title to CNC software, is and will remain the exclusive property of CNC
and/or its suppliers. All Customer contracts for Products or Services will
be consistent with the licensing provisions of this Section 10.1.
10.2 SBC SOFTWARE
For the Term, SBC hereby grants to CNC, and CNC hereby accepts, a
nonexclusive, nontransferable license to use and distribute SBC software
for use solely with providing Products and Services to Customers.
(a) SBC warrants that third party software is licensed in accordance
with the end user license agreement supplied by the supplier of
such software. CNC will not be permitted to translate, transform,
decompile, reverse engineer, disassemble, or otherwise determine
or attempt to determine source code from the executable code of
any software provided by SBC pursuant to this Agreement or to
permit or authorize a third party to do so.
(b) Notwithstanding the foregoing, CNC will be permitted to reproduce
or modify software provided by SBC pursuant to this Agreement but
only in a manner approved by SBC in advance.
Title to SBC Software is and will remain the exclusive property of SBC
and/or its suppliers. All Customer contracts for Products or Services will
be consistent with the licensing provisions of this Section 10.2.
10.3 Trademarks
During the term of this Agreement, each Party is authorized by the other
Party to make reasonable use of the other Party's trademarks (including
such Party's
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
licensors' trademarks), solely in connection with the marketing,
advertisement and promotion of Products and Services in accordance with
this Agreement, including without limitation ATTACHMENT 12, Branding,
provided that each Party will have the right and opportunity to disapprove
any materials which make use of the trademarks of such Party or such
Party's licensors that the other Party uses or proposes to use. Each Party
will use such trademark notices as the other Party may designate from time
to time in connection with any use of such other Party's or other Party's
licensors' trademarks as permitted hereunder. Upon expiration or
termination of this Agreement, each Party's rights to use any of the other
Party's' trademarks will terminate, except in connection with activities
permitted pursuant to Part II, Section 19, Customer Transition Provisions,
above. Nothing contained in this Agreement will give either Party any
interest in any of the other Party's or the other Party's licensors'
trademarks, logos, trade names or designations other than the limited
rights expressly granted in this Section 10.3.
10.4 New Developments
(a) During the Term of this Agreement and in connection with its
obligations hereunder, CNC may develop new technologies, products
and services which incorporate intellectual property rights ("New
Developments"). It is the intention of the Parties that prior to
undertaking any work on a New Development, CNC and SBC will agree
in a separate written Statement of Work, as defined in Attachment
20, Consulting Services as to the Parties' respective rights in
and with respect to such New Development. If any such New
Development is developed in the absence of such a Statement of
Work, then within thirty (30) days of completion of such
development, CNC will specify in writing to SBC that the
intellectual property rights fall within one of these four (4)
categories :
(i) CNC Developments - proprietary development owned by CNC and
licensed from CNC by SBC upon the terms set forth in this
Part II, Section 10.1, CNC Software.
(ii) SBC Custom Developments - Developments owned and financed by
SBC and developed by CNC . Any custom application or
technology designed by CNC at SBC's request and financed by
SBC, which will be owned by
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
SBC and licensed to CNC in accordance with Part II, Section
10.2, SBC Software.
(iii) Jointly Financed Developments - Developments jointly owned
and financed by CNC and SBC, owned by both Parties in equal
undivided shares, and subject to worldwide nonexclusive use
by either Party without any obligation to account to the
other Party.
(iv) Modified or Enhanced Developments - CNC or SBC software
enhanced at SBC's request and financed by SBC. With regard
to such Developments, SBC will own such modifications or
enhancements in accordance with Part II, Section 10.2, SBC
Software, while SBC and CNC retain ownership of their
respective intellectual property underlying such
modifications or enhancements.
(b) Within thirty (30) days of receipt of CNC's notice, SBC will
notify CNC if it disagrees as to the classification of the New
Development contained in such notice from CNC, and, if the
Parties cannot resolve such disagreement informally, the dispute
resolution provisions of Part II, Section 16, Arbitration, will
apply. If SBC fails to respond to any notice from CNC under this
Section 9, then there will be a rebuttable presumption that the
contents of such are correct. If CNC fails to notify SBC as
specified hereunder, then SBC may notify CNC of its understanding
of the status of such New Development, and CNC will have thirty
(30) days to respond to such notification as set forth above. If
neither Party notifies the other regarding such New Development,
then SBC will be automatically granted a worldwide, perpetual,
non-exclusive right to use the New Development in its business,
and to sublicense its rights in such New Development to its
Affiliates and Customers.
10.5 General
Except as expressly provided to the contrary above in this Section 10, all
intellectual property rights of each Party are expressly reserved by such
Party, and no license, express or implied, is created by this Agreement.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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11. CONFIDENTIAL INFORMATION
11.1 SBC's Information
No Confidential Information obtained by CNC from SBC under, or in
contemplation of, this Agreement, including the existence or substance of
the discussions regarding the contemplated transactions, will become CNC's
property. All copies of such information in written, graphic or other
tangible form will be returned to SBC upon request. Unless such
information was or is (i) previously known to CNC free of any obligation to
keep it confidential, or (ii) subsequently made public by SBC or (iii)
independently developed by CNC without the use of SBC Confidential
Information, or (iv) rightfully received by CNC from a source other than
SBC without violation of any obligation of confidentiality, or (v) required
to be disclosed under a valid order created by a court or government agency
(provided that CNC provides prior written notice to SBC of such obligation
and the opportunity to oppose such disclosure), CNC will keep it
confidential, will use it only in performing hereunder, and may use it for
other purposes only upon such terms as may be agreed upon in writing by
SBC. SBC will have the right to review and approve CNC's procedures for
handling such information and may make such inspections, as SBC deems
necessary to assure that such information is being properly protected. In
such event, CNC will fully cooperate with SBC in ensuring such information
is being properly protected.
11.2 CNC's Information
No Confidential Information obtained by SBC from CNC under, or in
contemplation of, this Agreement, including the existence or substance of
the discussions regarding the contemplated transactions will become SBC's
property. All copies of such information in written, graphic or other
tangible form will be returned to CNC upon request. Unless such
Information was or is (i) previously known to SBC free of any obligation to
keep it confidential, or (ii) subsequently made public by CNC, or (iii)
independently developed by SBC without the use of CNC Confidential
Information, or (iv) rightfully received by SBC from a source other than
CNC without violation of any obligation of confidentiality, or (v) required
to be disclosed under a valid order created by a court or government agency
(provided that SBC provides prior written notice to CNC of such obligation
and the opportunity to oppose such disclosure), SBC will keep it
confidential, will use it only in performing hereunder, and may use it for
other purposes only upon such terms as may be agreed upon in writing by
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
CNC. CNC will have the right to review and approve SBC's procedures for
handling such information and may make such inspections, as CNC deems
necessary to assure that such information is being properly protected. In
such event, SBC will fully cooperate with CNC in ensuring such Information
is being properly protected.
The provisions of this Section 11 are deemed retroactive to May 13, 1998 and
supercede Nondisclosure Agreement No. 980200, signed by both Parties on May 13,
1998.
12. CNC PARTITIONING
[*]
13. RECORDS AND AUDITS
CNC will maintain accurate records of all matters which relate to CNC's
obligations hereunder in accordance with generally accepted accounting
principles and practices uniformly and consistently applied in a format that
will permit audit. CNC will retain such records for a period of two (2) years
from the date of expiration or termination of the Agreement. , SBC may appoint a
nationally recognized accounting firm as an independent third party auditor to
audit CNC's records, directly relevant to this Agreement, no more than once per
year, upon twenty (20) business days notice [*]. Such audits will be solely at
SBC's expense, will not unreasonably interfere with CNC's normal operations, and
will be subject to CNC's reasonable security and confidentiality requirements.
Notwithstanding the foregoing,
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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[*] Certain information on this page has been omitted and
filed separately with the Securities Exchange Commission.
Confidential treatment has been requested with respect to
the omitted portions.
the audit procedures set forth in Part I, Section 8.2, [*], govern all audits
concerning [*].
14. CURE
The Parties will not be deemed to be in default under any of the terms of this
Agreement, and the non-defaulting Party may not seek or attempt to enforce any
remedy for any claimed default, unless defaulting Party fails to cure or
correct same within thirty (30) days or such longer period as mutually agreed,
following receipt of written notice thereof from the non-defaulting Party.
15. DISPUTE ESCALATION
Any disputes, controversies or claims arising from this Agreement will first be
addressed by the Steering Committee. Either Party may call a meeting of the
Steering Committee upon ten (10) days prior written notice. If the Steering
Committee is unable to resolve such dispute or conflict within ten (10) calendar
days following its first meeting discussing such dispute, either Party may
invoke the provisions of the Part II, Section 16, Arbitration.
16. ARBITRATION
16.1 Any dispute, controversy or claim which relates in any way to this
Agreement and which has not been resolved by the Parties using the
Dispute Escalation process described in the Part II, Section 15,
Dispute Escalation, will be submitted to binding arbitration before an
arbitration panel established under the rules of the American
Arbitration Association.
16.2 The arbitration panel will consist of three arbitrators; one selected
by each Party, and the third selected by the arbitrators selected by
the Parties. Resolution of disputes, controversies or claims will be
determined by a majority vote of the arbitration panel.
16.3 The arbitration will be held in San Francisco, California unless the
Parties otherwise mutually agree in writing. The Parties agree to
cooperate in order to bring a reasonable and prompt conclusion to such
arbitration, not
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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to exceed 75 days. The arbitration panel will allow reasonable
discovery, and may require the transcription of testimony.
16.4 The Parties will equally bear the fees, costs and expenses of the
arbitration, including the costs or fees of any expert or witness;
provided, however, that the arbitration panel may award to the
prevailing Party damages which compensate it for any such costs and
fees, including legal costs, associated with the arbitration. Any
payments owed by either Party related to the subject matter so
arbitrated may be suspended, and the interest or other late charges
due thereon may be tolled, at the discretion of the paying Party for
the duration of the arbitration.
17. GOVERNING LAW
This Agreement will be construed in accordance with the laws of the State of
California, without regard to that State's choice of law provisions.
18. RELATIONSHIP OF PARTIES
This Agreement is not intended to constitute, create, give effect to or
otherwise recognize a joint venture, partnership or formal business organization
of any kind between the Parties. The rights and obligations of the Parties will
be only those expressly set forth herein.
19. REMEDIES
All remedies specified in this Agreement are cumulative, and are not intended to
be exclusive of any other remedies to which the injured Party may be entitled at
law or equity. Notwithstanding the foregoing, if Damages for Delay, as
prescribed in Part I, Section 3.2, are triggered, those damages will be
exclusive for the time period covered. It the occurrence continues beyond the
time period for which damages were selected, the remedies described under this
Agreement will be available to SBC. The use of one or more available remedies
will not bar the use of any other available remedy for the purpose of enforcing
the provisions of this Agreement.
20. AMENDMENT AND WAIVER
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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No amendment or waiver of any provisions of this Agreement will be effective
unless the same will be in writing and signed by a duly authorized
representative on behalf of the Party against whom such amendment, waiver or
consent is claimed. In addition, no course of dealing or failure of any Party
to enforce strictly any term, right or condition of this Agreement will be
construed as a waiver of such term, right or condition. Waiver by either Party
of any default by the other Party will not be deemed a waiver by the non-
defaulting Party of any other default.
21. RELEASES VOID
Neither Party will require waivers or releases of any personal rights from
representatives of the other in connection with visits to each other's
respective premises.
22. FORCE MAJEURE
22.1 Neither Party hereto will be held responsible for any delay or
failure in performance of any part of this Agreement to the extent
that such delay or failure is caused by fire, earthquake, tornado,
hurricane, flood, explosion, war, strike, embargo, government
requirement, civil or military authorities, Act of God or by the
public enemy, transportation facilities, acts or omissions of carriers
or other causes beyond the control of CNC or SBC. If any force
majeure condition occurs, the Party delayed or unable to perform will
give prompt notice thereof to the other Party hereto and the Party
affected by the other's inability to perform may elect to:
(a) Terminate this Agreement or any Order or part of either as to
Products not already shipped or Products and Services not already
performed if such delay or failure continues for more than thirty
(30) days.
(b) Suspend this Agreement for the duration of the force majeure
condition, buy or sell elsewhere Products or Services to be
bought or sold hereunder, and deduct from any commitment the
quantity bought or sold or for which such commitments have been
made elsewhere.
(c) Resume performance hereunder once the force majeure condition
ceases with an option in the affected Party to extend the period
of
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
this Agreement up to the length of time the force majeure
condition endured.
22.2 Unless written notice to the contrary is given within thirty (30)
days after such affected Party is notified of the force majeure
condition, option (b) above will be deemed selected.
23. ASSIGNMENT
23.1 Neither Party hereto may assign, subcontract or otherwise transfer
its rights or obligations under this Agreement except with the prior
written consent of the other Party hereto, which consent will not be
unreasonably withheld or delayed; provided, however, (i) SBC will have
the right to assign this Agreement to any present or future Affiliate
of SBC without securing the consent of CNC and may grant to any such
assignee the same rights and privileges SBC enjoys hereunder and (ii)
CNC will have the right to assign this Agreement to any purchaser of
all or substantially all its assets if such purchaser has a net worth
equivalent to or greater than CNC as represented by the most recent
financial statements of CNC and such purchaser, provided that no such
assignment or transfer will relieve SBC or CNC of any obligation to
perform hereunder until same will have been performed by the assignee
or transferee.
23.2 Any attempted assignment not consented to in the manner prescribed
herein, except an assignment confined solely to monies due or to
become due, will be void. It is expressly agreed that any assignment
of monies will be void if (i) CNC fails to give SBC at least thirty
(30) days prior written notice of such assignment or (ii) such
assignment attempts to impose upon SBC obligations to the assignee
additional to the payment of such moneys or preclude SBC from dealing
solely and directly with CNC in all matters pertaining to this
Agreement, including the negotiation of amendments or settlements of
charges due.
24. CONFLICT OF INTEREST
CNC represents and warrants that no officer, director, employee or agent of SBC
has been or will be employed, retained or paid a fee, or otherwise has received
or will receive any personal compensation or consideration, by or from CNC or
any of CNC's officers, directors, employees or agents in connection with the
obtaining, arranging or
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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negotiation of this Agreement or other documents or agreements entered into or
executed in connection herewith.
25. LIENS PROHIBITED
All Products and Services furnished to SBC by CNC hereunder will be free from
any claims, third party liens or encumbrances. Should CNC as a general
contractor of Products and Services subcontract such Product and Service
delivery to subcontractors that have mechanics lien rights under applicable law,
SBC may require satisfactory proof that all parties furnishing labor and/or
materials for the Products and Services have been paid before making payment to
CNC.
26. SEVERABILITY
With the exception of regulatory events governed by Part II, Section 28,
Compliance with Laws/Regulatory Contingency if any provision or any part of a
provision of this Agreement will be invalid or unenforceable, such invalidity or
non-enforceability will not invalidate or render unenforceable any other portion
of this Agreement. The entire Agreement will be construed as if it did not
contain the particular invalid or unenforceable provision(s) and the rights and
obligations of the CNC and SBC will be construed and enforced accordingly.
27. SURVIVAL
Each Party's respective obligations under this Agreement which by their terms
would continue beyond the termination, or expiration hereof, including but not
limited to, those in the clauses entitled COMPLIANCE WITH LAWS, INTELLECTUAL
PROPERTY, INDEMNIFICATION, INSURANCE, LIABILITY, PUBLICITY, RELEASES VOID,
INVOICING AND PAYMENT, CONFIDENTIAL INFORMATION and WARRANTY, will survive the
termination or expiration of this Agreement.
28. COMPLIANCE WITH LAWS/REGULATORY CONTINGENCY
28.1 Compliance With Laws
Each Party agrees to comply with the provisions of the Fair Labor Standards
Act, the Occupational Safety and Health Act, and all other applicable
federal, state,
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
county and local laws, ordinances, regulations and codes (including the
identification and procurement of required permits, certificates, approvals
and inspections) in the performance of this Agreement. CNC further agrees,
during the term hereof, to comply with all applicable Executive and Federal
regulations as set forth in Attachment 19, Executive Orders and Associated
Regulations.
28.2 Regulatory Contingency
It is the intent of the Parties that nothing contained in this Agreement be
construed so as to make the activities of SBC constitute electronic
publishing (as such term is defined in Section 274 of the Act), or the
provision of interLATA services (as such term is defined in Section 272 of
the Act). In the event that SBC determines in good faith that regulations
issued or interpreted by a governmental entity subsequent to this Agreement
have such a result or otherwise cause SBC or any Affiliate, including SBC
Communications Inc. or one of its Affiliates, to be a provider of
electronic publishing services or interLATA services or to be in violation
of the Act, the Parties agree to work together in good faith to renegotiate
the objectionable terms or conditions so as to render the activities of SBC
consistent with the Act, order or regulation and the Parties intent
hereunder. If an agreement to modify the terms of this Agreement cannot be
reached following such good faith negotiations, either Party may
immediately terminate this Agreement without further liability. In the
event that SBC determines in good faith that regulations issued or
interpreted by a governmental entity subsequent to this Agreement that
require SBC to add carriers other than CNC, or cause any other material
change in circumstances which makes this Agreement between the Parties
infeasible, the Parties agree to work together in good faith to negotiate a
mutually acceptable accommodation. If the Parties are unable to negotiate a
mutually acceptable accommodation, and the Steering Committee is unable to
fashion an acceptable resolution, then this Agreement will terminate
without consequence to either Party. If either of such terminations
occurs, SBC may, at its option, discontinue its revenue commitments to CNC
without further liability, as stated in Part II, Section 5, SBC's Revenue
Commitments to CNC.
29. TAXES
29.1 CNC agrees to pay and hold SBC and its affiliates harmless from and
against any penalty, interest, additional tax or other charge that may
be levied or assessed as a result of the delay or the failure of CNC
for any
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
reason to pay any tax or file any return or information required by
law, rule or regulation or by this Agreement to be paid or filed by
CNC.
29.2 Upon request by SBC, the Parties will consult with respect to the
basis and rates upon which CNC will pay any taxes for which SBC is
obligated to reimburse CNC under this Agreement. If SBC determines
that in its opinion any such taxes are not payable or should be paid
on a basis less than the full price or at rates less than the full tax
rates, or that no tax is due or is required to be withheld from SBC
because SBC intends to sell the property in substantially the same
condition as received from CNC, CNC will comply with such
determination. If the taxing authority seeks collection for a greater
amount of taxes than that so determined by SBC, CNC will promptly
notify SBC. If SBC desires to contest such collection, SBC will
promptly notify CNC. Although CNC will cooperate with and provide
reasonable assistance to SBC, SBC will direct the conduct of any
proceedings, hearings or litigation involved in any contest with
respect to taxes for which SBC is obligated to reimburse CNC under
this Agreement. SBC will reimburse CNC for any taxes, interest,
penalties or out of pocket expenses of witnesses appearing in such
proceedings, which CNC may be required to pay because of CNC's
complying with SBC' determinations with respect to the payment or
contesting any such taxes.
29.3 If any taxing authority advises CNC that it intends to audit CNC with
respect to any taxes for which SBC is obligated to reimburse CNC under
this Agreement, CNC will (a) promptly so notify SBC, (b) afford SBC an
opportunity to participate on an equal basis with CNC in such audit
with respect to such taxes, and (c) keep SBC fully informed as to the
progress of such audit. Each Party will bear its own expenses with
respect to any such audit and the responsibility for any additional
tax resulting from such audit will be determined in accordance with
the applicable provisions of this Section
30. ACCESS TO PREMISES
Each Party will, at no charge, permit the other reasonable access to its
premises in connection with the performance of this Agreement or any Order.
Employees and representatives of each Party will, while on the other's premises,
comply with all reasonable site rules and regulations.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
31. USE OF SBC SYSTEMS
SBC reserves the right to determine how CNC's personnel provided to perform
Products and Services hereunder will access SBC's network remotely and locally.
CNC agrees and promises to use the applicable SBC computer systems on which the
Services are provided in a professional and effective manner, and only for the
purposes of the performance of this Agreement. Any other intentional use or
misuse of such computer systems will constitute a breach of this Agreement. CNC
acknowledges that any person CNC selects to work under this Agreement will be
expected to fully comply with the known requirements, conditions, or
restrictions applicable to the use of SBC's computers or telephone network or
applicable to accessing SBC's database, network or information systems. CNC
will indemnify and hold SBC harmless for any failure (whether negligent or
intentional) to meet these known requirements, conditions, or restrictions by
any of these persons. CNC further agrees to cooperate fully in any SBC inquiry
into alleged violations by CNC's personnel with respect to SBC's computers,
property or Confidential Information.
32. WORK DONE BY OTHERS
If any part of the Products and Services is dependent upon work done by others,
CNC will inspect and promptly report to SBC any defect that renders such other
work unsuitable for CNC's proper performance. CNC's silence will constitute
approval of such other work as fit, proper and suitable for CNC's performance of
the Products and Services.
33. SECURITY
The Parties have established internal security methods and procedures as
specified in ATTACHMENT 15, Network Management and Monitoring. These security
methods and procedures pertain, but are not limited to, physical plant (network
operations center and points of presence); security between nodes (routers);
computer access; authentication; access controls (which personnel gain access to
certain applications); use of firewalls, tunneling, encryption; and network
security.
34. INSPECTIONS
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
SBC may inspect or test, during normal business hours at all reasonable times
and places, upon five (5) days notice and request, any Products or Services
pertaining to any Order. The exercise of, or failure to exercise, this right
will not relieve CNC of its obligation to furnish all Products and Services
materially in compliance with this Agreement and the applicable Order. If,
prior to acceptance by SBC, any Products and/or Services are found not compliant
in all material respects with ATTACHMENT 2, Technical Service Description, SBC
will have the right to reject the same, and at no charge to SBC, to require (i)
that such Products be repaired or replaced promptly with Products that are
compliant in all material respects with ATTACHMENT 2, Technical Service
Description, at CNC's risk and expense (including freight charges), and (ii) the
performance or re-performance of such Products and Services. Detailed
inspection records are to be maintained by CNC and made available to SBC upon
request.
35. INDEPENDENT CONTRACTOR/ SBC AGENT
35.1 CNC represents that it is engaged in an independent business and will
perform its obligations under this Agreement as an independent
contractor and not as the agent or employee of SBC, except as
specified in Section 35.2, below. Each Party is solely responsible
for its acts and those of its agents, employees, and subcontractors
(also collectively referred to as "Personnel" hereunder). All CNC
Personnel performing Products and Services hereunder are solely the
employees of CNC and are not the agents or employees of SBC. CNC has
and retains the right to exercise full control of and supervision over
the employment, compensation and discharge of all Personnel assisting
in the performance of its obligations under this Agreement. Each
Party is solely responsible for all matters relating to the payment of
compensation to its Personnel and will comply with all worker's
compensation, unemployment, disability insurance, social security,
withholding, and all other applicable federal, state and local Laws
and Regulations governing such matters.
35.2 For the purpose of placing orders for Customer circuits with
Southwestern Bell Telephone, Pacific Bell, Southern New England
Telephone and if and when appropriate, Ameritech, (collectively the
"Telco") and only in this instance as specified hereunder, to the
extent that CNC will be an agent of SBC Internet Services ("SBCIS").
Such agency will be accomplished through a letter agreement between
SBCIS and Customers, such that a letter of agency will authorize SBCIS
to order Telco services on behalf of the Customer and permit CNC to
place orders as SBCIS' agent.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
36. DIVERSION OF EMPLOYMENT
SBC and CNC agree that during the Term they will not knowingly solicit for hire
any person who is employed by such other Party and who has been engaged in the
performance of activities related to this Agreement, without the express written
permission of the original employing Party.
37. UNIVERSAL DESIGN
37.1 CNC advocates, supports, and encourages its suppliers to advocate and
support the manufacturing and provision of products which embrace the
concept of "universal design." CNC will use commercially reasonable
efforts to manufacture and provide Products and Services, including
future versions of Products and Services, which are accessible to the
widest range of consumers including those with disabilities.
37.2 CNC will reasonably cooperate with SBC in addressing disability
access issues, including but not limited to hearing aid interference,
that may arise in connection with a Customer's use of CNC's Products
and Services furnished hereunder. Specifically, CNC agrees:
(a) to ensure that its equipment is designed, developed and
fabricated to be accessible to and usable by people with
disabilities, and
(b) to ensure that the service is accessible to and usable to people
with disabilities, or
(c) to ensure that the equipment or service is compatible with
existing peripheral devices or specialized customer premises
equipment commonly used by individuals with disabilities to
achieve access, if the requirements of subsection (a) and (b) are
not readily achievable.
38. HEADINGS
The headings of the clauses in each Section are inserted for convenience only
and are not intended to affect the meaning or interpretation of this Agreement.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
39. NOTICES
Except as otherwise provided in this Agreement, all notices or other
communications hereunder will be deemed to have been duly given when received in
writing and either (i) delivered in person, (ii) delivered to an agent, such as
an overnight or similar delivery services, or (iii) delivered by the United
States Mail and addressed as follows:
To SBC Operations: To CNC:
Pacific Bell Internet Services & Concentric Network Corporation, Inc.
Southwestern Bell Internet Services 1400 Parkmoor Avenue
303 Second St., North Tower, Suite 650 San Jose, CA 95126
San Francisco, California, 94107 Phone: (408) 817-2800
Phone: (415) 442-4900 Fax: (408) 817-2875
Fax: (415) 357-1659 Attention: Manager-Contracts
Attention: Senior Attorney
With a copy (which will not be With a copy (which will not be
considered formal notice) to: considered formal notice) to:
SBC Operations, Inc. Concentric Network Corporation, Inc.
Suite 150, 111 Soledad Street, Rm 10Q5 1400 Parkmoor Avenue
San Antonio, TX 78205 San Jose, CA 95126
Phone: (210) 351-3660 Phone: (408) 817-2800
Fax: (210) 370-1953 Fax: (408) 817-2875
Attention: Director, Strategic Alliances Attn.: Senior Vice President and
General Manager of the Network
Services Division
The address to which notices or communications may be given by either Party may
be changed by written notice given by such Party to the other pursuant to this
Section 38.
40. ENTIRE AGREEMENT/RELATIONSHIP AMONG DOCUMENTS
40.1 Neither Party is bound by the provisions of this Agreement until it
is executed in writing by authorized individuals from each Party. The
terms contained in this Agreement, including all exhibits,
attachments, and schedules, supercede all previous agreements or
documents entered into
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
between the Parties. Notwithstanding the foregoing, the Trial
Agreement, dated October 19, 1998 will remain in effect until the
completion of the Product and Service trial and the Web Hosting
Agreement, dated October 9, 1998 and the Stock Purchase Agreement
dated October 19, 1998 are unaffected by this Agreement.
40.2 The order of precedence between the Parts and Sections of this
Agreement are as follows in descending order: (i) Part I, of this
Agreement, (ii) Part II, of this Agreement, (iii) Attachments to this
Agreement, and (iv) any Statement of Work or Order arising out of
this Agreement. Notwithstanding the foregoing, any qualifying
superceding statement referencing a specific provision of this
Agreement, which is contained within an Attachment to this Agreement,
is governed by that provision.
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
41. SIGNATURES
This Agreement shall be effective as of the Effective Date specified above.
Concentric Network Corporation, Inc. SBC Operations, Inc.
By: By:
------------------------------------ ------------------------------------
Print Name: Henry Nothhaft Print Name: Al Porta
---------------------------- ----------------------------
Title: Chairman, President and CEO Title: VP, Technology and Development
--------------------------------- ---------------------------------
Date: Date:
---------------------------------- ----------------------------------
SBC Internet Services
By:
------------------------------------
Print Name: Steven Hubbard
----------------------------
Title: President and CEO
---------------------------------
Date:
----------------------------------
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
ATTACHMENTS
- ------------
1. MARKETING SERVICE DESCRIPTION
2. TECHNICAL SERVICE DESCRIPTION
3. DEPLOYMENT AND DELIVERY
4. USE OF SBC TRANSPORT
5. CNC'S EXISTING STRATEGIC RELATIONSHIPS
6. BILLING
7. SYSTEMS
8. PRICING
9. PERFORMANCE COMMITMENTS AND REPORTS
10. SALES CHANNEL CONFLICTS
11. FORECASTING
12. BRANDING
13. CUSTOMER CARE AND TECHNICAL SUPPORT
14. SALES TRAINING AND SUPPORT
15. NETWORK MANAGEMENT AND MONITORING
16. PROVISIONING
17. SERVICE LEVEL AGREEMENTS
18. WHOLESALE DIAL ACCESS
19. EXECUTIVE ORDERS AND ASSOCIATED REGULATIONS
20. CONSULTING SERVICES
21. ACCEPTANCE TEST PLAN AND PROCEDURES
PROPRIETARY INFORMATION
The Information contained herein is for the use of SBC Operations, Inc.
(and its Affiliated Companies) and Concentric Network Corporation only and is
not for disclosure without prior written approval.
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<PAGE>
Attachment 1A
-------------
Marketing Service Description
-----------------------------
Package and Feature Matrices
----------------------------
The following Package/Feature Matrices for Online Office Packages and EVPN
define the components that are included and those that are optional for each
package.
Attachment 1B provides additional technical detail and description of offered
services. Attachment 1C provides component hardware configurations for all
Online Office and EVPN customer sites.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 5 pages from
Exhibit 1A to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Proprietary Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
<PAGE>
Attachment 1B
-------------
Marketing Service Description
-----------------------------
Concentric Network's House of IP (HoIP) Services v1.0
-----------------------------------------------------
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 6 pages from
Exhibit B to the Agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1
<PAGE>
Attachment 1C
-------------
Marketing Service Description
-----------------------------
Access Configurations for House of IP
-------------------------------------
Following are the Access Configurations for the House of IP products. These
configurations are split into four groups.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 8 pages from
Exhibit 1C to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 2
------------
House of IP
-----------
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 179 pages from
Exhibit 2 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Attachment 3
------------
Deployment and Delivery
-----------------------
1.1 Broad Deployment Phase 1 Launch Schedule
CNC will provide Products and Services to SBC as outlined in ATTACHMENT 1,
Marketing Service Description, of the Agreement, or another appropriate
attachment to the Agreement, according to the following launch schedule
such that services are available for customer turn up on the dates listed
below:
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 4 pages from
Exhibit 3 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and Concentric
Network Corporation without prior written agreement.
1
<PAGE>
ATTACHMENT 4
------------
CNC Use of SBC Transport and Services
I. Dedicated Access
A. Where available, (i) SBC services and facilities, and (ii) Affiliate or
third party services and facilities designated by SBC from time to time
subject to the approval of CNC, such approval not to be unreasonably
withheld, will be used exclusively for connections and transport
between the Customer and CNC's POP in connection with Products and
Services made available pursuant to this Agreement; provided, however,
that the foregoing will in no event be construed as giving SBC any
right to determine CNC's activities with respect to InterLATA services
within the SBC Service Region.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 2 pages from
Exhibit 4 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 5
CNC's Existing Strategic Relationships
--------------------------------------
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 3 pages from
Exhibit 5 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
<PAGE>
Attachment 6
------------
Customer Billing/Finance
------------------------
Process Overview
SBC will initiate a request for service from CNC with the submission of a
service order, statement of work, and purchase order. The purchase order will
be the source of financial information exchanged with CNC and shall reflect any
service requested through the service order and statement of work. The SBC
purchase order will contain a flag denoting it as a "New", "Change",
"Disconnect" or "Cancel" order and will include a target date for CNC
provisioning. CNC will use the service order, statement of work, and the
purchase order to provision services.
Upon completion of provisioning of a customer's service CNC will generate an
invoice to SBC. The invoice will address charges associated with the completed
purchase order. The initial completed purchase order will include all services
and equipment associated with the installation of the customer's service.
Subsequent invoices will include the recurring charges and will be generated on
a monthly basis.
CNC will bill SBC for recurring charges in advance and usage charges in arrears.
Invoices will be categorized by SBIS, PBIS, and Nevada Bell and will list
charges by purchase order number. The preferred media for information exchange
is electronic. All electronic exchanges will be controlled via a mutually agreed
upon control mechanism.
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 3 pages from
Exhibit 6 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 7
------------
Systems
-------
Scope
Attachment 7 "Systems" defines the desired working relationship that will exist
between the systems organizations of SBC and CNC. Members from both
organizations will meet on a regular basis to determine and coordinate systems
development efforts.
The House of IP Market Launch OSS Planning Scope Document will be developed by
the Parties. This document will describe the scope of the Operations Support
Systems development work required to support the House of IP product set. CNC
will be an integral member of the development effort.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 4 pages from
Exhibit 7 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1 of 1
<PAGE>
Attachment 8
------------
Pricing
-------
[*]
[*] Certain information from this Exhibit has been omitted and filed separately
with the Securities Exchange Commission. A total of 9 pages from Exhibit 8 to
the agreement have been omitted. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Attachment 9
------------
Performance Commitments and Reports
-----------------------------------
The Definitive Agreement describes a variety of areas where the Parties have
agreed to performance commitments including Warranties in the DA at Part II,
Section 4 and Service Level Agreements contained in the Marketing Service
Description and Attachment 17. This Attachment 9 provides further definition of
performance in addition to Warranties and SLAs, specifically performance
commitments and performance objectives.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 6 pages from
Exhibit 9 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 10
-------------
Sales Channel Conflicts
-----------------------
Since CNC provides its services to a variety of resellers, wholesalers, and
those it categorizes as OEMs, such as SBC and its affiliates, sales conflicts
will naturally arise between where multiple providers, all of whom use CNC as
part of their network solution.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 1 page from
Exhibit 10 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1 of 1
<PAGE>
Attachment 11
-------------
Forecasting
-----------
A. General. The Parties recognize that CNC requires visibility into data about
SBC's order flow process to be able to meet capacity requirements as well as
performance requirements. The Parties will use reasonable efforts to design
processes such that CNC receives information in sufficient time to meet SBC
requirements.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 2 pages from
Exhibit 11 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
<PAGE>
Attachment 12
-------------
Branding
--------
Use of Trademarks
- -----------------
The Parties will comply with Part II, Section 9.3 titled Trademarks in the use
of each other's trademarks.
Approval for Use Process
- ------------------------
Such use of either Party's proprietary marks shall be subject to the approval
requirements recited below:
CNC agrees that all artwork or copy to be used by CNC or its licensee(s) on
merchandising, advertising, or promotional materials which includes SBC or an
affiliate's ("SBC") name or SBC's logo shall be submitted to SBC or its
designated representative for approval at least ten (10) business days prior to
the production or manufacture of such materials, which approval shall not be
unreasonably withheld. Should SBC wish to comment upon or disapprove such
materials, SBC shall provide written commentary or notice of disapproval
(including the basis therefore) with ten (10) business days following SBC's
receipt thereof. If such notice is not received with the ten (10) business day
period, such artwork or copy shall be deemed approved. Once artwork or copy has
been approved, it may be reused without any need to secure additional approvals
if the artwork or copy is reused without material alteration.
SBC agrees that all artwork or copy to be used by SBC or its licensee(s) on
merchandising, advertising, or promotional materials which includes CNC's name
or CNC's logo shall be submitted to CNC or its designated representative for
approval at least ten (10) business days prior to the production or manufacture
of such materials, which approval shall not be unreasonably withheld. Should
CNC wish to comment upon or disapprove such materials, CNC shall provide written
commentary or notice of disapproval (including the basis therefor) with ten (10)
business days following CNC's receipt thereof. If such notice is not received
with the ten (10) business day period, such artwork or copy shall be deemed
approved. Once artwork or copy has been approved, it may be reused without any
need to secure additional approvals if the artwork or copy is reused without
material alteration.
The Parties will work toward creating uniform documentation which details the
general principles for use of each other's logos and trademark as appropriate.
None the less, each new instance of logo or trademark will follow the process
detailed above.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
-1-
<PAGE>
CNC shall exercise best efforts to determine that all licensed third party use
of SBC's name and proprietary marks shall be consistent with usage(s) approved
by SBC as provided above.
Neither of the parties shall (i) file any application for any mark or obtain or
attempt to obtain ownership of any mark or trade name, in any country of the
world, which refers to or is suggestive of the names comprising any
distinguishing part of the proprietary rights of the other party, or (ii) use
the proprietary rights of the other party or any part of it in its trading name
or in the name of any of its products or services. Both parties shall ensure
that their respective Affiliates will comply with the restrictions set forth.
Should SBC or CNC, as the case may be, use its own proprietary rights in or on
materials also bearing or incorporating proprietary rights of the other party,
such use shall be such as to avoid the creation or appearance of joint rights or
a joint trademark by suitable spatial separation one from the other and
distinctive script and type-face.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
-2-
<PAGE>
Attachment 13
-------------
Customer Care / Technical Support
---------------------------------
THIS ATACHMENT GOVERNS AND REFERS ONLY TO SUPPORT OF INTRALATA PRODUCTS AND
SERVICES. CNC WILL BE SOLELY RESPONSIBLE FOR SUPPORT OF INTERLATA PRODUCTS AND
SERVICES, AND ANY CUSTOMER INQUIRIES RECEIVED BY SBC PERTAINING TO THE INTERLATA
PORTION OF PRODUCTS AND SERVICES WILL BE IMMEDIATELY REFERRED TO CNC.
1.1 Objectives:
. Determining customer information needs across all processes and
providing that information in the most appropriate delivery method,
including product documentation, self-help online resources,
email/fax, and live phone support. All processes will be designed to
minimize live support needs.
. Providing customer service within performance targets provided herein
and in as part of the Definitive Agreement, on a consistent basis
. Mutually determining processes and procedures that will reduce
customer care cost. These processes and procedures will include but
not be limited to motivational metrics that create a desire to reduce
cost, and self-help solutions
. Continuously reducing handle time and average number of calls per
subscriber
. Improving service and reducing expenses via technology driven
processes and enablers; shift access from voice to self-help media
. Retaining account base
1.2 Technical Support Responsibilities
Technical support encompasses providing all information within the technical
support boundaries required to maintain a customer's service.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 4 pages from
Exhibit 13 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1 of 1
<PAGE>
Attachment 14
-------------
Sales Training and Support
--------------------------
Training in General
- -------------------
a) If requested by SBC, CNC shall provide, upon mutually agreed upon fees,
terms, and conditions, full and complete training courses taught by
qualified and knowledgeable instructors for all of the Products and
Services covered by this Agreement, as deemed necessary for the Term of
this Agreement. The training shall be available to SBC, at SBC's option,
as formal courses conducted at CNC's site and/or, if available, as
computer based training and/or "suitcased" courses at SBC's sites. At the
same time, SBC is aware that CNC does not have a training division and
that requests for training will take into account the resource
availability of each Party.
b) Prior to providing training, CNC shall issue a training quote to the SBC
Project Lead or other similar contact describing the content of the class,
location, scheduled dates for the training, required experience level,
cost per attendee or total cost of the course, plus an estimate of travel
expenses. A CNC representative shall coordinate with the SBC Project Lead
to meet the needs of the employees requesting training. Once the quote is
accepted, CNC may finalize plans for training. SBC may cancel a scheduled
training with 20 days notice at no cost to SBC. In addition SBC may cancel
a scheduled training class with 48 hours notice, but shall reimburse CNC
for any unavoidable out-of-pocket costs incurred by CNC.
c) Each Service deployed by CNC and branded for SBC will include necessary
training for SBC employees to implement and deploy the Service. At a
minimum, CNC will provide two (2) seats at no charge per major release to
SBC. Initial training will normally be provided prior to or concurrent
with the installation date of the product at each applicable installation
site.
d) At SBC's request, CNC will train SBC's trainers to provide such training
to SBC's employees. Compensation, if any, will be determined prior to
commencement of the training.
e) CNC training will consist of the following:
1. Sales Training - Designed to communicate basic information about the
-- --------------
Product, sales strategies, customer solution selling, etc.
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 1 page from
Exhibit 14 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1 of 1
<PAGE>
2. Customer Service Training - Designed to communicate the basic skills and
-- -------------------------
knowledge of the applicable industry, products, and solution problem
solving to support SBC's operation of the Product
3. SBC will provide CNC personnel sales training on jointly marketed
products and services if applicable.
f) To the extent that CNC has the right to do so, CNC agrees to provide a
master copy of all training materials and documentation with permission
for SBCIS to copy for the purposes of providing training to SBC's
employees. SBC agrees to duplicate and abide by all copyright and
proprietary notices which appear in the original. Unless CNC is
contractually restricted from granting such a right, SBC may modify CNC's
course materials and documentation for SBC's internal use or may request
that CNC modify materials and documentation at an agreed upon price.
g) If requested by SBC, CNC shall develop and provide at a cost to be
mutually agreed by the Parties, the license and courseware interactive
video for all the Products and Services covered by this Agreement for
delivery to SBC's employees by either SBC or CNC instructors at SBC's
discretion.
f) To the extent requested by SBC in its request for a quotation, CNC shall
provide training on weekends or holidays.
g) Reasonable travel and living expenses for CNC's employees associated with
courses provided on SBC's premises shall be reimbursed.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 1 page from
Exhibit 14 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 2 of 1
<PAGE>
Attachment 15
-------------
Network Management and Monitoring
---------------------------------
* SBC requires the capability for its customer care and operations groups to
have tools to proactively monitor the health, availability, and performance
of the SBC services rendered by CNC in order to provide the highest level
of support for SBC's customers and report on the performance and
availability requirements documented in the Definitive Agreement . This
section describes the initial Monitoring Service capabilities to be
provided to SBC by CNC to monitor the services rendered to SBC by CNC,
including systems, network & customer premises equipment & services.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 4 pages from
Exhibit 15 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachement 16
--------------
Provisioning
------------
SBC and CNC agree to cooperate in the following areas: Customer Service,
Reporting, and Performance Measurement. This will be accomplished as outlined
below:
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 1 page from
Exhibit 16 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
Page 1 of 1
<PAGE>
Attachment 17
-------------
Service Level Agreements
------------------------
The following are Service Level Agreements which CNC has made to SBC for
purchase of IntraLATA services.
Latency
CNC will guarantee that the average round trip packet transmission time for all
network traffic will not exceed 80 milliseconds edge-to-edge within the CNC
Network, as measured over a calendar month. For these guarantees, the CNC
Network is defined as the CNC backbone, as bounded by its nationally deployed
SuperPOPs, as well as the 400+ MCI points of presence (POPs) used by CNC to
supplement its local presence, and the backhaul connections between the
SuperPOPs and the MCI POPs. Excluded from the definition at this time are any
other provider networks (including, but not restricted to, Frame Relay and DSL
providers), as well as any private peering, public peering, and NNI connections.
In the event that CNC fails to meet this latency guarantee, CNC will provide a
credit of 1% for every millisecond of average packet latency above the target of
80ms. Any excess latency caused by force majeure, scheduled maintenance, or by
the customer or the customer's equipment will be excluded from the calculations.
The credit will be calculated by applying the appropriate percentage to the SBC
wholesale costs for the month's CNC network charges for all eligible
connections. Eligible connections for this guarantee are all T1, T3 and Frame
Relay connections provided to EVPN and Online Office Business Class customers.
ISDN lines are excluded from SLAs at this time. SBC can receive a maximum
credit of 100% of the IntraLATA monthly recurring charges owed by SBC to CNC for
eligible lines when the latency guarantee is not met under this section. Latency
statistics will be gathered utilizing tools developed and utilized by CNC's
Network Operations Center. For informational purposes, daily average latency
statistics is expected to be available for SBC review via a Web site by April
30, 1999, but compliance or non-compliance with the guarantee will be based on
the average round-trip latency values over the entire calendar month.
Network Availability guarantee of 100% edge-to-edge
CNC will guarantee that the Concentric Backbone Network will be available to
customers 100% of the time during a calendar month. For these guarantees, the
CNC Network is defined as the CNC backbone, as bounded by its nationally
deployed SuperPOPs, as well as the 400+ MCI points of presence (POPs) used by
CNC to supplement its local presence, and the backhaul connections between the
SuperPOPs and the MCI POPs. Also included is the NNI circuit(s) between the CNC
Network and the SBC network. Excluded from the definition at this time are any
other provider networks (including, but not restricted to, Frame Relay and DSL
providers), as well as any private peering, public peering, and NNI connections
to carriers other than SBC. In the event that CNC fails to
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
meet this guarantee, CNC will provide a credit of 1/30 of the monthly service
charges for every hour, or fraction thereof, of network downtime experienced
by an end user. The amount of downtime will be calculated by determining the
total number of minutes of premise-to-premise downtime (backbone plus local
loop) for every eligible connection. Eligible connections for this guarantee
are all T1, T3 and Frame Relay connections provided to EVPN and Online Office
Business Class customers. The amount of edge-to-edge downtime experienced by
the eligible customer will then be calculated by subtracting any downtime due
to local loop or customer premise router failures, and then subtracting any
backbone outages due to force majeure, scheduled maintenance, and any downtime
caused by the customer or the customer's equipment, as well as any downtime
caused by problems with the SBC-managed router(s) terminating the CNC-SBC
NNI(s). The result is the amount of downtime experienced by the eligible
customer caused by edge-to-edge network availability failures. The credits
will be calculated by applying the guarantee against the SBC wholesale costs
for the month's CNC network charges for all eligible connections. SBC can
receive a maximum credit of 100% of the monthly wholesale costs to eligible
lines when the network availability guarantee is not met under this section.
Network availability statistics will be gathered utilizing tools developed and
utilized by CNC's Network Operations Center, as well as tools such as HP
Openview and CNC's trouble ticketing system. For informational purposes, daily
network availability statistics is expected to be available for SBC review via
a Web site by April 30, 1999, but compliance or non-compliance with the
guarantee will be based on the availability values calculated at month's end.
24 Hour Call Success Rate
CNC will guarantee that the average call success rate for all dial network
traffic will not fall below 95% or the industry average for 24 hour call success
rate, whichever is higher, as measured monthly by Inverse Technologies, a third
party rating service. In the event that CNC fails to meet this guarantee, CNC
will provide a credit of 10% for every letter grade (as defined by Inverse)
below target. The credit will be calculated by applying the appropriate
percentage to the SBC wholesale costs for the month's CNC dial network charges
for all eligible connections. Eligible connections for this guarantee are all
secure analog dial customers. SBC can receive a maximum credit of 100% of the
monthly wholesale costs for eligible dial users when the guarantee is not met
under this section. Inverse Technology places thousands of calls into 40+ key
locations around the country and reports the results on a monthly basis to CNC.
Initial Modem Connect Speed Guarantee
CNC will guarantee that the average initial modem connect speed for all dial
network traffic will not fall below 27.5kbps or the industry average, as
measured monthly by Inverse Technologies, a third party rating service. In the
event that CNC fails to meet this guarantee, CNC will provide a credit of 10%
for every letter grade (as defined by Inverse) below target. The credit will be
calculated by applying the appropriate percentage to the SBC wholesale costs for
the month's CNC dial network charges for all eligible
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
2
<PAGE>
connections. Eligible connections for this guarantee are all secure analog
dial customers. SBC can receive a maximum credit of 100% of the monthly
wholesale costs for eligible dial users when the guarantee is not met under
this section. Inverse Technology places thousands of calls into 40+ key
locations around the country and reports the results on a monthly basis to
CNC. For this metric, Inverse measures using 33.6kbps modems.
Packet Loss
CNC will guarantee that the average round trip packet loss for all network
traffic will not exceed 1% edge-to-edge within the CNC Network, as measured over
a calendar month. For these guarantees, the CNC Network is defined as the CNC
backbone, as bounded by its nationally deployed SuperPOPs, as well as the 400+
MCI points of presence (POPs) used by CNC to supplement its local presence, and
the backhaul connections between the SuperPOPs and the MCI POPs. Excluded from
the definition at this time are any other provider networks (including, but not
restricted to, Frame Relay and DSL providers), as well as any private peering,
public peering, and NNI connections. In the event that CNC fails to meet this
packet loss guarantee, CNC will provide a credit of 1% for every tenth of a
percent of packet loss above the target of 1%. Any excess packet loss caused by
force majeure, scheduled maintenance, or by the customer or the customer's
equipment will be excluded from the calculations. The credit will be calculated
by applying the appropriate percentage to the SBC wholesale costs for the
month's CNC network charges for all eligible connections. Eligible connections
for this guarantee are all T1, T3 and Frame Relay connections provided to EVPN
and Online Office Business Class customers with. SBC can receive a maximum
credit of 100% of the IntraLATA monthly recurring charges owed by SBC to CNC for
eligible lines when the latency guarantee is not met under this section. Packet
loss statistics will be gathered utilizing tools developed and utilized by CNC's
Network Operations Center. For informational purposes, daily average packet loss
statistics is expected to be available for SBC review via a Web site by April
30, 1999, but compliance or non-compliance with the guarantee will be based on
the average round-trip packet loss values over the entire calendar month.
SLAs Across Network Boundaries
- ------------------------------
For SLAs across network boundaries, the Parties agree to put processes in place
to provide SLAs across network boundaries prior to product launch under
Attachment 3, Deployment and Delivery. In addition, CNC commits to extending
the SLAs contained in this Attachment 17 available on DSL no later than 90 days
following execution of this Agreement. During the initial 90 day period, CNC
will provide latency, network availability and packet SLAs as defined above for
DSL; however, the measurement of these SLAs will not extend to CNC equipment
unique to DSL.
Credit Procedures
- -----------------
Until an electronic procedure is established, CNC will provide a manually
produced spreadsheet which details the SLA failures and Customers which qualify
for a credit. This spreadsheet will be delivered 5 days after the end of the
month each month. Each SBC
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
3
<PAGE>
customer will be listed by eligible site and customer name separately on the
spreadsheet. In addition, the CNC spreadsheet will indicate where some but not
all customer site are eligible for a credit. At the same time, CNC will either
deliver a check equal to the credit due to SBC for the SLAs or a Product
credit at SBC's option.
Lastly, CNC's metrics and data used to determine credits for SLAs will be made
available for SBC's reasonable inspection to confirm the accuracy of the SLA
calculations provided by CNC.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
4
<PAGE>
Attachment 18
-------------
Wholesale Dial Access Services
------------------------------
In the near future, subject to legal and regulatory requirements, SBC or its
Affiliates will be offering a wholesale dial access/modem pooling service which
will allow CNC to aggregate its dial access traffic on a LATA by LATA basis
("Dial Access [*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 2 pages from
Exhibit 18 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 19
-------------
Executive Orders and Associated Regulations
-------------------------------------------
Work under this contract may be subject to the provisions of certain Executive
Orders, federal laws, state laws, and associated regulations governing
performance of this contract including, but not limited to: Executive Order
11246, Executive Order 11625, Executive Order 11701, and Executive Order 12138,
Section 503 of the Rehabilitation Act of 1973 as amended and the Vietnam Era
Veteran's Readjustment Assistance Act of 1974. To the extent that such
Executive Orders, federal laws, state laws, and associated regulations apply to
the work under this contract, and only to that extent, Contractor agrees to
comply with the provisions of all such Executive Orders, federal laws, state
laws, and associated regulations, as now in force or as may be amended in the
future, including, but not limited to the following:
1. EQUAL EMPLOYMENT OPPORTUNITY DUTIES AND PROVISIONS OF GOVERNMENT CONTRACTORS
In accordance with 41 C.F.R.(S)60-1.4(a), the parties incorporate herein by
this reference the regulations and contract clauses required by that section,
including but not limited to, Contractor's agreement that it will not
discriminate against any employee or applicant for employment because of race,
color, religion, sex, or national origin. The Contractor will take affirmative
action to ensure that applicants are employed, and that employees are treated
during employment, without regard to their race, color, religion, sex, or
national origin.
2. AGREEMENT OF NON SEGREGATED FACILITIES
In accordance with 41 C.F.R.(S)60-1.8, Contractor agrees that it does not
and will not maintain or provide for its employees any facilities segregated
on the basis of race, color, religion, sex, or national origin at any of its
establishments, and that it does not and will not permit its employees to
perform their services at any location, under its control, where such
segregated facilities are maintained. The term "facilities" as used herein
means waiting rooms, work areas, restaurants and other eating areas, time
clocks, rest rooms, wash rooms, locker rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees; provided, that
separate or single-user restroom and necessary dressing or sleeping areas
shall be provided to assure privacy between the sexes.
3. AGREEMENT OF AFFIRMATIVE ACTION PROGRAM
Contractor agrees that it has developed and is maintaining an Affirmative
Action Plan as required by 41 C.F.R.(S)60-1.4(b).
4. AGREEMENT OF FILING
Contractor agrees that it will file, per current instructions, complete and
accurate reports on Standard Form 100 (EE0-1), or such other forms as may be
required under 41 C.F.R.(S)60-1.7(a).
5. AFFIRMATIVE ACTION FOR HANDICAPPED PERSONS AND DISABLED VETERANS, VETERANS
OF THE VIETNAM ERA.
In accordance with 41 C.F.R.(S)60-250.20, and 41 C.F.R.(S)60-741.20, the
parties incorporate herein by this reference the regulations and contract
clauses required by those provisions to be made a part of government contracts
and subcontracts.
6. UTILIZATION OF SMALL, SMALL DISADVANTAGED AND WOMEN-OWNED SMALL BUSINESS
CONCERNS
As prescribed in 48 C.F.R., Ch. 1, 19.708(a):
(a) It is the policy of the United states that small business concerns,
small business concerns owned and controlled by socially and economically
disadvantaged individuals and small business concerns owned and controlled by
women shall have the maximum practicable opportunity to participate in
performing contracts let by any Federal agency, including contracts and sub-
contracts for systems, assemblies, components, and related services for major
systems. It is further the policy of the United States that its prime
contractors establish procedures to ensure the timely payment amounts due
pursuant to the terms of the subcontracts with small business concerns, small
business concerns owned and controlled by socially and economically
disadvantaged individuals and small business concerns owned and controlled by
women.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
(b) The Contractor hereby agrees to carry out this policy in the awarding of
subcontracts to the fullest extent consistent with efficient contract
performance. The Contractor further agrees to cooperate in any studies or
surveys as may be conducted by the United States Small Business Administration
or the awarding agency of the United States as may be necessary to determine the
extent of the Contractor's compliance with this clause.
(c) As used in this contract, the term small business concern shall mean a
small business as defined pursuant to section 3 of the Small Business Act and
relevant regulations promulgated pursuant thereto. The term small business
concern owned and controlled by socially and economically disadvantaged
individuals shall mean a small business concern which is at least 51 percent
unconditionally owned by one or more socially and economically disadvantaged
individuals; or, in the case of any publicly owned business, at least 51 per
centum of the stock of which is unconditionally owned by one or more socially
and economically disadvantaged individuals; and (2) whose management and daily
business operations are controlled by one or more such individuals. This term
also means small business concern that is at least 51 percent unconditionally
owned by an economically disadvantaged Indian tribe or Native Hawaiian
Organization, or a publicly owned business having at least 51 percent of its
stock unconditionally owned by one of these entities which has its management
and daily business controlled by members of an economically disadvantaged Indian
tribe or Native Hawaiian Organization, and which meets the requirements of 13
CRF part 124. The Contractor shall presume that socially and economically
disadvantaged individual include Black Americans, Hispanic Americans, Native
Americans, Asian-Pacific Americans, Subcontinent Asian Americans, and other
minorities, or any other individual found to be disadvantaged by the
Administration pursuant to section 8(a) of the Small business Act. The
Contractor shall presume that socially and economically disadvantaged entities
also include Indian Tribes and Native Hawaiian Organizations.
(d) The term "small business concern owned and controlled by women" shall
mean a small business concern (i) which is at least 51 percent owned by one or
more women, or, in the case of any publicly owned business, at least 51 percent
of the stock of which is owned by one or more women, and (ii) whose management
and daily business operations are controlled by one or more women; and
(e) Contractors acting in good faith may rely on written representations by
their sub-contractors regarding their status as a small business concern, a
small business concern owned and controlled by socially and economically
disadvantage individuals or a small business concern owned and controlled by
women.
7. SMALL, SMALL DISADVANTAGED AND WOMEN-OWNED SMALL BUSINESS SUB-CONTRACTING
PLAN. The sub-contractor will adopt a plan similar to the plan required by 48
CFR Ch. 1 at 52.219-9.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
2
<PAGE>
Attachment 20
-------------
CONSULTING SERVICES
-------------------
In addition to the applicable terms of the Definitive Agreement to which this
Exhibit is attached, the terms of this Exhibit H will govern the terms of the
provision of Consulting Services, as described in an executed Statement of Work,
to SBC by CNC. All capitalized terms used and not otherwise defined herein will
have the meanings ascribed thereto in the Definitive Agreement.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 9 pages from
Exhibit 20 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
Attachment 21
-------------
Acceptance Test Plan and Procedures
-----------------------------------
The Parties have agreed to the test plan included in this attachment for the
initial Product acceptance for the May 7, 1999 launch in the initial cities
which include Austin, in Texas and San Francisco, Oakland, San Jose, Los
Angeles, and Orange County in California.
[*]
[*] Certain information from this Exhibit has been omitted and filed
separately with the Securities Exchange Commission. A total of 2 pages from
Exhibit 21 to the agreement have been omitted. Confidential treatment has been
requested with respect to the omitted portions.
Confidential Information
Not for disclosure outside of SBC Operations Inc. and its Affiliates or
Concentric Network Corporation without prior written agreement.
1
<PAGE>
EXHIBIT 10.52
WebTV 2000 Pricing
TERM SHEET
6/18/99
The following terms and conditions comprise the basis for Amendment Five to the
Agreement dated February 1, 1997 by and between Concentric Network Corporation
("CNC") and WebTV Networks Inc. ("WNI"), as amended (the "Agreement"). All
other terms and conditions of the Agreement will remain in effect unless
explicitly stated otherwise in this Term Sheet. The parties acknowledge and
agree that the following sets forth their agreement on the terms set forth
herein which shall be embodied in a definitive amendment or restated agreement
pursuant to Section 9 of this Term Sheet, which amendment or restatement may
include additional terms and conditions necessary to effectuate the terms and
conditions set forth herein.
Additionally, notwithstanding that WNI and CNC are the only parties to the
Agreement, CNC hereby agrees that all terms and product offerings of the
Agreement, including those set forth in this Term Sheet, shall be available to
any Microsoft organization, including Microsoft Corporation and all its
subsidiaries, for the duration of the term of the Agreement on the same terms
and conditions offered to WNI.
1. Interim [*] for Vport Level and Pricing:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Timeframe [*] Price Per As Available
Vport Level Vport Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Jul-99 [*] $[*] $[*]
- ------------------------------------------------------------------------------
Aug-99 [*] [*] [*]
- ------------------------------------------------------------------------------
Sep-99 [*] [*] [*]
- ------------------------------------------------------------------------------
Oct-99 [*] [*] [*]
- ------------------------------------------------------------------------------
Nov-99 [*] [*] [*]
- ------------------------------------------------------------------------------
Dec-99 [*] [*] [*]
- ------------------------------------------------------------------------------
</TABLE>
The foregoing Vport pricing and all subsequent Vport pricing in this
Amendment shall apply across all POP Classes and across all Vports used by
WNI except as defined in paragraph 4 of this Term Sheet.
2. Vport Pricing and [*] for the years 2000, 2001, 2002.
The following table sets forth the maximum Vport pricing to be charged WNI
during the calendar year ending on the respective date as set forth below.
The parties will meet every 6 months to discuss the monthly Vport forecast
to determine the rate at which Vports will be added between annual period
ending dates. At such time, the parties may mutually agree in writing to
modify the [*] for any given month during the respective calendar year
(similar to the form set forth in Paragraph 1 of this Term Sheet for the
period July 1999 through December 1999). Absent such an agreement, the [*]
for each month during the calendar year shall be equal to the [*] per the
table
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* Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential Treatment has been
requested with respect to the omitted portion.
<PAGE>
below. In the event that in any given month WNI does not [*] traffic
level, WNI shall [*]. Additionally, WNI will exercise reasonable business
efforts to [*] or more of the total [*] that have been mutually agreed for
build out and use by WNI.
<TABLE>
<CAPTION>
Annual Period Vport Calendar Price per As
Ending [*] Period Pricing Vport Available
Level at Effective Price
Period Ending
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dec 31, 1999 [*] [*] [*] [*]
- ---------------------------------------------------------------------------------
Dec 31, 2000 [*] [*] [*] [*]
- ---------------------------------------------------------------------------------
Dec 31, 2001 [*] [*] [*] [*]
- ---------------------------------------------------------------------------------
Dec 31, 2002 [*] [*] [*] [*]
- ---------------------------------------------------------------------------------
</TABLE>
Beginning with the Period Ending date of December 31, 2000 [*] in the event
that the actual number of WebTV Network subscribers at the Period Ending
date is less than [*] of the amount set forth in WNI's marketing projections
for such Period Ending date, then the corresponding Vport Commitment Level
at Period Ending and the minimum Vport commitment level for such month of
December shall be reduced in equal proportion to the difference between
WNI's actual subscribers and the marketing projections for such Period
Ending date. For example, if WNI projects to have [*] subscribers at the
period ending December 31, 2000, but actually has only [*] subscribers at
such time, the Vport [*] Level at Period Ending December 31, 2000 shall be)
and the minimum Vport commitment level for the month of December 31, 2000
shall be [*] less then the level set in accordance with the first paragraph
of this Section 2. The WNI [*] shall be provided by WNI under separate cover
in a confidential letter to the CNC officer designated by CNC, concurrently
with the signing of this Amendment.
3. Hourly Pricing:
Effective January 1, 2000, the rate for hourly usage will be $[*] per hour
in all POP classes with the exceptions defined in paragraph 4 of this
Amendment. The hourly traffic will be used predominantly for overflow
traffic from WNI's other IAP providers
4. Hourly and Vport pricing excludes [*]. Pricing for [*] is as follows:
Vport: $[*] US [unchanged from the previous agreements]
Hourly Usage: $[*] US per hour [unchanged from the previous agreements]
These prices may change, subject to mutual agreement, as long as [*] Vport
and [*] are met. Notwithstanding the different pricing set forth in this
Paragraph, use of Vports in [*] shall be counted towards WNI's Vport [*]
[*] as set forth in Section 1 and 2 of this Term Sheet.
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* Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential Treatment has been
requested with respect to the omitted portion.
<PAGE>
5. Term: From July 1, 1999 through December 31, 2002 plus ramp-down as
described in paragraph 7 below)
6. Effective Date: This Amendment is effective July 1, 1999.
7. Renegotiation:
Prior to August 1, 2002, WNI and CNC shall negotiate in good faith regarding
new pricing, terms and conditions to be effective January 1, 2003. If the
parties cannot agree on new pricing, terms and conditions by the end of the
term of the Agreement, the Agreement shall terminate in accordance with its
terms and the ramp-down period will begin. The starting point for the ramp
down will be determined by the Vport usage level achieved in the final month
of the term. The ramp down shall begin no earlier than [*], and end no
sooner than [*]. During the ramp-down period, either party may ramp-down
Vport usage at a rate of no more than [*] per quarter.
8. Deletion of Section 5.1.6
Section 5.1.6 of the Agreement, added as part of Amendment 1 dated November
1, 1997, is hereby deleted.
9. Preparation of Amendment
Following the mutual execution of this Term Sheet, the parties will promptly
prepare and execute a definitive amendment to the Agreement based upon this
Term Sheet. If mutually agreed, such amendment may be accomplished by the
execution of an amended and restated agreement in lieu of an amendment.
Until such time as a definitive amendment is executed (whether or not such
definitive amendment is executed), the terms and conditions of this Term
Sheet shall govern the conduct of business between the parties pursuant to
the Agreement effective July 1, 1999.
Agreed to and Accepted:
CONCENTRIC NETWORK WEBTV NETWORKS, INC.
By: By:
-------------------------- -----------------------------
Printed Name: Printed Name:
---------------- -------------------
Title: Title:
----------------------- --------------------------
Date: Date:
------------------------ ---------------------------
6/18/99
3
WebTV/Concentric Network Confidential
* Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential Treatment has been
requested with respect to the omitted portion.
<PAGE>
EXHIBIT 10.53
AGREEMENT
This Agreement ("Agreement") is made as of this 18th day of June, 1999 by and
between Microsoft Corporation ("Microsoft"), a Washington corporation with its
principal offices at One Microsoft Way, Redmond, WA 98052, and Concentric
Network, Inc. ("Concentric"), a California corporation with its principal
offices at 1400 Parkmoor Avenue, San Jose, CA 95126 (each, a "Party,"
collectively, the "Parties").
Recitals
Whereas, Microsoft currently owns and operates a network of Web sites
currently entitled "MSN", with a home page currently located at
http://www.msn.com, which network includes an aggregation of Web-based
properties, and which constitutes an Internet portal. Microsoft, in conjunction
with independent Internet Service Providers, is developing an alliance of
Internet properties that will all deploy the MSN portal or co-branded versions
thereof;
Whereas, Concentric supplies dial-up and broadband xDSL Internet access and
web hosting services to consumers and business customers;
Whereas, the Parties desire to enter into an agreement to provide the MSN
portal and Web-based properties to Concentric's narrowband and broadband access
customers, to accelerate development and deployment of new and innovative
hosting services based on Windows NT and Windows 2000, and to accelerate
customer adoption of xDSL, through their existing and future relationships with
customers, value-added resellers, service providers, and partners; and
Whereas the Parties desire to cooperate in joint marketing and promotional
activities;
Now, therefore, in consideration of the covenants and conditions set forth
below, the adequacy of which consideration is hereby acknowledged, the Parties
agree as follows:
Agreement
1. Definitions
1.1. [*]
1.2. "Broadband" describes network connectivity with speeds that are
greater than 56K and that use Digital Subscriber Line (xDSL) technology.
1.3. "Concentric MSN Portals" means collectively the Consumer Concentric
MSN Portal and the Small Business Concentric MSN Portal.
1.4. "Concentric Services" means Concentric's dial-up and xDSL connectivity
services that Concentric offers to its customers.
1.5. "Consumer Concentric MSN Portal" shall mean the co-branded Home Page
for Concentric contemplated under this Agreement which is (i) aimed at
Concentric's consumer customers and (ii) based on the MSN Portal using the [*]
technology as described in Section 2.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 1 of 23
<PAGE>
1.6. "Content Module" shall mean the portions of the Concentric MSN Portals
that are designed and managed by Concentric in accordance with Section 2.6 and
for which Concentric shall provide content, in some cases with assistance
provided by Microsoft. The Content Module as currently conceived by Microsoft
occupies approximately one-third of the Concentric MSN Portals and includes a
row of persistent links to Concentric at the bottom of the Concentric MSN
Portals.
1.7. "Default Start Page" shall mean the Web Page that will appear
initially, unless reset or modified by an end user, on an end user's computer
monitor each time the user initiates a telephone connection using Web Browsing
Technology between a computer and an Internet service provider.
1.8. "Effective Date" means [*].
1.9. "First Commercial Release" means that date on which either Party makes
a product or service commercially available to end users.
1.10. "Home Page" shall mean the initial top level Web Page of a Web Site
seen by a user once the user has directed Web Browsing Technology to access
the Web Site's URL.
1.11. "Microsoft Core Internet Technologies" means the following products:
Passport (authentication technology for sharing user credentials with other
affiliated content, commerce or applications providers), the MSN web search
(search engine), Hotmail (e-mail), user-created communities (community
infrastructure), and MSN messenger service (instant messaging and buddy list
technology).
1.12. "MSN Portal" shall mean the Home Page for the MSN Service, which is
currently located at the URL www.msn.com.
1.13. "MSN Service" means the aggregation of Web-based properties (as such
properties may change from time to time in Microsoft's sole discretion) which is
currently branded by Microsoft as "The Microsoft Network" and/or "MSN", and
accessed through the domain http://www.msn.com. The term "MSN Service" does not
------------------
include Microsoft's corporate web site, currently located at
http://www.microsoft.com, or any Web-based properties contained within such
- ------------------------
domain.
1.14. "Narrowband" describes network connectivity with speeds that are 56K
or less and that use analog dial up modem technology with protocols such as
v.90 or v.34.
1.15. "Small Business Concentric MSN Portal" shall mean the co-branded Home
Page for Concentric contemplated under this Agreement which is (i) aimed at
Concentric's small business customers of its Concentric Services and (ii)
based on the MSN Portal using the [*] technology as described in Section 2.
1.16. "URL" shall mean a uniform resource locator which serves as the
address of a Web Page.
1.17. "Web Browsing Technology" shall mean computer software (including by
way of example Microsoft Internet Explorer ("IE") and Netscape Navigator)
designed to enable access to Web Pages via the applicable URLs.
1.18. "Web Page" shall mean content in the World Wide Web portion of the
Internet accessed via a single URL, and excluding content on other Web Pages
accessed via links in said content.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 2 of 23
<PAGE>
1.19. "Web Site" shall mean a collection of Web Pages related in some
manner and interconnected via links within a specific URL domain.
2. Description of the Concentric MSN Portals
2.1. Microsoft shall provide, host and maintain two co-branded versions of
the MSN Portal [*], one targeted at the consumer customers and the other
targeted at the small business customers of the Concentric Services. Each of
the co-branded portals shall be substantially similar to the MSN Portal as it
is now or may be constituted in the future, except for the inclusion of
Concentric branding, content, features, Concentric Content Modules, and
functionality described below in this Section 2. Except as specifically set
forth in this Section 2, Microsoft shall have sole control and discretion over
all aspects of the Concentric MSN Portals, including without limitation the
management, design, features, functionality and content thereof. Without
limitation, Concentric acknowledges that the visual appearance and design of
the Concentric MSN Portals may evolve over time to respond to end user
preferences (among other reasons). The current (as of the Effective Date)
target for the First Commercial Release [*] In addition, Microsoft will assist
Concentric in developing an initial version of the Small Business Concentric
MSN Portal based upon the existing MSN Portal and content available therein,
and this initial version will enable more prominent positioning of small
business content available within the MSN Service through the use of the
standard personalization capabilities of the Home Page of the MSN Service. [*]
2.2. The Concentric MSN Portals shall be co-branded in a manner determined
by Microsoft, but with the Concentric logo at the top center or upper left
corner of the page, featuring the words "Powered by MSN" (or similar text) in
no larger or more prominent type. The co-branding shall appear on the start
page of the Concentric MSN Portals and shall extend to those pages in the MSN
Service which are accessible via one hyperlink from the Concentric MSN
Portals. Either Party may at its sole discretion provide links from the
Concentric MSN Portals to non co-branded pages. Microsoft shall not make any
material changes to Concentric's trademarks or logos as displayed within the
Concentric MSN Portals without the prior written consent of Concentric, which
consent shall not be unreasonably withheld or delayed.
2.3. Concentric will use its commercially reasonable efforts to cause the
Default Start Page for all of Concentric's Narrowband and Broadband Internet
access customers of its Concentric Services who contract for such service after
the First Commercial Release of the Concentric MSN Portals to be one of the URLs
identified in Exhibit B hereto operated by Concentric. Concentric will cause
---------
all end users accessing said URL to be automatically redirected to the
applicable Concentric MSN Portal as identified by Microsoft (tentatively,
"concentric.msn.com"). If Microsoft fails to satisfy the performance metrics
for the MSN Portal as set forth in the attached Exhibit C, Concentric may
---------
trigger the implementation dispute process described in Section 7 below.
2.3.1. [*]
2.3.2. [*]
2.4. Microsoft acknowledges that Concentric has entered into and will enter
into in the future certain arrangements with third parties in which Concentric
Services are co-branded using the trademarks of Concentric and such third
parties, or the Concentric services are sold under such third parties'
trademarks ("Co-Branded/Private Label Services"). [*] Concentric shall use
reasonable efforts to encourage such third parties to adopt one of the
Concentric MSN Portals or another co-branded version of the MSN Portal as the
Default Start Page for such Co-Branded/Private Label Services, and Microsoft
agrees to negotiate in good faith the terms of a
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 3 of 23
<PAGE>
one-time referral fee mechanism to be paid to Concentric if such Co-
Branded/Private Label Services adopt the Concentric MSN Portals or another co-
branded version of the MSN Portal.
2.5. The visible user interface for the Concentric MSN Portals shall be
substantially similar to the MSN Portal, including colors, layout, fonts, etc.
Concentric will have the ability to use its fonts and colors within the
Concentric Content Module on the Concentric MSN Portals, subject to Section 2.6
below.
2.6. At Concentric's request, Microsoft shall include a Content Module in
each of the Concentric MSN Portals, which Content Module (and its content and
delivery) shall be in accordance with any template, guidelines, tools and
procedures (including format and delivery schedule) provided from time to time
to Concentric by Microsoft. Subject to the above, the content in the Content
Module may be modified from time to time as determined by Concentric in its
sole discretion and Microsoft shall replace any existing Content Module with
any such updated Content Module within a reasonable time following
Concentric's notice of such modifications. Notwithstanding the foregoing, (a)
Concentric may not include any advertising, sponsorships or promotion for
third parties in the Content Module (but may promote Concentric and its
services), (b) Microsoft has the right to remove or require Concentric to
remove content from the Content Module if Microsoft believes, in its sole
discretion, that the inclusion of such content may create a legal liability
for Microsoft, and (c) the schedule for Content Module modification shall be
subject to the mutual approval of Microsoft and Concentric [*]. If Microsoft
desires to remove or require Concentric to remove content from the Content
Module other than as provided in the previous sentence, Microsoft shall
provide at least seven (7) days prior notice to Concentric and, if the parties
are unable to agree upon the removal or modification of such content during
such period, such content shall remain in the Content Module but Concentric
agrees to continue to negotiate in good faith with Microsoft for a mutually
agreeable solution to address Microsoft's concerns with such content.
Microsoft shall supply, or grant access to, Concentric such tools and
procedures, once developed, as are necessary for Concentric to access and
modify the Content Modules, which Microsoft will host on its servers;
Concentric shall be bound by such license terms and conditions generally
required by Microsoft as applicable to such tools. Exhibit A depicts
---------
Microsoft's current design plan for the MSN Concentric Portals[*]. Concentric
acknowledges, however, that Microsoft may, in its sole discretion, modify the
design plan for the MSN Concentric Portals except with respect to the specific
elements required by this Section 2. [*]
2.7. Microsoft shall use commercially reasonable efforts to not permit any
"paid advertisements" from "Concentric Designated Competitors" on the Concentric
MSN Portals. "Concentric-Designated Competitors" shall mean the entities
designated by Concentric in Exhibit D hereto provided that Concentric supplies
---------
Microsoft in a timely manner an accurate list of the specific names of such
companies so as to allow Microsoft to incorporate such specific names into its
ad server technology.[*] In the event that Concentric reasonably believes the
display of Sponsorships from Concentric Designated Competitors placed on the
Concentric MSN Portals are detracting from the value of the Concentric MSN
Portals, Concentric shall be entitled to trigger the implementation dispute
process described in Section 7.
2.8. Concentric may at its sole discretion include advertising from any
third parties in pages which it hosts that are accessible via links contained
in the Content Module
2.9. Microsoft shall place a back button or home button on the Concentric
MSN Portals and all pages no more than one hyperlink from the Concentric MSN
Portals such that any user that begins viewing such sites after viewing one of
the Concentric MSN Portals will always be returned to the applicable
Concentric MSN Portal.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 4 of 23
<PAGE>
2.10. Notwithstanding anything to the contrary in this Agreement, Concentric
will not be obligated to change the branding of its main corporate site,
currently located at URL www.concentric.com. The content, look, and feel of
------------------
www.concentric.com, or any other corporate site properties of Concentric, may be
- ------------------
determined by Concentric at its sole discretion.
3. Technical Support for the Concentric MSN Portals
3.1. As between the Parties, Concentric shall provide all technical support
to its Internet access customers in connection with the Concentric MSN
Portals. In accordance with the technical support plan described in Section
3.2, Microsoft shall provide Concentric with second level support. All help,
contact and support links in the Concentric MSN Portals shall point to the
relevant pages of Concentric's Web site at http://support.concentric.net./
-------------------------------
3.2. In connection with the obligations of Section 3.1, Microsoft and
Concentric will develop a technical support plan, which shall be subject to
the Parties' mutual approval, within ninety (90) days after the Effective
Date, provided that in any event Microsoft shall provide Concentric with
access (subject to such periods of down-time as may be reasonably appropriate
for maintenance or as may be caused by circumstances beyond Microsoft's
reasonable control) to the following MSN support resources:
3.2.1. online access to the MSN Service technical support knowledge base
to provide real time support to Concentric customers;
3.2.2. online technical support modules for customer self-care, the
nature and choice of such modules being at Microsoft's sole discretion;
3.2.3. a trouble ticket system for escalating technical support issues,
the nature of which system shall be at Microsoft's sole discretion; and
3.2.4. 24 x 7 access by the Concentric Network Operations Center to the
telephone support line at Microsoft's Network Operations Center for the MSN
Service.
4. Microsoft Internet Technologies
4.1. E-mail. Microsoft will make available to each Concentric Consumer
------
Narrowband customer of the Concentric MSN Portals a Hotmail Web-based e-mail
account. This will be substantially the same e-mail service that Microsoft is
offering to users accessing Hotmail from www.hotmail.com, except that Concentric
---------------
domain names (as applicable) will be used (e.g., [email protected]).
Microsoft will use its commercially reasonable efforts to integrate this web
based e-mail into the Concentric MSN Portals so as to provide a seamless user
experience. Concentric agrees to promote this Web based email as the preferred
email offering to its consumer Narrowband Internet access customers. Concentric
and Microsoft will cooperate to encourage end users of Concentric's existing
email service to use the Web-based email described in this Section 4.1, which
migration may include an off-line solution involving Microsoft's Outlook Express
technology. Microsoft acknowledges that advertising-driven Web-based e-mail
services, such as Hotmail, may not be appropriate for Concentric's small
business customers. To the extent any such advertising or sponsor subsidized
technology is offered by Concentric to Concentric's small business customers,
Concentric shall promote Hotmail as the preferred solution for small business
customers of Concentric's Services.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 5 of 23
<PAGE>
4.2. Use of Microsoft Internet Technologies. Upon notice from Microsoft of
--------------------------------------
the First Commercial Release of the Microsoft Core Internet Technologies,
Concentric agrees, as soon as commercially feasible, and as long as such
technologies are compatible with existing Internet technology standards where
feasible, to implement and provide its consumer Narrowband customers with
Microsoft Core Internet Technologies pursuant to Microsoft's standard user
interface and distribution terms and agreements generally applicable for third
parties' implementation and distribution of the Microsoft Core Internet
Technologies. To such end, Microsoft shall provide Concentric with such
materials, technology and support as it routinely provides to other third
parties distributing such technologies pursuant to Microsoft's standard
distribution terms and agreements. Microsoft will use reasonable efforts to
allow Concentric to have access to beta versions of such technologies (to the
extent that Microsoft makes such technologies available to other third parties
in beta form) to accelerate the process of Concentric's introduction and
implementation of the same. In the event that Concentric offers or implements
the Microsoft Core Internet Technologies with its Internet access services,
Concentric shall not promote any competing technology with its Internet access
services more favorably than Microsoft Core Internet Technologies, other than
as required by the existing agreements summarized in Exhibit E hereto.
---------
4.3. Internet Explorer and Outlook Express. In connection with its Internet
-------------------------------------
access services, Concentric shall, during the Term and subject to the normal
terms and conditions of the Internet Explorer 5x distribution agreement and
Internet Explorer 5x co-marketing agreement previously entered into by the
parties on March 28, 1999, distribute the most up-to-date commercially available
version of Internet Explorer to their Internet access customers on a basis no
less favorable than Concentric distributes any other Web Browsing Technology.
By way of example, a copy of the most up-to-date version of Internet Explorer
shall be installed, subject to the terms and conditions of the Internet Explorer
distribution agreement, on each copy of the Concentric Sign-Up CD-ROM unless
such CD-ROM does not include any Web Browsing Technology that provides
functionality similar to Internet Explorer. Concentric shall also promote
Internet Explorer on a basis that is no less favorable than its promotion of any
other Web Browsing Technology. Concentric agrees not to promote any competing
POP 3 e-mail client technology upon terms more favorable than Concentric
promotes Outlook Express.
4.4. [*]
5. Broadband Content for Concentric MSN Portals
Microsoft shall use commercially reasonable efforts to provide information to
Concentric's development and implementation of unique Concentric-branded
content for the Content Module located on the Concentric MSN Portals that
takes advantage of the xDSL Internet connectivity offered by Concentric.
6. Compensation
6.1. For the purposes of this Section 6, the Term of this Agreement will be
divided into three phases, as follows: (i) Phase 1 will begin as of the
Effective Date and continue until the First Commercial Release of the Concentric
MSN Portals; (ii) Phase 2 will begin on the First Commercial Release of the
Concentric MSN Portals [*]; and (iii) Phase 3 will begin on the date of the
notice referred to in the immediately preceding clause (ii) and continue for the
balance of the Term.
6.1.1. During Phase 1, no compensation shall be payable by Microsoft
to Concentric, except the license fee as provided under Section 6.5 below.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 6 of 23
<PAGE>
6.1.2. During Phase 2, Concentric will be entitled to compensation
accruing in accordance with Section 6.2 below.
6.1.3. During Phase 3, Concentric will be entitled to compensation
accruing in accordance with Section 6.3 or Section 6.4 below.
6.2. [*]
7. [*]
7.1. [*]
7.2. [*]
8. Local Content Delivery Architecture
Microsoft is currently participating in the development of technologies that
may, among other things, facilitate the hosting and distribution of
personalized, locally cached communications and information (especially
streaming media) destined for Broadband-enabled end users. To the extent that
Microsoft develops and makes available such technologies, either through
Microsoft products or through publicly available specifications, Concentric
agrees to use commercially reasonable efforts to implement the same, provided
that the same has at least the functionality and as low a price as competitive
technologies. Moreover, to the extent that Concentric implements such
technologies, Microsoft will use its commercially reasonable efforts to
introduce and promote Concentric to Microsoft's major broadband content
partners so as to give Concentric an opportunity to obtain content for such
locally cached communications and information.
9. Commercial Hosting
9.1. Concentric shall use commercially reasonable efforts to expand its
current Web hosting business based on Microsoft's Windows NT/Windows 2000
platform, and to offer a comprehensive line of Concentric-branded shared and
dedicated server hosting services based on Microsoft server products, which
include Microsoft Windows NT, Windows 2000, Microsoft Commercial Internet
System (MCIS), Microsoft Site Server, and Microsoft Internet Information
Server (IIS).
9.2. [*]
9.3. Concentric agrees to offer a dedicated server electronic commerce
hosting service based on the applicable Microsoft server software products,
and to the extent Concentric promotes its hosting services on the basis of
platforms, shall promote such service in a manner no less favorable than it
does with respect to any other electronic commerce dedicated server hosting
service for business customers. The product definition, schedule for release
and nature of market promotion for such services shall be at Concentric's sole
discretion.
9.4. The parties will work during the ninety (90) day period beginning on
the Effective Date to create a mutually acceptable Application Hosting Joint
Launch Plan. For the purposes of this Agreement "application hosting" means
services which will provide centralized information technology solutions for
business customers, characterized by a hosting architecture that will allow a
customer to perform such functions as, by way of example, host databases,
streaming media files, and enterprise-wide messaging as well as other types of
application services at a service provider (such as Concentric) based on the
applicable Microsoft server software products.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 7 of 23
<PAGE>
9.4.1. The Application Hosting Joint Launch Plan will address as a
minimum the following business and technical issues:
9.4.1.1. Minimum feature/functionality set of a Concentric
application hosting offering based on Microsoft's platform technologies.
9.4.1.2. Potential business model for the Concentric offering
including, but not limited to, proposals for potential licensing
arrangement(s) between Microsoft and Concentric allowing Concentric to use
Microsoft's platform technologies, revenue projections, gross margin
projections, and service differentiation.
9.4.1.3. Beta and First Commercial Release schedule for the
Concentric application hosting offering.
9.4.1.4. Customer support plan for the Concentric application
hosting offering
9.4.1.5. Co marketing and distribution plan relative to the
Concentric application hosting offering
9.5. Concentric shall cause the First Commercial Release of [*] application
hosting offerings based on Microsoft's platform technologies during calendar
year 1999. These three application hosting offerings shall be any [*] of the
following: hosted Microsoft Exchange email services, hosted Microsoft Windows
Media Technologies streaming media services, hosted corporate purchasing
applications services based on Microsoft BackOffice, hosted financial
application services based on Microsoft BackOffice, or hosted customer relations
management application services based on Microsoft BackOffice. [*] In addition,
Application Hosting Joint Launch Plan referenced in Section 9.4 shall contain
provisions to expand Concentric's offerings to include a more complete suite of
applications hosting offerings by the end of one (1) year from the Effective
Date, along with corresponding marketing obligations.
9.6. The Parties shall use reasonable efforts to develop a potential business
relationship and a subsequent definitive agreement within ninety (90) days after
the Effective Date [*] for the Microsoft server software products and Concentric
hosting services as described in this Section 9. The licensing terms and
conditions [*] shall be substantially similar to Microsoft's standard practices
for the applicable Microsoft software products.
9.7. In the intervening period between the Effective Date and the Parties'
reaching agreement under Section 9.5 above, Concentric acknowledges that its
obligations hereunder are subject to its acquisition of appropriate license
agreements for certain Microsoft software products through separate agreement(s)
with Microsoft and/or third parties in Microsoft's standard distribution
channels. Concentric's rights to use such software products shall be subject to
the terms and conditions stated in the then-current Microsoft end user license
agreements applicable to such products.
9.8. To assist Concentric's implementation of the activities contemplated in
this Section 9, Concentric agrees to engage at least one (1) full time Microsoft
Consulting Services consultant on site at Concentric's facilities for a period
of one (1) year after the Effective Date, subject to the standard Microsoft
Consulting Services engagement terms that are generally applicable for similar
Microsoft Consulting Services engagements with other parties. Microsoft agrees
to provide the first one hundred and sixty (160) hours of such consultant at no
charge, and Concentric shall pay such consultant's standard rates for the
balance of the engagement.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 8 of 23
<PAGE>
10. Co-Marketing and Sales Efforts
10.1. Marketing of MSN Portal. Concentric will use commercially reasonable
-----------------------
efforts to inform, educate and market the MSN Portal and the Concentric MSN
Portals to its consumer and small business customers, its direct sales force
and its channel sales force with which it has alliances or contracts for
services, including, but not limited to, Internet Service Providers,
telecommunication companies, and consumers who acquire connectivity services by
or through Concentric.
10.2. Marketing of Concentric Services. In accordance with the marketing
--------------------------------
plan to be developed pursuant to Section 10.3, Microsoft will use commercially
reasonable efforts to inform, educate and market Concentric Services to
Microsoft's NSG (Networks Solutions Group) and ECU (Enterprise Customer Unit)
direct sales force (including their respective successors in the event of an
internal Microsoft reorganization) and its channel sales forces including, but
not limited to, the BSG (Business Solutions Group) channel of Independent
Software Vendors, the OCU (Organization Customer Unit) channel of Solution
Providers, and the ICU (Internet Customer Unit) channel of Solution Partners
who are members of the Microsoft Partner Solution Center, as well as their
successors in the event of an internal Microsoft reorganization.
10.3. Specific Marketing and Implementation Plan. Microsoft and
------------------------------------------
Concentric agree to use reasonable efforts to develop a written joint
marketing plan within ninety (90) days after the Effective Date to
specifically define and implement the goals outlined above along mutually
acceptable terms and conditions. The Parties anticipate that the marketing
plan may include one or more of the following:
* Cross promotion on appropriate Web sites;
* Exchanges of customer lists for targeted promotional
mailings, subject to both Parties' applicable privacy
policies;
* Joint presentations and participation in appropriate
industry events and trade shows;
* Joint preparation of marketing collateral that promotes the
benefits and opportunities of broadband xDSL connectivity;
* Joint development of potential business models (including
possible revenue sharing) for services and products covered
by the plan; and
* Coordinated press releases.
10.4. Co-Marketing Funding. During each year of the Term and subject to the
--------------------
Parties' agreement on a marketing plan as contemplated in Section 10.3, (i)
Microsoft will supply marketing efforts valued by Microsoft (within its
reasonable discretion) at not less than $[*] (in the aggregate), in accordance
with the agreed-upon co-marketing plan described in Section 10.3 and (ii)
Concentric will supply marketing efforts valued by Concentric (within its
reasonable discretion) at not less than $[*] (in the aggregate), in accordance
with the agreed-upon co-marketing plan described in Section 10.3.
10.5. Advertising Purchases on MSN. Concentric agrees to purchase at least
----------------------------
seven million five hundred thousand dollars ($7,500,000) worth of advertising on
properties within the MSN
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 9 of 23
<PAGE>
Service (e.g., Expedia, CarPoint, Hotmail, etc.) during the term of this
Agreement, subject to Microsoft's available inventory, standard terms and
policies applicable to other third party advertisers, including without
limitation submission, editorial, timing deadlines and requirements, and rate
cards. Concentric's obligation to purchase advertising in the foregoing sentence
shall be in accordance with the schedule below:
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
[*] [*]
- -------------------------------------------------------------------------
In connection with such purchases, Microsoft shall provide Concentric with
discounts from its standard advertising rate cards comparable to the discounts
provided to other third party advertisers committing to purchase equivalent
volumes of advertising and similar ad elements. Microsoft may, in its sole
discretion terminate all provisions of this Section 10.5 upon written notice to
Concentric.
11. Proprietary Rights
11.1. The Parties agree that Microsoft and/or its suppliers shall retain all
right, title, and interest in the MSN Service and any and all content,
technology and materials delivered by Microsoft to Concentric pursuant to this
Agreement. The Parties further agree that Concentric and/or its suppliers shall
retain all right, title and interest in and to the content, technology and
materials provided by Concentric pursuant to this Agreement. Neither Party shall
have any rights to any materials, content or technology provided by the other
Party hereunder except as specifically provided in this Agreement and shall not
alter, modify, copy, edit, format, translate, create derivative works of or
otherwise use any materials, content or technology provided by the other Party
except as explicitly provided herein or approved in advance in writing by the
other Party.
11.2. Microsoft may use the Concentric logo on the Concentric MSN Portals
and corresponding MSN pages in accordance with the following:
11.2.1. Concentric hereby grants to Microsoft for the Term of this
Agreement a limited non-exclusive, non-transferable, personal, worldwide license
to use the Concentric logo(s) depicted in Exhibit G ("Concentric Mark") in the
---------
electronic form(s) supplied by Concentric from time to time, solely as part of
the Concentric MSN Portals and those additional co-branded pages in the MSN
Service described in Section 2.2 (if any) and in accordance with the terms of
this Agreement. Except as provided herein, this Agreement does not grant
Microsoft any right, title, interest, or license in or to any of Concentric's
names, logos, trade dress, designs or other trademarks. Microsoft shall display
the Concentric Mark only in the electronic form as supplied by Concentric.
11.2.2. Microsoft acknowledges Concentric's sole ownership of the
Concentric Mark worldwide and all associated goodwill. Microsoft's use of the
Concentric Mark shall inure solely to the benefit of Concentric. Microsoft
hereby assigns and shall assign in the future to Concentric all rights it may
acquire by operation of law or otherwise in the Concentric Mark, including all
applications or registrations therefore, along with the goodwill associated
therewith.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 10 of 23
<PAGE>
11.2.3. Microsoft is authorized to use the Concentric Mark only in
connection with the Concentric MSN Portals and those additional co-branded pages
in the MSN Service described in Section 2.2 (if any). Microsoft shall fully
correct and remedy any deficiencies in its use of the Concentric Mark, upon
reasonable notice from Concentric.
11.2.4. Concentric shall have the sole right to and in its sole
discretion may commence, prosecute or defend, and control any action concerning
the Concentric Mark.
12. No Obligation/Independent Development
Notwithstanding any other provision of this Agreement, neither Party shall
have any obligation to market, sell or otherwise distribute the technology or
products described in this Agreement. Except as expressly provided herein,
nothing in this Agreement will be construed as restricting either Party's
ability to acquire, license, develop, market, manufacture or distribute for
itself, or have others acquire, license, develop, market, manufacture or
distribute for it, similar technology performing the same or similar 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.
13. Confidentiality
The Parties acknowledge and agree that the terms and conditions of the
Microsoft Corporation Non-Disclosure Agreement dated as of May 28 1999 ("NDA")
entered into by and between the Parties are incorporated into this Agreement and
that all of the terms of this Agreement and all discussions and negotiations
related thereto and all information exchanged pursuant hereto are considered
Confidential Information as defined in the NDA. In the event that any of the
incorporated terms of the NDA are inconsistent with or conflict with this
Agreement, then the terms of this Agreement shall control.
14. Term/Default/Termination
14.1. Term. This Agreement shall commence on the Effective Date and continue
----
for a period of three (3) years following the Effective Date ("Term").
14.2. Termination for Cause. In addition to any other rights and/or
---------------------
remedies that either Party may have under the circumstances, all of which are
expressly reserved, either Party may terminate this Agreement at any time if:
14.2.1. The other Party is in material breach of any warranty,
representation, material term, condition or covenant of this Agreement, other
than those contained in Sections 13, and fails to cure that breach within thirty
(30) days after written notice thereof; or
14.2.2. The other Party is in material breach of Section 13; or
14.2.3. The other Party becomes insolvent or makes any assignment for
the benefit of creditors or similar transfer evidencing insolvency; or suffers
or permits the commencement of any form of insolvency or receivership
proceeding; or has any petition under any bankruptcy law filed against it, which
petition is not dismissed within sixty (60) days of such filing; or has a
trustee or receiver appointed for its business or assets or any part thereof.
14.3. Additional Termination. In addition, either party may terminate this
----------------------
Agreement in accordance with the provisions of Section 19.3
14.4. Effect of Termination
---------------------
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 11 of 23
<PAGE>
14.4.1. Survival. Following the expiration or termination of this
--------
Agreement, Sections 1, 11, 12, 13, 14.4, 15, 16, 17 18 and 19 shall survive.
14.4.2. Other Agreements. The termination or expiration of this
----------------
Agreement shall have no effect upon any other then-current agreements, including
without limitation any agreements regarding Concentric's ability to use or
distribute certain Microsoft software products, unless such other agreements
expressly provide otherwise.
15. Representations and Covenants
15.1. Concentric represents, warrants and covenants to Microsoft that:
15.1.1. Concentric has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder.
15.1.2. Concentric has obtained, and shall maintain in full force
during the Term, such federal, state and local authorizations as are necessary
to operate and to otherwise perform its obligations under this Agreement, and
will be in compliance with all applicable laws and regulations governing such
performance.
15.1.3. Concentric will not make any representations or warranties
concerning the MSN Portal except (i) as may be specifically authorized in
writing by Microsoft or (ii) in accordance with Microsoft-published descriptions
of the MSN Portal.
15.1.4. The number of Concentric Narrowband customers and installed
DSL lines used by Concentric to calculate the number of Active Subscribers
reported to Microsoft pursuant to this Agreement will be substantially true and
correct. Concentric's sole liability for breach of this Section 15.1.4 and
Microsoft's exclusive remedy, shall be to pay any amounts owed pursuant to
Section 6.2 hereof as a result of any understatement by Concentric of the number
Concentric Narrowband customers and installed DSL lines.
15.2. Microsoft represents, warrants and covenants to Concentric that:
15.2.1. Microsoft has the power and authority to enter into this
Agreement and to fully perform its obligations hereunder.
15.2.2. Microsoft has obtained, and shall maintain in full force
during the Term, such federal, state and local authorizations as are necessary
to operate and to otherwise perform its obligations under this Agreement, and
will be in compliance with all applicable laws and regulations governing such
performance.
15.2.3. Microsoft will not make any representations or warranties
concerning the Concentric Services, except (i) as may be specifically authorized
in writing by Concentric or (ii) in accordance with Concentric-published
descriptions of the Concentric Services.
15.3. PRODUCTS OR SERVICES DELIVERED UNDER THE TERMS OF THIS AGREEMENT SHALL
BE SUBJECT TO THE TERMS OF THE LIMITED WARRANTY STATEMENT, IF ANY, SPECIFIED BY
THE DELIVERING PARTY FOR THE SPECIFIC PRODUCT OR SERVICE. CERTAIN SOFTWARE
PRODUCTS MAY BE PROVIDED TO THE OTHER PARTY "AS IS" WITHOUT WARRANTY OR
CONDITION OF ANY KIND, IF SO DESIGNATED BY THE LICENSOR. FOR SUCH PRODUCTS, THE
ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF SUCH SOFTWARE IS ASSUMED BY THE
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 12 of 23
<PAGE>
RECEIVING PARTY AND ITS CUSTOMERS AND SUBLICENSEES, IF ANY. THE WARRANTIES SET
FORTH IN THIS SECTION 15 ARE THE ONLY WARRANTIES MADE BY THE PARTIES. EACH PARTY
DISCLAIMS ANY AND ALL OTHER WARRANTIES OR REPRESENTATION EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE,
AND FITNESS FOR A PARTICULAR PURPOSE. MICROSOFT EXPRESSLY DISCLAIMS ANY
WARRANTIES THAT ACCESS TO OR USE OF THE MSN PORTAL WILL BE UNINTERRUPTED OR
ERROR-FREE.
16. Indemnification
16.1. A Party ( "Indemnifying Party") shall, at its expense and the request
of the other Party ("Indemnified Party"), defend any third-party claim or action
brought against the Indemnified Party, and its affiliates, directors, officers,
employees, licensees, agents and independent contractors, to the extent it is
based upon a claim that, if true, would constitute a breach of a warranty,
representation or covenant of the Indemnifying Party set forth in this Agreement
(collectively, "Indemnified Claims"). The Indemnified Party shall promptly
notify the Indemnifying Party in writing, specifying the nature of the action
and the total monetary amount sought or other such relief as is sought therein.
The Indemnified Party shall cooperate with the Indemnifying Party at the
Indemnifying Party's expense in all reasonable respects in connection with the
defense of any such action. The Indemnifying Party may upon written notice to
the Indemnified Party undertake to control and conduct all proceedings or
negotiations in connection therewith, assume and control the defense thereof,
and if it so undertakes, it shall also undertake all other required steps or
proceedings to settle or defend any such action, including the employment of
counsel which shall be reasonably satisfactory to the Indemnified Party, and
payment of all reasonably incurred expenses. The Indemnified Party shall have
the right to employ separate counsel to provide input into the defense, at
Indemnified Party's own cost. The Indemnifying Party shall reimburse the
Indemnified Party upon demand for any payments made or loss suffered by it at
any time after the date of tender, based upon the judgment of any court of
competent jurisdiction or pursuant to a bona fide compromise or settlement of
claims, demands, or actions, in respect to any damages to which the foregoing
relates. The Indemnifying Party shall not settle any claim or action under this
Section 16 on the Indemnified Party's behalf without first obtaining the
Indemnified Party's written permission, which permission shall not be
unreasonably withheld, and the Indemnifying Party shall indemnify and hold the
Indemnified Party harmless from and against any costs, damages and fees
reasonably incurred by Indemnified Party, including but not limited to fees of
attorneys and other professionals, that are attributable to such Indemnified
Claims. The Indemnified Party shall provide the Indemnifying Party reasonably
prompt notice in writing of any such Indemnified Claims and provide the
Indemnifying Party with reasonable information and assistance, at the
Indemnifying Party's expense, to help the Indemnifying Party to defend such
Indemnified Claims.
16.2. In addition to the claims described in Section 16.1, in accordance with
the provisions of Section 16.1, Concentric agrees to defend, indemnify, and hold
Microsoft harmless from and against any claims that content provided by
Concentric for inclusion in the Content Modules of the Concentric MSN Portals
(i) infringes the copyrights, trademarks, service marks or trade secrets of any
third party, (ii) is factually inaccurate, or (iii) contains information,
instructions or formulas that are injurious to a third party's physical well-
being or defame or disparage a third party. Such claims shall be deemed to be
Indemnified Claims under Section 16.1.
16.3. In addition to the claims described in Section 16.1, in accordance with
the provisions of Section 16.1, Microsoft agrees to defend, indemnify, and hold
Concentric harmless from and against any claims that Concentric MSN Portals
(exclusive of the content provided by Concentric in the
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 13 of 23
<PAGE>
Content Modules) (i) infringes the copyrights, trademarks, service marks or
trade secrets of any third party, (ii) is factually inaccurate, or (iii)
contains information, instructions or formulas that are injurious to a third
party's physical well-being or defame or disparage a third party. Such claims
shall be deemed to be Indemnified Claims under Section 16.1.
17. Limitation Of Liabilities
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, ARISING OUT OF OR RELATED TO THIS
AGREEMENT INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS,
BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT
TO PUNITIVE DAMAGES, THIS SECTION SHALL NOT APPLY TO EITHER PARTY'S (A) ABILITY
TO OBTAIN INJUNCTIVE OR OTHER EQUITABLE RELIEF; (B) CONFIDENTIALITY OBLIGATIONS
UNDER SECTION 13; AND (C) INDEMNIFICATION OBLIGATIONS UNDER SECTION 16. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY PUNITIVE DAMAGES.
18. Press Releases
Neither Party will issue any press release or make any public announcement(s)
relating in any way whatsoever to this Agreement or the relationship established
by this Agreement without the express prior written consent of the other Party.
The Parties shall issue a mutually acceptable press release regarding this
Agreement no later than thirty (30) days after the Effective Date.
19. General Provisions
19.1. Independent Contractors. The Parties are independent contractors with
-----------------------
respect to each other, and nothing in this Agreement shall be construed as
creating an employer-employee relationship, a partnership, agency relationship
or a joint venture between the Parties.
19.2. Governing Law. Concentric consents to the exclusive jurisdiction and
-------------
venue of the state and federal courts sitting in King County, Washington. This
Agreement shall be governed by the laws of the State of Washington as though
entered into by Washington residents and to be performed entirely within the
State of Washington. In any action or suit to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the prevailing
Party shall be entitled to recover its costs, including reasonable attorneys'
fees.
19.3. Assignment. Neither Party may assign this Agreement or any rights
----------
and/or obligations hereunder without the other Party's prior written approval,
which approval shall not unreasonably be withheld or delayed more than five (5)
business days after the other party's written request for such approval. Any
attempted assignment, sub-license, transfer, encumbrance or other disposal
without such consent shall be void and shall entitle the other party [*] to
terminate this Agreement upon written notice to the other party. For the
purposes of this Agreement, an "assignment" by a party shall be deemed to
include, without limitation, the following: (i) a merger of the Party with
another party, whether or not the Party is the surviving entity; (ii) the
acquisition of more than fifty percent (50%) of any class of the Party's voting
stock (or any class of non-voting security convertible into voting stock) by
another party (whether in a single transaction or series of transactions); or
(iii) the sale of all or substantially all of the Party's assets (whether in a
single transaction or series of transactions). This Agreement shall be binding
upon and inure to the benefit of the parties, their successors, and permitted
assigns.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 14 of 23
<PAGE>
19.4. Construction. In the event that any provision of this Agreement
------------
conflicts with governing law or if any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (i) such
provision shall be deemed to be restated to reflect as nearly as possible the
original intentions of the Parties in accordance with applicable law, and (ii)
the remaining terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect. This Agreement has been negotiated by the
Parties and their respective counsel and will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either Party. The section headings used in this Agreement are intended
for convenience only and shall not be deemed to affect in any manner the meaning
or intent of this Agreement or any provision hereof.
19.5. Notices. All notices and requests in connection with this Agreement
-------
shall be given in writing and shall be deemed given as of the day they are
received either by messenger, delivery service, or in the United States of
America mail, postage prepaid, certified or registered, return receipt
requested, and addressed as follows:
To Concentric To Microsoft:
Concentric Network Microsoft Corporation
1400 Parkmoor Avenue One Microsoft Way
San Jose, CA 95126 Redmond, WA 98052-6399
Phone: 408.817.2800 Phone: 425.882.8080
Fax: 408.817.2876 Fax: 425.936.7329
Attention: Chief Financial Officer Attention: Mark Chestnut
Copy to: Copy to:
Dave Segre Law & Corporate Affairs,
Wilson, Sonsini, Goodrich & Rosati US Legal
650 Page Mill Road Fax: 425.936.7409
Palo Alto, CA 94306
or to such other address as a Party may designate pursuant to this notice
provision.
19.6. Entire Agreement. This Agreement shall not be effective until
----------------
signed by both Parties. This Agreement and the NDA constitute the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements or communications. This
Agreement shall not be modified except by a written agreement dated subsequent
to the date of this Agreement and signed on behalf of the Parties by their
respective duly authorized representatives. No waiver of any breach of any
provision of this Agreement shall constitute a waiver of any prior, concurrent
or subsequent breach of the same or any other provisions hereof, and no waiver
shall be effective unless made in writing and signed by an authorized
representative of the waiving Party.
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 15 of 23
<PAGE>
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION CONCENTRIC NETWORK INC.
- ----------------------------- ----------------------------------
By (Sign) By (Sign)
- ----------------------------- ----------------------------------
Name (Print) Name (Print)
- ----------------------------- ----------------------------------
Title Title
- ----------------------------- ----------------------------------
Date Date
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 16 of 23
<PAGE>
EXHIBIT A
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 17 of 23
<PAGE>
EXHIBIT B
CONCENTRIC URLS
1. The URL associated with the Consumer Concentric MSN Portal will be
(http://home.concentric.net)
- ---------------------------
2. No later than ninety (90) days after the Effective Date, Concentric shall
inform Microsoft in writing of a second URL for the Small Business Concentric
MSN Portal
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 18 of 23
<PAGE>
EXHIBIT C
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 19 of 23
<PAGE>
EXHIBIT D
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 20 of 23
<PAGE>
EXHIBIT E
EXISTING CONTRACTS
"Bank Card Agreement for Concentric Network Corporation" between First USA and
Concentric Network Corporation dated 5/5/99
"Commercial Agreement" between Mail Call and Concentric Network Corporation
dated 2/22/99
"`Dial Up Client' Agreement" between Netscape Communications Corporation and
Concentric Research Corporation dated 8/21/95, as amended
"Live World Productions `Access Provider Affiliate Agreement'" between Talk City
and Concentric Network Corporation dated 2/18/97
"OEM License Agreement" between Netscape Communications Corporation and
Concentric Research Corporation dated 7/27/95, as amended
"Online Billing Services Distribution and Co-branding Agreement" between Intuit
and Concentric Network Corporation dated 5/7/99
"Secure Internet Payment Card Service Reseller Agreement" between Cybercash and
Concentric Network Corporation dated 2/25/99
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 21 of 23
<PAGE>
EXHIBIT F
DESCRIPTION OF ACTIVE SUBSCRIBER
[*]
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 22 of 23
<PAGE>
EXHIBIT G
CONCENTRIC MARK
[CONCENTRIC NETWORK LOGO APPEARS HERE]
[*] Certain information on this page has been omitted and filed separately with
the Securities Exchange Commission. Confidential treatment has been requested
with respect to the omitted portions.
Page 23 of 23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 264,327 264,327
<SECURITIES> 55,240 55,240
<RECEIVABLES> 19,247 19,247
<ALLOWANCES> 795 795
<INVENTORY> 0 0
<CURRENT-ASSETS> 344,131 344,131
<PP&E> 122,832 122,832
<DEPRECIATION> 53,198 53,198
<TOTAL-ASSETS> 462,832 462,832
<CURRENT-LIABILITIES> 43,161 43,161
<BONDS> 0 0
205,480 205,480
0 0
<COMMON> 358,316 358,316
<OTHER-SE> (297,773) (297,773)
<TOTAL-LIABILITY-AND-EQUITY> 462,832 462,832
<SALES> 33,027 63,093
<TOTAL-REVENUES> 33,027 63,093
<CGS> 30,920 59,183
<TOTAL-COSTS> 50,848 97,641
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,635 5,855
<INCOME-PRETAX> (26,218) (51,718)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (26,218) (51,718)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (26,218) (51,718)
<EPS-BASIC> (.64) (1.37)
<EPS-DILUTED> (.64) (1.37)
</TABLE>
