<PAGE>
As filed with the Securities and Exchange Commission on September 25, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
PRODIGY COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
Delaware 7370 04-3323363
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) CLassification Code Number) Identification Number)
</TABLE>
--------------------------
44 South Broadway
White Plains, New York 10601
(914) 448-8000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
SAMER F. SALAMEH
Chairman of the Board, President and Chief Executive Officer
PRODIGY COMMUNICATIONS CORPORATION
44 South Broadway
White Plains, New York 10601
(914) 448-8000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------
Copies to:
DAVID A. WESTENBERG, ESQ. JAMES M. LURIE, ESQ.
HALE AND DORR LLP O'SULLIVAN GRAEV & KARABELL, LLP
60 State Street 30 Rockefeller Plaza
Boston, Massachusetts 02109 New York, New York 10112
Telephone: (617) 526-6000 Telephone: (212) 408-2400
Telecopy: (617) 526-5000 Telecopy: (212) 408-2420
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. [_]
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Title of each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price(2) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share shares $ $86,250,000 $25,433.75
===================================================================================================================================
</TABLE>
(1) Includes shares which the Underwriters have the option to
purchase to cover over-allotments, if any. See "Underwriting".
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of
1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES+
+EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1998
PROSPECTUS
- ----------
Shares
[PRODIGY LOGO]
Common Stock
---------------
All of the shares of common stock, par value $.01 per share
(the "Common Stock"), offered hereby (the "Offering") are being sold by Prodigy
Communications Corporation ("Prodigy" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering price
of the Common Stock. Application has been made for quotation of the Common
Stock on the Nasdaq National Market under the symbol "PRGY".
---------------
See "Risk Factors" beginning on page 9 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share........... $ $ $
- --------------------------------------------------------------------------------
Total (3)........... $ $ $
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting".
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up
to additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
this option is exercised in full, the Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting".
---------------
The shares of Common Stock are offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, subject to certain
conditions including the approval of certain legal matters by counsel for the
Underwriters. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made against payment therefor on
or about , 1998 at the office of Bear, Stearns & Co. Inc., 245
Park Avenue, New York, New York 10167.
---------------
Bear, Stearns & Co. Inc. BancBoston Robertson Stephens
---------------
ING Baring Furman Selz LLC Volpe Brown Whelan & Company
Wit Capital Corporation
e-Manager
---------------
The date of this Prospectus is , 1998.
<PAGE>
[Description of graphic material on inside front and back cover pages of
Prospectus:
Inside front cover (first page of a three page fold-out):
A full-color graphic of the Prodigy Internet home page with certain modules
highlighted by pointers to text in a balloon.
Inside two pages of fold-out:
Full-color graphics of certain Prodigy Internet screens, each with text in
a balloon that describes the primary feature(s) of such screen.
Inside back cover:
Full-color map of the United States (including Alaska and Hawaii), with
each POP used to provide Prodigy's services represented by a dot.]
--------------------
Prodigy(R), Prodigy Internet(TM), It's a Tool for Living(TM), Prodigy
Classic(TM) and the Prodigy(R) logo are trademarks of the Company. All other
trademarks or trade names referred to in this Prospectus are the property of
their respective owners.
--------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information contained in this Prospectus (i) has not
been adjusted to reflect the -for- reverse split of the
Common Stock to be effected prior to the closing of the Offering and (ii)
assumes no exercise of the Underwriters' over-allotment option. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated or
suggested in such forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Prodigy Communications Corporation ("Prodigy" or the "Company") is a
leading nationwide Internet service provider ("ISP") that provides fast and
reliable Internet access and related value-added services. Prodigy has
nationwide brand recognition and customer acquisition channels not available to
regional and local ISPs, and utilizes a nationwide network covering
approximately 600 cities in all 50 states allowing approximately 83% of the
United States population to access Prodigy's services with a local telephone
call. Combining these strengths with Prodigy's scalable technology has enabled
the Prodigy Internet service to achieve one of the fastest subscriber growth
rates among U.S. ISPs, with the number of billable subscribers increasing from
221,000 at December 31, 1997 to 386,000 at June 30, 1998. Prodigy Internet
enables the Internet to be used as a productivity tool by allowing subscribers
to obtain and communicate desired information quickly and efficiently in an easy
and personalized manner. Prodigy Internet users receive fast and reliable access
to the Internet, Prodigy-branded content powered by Excite and other Prodigy
member services. Prodigy is in the process of expanding its Web hosting and
electronic commerce activities for business customers, and believes that its
extensive experience in operating a large data center with electronic commerce
applications positions it well for growth in these areas. Prodigy is also in the
process of evaluating and introducing other consumer value-added services, such
as the co-branded marketing of paging, long-distance and cellular telephone
services, Internet-based telephony and fax services and online bill presentment.
Prodigy has been an online pioneer since its inception in 1984. Prodigy's
original online service, now called Prodigy Classic, was launched as the world's
first consumer-focused online service in 1988 and achieved national distribution
in 1990. Prodigy Classic featured custom content, e-mail and chat capabilities
and was based on proprietary technologies. In October 1996, the Company
launched Prodigy Internet, an open standards-based Internet access service.
Since the autumn of 1997, the Company has focused on expanding Prodigy
Internet's subscriber base and introducing additional value-added services. The
Company has also made strategic decisions to outsource its network, discontinue
its development of custom content and use multiple vendors for outsourced
customer service functions. As a result of these initiatives, the Company has
substantially reduced its fixed operating costs and headcount and now has a
business and operating model that it believes can accommodate sustained
subscriber growth on a cost-effective basis without significant capital
expenditures.
The Internet has grown rapidly in recent years both in terms of the number
of Web users and the number of Web sites. International Data Corporation ("IDC")
estimates that at the end of 1997 there were over 38 million Web users in the
United States and over 68 million worldwide, and projects that by the end of
2002 the number of Web users will increase to over 135 million in the United
States and over 319 million worldwide. The Internet has become an important
global medium enabling millions of people to obtain and share information and
conduct business electronically, and a critical tool for information and
communications for many users. The rapid development and growth of the Internet
has resulted in a highly fragmented industry, consisting of more than 4,000 ISPs
in the United States that provide access and related services to both consumers
and businesses.
3
<PAGE>
The principal market for ISPs currently consists of consumers who are
generally focused on speed and reliability of access, ease of use, customer
service and price as they evaluate an ISP. A growing number of business
customers are beginning to focus on the Internet to extend communications and to
reach large numbers of geographically dispersed organizations and consumers
quickly and cost-effectively. While some ISPs already offer high-speed
connections and hosting for intranets and extranets, an increasing number of
businesses are beginning to rely on ISPs for commercial services that facilitate
electronic commerce, such as Web hosting, bill presentment, co-location and
other value-added services. Forrester Research, Inc. ("Forrester") projects
that revenues from Internet access services in the United States will grow from
$5.8 billion in 1997 to $38.1 billion in 2002, and that Internet hosting
revenues will increase from approximately $400 million in 1997 to $10.5 billion
in 2002. In addition to services that enable electronic commerce, a few larger
and more sophisticated ISPs are beginning to market other value-added services,
such as paging, long-distance and cellular telephone services, to both consumers
and business customers nationwide.
Prodigy's objectives are to strengthen its position as a leading nationwide
ISP and to expand the range of services it offers and markets it serves. Key
elements to the Company's business strategy include: leveraging the nationwide
strength of the Prodigy brand name and the nationwide access offered by Prodigy
Internet; introducing new services, including additional value-added services;
entering new markets, including small and medium sized businesses and the
Spanish-speaking and Hispanic market in the United States; and evaluating
opportunities for strategic acquisitions.
The Company has in place a variety of nationwide customer acquisition
channels, including: PC bundling; the Microsoft relationship described below;
Web-based marketing; retail channels; direct mail and telemarketing; and
migration of subscribers from Prodigy Classic to Prodigy Internet. Many of
Prodigy's customer acquisition channels are not available to regional and local
ISPs who lack the required nationwide presence. The Prodigy Internet software
is included in the online services folder of every copy of the Windows 98 and
Windows 95 (OSR 2.5 release) operating systems shipped by Microsoft for sale in
retail channels or for loading on new PCs.
Carso Global Telecom, S.A. de C.V. ("Carso Global Telecom") is the
Company's principal stockholder. Carso Global Telecom is a holding company with
ownership interests in telecommunications and media companies, including a
controlling interest in Telefonos de Mexico, S.A. de C.V. ("Telmex"), the
leading provider of local and long-distance telephone services and the largest
ISP in Mexico. Upon consummation of the Offering (and assuming an initial public
offering price of $ per share), Carso Global Telecom and Telmex
will own % and %, respectively, of the Company's outstanding Common
Stock. See "Principal Stockholders". The Company is in discussions with Telmex
concerning the Company's plans to market Internet services to Spanish-speaking
and Hispanic customers in the United States. The Company is also seeking a
partner with whom to offer a Spanish language portal to the Internet, which the
Company believes will be attractive to Spanish-speaking and Hispanic Internet
users.
The Company was incorporated in Delaware in June 1996 under the name
Prodigy, Inc. and changed its name to Prodigy Communications Corporation in
August 1998. As used in this Prospectus, unless the context otherwise requires,
the terms "Prodigy" or the "Company" refer to Prodigy Communications Corporation
and its predecessors, in each case together with their subsidiaries. See
"Corporate History and Certain Transactions". The Company's principal executive
offices are located at 44 South Broadway, White Plains, New York 10601 and its
telephone number is (914) 448-8000.
4
<PAGE>
THE OFFERING
Common Stock outstanding before the Offering........... 180,225,727 shares(1)
Common Stock offered hereby............................ shares
Common Stock to be outstanding after the Offering...... shares(1)(2)
Use of proceeds........................................ To expand Prodigy's
consumer business,
introduce new business
services, enter new
markets and for general
corporate purposes
Proposed Nasdaq National Market symbol................. PRGY
- ------------------
(1) Based on the number of shares outstanding as of August 31, 1998 and
excluding shares of Common Stock (a) reserved for issuance pursuant to the
Company's stock-based compensation plans and (b) issuable pursuant to
outstanding options and warrants granted by the Company. As of August 31,
1998, (a) there were an aggregate of 12,500,000 shares of Common Stock
reserved under the Company's 1996 Stock Option Plan, of which an aggregate
of 9,472,312 shares of Common Stock were subject to outstanding options at
a weighted-average exercise price of $1.56 per share and 3,021,599 shares
were available for future option grants, and (b) there were outstanding
warrants to purchase an aggregate of 437,389 shares of Common Stock at a
weighted-average exercise price of $2.76 per share. In addition, (a) upon
the closing of the Offering (at an assumed initial public offering price of
$ per share), International Business Machines Corporation ("IBM") and
Sears, Roebuck and Co. ("Sears") will each hold a Contingent Stock Purchase
Warrant (the "Contingent Warrants") to purchase shares of Common
Stock at an exercise price of $ per share (subject to
customary anti-dilution adjustments) at any time prior to the third
anniversary of the Offering, and (b) the Company has reserved an aggregate
of 2,000,000 shares of Common Stock under its 1998 Employee Stock Purchase
Plan. See "Corporate History and Certain Transactions -- Acquisition of
Prodigy Services Company", "Management -- Stock Plans" and Notes 1, 4 and 9
to the Company's Consolidated Financial Statements.
(2) Includes an aggregate of shares to be issued to IBM and Sears
upon the closing of the Offering (at an assumed initial public offering
price of $ per share) pursuant to the conversion of certain 8%
Contingent Convertible Promissory Notes (the "Contingent Notes") held by
them. See "Corporate History and Certain Transactions -- Acquisition of
Prodigy Services Company" and Notes 1, 4 and 9 to the Company's
Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
Prior to June 17, 1996, the Company was a start-up company engaged in the
evaluation and development of cellular telephone systems and Internet access and
online services in Africa. Due to the acquisition of Prodigy Services Company
("PSC") on June 17, 1996 (the "Prodigy Acquisition"), which was accounted for
under the purchase method of accounting, and the resulting change in the
Company's business and capital structure, the historical financial statements of
the Company are not directly comparable. The aggregate purchase price for the
Prodigy Acquisition of $78.1 million consisted of a cash payment of $40.8
million, the issuance of Contingent Notes valued at $30.5 million and direct
acquisition related expenses of $6.8 million. See "Corporate History and
Certain Transactions -- Acquisition of Prodigy Services Company" and " -- Prior
Corporate History". The pro forma data set forth below assumes that the Prodigy
Acquisition occurred as of January 1, 1995 and, although not required by
generally accepted accounting principles ("GAAP"), is presented herein because
the Company believes this information presents the most meaningful basis of
comparison of the Company's results of operations in view of the significant
change in its business resulting from the Prodigy Acquisition. The pro forma
data is presented for illustrative purposes only and is not necessarily
indicative of the results of operations that would have occurred had the Prodigy
Acquisition actually been consummated as of January 1, 1995, nor is it intended
to indicate the Company's financial position or results of operations for any
future date or period. For further information regarding the pro forma data,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma Results of Operations".
The following tables set forth selected consolidated financial and other
data for the Company and PSC for the periods indicated. The results of
operations for the six months ended June 30, 1998 are not necessarily indicative
of the results for the entire year or for any future period. The following
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto of the Company and PSC appearing elsewhere in this
Prospectus, "Selected Consolidated Financial Information and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
Prodigy Communications Corporation
Six months ended
Year ended December 31, June 30,
------------------------------------------------------------ ----------------------
1995 1995 1996 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
Pro Forma(1) Pro Forma(1) (unaudited) (unaudited)
(unaudited) (unaudited)
(in millions, except per share and subscriber information)
Consolidated Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Prodigy Internet revenue.................. -- -- $ .1 $ .1 $ 29.6 $ 9.0 $ 34.4
Prodigy Classic revenue................... -- $ 230.6 90.6 188.8 98.7 56.5 28.8
Other..................................... -- 12.8 8.2 17.1 5.9 4.0 4.1
-------- --------- --------- --------- --------- --------- ---------
Total revenues............................ -- 243.4 98.9 206.0 134.2 69.5 67.3
-------- --------- --------- --------- --------- --------- ---------
Costs of revenue.......................... $ .1 114.3 69.4 134.1 98.8 61.8 52.1
Total operating costs and expenses(2)(3).. 3.1 274.9 201.2 321.4 250.3 119.0 98.8
Net loss(2)(3)(4)(5)...................... $ (3.1) $ (34.8) $ (114.1) $ (129.2) $ (129.3) $ (52.8) $ (31.9)
======== ========= ========= ========= ========= ========= =========
Net loss per common share(6):
Basic and diluted........................ $ (.09) $ (1.04) $ (2.75) $ (3.12) $ (1.86) $ (1.07) $ (.23)
======== ========= ========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted........................ 33.5 33.5 41.4 41.4 69.4 49.5 140.5
======== ========= ========= ========= ========= ========= =========
</TABLE>
6
<PAGE>
<TABLE>
Other data:
<S> <C> <C> <C> <C> <C> <C> <C>
Prodigy Internet billable subscribers at
period end............................... -- -- 7,000 7,000 221,000 160,000 386,000
Prodigy Classic billable subscribers at
period end............................... -- 1,133,000 807,000 807,000 394,000 548,000 252,000
-------- --------- --------- --------- --------- --------- ---------
Total billable subscribers at period end.. -- 1,133,000 814,000 814,000 615,000 708,000 638,000
======== ========= ========= ========= ========= ========= =========
EBITDA(7)................................. $ (3.1) $ (4.3) $ (101.6) $ (96.6) $ (110.0) $ (42.6) $ (23.8)
Other cash flow data:
Net cash used in operating activities..... $ (2.4) N/A $ (35.3) N/A $ (114.0) $ (56.4) $ (34.8)
Net cash used in investing activities..... $ (1.4) N/A $ (47.9) N/A $ (15.3) $ (8.5) $ (.1)
Net cash provided by financing activities. $ 4.0 N/A $ 104.1 N/A $ 120.4 $ 56.0 $ 32.1
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------
1998 1998
---- ----
Pro Forma (8) As Adjusted (8)(9)
(unaudited) (unaudited)
(in millions)
Consolidated Balance Sheet Data:
<S> <C> <C>
Working capital....................................... $ 17.0
Total assets.......................................... 123.4
Long-term debt........................................ 26.4
Contingent convertible notes (included in stockholders'
equity)............................................. 30.5 --
Stockholders' equity.................................. $ 41.7
</TABLE>
(1) Pro forma results assume the Prodigy Acquisition occurred as of January 1,
1995. The pro forma data includes adjustments to: (i) eliminate the non-
recurring charge for acquired incomplete technology relating to the
acquisition; (ii) reflect the amortization over ten years of intangible
assets acquired as a result of the Prodigy Acquisition to reflect a full
year's charge in both years presented; (iii) reflect interest expense on
additional borrowings to finance the acquisition, at an assumed interest
rate of 8.75% per annum; (iv) reflect the amortization of unfavorable lease
agreements recognized as a result of the Prodigy Acquisition over the lease
term to reflect a full year's credit in both years presented; and (v)
reduce the depreciation charge for property and equipment as a result of
the fair valuation of these assets at the time of the Prodigy Acquisition.
See "Corporate History and Certain Transactions -- Acquisition of Prodigy
Services Company" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pro Forma Results of Operations".
(2) Operating costs and expenses and net loss for the year ended December 31,
1996 includes the acquisition of incomplete technology of $46.1 million
($1.11 per share). See Note 4 to the Company's Consolidated Financial
Statements.
(3) Operating costs and expenses and net loss for the years ended December 31,
1996 and 1997 include restructuring and other special costs of $3.1 million
($.08 per share) and $9.9 million ($.14 per share), respectively, on an
actual basis, and $17.6 million ($.42 per share) on a pro forma basis
7
<PAGE>
for the year ended December 31, 1996. These costs relate to the
restructuring of business operations, the termination of certain operating
agreements and the closure of the Company's former headquarters. See Note 3
to the Company's Consolidated Financial Statements.
(4) Net loss for the year ended December 31, 1997 includes a loss of $12.1
million ($.17 per share) relating to the write-down of Company's equity
investment in a joint venture. See Note 5 to the Company's Consolidated
Financial Statements.
(5) Net loss for the year ended December 31, 1996, on an actual and pro forma
basis, includes a charge for the write-down of an equity investment in
Global Enterprise Services, Inc. of $9.1 million ($.22 per share). See
Note 4 to the Company's Consolidated Financial Statements.
(6) See Note 2 to the Company's Consolidated Financial Statements for an
explanation of the basis used to calculate net loss per share.
(7) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is a standard measure commonly reported and widely used by analysts,
investors and other interested parties for ISPs, and also provides
additional information to assist investors in evaluating the Company's
liquidity. EBITDA is not an accounting measure under GAAP, is not
necessarily indicative of operating income or cash flows from operations as
determined under GAAP and may not be comparable to similarly titled
measures reported by other companies.
(8) Reflects (i) the issuance after June 30, 1998 of 30,000,000 shares of
Common Stock for gross proceeds of $60.0 million and (ii) the conversion
upon the closing of the Offering (at an assumed initial public offering
price of $ per share) of the Contingent Notes held by IBM and
Sears into an aggregate of shares of Common Stock. See "Corporate
History and Certain Transactions -- Acquisition of Prodigy Services
Company" and "-- Prior Equity Financings" and Note 9 to the Company's
Consolidated Financial Statements.
(9) Adjusted to give effect to the sale by the Company of shares
of Common Stock offered hereby at an assumed public offering price of $
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company. See "Use of
Proceeds".
<TABLE>
<CAPTION>
PRODIGY SERVICES COMPANY
------------------------------------------------
Period from
January 1, 1996 to
Year ended December 31, June 16,
-------------------------- ------------------
1993 1994 1995 1996
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues $195.2 $211.0 $243.4 $107.1
Net loss $(60.0) $(52.0) $(34.6) $(62.9)
</TABLE>
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- PRO FORMA RESULTS OF OPERATIONS" FOR A PRESENTATION OF
THE UNAUDITED PRO FORMA RESULTS OF OPERATIONS AS IF THE ACQUISITION OF PSC HAD
OCCURRED AS OF JANUARY 1, 1995. THE COMPANY BELIEVES THIS INFORMATION IS
IMPORTANT IN EVALUATING ITS FINANCIAL RESULTS OF OPERATIONS.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider the following factors
carefully in evaluating an investment in the Common Stock offered hereby. This
Prospectus contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of the Company for
future operations and projections of revenue and other financial items, that are
based on the beliefs of, assumptions made by and information currently available
to the Company. The words "expect", "estimate", "anticipate", "believe",
"intend", "plan" and similar expressions and variations thereof are intended to
identify forward-looking statements. The cautionary statements set forth in
this "Risk Factors" section and elsewhere in this Prospectus identify important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
those expressed in or implied by such forward-looking statements.
HISTORY OF LOSSES
Since inception, the Company has incurred significant losses. During the
six months ended June 30, 1997 and 1998, the Company incurred net losses of
$52.8 million and $31.9 million, respectively, on revenues of $69.5 million and
$67.3 million, respectively. At June 30, 1998, the Company had an accumulated
deficit of $279.3 million and a stockholders' deficit of $18.2 million. During
the years ended December 31, 1996 and 1997, the Company incurred net losses of
$114.1 million and $129.3 million, respectively, on revenues of $98.9 million
and $134.2 million, respectively. Prior to its acquisition by the Company on
June 17, 1996, Prodigy Services Company incurred net losses of $60.0 million,
$52.0 million, $34.6 million and $62.9 million in the years ended December 31,
1993, 1994 and 1995 and the five and one-half months ended June 16, 1996,
respectively. As of June 16, 1996, Prodigy Services Company (which had been
operated by its former owners as a partnership) had an accumulated partners'
capital deficit of $1.3 billion. There can be no assurance that the Company
will be able to achieve or sustain profitability. See "Selected Consolidated
Financial Information and Other Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto contained herein.
INTENSE COMPETITION
The industry in which the Company competes is intensely competitive and
includes a number of significant participants, including ISPs, proprietary
online service providers and major international telecommunications companies,
as well as Internet-search services and various other telecommunications
companies. Moreover, the Company faces competition from companies that provide
broadband connections to households, including local and long-distance telephone
companies, cable television companies and electric utility companies. Broadband
technologies offer significantly faster Internet access than conventional
modems, and such companies could include Internet access in their basic service
packages, could offer access for a nominal additional charge or could prevent
the Company from delivering Internet access through the cable or wire
connections that such companies own. The Telecommunications Act of 1996 (the
"Telecommunications Act") contains certain provisions that remove, or establish
procedures for removing, restrictions on the regional Bell operating companies
and others that may permit them to engage directly in the Internet access
business. The Telecommunications Act also makes it easier for national long-
distance carriers, such as AT&T, to offer local telephone service, which would
permit such carriers to offer direct local Internet access. Competition from
these companies could have a material adverse effect on the Company. The
Company cannot predict the extent to which the Telecommunications Act, or
strategic alliances or consolidation among ISPs, may result in additional
competitive pressures on the Company.
Among the larger providers of ISP services are EarthLink Network, Inc.
(which has a strategic relationship with Sprint Corporation), MindSpring
Enterprises, Inc., Microsoft Network, AT&T WorldNet, MCI Internet, IBM Internet
Connection, PSINet Inc., GTE Internetworking (which includes the former ISP
business of BBN Corporation), Netcom On-Line Communications Services, Inc.
(owned by ICG
9
<PAGE>
Communications, Inc.) and Concentric Network Corporation. Microsoft's ownership
of the dominant PC operating system and the Microsoft Internet Explorer browser
may give Microsoft Network certain competitive advantages, including
distribution and marketing synergies. Prodigy also competes with America Online,
which offers the America Online and CompuServe proprietary online services over
closed networks, as well as Internet access.
The market for Internet and online services is presently characterized by
low operating margins and minimal profitability. The introduction of unlimited
usage plans and the elimination of most hourly access charges throughout the
industry has placed further pressure on revenues and profit margins. Many of
the Company's current and future competitors have substantially greater
financial, marketing and technical resources than the Company. The Company
believes that competition will increase and that increased competition could
lead to lower pricing to customers and greater spending on marketing. Increased
competition could also adversely affect the Company's ability to develop new
service offerings and interfere with the Company's efforts to maintain or grow
its subscriber base. Any of the foregoing factors could have a material adverse
effect on the Company. There can be no assurance the Company will be able to
compete effectively or that price competition will not have a material adverse
effect on the Company's business, financial condition, results of operations or
prospects. See "Business -- Competition".
SUBSCRIBER TURNOVER
The results of operations of ISPs, including the Company, are significantly
affected by subscriber cancellations. Customer acquisition expenses and the
administrative expenses of enrolling and assisting new subscribers are
substantial. Accordingly, the Company's operating results are adversely
affected by subscriber cancellations. The failure to attract and retain
subscribers to the Company's services, or an increase in, or a failure to slow,
the rate of subscriber cancellations, would have a material adverse effect on
the Company. Since launch in October 1996, the Prodigy Internet service has
grown to 386,000 billable subscribers at June 30, 1998, including migration from
Prodigy Classic. The total number of billable subscribers (including billable
subscribers to Prodigy Internet and Prodigy Classic) declined from 1,133,000 at
December 31, 1995 to 814,000 at December 31, 1996 and to 615,000 at December 31,
1997, but increased to 638,000 at June 30, 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations", "Business" and
the Consolidated Financial Statements and Notes thereto contained herein.
NETWORK RISKS
Effective July 1, 1997, Prodigy conveyed its network assets to Splitrock
Services, Inc. ("Splitrock") in exchange for Splitrock's agreement to build and
operate a network to carry Prodigy's traffic between subscribers and Prodigy's
data hosting center. Splitrock is required to meet specified service level
objectives relating to grade of service, site and overall system availability
and average transit delays, and to comply with certain financial covenants. In
certain circumstances, Prodigy has the right to assume responsibility for
operating the network at Splitrock's expense. Although the Company believes
these network arrangements present a number of significant advantages to
Prodigy, there are associated risks. Splitrock was formed in 1997 and has a
limited operating history, and Prodigy currently is its only significant
customer. See "Risk Factors -- Potential Conflicts of Interest". The failure
by Splitrock for any reason to provide network services as required, or any
significant disruption in such services, whether for technical, operational or
financial reasons, would have a material adverse effect on the Company. The
Splitrock arrangements cover only the United States, and the Company will need
to make other network arrangements in order to offer services in foreign
countries. See "-- Rapidly Changing Markets and Technology" and "Business --
Principal Outsourcing Arrangements".
Security problems represent an ongoing threat to public and private data
networks and related telecommunications infrastructures. Splitrock's network
and the Company's data hosting center are potentially vulnerable to computer
viruses, break-ins and similar disruptions caused by others which
10
<PAGE>
could lead to service interruptions to the Company's customers. Inappropriate
use of the Internet by third parties could potentially jeopardize the
confidentiality of information stored or transmitted by the Company's customers.
The security measures employed by Splitrock and the Company cannot assure
complete protection from computer viruses, break-ins and other disruptions. The
occurrence of such problems may result in claims against or liability on the
part of the Company and could adversely affect the Company or its ability to
attract and retain customers.
The Company's operations are also dependent on the protection of
Splitrock's network and the Company's data hosting center against damage from
fire, power loss, telecommunications failures and similar events. The Company's
host configuration for Prodigy Classic and Prodigy Internet is unique and, for
cost reasons, has not been replicated off site. The occurrence of a natural
disaster, other catastrophe or other unanticipated problems in Splitrock's
network or the Company's data hosting center, or the failure of
telecommunications providers to provide required data communications capacity as
a result of a natural disaster, operational disruption or for any other reason,
could cause interruptions in the services provided by the Company, and such
service interruptions could have a material adverse effect on the Company.
In addition to technical problems and network failures that occur from time
to time in the ordinary course of operating a telecommunications network, in
connection with the migration of the Company's subscribers to the Splitrock
network, Prodigy experienced significant service interruptions and failures, the
most prolonged and serious of which occurred in February, March and April of
1998. The Company believes Splitrock and Splitrock's modem vendor have
addressed the causes of these service interruptions and failures, but there can
be no assurance these or similar problems will not recur in the future. See
"Business -- Network and Related Infrastructure".
RELIANCE ON THIRD-PARTY PROVIDERS
In addition to its network arrangements with Splitrock, the Company has
outsourced its content and aspects of its customer service and billing
functions. Although the Company believes its outsourcing strategy permits it to
control costs, enhance service quality and focus on its core strengths,
outsourcing also makes the Company reliant on third-party providers for certain
critical functions. The failure of these providers to provide services as
required, or any significant disruption of or deterioration in services, would
have a material adverse effect on the Company. The Company also relies on local
telephone companies and other companies to provide data communications capacity
via local telecommunications lines and leased long-distance lines. The
Telecommunications Act generally is expected to lead to increased competition in
the provision of local and other telephone service, but the Company cannot
predict the timing or extent of any such developments or the effect thereof on
pricing or supply. The Company's suppliers and telecommunications carriers also
sell or lease products and services to the Company's competitors and may be, or
in the future may become, competitors of the Company. There can be no assurance
that the Company's suppliers and telecommunications carriers will not enter into
exclusive arrangements with the Company's competitors or stop selling or leasing
their products or services to the Company at commercially reasonable prices or
at all. See "Business -- Products and Services", "Business -- Customer Service"
and "Business -- Principal Outsourcing Arrangements".
CONTROL OF THE COMPANY AND POTENTIAL CONFLICTS OF INTEREST
As of August 31, 1998, Carso Global Telecom, the Company's principal
stockholder, owned 117,587,644 shares of Common Stock, representing 65.3% of the
outstanding Common Stock, and Telmex owned 37,650,000 shares of Common Stock,
representing 20.9% of the outstanding Common Stock. Mr. Carlos Slim Helu, a
Mexican citizen, and certain members of his immediate family, directly and
through their ownership of a majority of the voting and economic interests in
two trusts, own a majority of the outstanding voting equity securities of Carso
Global Telecom, Grupo Carso, S.A. de C.V. ("Grupo Carso") and Grupo Financiero
Inbursa, S.A. de C.V. ("Grupo Financiero"). Mr. Slim is Chairman of the
11
<PAGE>
Board of Carso Global Telecom, Grupo Carso, Grupo Financiero and Telmex. Carso
Global Telecom owns a controlling interest in a trust (that will terminate on
December 20, 2000) that owns a majority of Telmex's outstanding regular voting
equity securities, and Mr. Slim and his family, Carso Global Telecom, Grupo
Carso and Grupo Financiero also own additional equity securities of Telmex
directly. As a result of the foregoing arrangements, Carso Global Telecom may be
deemed to control Telmex, and Mr. Slim may be deemed to control Carso Global
Telecom, Telmex and the Company. After giving effect to the Offering and the
conversion of the Contingent Notes held by IBM and Sears into an aggregate of
shares of Common Stock upon the closing of the Offering (at an assumed
initial public offering price of $ per share) and assuming that Carso Global
Telecom and Telmex do not purchase any shares in the Offering, Carso Global
Telecom will beneficially own (directly or through its control of Telmex) %
of the Common Stock outstanding upon consummation of the Offering. In addition,
IBM and Sears have agreed to vote their shares of Common Stock received upon
conversion of the Contingent Notes or exercise of the Contingent Warrants held
by them in accordance with the voting recommendations of the Company's Board of
Directors. As a result, Carso Global Telecom is able to determine the outcome of
all matters submitted to a vote of the stockholders, including the power to
elect all members of the Company's Board of Directors, and control the
management and affairs of the Company. Circumstances may arise in which the
interests of Carso Global Telecom and/or Telmex, as stockholders of the Company,
could conflict with the interests of the other stockholders of the Company. The
voting control of Carso Global Telecom could be used as a means or have the
effect of delaying or preventing a change in control or acquisition of the
Company.
Carso Global Telecom, the Company's principal stockholder, currently owns
30.2% of Splitrock's common stock. Samer F. Salameh, the Company's Chairman of
the Board, President and Chief Executive Officer, serves on Splitrock's Board of
Directors and holds stock options to purchase 80,000 shares of Splitrock's
common stock (approximately 0.1% of the outstanding shares) at $1.10 per share
vesting over four years. Mr. Salameh also serves as an Advisor to the Chief
Executive Officer of Telmex. In addition, four of the Company's current six
directors are affiliated with Carso Global Telecom, Telmex or Grupo Financiero,
Mr. Salameh is married to Mr. Slim's niece and Mr. Elias is married to Mr.
Slim's daughter. Carso Global Telecom currently provides the Company with a
$35.6 million revolving line of credit. Furthermore, the Company and Carso
Global Telecom and its affiliates have engaged in numerous transactions in the
past and may do so in the future. The line of credit and previous transactions
between the Company and Carso Global Telecom and its affiliates were not
necessarily a result of arm's length negotiations. Any decision made by the
Company's directors is required by law to be made in accordance with their
fiduciary duties and in the best interests of the Company and its stockholders.
Messrs. Salameh, Elias, Nakfoor and Sanchez, directors of the Company, owe
similar duties to the other companies for which they serve as directors or
officers or with which they are otherwise affiliated. Due to the nature of the
potential conflicts of interest presented on an ongoing basis by these
arrangements, and potential future arrangements, there can be no assurance that
the directors involved will act in the best interests of the Company and its
stockholders. See "Management", "Corporate History and Certain Transactions"
and "Principal Stockholders".
NEED FOR ADDITIONAL FINANCING
At August 31, 1998, the Company had cash of $35.0 million (of which $4.1
million secured a letter of credit and was thus unavailable). The Company is
currently experiencing substantial negative cash flow each month and expects to
continue to experience negative cash flow through at least the end of 1999. The
Company's future financing requirements will depend on a number of factors,
including the Company's operating performance and increases in operating
expenses associated with growth in the Company's business. Based on its current
operating plan, the Company believes that the net proceeds from the Offering,
together with its existing cash and available financing under its revolving
credit facility with Carso Global Telecom, will be sufficient to meet its
anticipated cash requirements for at least the next twelve months. The Company
has made no arrangements to obtain additional financing, other than
12
<PAGE>
pursuant to the Carso Global Telecom credit facility, and there can be no
assurance that adequate additional financing on acceptable terms will be
available when needed, if at all. The unavailability of sufficient financing
when needed would have a material adverse effect on the Company. Any additional
equity financing may cause investors to experience dilution and any additional
debt financing may result in restrictions on Prodigy's operations or its ability
to pay dividends in the future. See "Dividend Policy", "Management's Discussion
and Analysis of Financial Condition and Results of Operations", "Business" and
the Consolidated Financial Statements and Notes thereto contained herein.
DEPENDENCE ON PC BUNDLING AND MICROSOFT RELATIONSHIP
The Company's largest customer acquisition channel is its bundling
arrangements with PC manufacturers. During the year ended December 31, 1997 and
the six months ended June 30, 1998, approximately 48% and 45%, respectively, of
total Prodigy Internet enrollments resulted from PC bundling. Prodigy's
bundling arrangements with Packard Bell/NEC accounted for approximately 36% and
33%, respectively, of total Prodigy Internet enrollments during such periods.
The Company also relies to a significant extent on its relationship with
Microsoft to generate Prodigy Internet enrollments. During the year ended
December 31, 1997 and the six months ended June 30, 1998, approximately 10% and
11%, respectively, of total Prodigy Internet enrollments resulted from Prodigy's
relationship with Microsoft. The Company's bundling agreement with Packard
Bell/NEC automatically renews from year to year but is terminable by either
party upon 30 days' written notice. The Company's agreements with Microsoft for
inclusion of Prodigy Internet in the online services folder of Microsoft's
Windows 98 and Windows 95 (OSR 2.5 release) operating systems expire in June
1999. The loss of any of these relationships or any significant reduction in
enrollments from these channels would have a material adverse effect on the
Company. See "Business -- Customer Acquisition and Marketing".
MIGRATION FROM PRODIGY CLASSIC SERVICE
Prodigy Classic has been a significant source of the Company's revenues and
subscribers to Prodigy Internet. During the years ended December 31, 1996 and
1997 and the six months ended June 30, 1998, approximately 92%, 73% and 41%,
respectively, of the Company's total revenues were attributable to Prodigy
Classic. Because the Company has shifted its business focus to Internet-based
products and services, the Company intends to continue to migrate users of
Prodigy Classic to Prodigy Internet. As a result, the Company expects revenues
from Prodigy Classic to continue to decline over the next 12 to 15 months. As
of June 30, 1998, 143,000 of the Prodigy Internet subscribers had migrated from
Prodigy Classic (most of whom are enrolled in a Prodigy Internet/Prodigy Classic
combination plan), and there were 257,000 remaining subscribers to Prodigy
Classic. Although the Company plans to continue to encourage Prodigy Classic
subscribers to migrate to the Prodigy Internet service, the Company has
experienced difficulty in generating migration from Prodigy Classic to Prodigy
Internet, and a substantial portion of the remaining Prodigy Classic subscribers
lack the minimum hardware requirements for the Prodigy Internet service. No
assurance can be given as to the number of remaining Prodigy Classic subscribers
who will migrate to Prodigy Internet. In addition, a majority of the
subscribers enrolled in a Prodigy Internet/Prodigy Classic combination plan
(61,000 of 111,000 at June 30, 1998) use both services and some combination plan
subscribers (14,000 of 111,000 at June 30, 1998) do not use Prodigy Internet at
all. Accordingly, some combination plan subscribers may be unwilling or unable
to migrate to Prodigy Internet. The foregoing factors could adversely affect
the Company's business, financial condition, results of operations or prospects.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and the Consolidated Financial Statements and Notes
thereto contained herein.
13
<PAGE>
DEPENDENCE ON THE INTERNET
Substantially all of the Company's revenues are dependent on the continued
use and expansion of the Internet. Only recently has the commercial sector
begun significant use of the Internet and, more recently still, have consumers
begun using the Internet. Use of the Internet has grown dramatically, but no
assurance can be given of the continued use and expansion of the Internet as a
medium of communications and commerce. A decrease in the demand for Internet
services or a reduction in the currently anticipated growth for such services
could have a material adverse effect on the Company's business, financial
condition, results of operations or prospects. This Prospectus includes
statistical data regarding the Internet industry taken or derived from published
sources. Although the Company believes that such data are generally indicative
of the matters reflected therein, such data are inherently imprecise and
investors are cautioned not to place undue reliance on such data. See "Business
- -- Industry Background".
UNCERTAIN LEGAL STANDARDS
The law relating to the liability of ISPs and online services companies for
information available through their services is uncertain. As the law and
judicial decisions in this area develop, the potential imposition of liability
upon the Company for information available through its services could require
the Company to implement measures to reduce its exposure to such liability. The
implementation of such measures could require the expenditure of substantial
resources or the discontinuation of certain service offerings. Any costs that
are incurred as a result of such expenditures, contesting any such asserted
claims or the imposition of liability could have a material adverse effect on
the Company's business, financial condition, results of operations or prospects.
In addition, due to the increasing use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet
covering issues such as content, user privacy, pricing, libel, intellectual
property protection and infringement and technology export and other controls.
Changes in the regulatory environment relating to the Internet services
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition,
could have a material adverse effect on the Company. "Business -- Government
Regulation".
RAPIDLY CHANGING MARKETS AND TECHNOLOGY
The industry in which the Company competes is characterized by rapid
technological change resulting in dynamic customer demands and frequent new
product and service introductions. As a result, the Company's markets can
change rapidly and the Company's future results will depend in part on its
ability to make timely and cost-effective enhancements and additions to its
services and introduce new services that meet customer demands. For example,
certain ISPs have introduced, or announced plans to introduce, high-speed
Internet access utilizing broadband applications such as cable modems,
Integrated Services Digital Network ("ISDN") telephone service and Asymmetric
Digital Subscriber Line ("ADSL") telephone service. The Company does not
currently provide any residential broadband access services. Although the
Company is in discussions with Splitrock and others to support various broadband
applications, there can be no assurance the Company and Splitrock or any other
party will reach agreement. See "Business -- Products and Services -- Business
Services". There also can be no assurance that the Company will have sufficient
resources to introduce new services that meet customer demands on a timely basis
or that its new service introductions will achieve acceptance in the
marketplace. The Company believes that its ability to compete successfully is
also dependent upon the continued compatibility and interoperability of its
services with products and architectures offered by various vendors. Although
the Company intends to support emerging standards in the market for Internet
access, there can be no assurance that the Company will be able to conform to
new standards in a timely fashion and maintain a competitive position in its
markets. In addition, there can be no assurance that services or technologies
developed by others will not render the Company's services or technology
uncompetitive or obsolete. See "Business".
14
<PAGE>
RISKS OF NEW SERVICES AND MARKETS; FAILURE TO IMPLEMENT BUSINESS STRATEGY
The Company's business strategy includes the introduction of numerous new
services and entry into various new markets. For example, the Company is
expanding its Web hosting activities and other value-added services, plans to
expand beyond its existing consumer market to include small and medium sized
businesses, and plans to provide Internet services to Spanish-speaking and
Hispanic customers in the United States. See "Use of Proceeds", "Business --
Business Strategy" and "Business -- Products and Services". The Company
historically has focused on the consumer market and has relatively little
experience in developing and marketing services to business customers. In
addition, the Company has not previously focused on Spanish-speaking or Hispanic
customers, and the Company's success in penetrating this market will depend in
large part on the Company's ability to establish a strategic partnership with
Telmex or another company with experience in selling products or services to
this market. There can be no assurance that the Company will be successful in
offering new services and entering new markets as planned or that any such
services, if introduced, will achieve acceptance in the marketplace.
The Company may decide to alter or discontinue certain aspects of its
business strategy described herein and may adopt alternative or additional
strategies. The Company's ability to successfully implement its business
strategy, and the expected benefits to be obtained from the Company's strategy,
may be adversely impacted by factors not currently foreseen, such as unforeseen
costs and expenses, or events beyond its control, such as technological change
or an economic downturn. In addition, competitive factors may require the
Company to alter or reduce its business strategies or reduce the expected
benefits to be obtained therefrom.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
The Company experiences quarterly fluctuations in its operating results due
to a number of factors, including the seasonality of its business, changes in
the level of consumer spending during business cycles, the timing of
introduction of new and enhanced services by the Company, pricing changes and
competitive factors. The Company historically has experienced seasonality in
its business, with higher expenses during the last and first fiscal quarters,
corresponding to the Christmas and post-Christmas selling season, and lower
timed usage revenues typically occurring during its second and third fiscal
quarters resulting from reduced usage of its services during the summer months.
The Company believes that the seasonal reductions in timed usage revenues
historically experienced by the Company will be mitigated by the movement from
timed usage plans to unlimited usage plans as well as growth in the Company's
subscriber base, although the Company expects to continue to have higher
expenses during the first and fourth quarters. Accordingly, the Company
believes that quarter-to-quarter comparisons of the Company's operating results
may not be meaningful or indicative of future results. Although the Company's
outsourcing strategy enables it to tie many variable costs to variable revenue
sources, the Company's fixed expenses are based, in part, on its expectations as
to future revenues. To the extent that revenues are below expectations and the
Company is unable to reduce fixed costs proportionately, the Company's operating
results would be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations", "Business" and the
Consolidated Financial Statements and Notes thereto contained herein.
PROTECTION OF PROPRIETARY TECHNOLOGY
The Company protects its proprietary technology through copyright and trade
secrets laws, employee and third-party confidentiality agreements and other
methods. Customers are granted a license to use Prodigy's services under
agreements that contain terms and conditions prohibiting unauthorized
reproduction. Despite these precautions, unauthorized third parties may be able
to copy certain portions of Prodigy's services or reverse engineer or obtain and
use information Prodigy regards as proprietary.
15
<PAGE>
Although the Company does not believe that its products infringe the proprietary
rights of any third parties, there can be no assurance that third parties will
not assert infringement claims against the Company or that such claims will not
be successful. The Company could incur substantial costs and diversion of
management resources with respect to any claims relating to proprietary rights,
whether or not successful, which could materially adversely affect the Company's
business, financial condition, results of operations or prospects. See
"Business -- Technology" and "--Proprietary Rights".
MANAGEMENT OF GROWTH AND DEPENDENCE ON KEY PERSONNEL
The Company's ability to exploit the market for its products and services
and increase its subscriber base requires an effective planning and management
process. The Company's ability to plan and manage effectively will require it
to continue to implement and improve its operational, financial and management
information systems and to attract and retain skilled managers and other
personnel, including its current executive officers. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining necessary personnel. The Company does
not maintain insurance on the lives of any of its officers or directors.
Although the Company has entered into non-competition agreements with certain
executive officers, no assurance can be given that such agreements are or will
be enforceable by the Company. Many of the Company's executive officers have
joined the Company since the autumn of 1997, including Samer F. Salameh,
Chairman of the Board, President and Chief Executive Officer, David R. Henkel,
Executive Vice President, Finance and Chief Financial Officer, James P.
Dougherty, Executive Vice President, Business Services and Andrea S. Hirsch,
Executive Vice President, Business Development and General Counsel. See
"Management".
GOVERNMENT REGULATION
Internet access and online services are not subject to direct regulation in
the United States, but changes in the regulatory environment relating to the
telecommunications and media industry could have an effect on Prodigy's
business, financial condition, results of operations or prospects. For example,
Federal Communications Commission regulatory review and rulemaking could result
in regulation of the Internet and online services industry which could result in
increased telecommunications costs for participants in the Internet industry,
including Prodigy. The Company cannot predict whether, or to what extent, any
such new rulemaking will occur, or what effect any such rulemaking would have on
Prodigy. There can be no assurance the Company will not be adversely affected by
any such matters. See "Business -- Government Regulation".
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. Computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
normal business activities. The Company maintains various internal computer
systems and equipment and contracts with third-party vendors for the provision
of computerized customer billing, network operation, Prodigy Internet service
content and certain other information technology and other services.
The Company is currently incurring costs to resolve the potential impact of
the year 2000 on the processing of date-sensitive information by the Company's
internal computer systems and equipment and the computer systems and equipment
of the third-party vendors on which the Company's business relies. The Company
has established a Year 2000 project office staffed by Company personnel and
assisted by a consulting firm.
16
<PAGE>
The Company has completed an inventory of substantially all of its internal
systems and programs related to both the delivery of the Prodigy Internet
service and the daily operations of the business. Based on its preliminary
analysis, the Company estimates that it will spend approximately $3.5 million
through the end of 1999 to remediate potential Year 2000 problems with its
internal systems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
The Company is developing contingency plans in the event that any critical
service component or business process fails due to a Year 2000 problem. The
Company expects to complete contingency planning by mid-1999. With respect to
critical third-party vendor systems, Splitrock has publicly reported that its
network services will be Year 2000 compliant, Excite has publicly reported that
there are no significant Year 2000 issues within its systems or services, and
Prodigy's billing provider has committed to making its billing system Year 2000
compliant. There can be no assurance that the Company will be able to address,
in a timely fashion, all potential Year 2000 problems, or that the systems of
the third-party vendors upon which the Company's business relies (and the
maintenance and operation of which are not within the control of the Company)
will be Year 2000 compliant or will become Year 2000 compliant in a timely
manner. Any Year 2000 problems could impact the provision of products or
services to the Company's customers and could subject the Company to the risk of
litigation, lost revenues and loss of current or future customers.
POSSIBLE ACQUISITIONS
The Internet services industry is highly fragmented, consisting of more
than 4,000 ISPs in the United States, and is expected to undergo substantial
consolidation over the next few years. The Company evaluates acquisition
opportunities on an ongoing basis and, from time to time, is engaged in
discussions with respect to possible acquisitions or other business
combinations. The Company may seek strategic acquisitions that can complement
the Company's current or planned business activities, particularly the expansion
of value-added services such as Web hosting. The Company may also seek to
acquire other ISPs as an additional means of customer acquisition or entry into
new markets. Such acquisitions may not be available at the times or on terms
acceptable to the Company, or may not be available at all. In addition, any
acquisitions that the Company makes may involve risks, including the successful
integration and management of acquired operations and personnel. The
integration of acquired businesses may also lead to the diversion of management
attention from other business matters. No assurance can be given that suitable
acquisitions can be identified, financed and completed on acceptable terms or
that any acquisitions by the Company will be successful. See "Business --
Business Strategy".
MANAGEMENT DISCRETION REGARDING USE OF PROCEEDS
The Company intends to use a significant portion of the net proceeds from
the Offering for working capital and other general corporate purposes. In
addition, the Company is not required to allocate the net proceeds of the
Offering in the manner described herein and, in light of future developments and
circumstances, may allocate the proceeds to other uses or in a different manner.
Accordingly, the Company's management will have significant discretion in how
the net proceeds of the Offering are utilized in the Company's business. See
"Use of Proceeds".
LEGAL PROCEEDINGS
On November 27, 1996, Malcolm Haynes and Lightwave, Ltd., a Cayman Islands
corporation ("Lightwave"), filed a lawsuit in the District Court of Clark
County, Nevada, against the Company, International Wireless Incorporated (the
Company's predecessor) ("IW"), Comstar Cellular Network, Inc. ("Comstar"), Greg
C. Carr, Terrance P. Dillon, Duncan E. Wine and Blaize Kaduru. Mr. Carr is the
former Chairman of the Board of the Company and a former principal stockholder
of the Company, and was a
17
<PAGE>
director and principal stockholder of IW. Mr. Dillon was a director and
principal stockholder of the Company, was a director, officer and principal
stockholder of IW and was a director and technical advisor to Comstar. Mr. Wine
is a former principal stockholder of the Company and IW. Mr. Kaduru is a former
principal stockholder of the Company and IW, was an officer of IW and was a
director and officer of Comstar. Mr. Haynes was co-founder, President and a
director of Comstar and claims that he and Mr. Wine each hold a 30% interest in
Lightwave. The lawsuit arose from IW's acquisition of the assets and liabilities
of Comstar in August 1994. See "Corporate History and Certain Transactions --
Prior Corporate History". In connection with the Comstar acquisition, IW issued
to Comstar all then outstanding common stock of IW, which Comstar then
distributed as a liquidating dividend to the holders of certificates for common
stock of Comstar. Each holder of a certificate for common stock of Comstar was
required to acknowledge and accept the terms of the Comstar acquisition and
release Comstar and IW from all claims which such holder may have had against
either Comstar or IW. Pursuant to the foregoing, Comstar offered 4,800,000
shares of IW's common stock to Mr. Haynes, but Mr. Haynes refused to participate
and therefore received no shares. The lawsuit filed by Mr. Haynes and Lightwave
alleges, among other things, that Messrs. Dillon, Wine and Kaduru breached their
fiduciary duties to the plaintiffs, that Mr. Wine defrauded or made
misrepresentations to the plaintiffs, that Mr. Wine misappropriated a corporate
opportunity belonging to Lightwave, that all defendants are liable for
conversion of plaintiffs' shares of common stock, and that IW and Mr. Carr aided
and abetted the wrongful conduct of Messrs. Dillon, Wine and Kaduru. The lawsuit
seeks to compel the defendants to provide to the plaintiffs 18,000,000 shares of
Common Stock of the Company or the fair market value thereof, to impose a
constructive trust on the shares of Common Stock received by Messrs. Dillon,
Wine and Kaduru in the Comstar acquisition, and other monetary damages and
declaratory and equitable relief. On February 25, 1998, the Court granted the
motion of the Company and Mr. Carr to dismiss the lawsuit against them for lack
of personal jurisdiction in Nevada, and the lawsuit is continuing against the
other defendants. Unless this decision is overturned on appeal, the plaintiffs
cannot pursue this lawsuit against the Company and Mr. Carr in Nevada, although
the plaintiffs could pursue these claims in a new lawsuit filed in any state or
states where personal jurisdiction over the Company and Mr. Carr could be
established and where the applicable statute of limitations has not expired. If
a new lawsuit is filed, the Company intends to defend it vigorously, but there
can be no assurance that its outcome would not have a material adverse effect on
the Company's business, financial condition, results of operations or prospects
or result in substantial dilution to the Company's stockholders. See
"Business -- Legal Proceedings".
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiations among the Company and the
representatives of the Underwriters (the "Representatives"). See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price of the Common Stock. Investors should be aware
that market prices for securities of ISPs and other participants in the Internet
industry have been and may continue to be highly volatile. Such volatility may
be caused by factors outside of the Company's control and may be unrelated or
disproportionate to the Company's operating results.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Upon completion of the Offering (at an assumed initial public offering
price of $ per share), the Company will have outstanding
shares of Common Stock. In addition to the shares offered
hereby, approximately shares of Common Stock, which are not subject
to 180-day lock-up agreements (the "Lock-up Agreements") with the
Representatives, will be eligible for immediate sale in the public market
18
<PAGE>
pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act"). Approximately additional shares of Common
Stock, which are not subject to the Lock-up Agreements, will be eligible for
sale in the public market in accordance with Rule 144 or Rule 701 under the
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-up Agreements 180 days after the date of this Prospectus,
approximately additional shares of Common Stock will be
available for sale in the public market, subject to the provisions of Rule 144
under the Securities Act. Promptly following the consummation of the Offering,
the Company intends to register an aggregate of shares of Common
Stock issuable under its 1996 Stock Option Plan and 1998 Employee Stock Purchase
Plan. The Company and certain stockholders of the Company (including Carso
Global Telecom, Telmex, IBM, Sears and all directors and executive officers of
the Company) who will hold, upon consummation of the Offering at an assumed
initial public offering price of $ per share, an aggregate of
approximately shares of Common Stock, have agreed, pursuant to
the Lock-up Agreements, not to offer, sell, contract to sell or otherwise
dispose of any Common Stock, or any options, warrants or other securities
convertible into or exercisable for Common Stock, for 180 days after the date of
this Prospectus. The Company is unable to predict the effect that sales made
under Rule 144, Rule 701 or otherwise may have on the then prevailing market
price of the Common Stock. Upon the closing of the Offering (at an assumed
initial public offering price of $ per share), IBM and Sears will be
entitled to certain piggyback and demand registration rights with respect to an
aggregate of (i) shares of Common Stock issued upon the
conversion of the Contingent Notes held by them and (ii) shares
of Common Stock issuable upon the exercise of the Contingent Warrants held by
them. In addition, Greg C. Carr has piggyback registration rights with respect
to shares held by him. Exercise of the foregoing registration
rights could cause a large number of shares to be registered and sold in the
public market. Sales pursuant to Rule 144, Rule 701 or other exemptions from
registration, or pursuant to registration rights, may have an adverse effect on
the market price for the Common Stock and could impair the Company's ability to
raise capital through offerings of its equity securities. See "Description of
Capital Stock", "Shares Eligible for Future Sale", "Underwriting" and "Corporate
History and Certain Transactions".
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchase price of the Common Stock will be significantly greater than
the net tangible book value per share after giving effect to the Offering.
Investors in the Offering will incur an immediate and substantial dilution of
their investment of approximately $ in net tangible book value per
share of Common Stock. See "Dilution" and the Company's Consolidated Financial
Statements and Notes thereto contained herein.
NO DIVIDENDS
The Company has never declared or paid cash dividends on its capital stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company's current policy is to retain earnings, if any, to provide funds for
the operation and expansion of its business. See "Dividend Policy".
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $ million after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company and assuming an initial public offering price of $
per share.
The Company intends to use the net proceeds of the Offering to expand its
consumer business, including selling, advertising and headcount expenses,
introduce new business services, such as Internet access, hosting services,
value-added services and broadband services, and enter new markets, including
Spanish-speaking and Hispanic customers in the United States. See "Risk Factors
- -- Risks of New Services and Markets; Failure to Implement Business Strategy".
Any remaining net proceeds from the Offering will be used for general corporate
purposes, including working capital. The amount actually expended by the Company
for the foregoing purposes will depend upon a number of factors, and the Company
reserves the right, in light of future developments and circumstances, to
allocate the proceeds to other uses or in a different manner. See "Risk Factors
- -- Management Discretion Regarding Use of Proceeds". Pending the application of
the net proceeds from the Offering, the Company intends to invest such net
proceeds in short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company's current policy is to retain earnings, if any, to provide
funds for the operation and expansion of its business. Payment of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs and growth
plans. See "Risk Factors -- No Dividends" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on a
pro forma basis as of June 30, 1998, giving effect to the issuance after June
30, 1998 of 30,000,000 shares of Common Stock for gross proceeds of $60,000,000,
and (ii) as adjusted to give effect to (a) the conversion of the Contingent
Notes held by IBM and Sears into an aggregate of shares of
Common Stock upon the closing of the Offering (at an assumed initial offering
price of $ per share) and (b) the issuance of the Common Stock offered
hereby, after deducting the estimated underwriting discounts and commissions and
offering expenses payable by the Company.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN MILLIONS)
<S> <C> <C>
Long-term debt $ 26.4
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued or outstanding (pro forma
and as adjusted).............................................. -- --
Contingent Convertible Notes...................................... 30.5 --
Common stock, $.01 par value; 280,000,000 shares
authorized (pro forma and as adjusted); 180,215,577
shares issued and outstanding (pro forma); shares
issued and outstanding (as adjusted)(1)....................... 1.8 $
Additional paid-in capital........................................ 292.2
Accumulated deficit............................................... (279.3)
Accumulated foreign currency translation adjustments(2)........... (.2)
Note receivable from Carso Global Telecom(3)...................... (3.3)
--------- -----------
Total stockholders' equity....................................... 41.7
Total capitalization..................................... $ 68.1 $
========= ===========
</TABLE>
_____________
(1) Excludes shares of Common Stock (i) reserved for issuance pursuant to the
Company's stock-based compensation plans and (ii) issuable pursuant to
outstanding options and warrants granted by the Company. As of August 31,
1998, (a) there were an aggregate of 12,500,000 shares of Common Stock
reserved under the Company's 1996 Stock Option Plan, of which an aggregate
of 9,472,312 shares of Common Stock were subject to outstanding options at
a weighted-average exercise price of $1.56 per share and 3,021,599 shares
were available for future option grants, and (b) there were outstanding
warrants to purchase an aggregate of 437,389 shares of Common Stock at a
weighted-average exercise price of $2.76 per share. Upon the closing of
the Offering (at an assumed initial public offering price of $
per share), IBM and Sears will each hold a Contingent Warrant to purchase
shares of Common Stock at an exercise price of $ per share
(subject to customary anti-dilution adjustments) at any time prior to the
third anniversary of the Offering. In addition, the Company has reserved
an aggregate of 2,000,000 shares of Common Stock under its 1998 Employee
Stock Purchase Plan. See "Corporate History and Certain Transactions --
Acquisition of Prodigy Services Company", "Management -- Stock Plans" and
Notes 1, 4 and 9 to the Company's Consolidated Financial Statements.
(2) Represents the cumulative effect of foreign currency translation
adjustments. See Note 2 to the Company's Consolidated Financial Statements.
(3) Represents the remaining balance of a letter of credit established by Carso
Global Telecom in October 1997 to secure payment obligations of the Company
under contracts for which IBM and Sears, PSC's former owners, remain
liable. See "Corporate History and Certain Transactions -- Prior Equity
Financings" and Note 9 to the Company's Consolidated Financial Statements.
21
<PAGE>
DILUTION
After giving effect to the conversion of the Contingent Notes into an
aggregate of shares of Common Stock upon the closing of the
Offering (at an assumed initial public offering price of $ per
share) and the issuance after June 30, 1998 of 30,000,000 shares of Common Stock
for gross proceeds of $60,000,000, the net tangible book value of the Company as
of June 30, 1998 would have been $ , or $ per share of
Common Stock. Net tangible book value per share is determined by dividing the
Company's tangible net worth (tangible assets less liabilities) by the number of
shares of Common Stock outstanding. After giving effect to the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share and after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company, the pro
forma net tangible book value of the Company as of June 30, 1998 would have been
$ per share. This represents an immediate increase in such net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing
shares in the Offering. If the initial public offering price is higher or
lower, the dilution to the new investors will be greater or less, respectively.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Net tangible book value per share as of June 30, 1998 (adjusted
as described above)............................................... $
Increase per share attributable to the Offering....................
-----------
Pro forma net tangible book value per share after the Offering(1).....
----------
Dilution per share to new investors(1)................................ $
==========
</TABLE>
____________________
(1) If the Underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the Offering would be
$ , resulting in an immediate dilution of $ per share to
investors purchasing shares in the Offering. See "Underwriting".
22
<PAGE>
The following table summarizes, as of June 30, 1998, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average consideration paid per share by (i) Carso Global Telecom, (ii)
Telmex, (iii) other existing stockholders and (iv) the new investors based on an
assumed initial public offering price of $ share (before deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ----------------------- ---------
PRICE PER
---------
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Carso Global Telecom (1) 113,556,644 % $200,822,289 % $1.77
Telmex (2) 24,500,000 49,000,000 2.00
Other existing stockholders (3)
New investors
----------- -------- ------------ ------
Total 100.0% $ 100.0%
=========== ======== ============ ======
</TABLE>
_____________
(1) Includes Carso Global Telecom's purchase from the Company after June 30,
1998 of 5,500,000 shares of Common Stock for $2.00 per share, but excludes
an aggregate of 4,031,000 shares purchased from other stockholders of the
Company between February 1996 and September 1996 at a weighted-average
purchase price of $2.99 per share.
(2) Includes Telmex's purchase from the Company after June 30, 1998 of
24,500,000 shares of Common Stock for $2.00 per share, but excludes an
aggregate of 13,150,000 shares purchased from other stockholders of the
Company in August 1998 at a purchase price of $2.00 per share.
(3) Gives effect to the conversion of the Contingent Notes held by IBM and Sears
into an aggregate of shares of Common Stock upon the closing of
the Offering (at an assumed initial public offering price of $
per share). Also includes the shares of Common Stock sold to Carso Global
Telecom and Telmex by other stockholders of the Company as described in
Notes (1) and (2) above. See "Corporate History and Certain Transactions --
Acquisition of Prodigy Services Company".
The foregoing table excludes shares of Common Stock issuable upon the exercise
of stock options and warrants granted by the Company. As of August 31, 1998,
there were outstanding options to purchase an aggregate of 9,472,312 shares of
Common Stock at a weighted-average exercise price of $1.56 per share and
outstanding warrants to purchase an aggregate of 437,389 shares of Common Stock
at a weighted-average exercise price of $2.76 per share. In addition, upon the
closing of the Offering, (i) at an assumed initial public offering price of $
per share, IBM and Sears will each hold a Contingent Warrant to purchase
shares of Common Stock at an exercise price of $ per share (subject
to customary anti-dilution adjustments), (ii) 3,021,599 shares will be available
for future option grants under the Company's 1996 Stock Option Plan and (iii)
2,000,000 shares will be available for issuance under the Company's Employee
Stock Purchase Plan. See "Corporate History and Certain Transactions --
Acquisition of Prodigy Services Company", "Management -- Stock Plans" and Note 9
to the Company's Consolidated Financial Statements.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth selected consolidated financial information and
other data for the Company and PSC. The selected consolidated financial data
for the Company for the period from May 23, 1994 (date of inception) to December
31, 1994 and for the year ended December 31, 1995 has been derived from the
Company's Consolidated Financial Statements for the year ended December 31, 1995
appearing elsewhere in this Prospectus. The selected consolidated financial
data for the Company for the years ended December 31, 1996 and 1997 and for PSC
for the year ended December 31, 1995, and for the period from January 1, 1996 to
June 16, 1996 has been derived from the Company's Consolidated Financial
Statements that appear elsewhere in this Prospectus, which have been audited by
PricewaterhouseCoopers LLP, independent public accountants. The selected
consolidated financial and other data for the six month periods ended June 30,
1997 and 1998 is unaudited; however, in the opinion of the Company's management
such unaudited data includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair representation of the information included
therein. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results for the entire year or any other
future period.
The selected consolidated financial data should be read in conjunction with
the Consolidated Financial Statements, and the notes thereto, of the Company and
PSC appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
PRODIGY COMMUNICATIONS CORPORATION
Period From
May 23, 1994
(date of
inception) to
December 31, Year ended December 31, Six months ended June 30,
-------------- ----------------------------------- ----------------------------
1994(1) 1995(1) 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
(in millions, except number of billable subscribers and per share information)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Internet and online service revenues........ -- -- $ 90.7 $ 128.3 $ 65.5 $ 63.2
Other....................................... -- -- 8.2 5.9 4.0 4.1
---------- ---------- ---------- ---------- ---------- ----------
Total revenues.................. -- -- 98.9 134.2 69.5 67.3
---------- ---------- ---------- ---------- ---------- ----------
Operating costs and expenses:
Costs of revenue............................ -- $ .1 69.4 98.8 61.8 52.1
Marketing................................... -- -- 21.3 60.5 21.5 15.5
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Product development......................... -- -- 9.0 16.8 10.0 6.3
General and administrative.................. $ 1.0 3.0 52.3 61.1 21.0 24.9
Acquired incomplete technology.............. -- -- 46.1 -- -- --
Restructuring and other special costs....... -- -- 3.1 9.9 4.7 --
Write-down of assets held for sale.......... -- -- -- 2.4 -- --
Loss on sale of cellular assets............. -- -- -- .8 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total operating costs and expenses........ 1.0 3.1 201.2 250.3 119.0 98.8
---------- ---------- ---------- ---------- ---------- ----------
Operating loss.................. (1.0) (3.1) (102.3) (116.1) (49.5) (31.5)
Loss on equity investment in joint venture.... -- -- .5 12.1 2.3 --
Write-down (recovery) of equity investments... -- -- 9.1 (.3) -- --
Interest expense, net......................... -- -- 2.2 1.4 1.0 .4
---------- ---------- ---------- ---------- ---------- ----------
Net loss........................ $ (1.0) $ (3.1) $ (114.1) $ (129.3) $ (52.8) $ (31.9)
========== ========== ========== ========== ========== ==========
Net loss per common share:
Basic and diluted............... $ (.04) $ (.09) $ (2.75) $ (1.86) $ (1.07) $ (.23)
========== ========== ========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted............... 24.9 33.5 41.4 69.4 49.5 140.5
========== ========== ========== ========== ========== ==========
OTHER DATA:
Prodigy Internet billable subscribers at
period end.................................. -- -- 7,000 221,000 160,000 386,000
Prodigy Classic billable subscribers at
period end.................................. -- -- 807,000 394,000 548,000 252,000
---------- ---------- ---------- ---------- ---------- ----------
Total billable subscribers at period end...... -- -- 814,000 615,000 708,000 638,000
========== ========== ========== ========== ========== ==========
Prodigy Internet revenue...................... -- -- $ .1 $ 29.6 $ 9.0 $ 34.4
Prodigy Classic revenue....................... -- -- $ 90.6 $ 98.7 $ 56.5 $ 28.8
EBITDA (2).................................... $ (1.0) $ (3.1) $ (101.6) $ (110.0) $ (42.6) $ (23.8)
OTHER CASH FLOW DATA:
Net cash used in operating activities......... $ (1.0) $ (2.4) $ (35.3) $ (114.0) $ (56.4) $ (34.8)
Net cash used in investing activities......... $ (.1) $ (1.4) $ (47.9) $ (15.3) $ (8.5) $ (.1)
Net cash provided by financing activities..... $ 1.4 $ 4.0 $ 104.1 $ 120.4 $ 56.0 $ 32.1
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
-----------------------------------------------------------------------
1994(1) 1995(1) 1996 1997 1998 1998
------- ------- ---- ---- ---- ----
Actual As adjusted (3)(4)
(unaudited) (unaudited)
(in millions)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $ .1 $ (.3) $(54.7) $(48.4) $(43.0)
Total assets .4 2.5 103.3 73.7 63.4
Long-term debt .4 1.6 56.0 10.0 26.4
Contingent convertible notes (included
in stockholders' equity (deficit)) -- -- 30.5 30.5 30.5 --
Stockholders' equity (deficit) (.2) -- (34.8) (2.1) (18.3)
========= ======== ========= ========= ========= ==================
</TABLE>
- ---------------------------
(1) International Wireless Incorporated ("IW") was incorporated in May 1994 to
evaluate and develop cellular telephone systems and Internet access and
online services in Africa. See "Corporate History and Certain Transactions
-- Prior Corporate History". In June 1996, the Company was formed under the
name Prodigy, Inc. as a new holding company to acquire PSC and to hold IW
and the other communications interests of IW. On June 17, 1996, the Company
consummated the acquisition of PSC. The acquisition was accounted for under
the purchase method of accounting. Accordingly, the results of operations
of PSC are included in the Company's consolidated results of operations from
the date of acquisition. See Notes 1 and 4 to the Company's Consolidated
Financial Statements. In January 1997, the Company's cellular telephone
assets and operations were sold. Subsequently, the Company decided to sell
and wind-down its remaining international operations in Africa and China.
See "Corporate History and Certain Transactions" and Note 5 to the Company's
Consolidated Financial Statements.
(2) EBITDA is a standard measure commonly reported and widely used by analysts,
investors and other interested parties for ISPs, and also provides
additional information to assist investors in determining the Company's
liquidity. EBITDA is not an accounting measure under GAAP, is not
necessarily indicative of operating income or cash flows from operations as
determined under GAAP and may not be comparable to similarly titled measures
reported by other companies.
(3) Reflects (i) the issuance after June 30, 1998 of 30,000,000 shares of Common
Stock for gross proceeds of $60.0 million and (ii) the conversion upon the
closing of the Offering (at an assumed initial public offering price of $
per share) of the Contingent Notes held by IBM and Sears into an aggregate
of shares of Common Stock. See "Corporate History and Certain
Transactions -- Acquisition of Prodigy Services Company" and "-- Prior
Equity Financing" and Note 9 to the Company's Consolidated Financial
Statements.
(4) Adjusted to give effect to the sale by the Company of shares of
Common Stock offered hereby at an assumed public offering price of $
per share and after deducting the estimated underwriting discounts and
offering expenses payable by the Company. See "Use of Proceeds".
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- PRO FORMA RESULTS OF OPERATIONS" FOR A PRESENTATION OF THE
UNAUDITED PRO FORMA RESULTS OF OPERATIONS AS IF THE ACQUISITION OF PSC HAD
OCCURRED AS OF JANUARY 1, 1995. THE COMPANY BELIEVES THIS INFORMATION IS
IMPORTANT IN EVALUATING ITS FINANCIAL RESULTS OF OPERATIONS.
26
<PAGE>
<TABLE>
<CAPTION>
PRODIGY SERVICES COMPANY
----------------------------------------------------------
Period from
January 1, 1996 to
Year ended December 31, June 16,
-------------------------- ------------------
1993 1994 1995 1996
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Online service revenues................. $154.9 $179.6 $230.6 $ 98.2
Other................................... 40.3 31.4 12.8 8.9
------ ------ ------ ------
Total revenues.......................... 195.2 211.0 243.4 107.1
------ ------ ------ ------
Net loss................................ $(60.0) $(52.0) $(34.6) $(62.9)
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRODIGY SERVICES COMPANY
----------------------------
Year ended December 31,
----------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
(in millions)
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........ $(42.4) $(38.9) $(36.4)
Total assets..................... 83.4 80.1 84.7
Long-term debt................... 12.9 18.4 16.4
Partners' capital (deficit)...... .5 (4.3) 9.8
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Risk Factors",
"Selected Consolidated Financial Information and Other Data" and the
Consolidated Financial Statements and Notes thereto contained herein.
OVERVIEW
The Company is a leading national ISP. In October 1996, the Company launched
Prodigy Internet, an open standards-based Internet access service. Since the
autumn of 1997, the Company has focused on expanding the Prodigy Internet
subscriber base and introducing additional value-added services. The Company
has also made strategic decisions to outsource its network, discontinue its
development of custom content and use multiple vendors for outsourced customer
service functions. As a result of these initiatives, the Company has
substantially reduced its fixed operating costs and headcount.
In conjunction with the launch of Prodigy Internet in October 1996, the
Company began offering a plan allowing subscribers unlimited usage of Prodigy
Internet for a flat monthly fee without hourly usage charges. In December 1996,
the Company introduced a similar plan for Prodigy Classic. Since the
introduction of the Company's unlimited usage plans, the portion of revenues
generated from hourly usage charges has decreased substantially.
The results of operations of ISPs, including those of the Company, are
significantly affected by subscriber cancellations. Subscriber acquisition
expenses and the administrative expenses of enrolling and assisting new
subscribers are substantial, and in the past the Company typically offered free
service for one or two months to new subscribers. In many distribution
channels, the Company is replacing free trial programs with money-back
guarantees in order to attract enrollees who are less likely to terminate
service. The failure to attract and retain subscribers to the Company's
services, or an increase in the rate of subscriber cancellations, would have a
material adverse effect on the Company. See "Risk Factors -- Subscriber
Turnover". The Company historically has experienced better retention for
subscribers under prepaid term plans than subscribers under month-to-month
plans. Under prepaid term plans, subscribers choose to prepay for longer terms
at reduced monthly rates. The Company ceased offering prepaid term plans in
1995 but reinstated such term plans in January 1997.
The Company historically has experienced seasonality in its business, with
higher expenses during the last and first fiscal quarters, corresponding to the
Christmas and post-Christmas selling season, and lower timed usage revenues
during its second and third fiscal quarters resulting from reduced usage of its
services during the summer months. The Company believes that the seasonal
reductions in timed usage revenues historically experienced by the Company will
be mitigated by the movement from timed usage plans to unlimited usage plans as
well as growth in the Company's subscriber base, although the Company expects to
continue to have higher expenses during its first and fourth quarters. As a
result of the seasonality of its business, as well as other factors, the Company
experiences quarterly fluctuations in its operating results. See "Risk Factors
- -- Quarterly Fluctuations in Operating Results".
On June 17, 1996, the Company acquired PSC from IBM and Sears for an aggregate
purchase price of $78.1 million, consisting of a cash payment of $40.8 million,
the issuance of the Contingent Notes valued by an independent appraiser at $30.5
million and direct acquisition related expenses of $6.8 million. See "Corporate
History and Certain Transactions -- Acquisition of Prodigy Services Company".
The Prodigy Acquisition was accounted for as a purchase. Accordingly, the
assets purchased and liabilities assumed and related results of operations of
PSC are included in the consolidated financial statements of the Company from
the date of acquisition. The purchase price was allocated among tangible and
intangible
28
<PAGE>
assets acquired based on their respective fair market values. As part of this
process, the acquired technology was extensively evaluated, including the state
of the technology and needed developments, the inherent difficulties and
uncertainties in completing the development and thereby achieving technological
feasibility, and the risks related to the viability and potential changes to
target markets. Because the Internet technology acquired in the Prodigy
Acquisition was incomplete and substantial additional development effort by the
Company was required before a viable consumer product could be launched, the
Company recognized a charge for the purchase of incomplete technology in June
1996 in the amount of $46.1 million. See "-- Incomplete Technology" and Note 4
to the Company's Consolidated Financial Statements.
HISTORICAL RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company's total revenues have two components: Internet revenues,
consisting of subscription revenues and transaction fees from Prodigy Internet
and Prodigy Classic, and other revenues, consisting primarily of advertising
fees. The Company defines "billable" subscribers as subscribers who remain
enrolled beyond completion of the applicable trial or money-back guarantee
period.
Revenues from Prodigy Internet increased $25.4 million, or 282%, from $9.0
million in the six months ended June 30, 1997 to $34.4 million in the six months
ended June 30, 1998. The number of Prodigy Internet billable subscribers
increased from 160,000 at June 30, 1997 to 386,000 at June 30, 1998,
representing 23% and 61% of total billable subscribers at June 30, 1997 and June
30, 1998, respectively. Prodigy Internet subscribers accounted for 32% and 74%,
respectively, of total network usage during the six months ended June 30, 1997
and 1998, respectively. Revenues from Prodigy Classic decreased from $56.5
million in the six months ended June 30, 1997 to $28.8 million in the six months
ended June 30, 1998 as the number of Prodigy Classic billable subscribers
decreased from 548,000 at June 30, 1997 to 252,000 at June 30, 1998. See "Risk
Factors -- Migration from Prodigy Classic Service". Total billable subscribers
decreased by 70,000, or 10%, from 708,000 at June 30, 1997 to 638,000 at June
30, 1998. Timed usage revenues decreased $4.7 million, or 64%, from $7.3
million in the six months ended June 30, 1997 to $2.6 million in the six months
ended June 30, 1998. The decrease in Internet revenues attributable to
decreases in the total number of billable subscribers and in timed usage
revenues associated with Prodigy Classic was offset, in part, by an increase in
average revenue per billable subscriber primarily due to the higher-priced plans
for unlimited usage associated with Prodigy Internet. Other revenues increased
by $.1 million, or 3%, from $4.0 million in the six months ended June 30, 1997
to $4.1 million in the six months ended June 30, 1998. As a result of the
foregoing factors, total revenues decreased by $2.2 million, or 3%, from $69.5
million in the six months ended June 30, 1997 to $67.3 million in the six months
ended June 30, 1998.
Cost of revenues includes network and content expenses. Cost of revenues
decreased from $61.8 million in the six months ended June 30, 1997 to $52.1
million in the six months ended June 30, 1998, a decrease of $9.7 million, or
16%. This decrease was primarily attributable to reduced network rates incurred
by the Company in the six months ended June 30, 1998 due to its network
arrangements with Splitrock, which commenced in July 1997. The effect of the
reduction in network rates was offset, in part, by an increase in total hours of
usage resulting from the shift of a substantial majority of the subscriber base
from timed usage to unlimited usage plans. Content expense decreased as a
result of the renegotiation and/or termination of numerous content contracts
associated with Prodigy Classic and due to the Company's content outsourcing
agreement with Excite which substantially eliminated content expense associated
with Prodigy Internet beginning in April 1998. See "Business -- Principal
Outsourcing Arrangements".
Marketing expense includes the costs to acquire and retain subscribers,
advertising and other general sales and marketing costs. Marketing expense
decreased from $21.5 million in the six months ended June
29
<PAGE>
30, 1997 to $15.5 million in the six months ended June 30, 1998. The 1997 period
reflected spending related to the launch of Prodigy Internet in October 1996,
which continued through the post-Christmas selling season. In addition, in early
1998, the Company temporarily deferred certain of its marketing programs in
response to network performance issues encountered during the initial roll-out
of the new Splitrock network. The Company expects that its marketing expenses
will increase during the balance of 1998 and 1999. See "Use of Proceeds".
Product development expense includes research and development costs. Product
development expense decreased from $10.0 million in the six months ended June
30, 1997 to $6.3 million in the six months ended June 30, 1998. In the six
months ended June 30, 1997, product development activities were primarily
focused on the stabilization and enhancement of the Prodigy Internet platform
and on migration of Prodigy Classic content to the Prodigy Internet platform.
As a result of the completion of these activities in 1997, product development
activities and spending were subsequently reduced. In the six months ended June
30, 1998, product development activities centered on integration and
stabilization of the Splitrock network, transition to the co-branded
Prodigy/Excite content platform for Prodigy Internet and development of certain
commercial applications and value-added services.
General and administrative expense increased from $21.0 million in the six
months ended June 30, 1997 to $24.9 million in the six months ended June 30,
1998. The increase in general and administrative expense was attributable to
the Company's international operations offset, in part, by significantly lower
personnel costs resulting from a decrease in average headcount and lower
incentive compensation expense, combined with lower occupancy expense due to the
relocation to a new headquarters facility as of January 1, 1998. See "Business
- -- Facilities".
Interest expense, net, decreased by $.6 million, or 60%, from $1.0 million in
the six months ended June 30, 1997 to $.4 million in the six months ended June
30, 1998, due to higher cash balances and reduced levels of borrowing.
In the six months ended June 30, 1997, the Company recorded a loss of $2.3
million on an equity investment in a joint venture and a restructuring charge of
$4.7 million in connection with the sale of its network. See "-- Restructuring
Charges" and "-- Former International Operations".
As a result of the foregoing factors, the Company's net loss decreased from
$52.8 million in the six months ended June 30, 1997 to $31.9 million in the six
months ended June 30, 1998.
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Prior to the Prodigy Acquisition on June 17, 1996, the Company was a start-up
company engaged in the evaluation and development of cellular telephone systems
and Internet access and online services in Africa. As a result of the
significant changes that occurred in the Company's business and operations as a
result of the Prodigy Acquisition, the subsequent sale and wind-down of the
Company's former international operations and other changes in the Company's
business model since the Prodigy Acquisition, the historical financial
statements of the Company are not directly comparable. See "-- Pro Forma
Results of Operations".
Total revenues increased from $12.2 thousand in 1995 to $98.9 million in 1996
and to $134.2 million in 1997. Cost of revenue increased from $82.0 thousand in
1995 to $69.4 million in 1996 and to $98.8 million in 1997. Marketing expense
increased from zero in 1995 to $21.3 million in 1996 and to $60.5 million in
1997. Product development expense increased from zero in 1995 to $9.0 million
in 1996 and to $16.8 million in 1997. General and administrative expense
increased from $3.0 million in 1995 to $52.3 million in 1996 and to $61.1
million in 1997. In 1996, the Company recorded a charge of $46.1 million
relating to the purchase of incomplete technology acquired in the Prodigy
Acquisition, a $9.1 million write-down of its investment in Global Enterprise
Services, Inc. ("GES") to an estimated net realizable
30
<PAGE>
value of zero, restructuring and other special costs of $3.1 million, a loss of
$.5 million on an equity investment in a joint venture and interest expense, net
of $2.2 million. In 1997, the Company recorded a loss of $12.1 million on an
equity investment in a joint venture, restructuring and other special costs of
$9.9 million, a $2.4 million write-down of its investment in its African
Internet operations to the estimated net realizable value, a $.8 million loss on
the sale of its African cellular telephone operations and interest expense, net
of $1.4 million. See "-- Restructuring Charges", "-- Incomplete Technology" and
"--Dispositions of Former International Operations". As a result of the
foregoing factors, the Company's net loss increased from $3.1 million in 1995 to
$114.1 million in 1996 and to $129.3 million in 1997. The foregoing changes in
the Company's operating results resulted primarily from the Prodigy Acquisition
on June 17, 1996 and the inclusion of the operating results of PSC's business
for six and one-half months in 1996 and all of 1997.
PRO FORMA RESULTS OF OPERATIONS
IW was incorporated in May 1994 to evaluate and develop cellular telephone
systems in Africa. In June 1996, the Company was formed as a new holding
company to acquire PSC and to hold IW and the other communications interests of
IW. All outstanding common stock of IW was converted into Common Stock of the
Company on a one-for-one basis and the assets and liabilities of IW were carried
over to the Company at historical cost. On June 17, 1996, the Company
consummated the Prodigy Acquisition. The Prodigy Acquisition was accounted for
under the purchase method of accounting. Accordingly, the results of operations
of PSC since the date of acquisition are included in the Company's results of
operations. Subsequently, the Company determined to sell and wind-down its
international operations in Africa and China. See "-- Dispositions of Former
International Operations", "Corporate History and Certain Transactions -- Prior
Corporate History" and Notes 1, 4 and 5 to the Company's Consolidated Financial
Statements. Since the autumn of 1997, the Company has focused on expanding
Prodigy Internet's subscriber base and introducing additional value-added
services. The Company also made strategic decisions to outsource its network,
discontinue its development of custom content and use multiple vendors for
outsourced customer service functions. As a result of these initiatives, the
Company has substantially reduced its fixed operating costs and headcount.
As a result of the significant changes that occurred in the Company's business
and operations as a result of the Prodigy Acquisition, the subsequent sale and
wind-down of the Company's former international operations and other changes in
the Company's business model since the Prodigy Acquisition, the historical
financial statements of the Company are not directly comparable. The following
table presents the Company's pro forma results of operations for the years ended
December 31, 1995 and 1996 as if the Prodigy Acquisition had occurred on January
1, 1995. The aggregate purchase price of $78.1 million consisted of a cash
payment of $40.8 million, the issuance of the Contingent Notes valued at $30.5
million and acquisition related expenses of $6.8 million. Such purchase price
was allocated to the assets acquired and liabilities assumed based on their
respective fair market values as of the date of acquisition. A significant
portion of the purchase price was allocated to intangible assets, including
approximately $46.1 million to acquired incomplete technology which was
immediately expensed. See Note 4 to the Company's Consolidated Financial
Statements. Although such pro forma presentation is not required by generally
accepted accounting principals, the pro forma data is presented herein because
the Company believes this information presents the most meaningful basis for
comparing the Company's result of operations in view of the significant change
in its business resulting from the Prodigy Acquisition. The accompanying pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations that would have occurred if
the Prodigy Acquisition had been consummated as of January 1, 1995, nor is it
intended to indicate the Company's financial condition or results of operations
for any future date or period. The pro forma adjustments are described in the
Notes to the table below. No adjustments have been made to the pro forma data
for the subsequent sale and wind-down of the Company's former international
operations.
31
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
Pro Forma Pro Forma
(unaudited) (unaudited)
(in millions, except per share information)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Internet and on-line service revenues........ $230.6 $ 188.9 $ 128.3
Other........................................ 12.8 17.1 5.9
------------ ----------- ----------
Total revenues............................ 243.4 206.0 134.2
------------ ----------- ----------
Operating costs and expenses:
Costs of revenue (1)......................... 114.3 134.1 98.8
Marketing.................................... 67.4 64.8 60.5
Product development.......................... 22.6 20.3 16.8
General and administrative (1)(2)(3)......... 70.6 84.6 61.1
Acquired incomplete technology (4)........... -- -- --
Restructuring and other special costs........ -- 17.6 9.9
Write-down of assets held for sale........... -- -- 2.4
Loss on sale of cellular assets.............. -- -- .8
------------ ----------- ----------
Total operating costs and expenses........ 274.9 321.4 250.3
------------ ----------- ----------
Operating loss............... (31.5) (115.4) (116.1)
Loss on equity investment in joint venture... -- .5 12.1
Write-down (recovery) of equity investments.. -- 9.1 (.3)
Interest expense, net (5).................... 3.3 4.2 1.4
------------ ----------- ----------
Net loss..................... $(34.8) $(129.2) $(129.3)
============ =========== ==========
Net loss per common share:
Basic and diluted............ $(1.04) $ (3.12) $ (1.86)
============ =========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic and diluted............ 33.5 41.4 69.4
============ =========== ==========
</TABLE>
The following pro forma adjustments have been made:
(1) Reduced depreciation expense of $8.3 million and $4.2 million in 1995 and
1996, respectively, as a result of the fair valuation of the assets acquired
in the Prodigy Acquisition. Such depreciation expense reduction is
reflected in costs of revenue ($6.2 million and $3.1 million, respectively)
and general and administrative expenses ($2.1 million and $1.1 million,
respectively).
(2) Additional amortization expense of $3.0 million and $1.4 million in 1995 and
1996, respectively, on intangible assets acquired in the Prodigy Acquisition
amortized over the estimated life of 10 years. Such amortization expense is
reflected in general and administrative expenses.
(3) Reduced amortization expense of $2.0 million and $.9 in 1995 and 1996,
respectively, relating to unfavorable lease agreements recognized at the
time of the acquisition, over the lease term to reflect a full year's
credit. Such amortization expense reduction is reflected in general and
administrative expenses.
(4) The elimination of non-recurring acquired incomplete technology of $46.1
million in 1996.
(5) Increased interest expense of $4.4 million and $2.0 million in 1995 and
1996, respectively, on additional borrowings to finance the acquisition, at
an assumed interest rate of 8.75% per annum.
32
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1996
The Prodigy Internet service was launched in October 1996 but did not generate
any significant revenues during 1996. During 1997, Prodigy Internet grew from
7,000 billable subscribers at December 31, 1996 to 221,000 billable subscribers
at December 31, 1997, and generated revenues of $29.6 million. Total revenues
decreased by $71.8 million, or 35%, from $206.0 million in 1996 to $134.2
million in 1997, primarily due to a decrease in Prodigy Classic billable
subscribers from 807,000 at December 31, 1996 to 394,000 at December 31, 1997.
Prodigy Classic revenues declined from $188.8 million in 1996 to $98.7 million
in 1997, representing 92% and 74%, respectively, of total revenues. In
conjunction with the launch of Prodigy Internet in October 1996, there commenced
a shift in subscriber composition from timed usage plans to higher-priced
unlimited usage plans. As a result, timed usage revenues decreased from $40.2
million in 1996 to $12.0 million in 1997, a decrease of $28.2 million, or 70%.
Other revenues decreased from $17.1 million in 1996 to $5.9 million in 1997, a
decrease of $11.2 million, or 65%, primarily attributable to decreases in
subscribers and advertisers and reduced advertising display fees from Prodigy
Classic.
Cost of revenues decreased from $134.1 million in 1996 to $98.8 million in
1997, a decrease of $35.3 million, or 26%, primarily due to network rate
reductions resulting from the Company's network arrangements with Splitrock
which commenced in July 1997, lower subscriber levels, headcount reductions in
the content area, reductions in royalty-based content in 1997, the renegotiation
and/or termination of certain Prodigy Classic content contracts and the
elimination of certain proprietary Internet content early in 1997.
Marketing expense decreased from $64.8 million in 1996 to $60.5 million in
1997, a decrease of $4.3 million, or 7%. In 1996, marketing expense reflected,
in part, a special marketing program which the Company implemented during the
1995-1996 selling season and additional advertising campaigns instituted in late
1996 to support the launch of Prodigy Internet. Prodigy Internet launch
advertising continued into 1997.
Product development expense decreased from $20.3 million in 1996 to $16.8
million in 1997, a decrease of $3.5 million, or 17%. The Company's product
development efforts during 1996 were focused on the design and development of
Prodigy Internet, which was essentially completed by the end of 1996. During
1997, product development efforts primarily related to the stabilization and
enhancement of Prodigy Internet, which required fewer resources than in the
prior year, and integration and stabilization of the Splitrock network.
General and administrative expense decreased from $84.6 million in 1996 to
$61.1 million in 1997, a decrease of $23.5 million, or 28%. The decrease in
general and administrative expense was primarily due to lower personnel costs
resulting from decreased headcount and incentive compensation expense, a
reduction in occupancy expense and a cost containment program initiated in the
customer service area.
Interest expense, net decreased from $4.2 million in 1996 to $1.4 million in
1997, a decrease of $2.8 million, or 67%. This decrease resulted from reduced
levels of borrowing.
In 1996, the Company recorded a $9.1 million write-down of its investment in
GES to an estimated net realizable value of zero, restructuring and other
special costs of $17.6 million and a loss of $.5 million on an equity investment
in a joint venture. In 1997, the Company recorded a loss of $12.1 million on an
equity investment in a joint venture, restructuring and other special costs of
$9.9 million, a $2.4 million write-down of its investment in its African
Internet operations to the estimated net realizable value, a $.8 million loss on
the sale of its African cellular telephone operations and a recovery on equity
investment
33
<PAGE>
of $.3 million on the sale of its interest in GES. See "--Restructuring Charges"
and "-- Former International Operations".
As a result of the foregoing factors, the Company's net loss increased from
$129.2 million in 1996 to $129.3 million in 1997.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1995
Total revenues decreased from $243.4 million in 1995 to $206.0 million in
1996, a decrease of $37.4 million, or 15%. Internet and online service revenues
declined from $230.6 million in 1995 to $188.9 million in 1996, a decrease of
$41.7 million, or 18%, primarily due to a decrease in total billable subscribers
from 1,133,000 at December 31, 1995 to 814,000 at December 31, 1996. Timed
usage revenues decreased from $42.8 million in 1995 to $40.2 million in 1996, a
decrease of $2.6 million, or 6%. All Internet and online service revenues in
1995 and substantially all Internet and online service revenues in 1996 were
attributable to Prodigy Classic. Other revenues increased from $12.8 million in
1995 to $17.1 million in 1996, an increase of $4.3 million, or 34%, primarily
due to revenues from the Company's international operations.
Cost of revenues increased from $114.3 million in 1995 to $134.1 million in
1996, an increase of $19.8 million, or 17%, primarily due to increases in
personnel and content expense as well as increased costs of the Company's
international operations.
Marketing expense decreased from $67.4 million in 1995 to $64.8 million in
1996, a decrease of $2.6 million, or 4%. Marketing expense increased as a
percentage of revenues from 28% to 31%, primarily due to marketing campaigns in
support of the launch of Prodigy Internet in October 1996.
Product development expense decreased from $22.6 million in 1995 to $20.3
million in 1996, a decrease of $2.3 million, or 10%. In 1996, the Company
incurred product development costs for the design and development of the Prodigy
Internet platform, which were more than offset by the reduction in development
costs for Prodigy Classic.
General and administrative expense increased from $70.6 million in 1995 to
$84.6 million in 1996, an increase of $14.0 million, or 20%, primarily due to
costs incurred in connection with a new subscriber management system, increased
occupancy expense and increased costs of the Company's international operations.
Interest expense, net increased from $3.3 million in 1995 to $4.2 million in
1996, an increase of $.9 million, or 27%, primarily due to lower cash balances
and higher borrowings.
In 1996, the Company recorded a $9.1 million write-down of its investment in
GES to an estimated net realizable value of zero, restructuring and other
special costs of $17.6 million and a loss of $.5 million on an equity investment
in a joint venture. See "-- Restructuring Charges" and "-- Former International
Operations".
As a result of the foregoing factors, the Company's net loss increased from
$34.8 million in 1995 to $129.2 million in 1996, an increase of $94.4 million.
34
<PAGE>
RESTRUCTURING CHARGES
In response to changes in its business environment and to decrease cash
outflows and more efficiently manage its business, the Company has incurred
restructuring and other special costs. The table below presents restructuring
and other special costs incurred and/or expended by the Company from June 17,
1996 through June 30, 1998:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------ --------
1996 1997 1997 1998
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
RESTRUCTURING CHARGES:
BALANCE AT BEGINNING OF PERIOD: $10.7(1) $ 11.5 $11.5 $ 7.9
Network termination costs(2) -- 4.7 4.7 --
Reductions-in-force(3) .7 2.9 -- --
Content production(4) -- .6 -- --
Facility closing(5) -- 1.6 -- --
Headquarters lease termination(1) -- -- -- --
Idle leased space at former headquarters' location(6) 2.5 -- -- --
------- -------- ------- -------
Subtotal, period accruals 3.2 9.8 4.7 --
------- -------- ------- -------
RESTRUCTURING EXPENDITURES:
Network termination costs -- -- -- --
Reductions-in-force (1.6) (3.1) (1.8) (1.5)
Content production -- -- -- (.5)
Facility closing -- -- -- (.4)
Headquarters lease termination (.8) (7.8) -- --
Idle leased space at former headquarters' location -- (2.5) (1.3) --
------- -------- ------- -------
Subtotal, period expenditures (2.4) (13.4) (3.1) (2.4)
------- -------- ------- -------
ACCRUED RESTRUCTURING COSTS AT PERIOD END $11.5 $ 7.9 $13.1 $ 5.5
======= ======== ======= =======
</TABLE>
___________________________
(1) Opening balance represents the remaining balance of prior restructuring
charges recorded by PSC and assumed by the Company at the time of the
Prodigy Acquisition. Restructuring charges of $14.6 million were recorded
by PSC in 1996 prior to the time of the Prodigy Acquisition. These
restructuring charges included lease termination penalties and write-down of
leasehold improvements at PSC's former headquarters' location as well as
severance pay, early retirements and outplacement services in a reduction-
in-force which affected 120 employees.
(2) In connection with the sale of its network, the Company incurred liabilities
related primarily to early termination payments and other contractual
obligations for certain non-cancelable network related agreements.
35
<PAGE>
(3) The Company implemented restructuring plans in 1996 and 1997 intended to
reduce costs through a reduction-in-force. Approximately 120 employees and
80 employees throughout the Company were terminated, respectively, in 1996
and 1997.
(4) The Company decided to discontinue the production of its own content and as
a result recorded a charge of $.6 million to account for the employee
termination costs and the costs to settle content related contractual
obligations. Approximately 25 employees were terminated.
(5) The Company's offices in Massachusetts were closed and a charge of $1.6
million was recorded to account for the costs of employee terminations and
lease cancellation. The terminated employees were involved with the
Company's international operations and/or former headquarters management.
Approximately 20 employees were terminated.
(6) Beginning in late 1996, the Company vacated 29% of its leased space at its
former headquarters location. The cost of the lease attributed to the idle
leased facility amounted to $2.5 million. The Company terminated its lease
at this location and moved to a new facility effective January 1, 1998.
INCOMPLETE TECHNOLOGY
The Prodigy Acquisition was accounted for as a purchase. Accordingly, the
purchase price was allocated among tangible and intangible assets based on their
respective fair market values. The fair value of intangible assets was
determined using a risk adjusted discounted cash flow approach. Specifically,
the Internet technology acquired was evaluated through extensive interviews and
analysis of data concerning the state of the technology and required development
work. The evaluation of the underlying technology acquired considered the
inherent difficulties and uncertainties in completing the development and
thereby achieving technological feasibility, the risks related to the viability
and potential changes to target markets. The technology had no alternative
future use to the Company, inasmuch as the Company could not commercialize the
technology in its existing form. The Company also had no other product, line of
business or research and development in which the technology could be utilized.
Therefore, the Company recognized a $46.1 million charge in 1996 for the
purchase of incomplete technology.
The purchased technology was incomplete because the majority of the coding,
integration and testing of the product was incomplete. At the date of the
Prodigy Acquisition (June 17, 1996), there were over 50 components that needed
further development and integration before the Prodigy Internet service could
reach technological feasibility. These components included applications for
parental access control, browsing, searching, e-mail, the message board, menus,
the navigational bar, the tool bar, code update mechanisms, authentication,
registration, service access control and subscriber billing. The ability of the
Company's Prodigy Internet development team to integrate these components into
the Prodigy Internet platform was a crucial factor in reaching technological
feasibility, and the ability to complete this integration had not been
established as of the acquisition date. The Company has now successfully
completed the further development necessary to complete and integrate the
acquired technology.
FORMER INTERNATIONAL OPERATIONS
The historical and pro forma results discussed above include the operating
results of the Company's Africa and China operations, which began in late-1995
and mid-1996, respectively. The revenue and net loss from the Company's Africa
and China operations were $7.0 thousand and $89.0 thousand, respectively, for
the year ended December 31, 1995, $1.0 million and $2.7 million, respectively,
for the year ended December 31, 1996, $3.2 million and $8.5 million,
respectively, for the year ended December 31, 1997, $2.8 million and $4.0
million, respectively, for the six months ended June 30, 1997 and $2.8 million
and $1.7 million, respectively, for six months ended June 30, 1998. The Company
sold its African cellular telephone operations in January 1997, determined to
terminate its Chinese operations in December 1997 and agreed to sell its African
Internet operations in September 1998. In 1997, the Company recorded a $.8
million loss on the sale of its African cellular telephone operations and a $2.4
million write-down of its
36
<PAGE>
investment in its African Internet operations to the estimated net realizable
value. See "Corporate History and Certain Transactions -- Prior Corporate
History".
LIQUIDITY AND CAPITAL RESOURCES
Since formation, the Company has relied on private sales of equity securities
(totaling $277.3 million through August 31, 1998) and borrowings to fund its
operations. See "Corporate History and Certain Transactions -- Prior Equity
Financings." The Company has incurred significant losses since inception and,
at June 30, 1998, had an accumulated deficit of $279.3 million and a
stockholders' deficit of $18.3 million. For the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively, the
Company incurred negative cash flow from operations of $2.4 million, $35.3
million, $114.0 million, $56.4 million and $34.8 million. Prior to its
acquisition by the Company, PSC sustained losses and negative cash flow from
operations which required continued funding by PSC's former owners, IBM and
Sears, aggregating $1.3 billion as of June 16, 1996 (the day before the Prodigy
Acquisition). See "Risk Factors -- History of Losses".
In August 1998, Carso Global Telecom agreed to provide the Company with a
$35.6 million committed revolving line of credit entitling the Company to
borrow, repay and reborrow amounts in minimum increments of $1.0 million prior
to maturity on December 31, 1999. Advances are due 90 days after borrowing, but
the Company is permitted to roll over advances into new advances at its
election. Advances are unsecured and bear interest at the LIBOR rate plus
between one and five percentage points (as negotiated on a case-by-case basis).
As of August 31, 1998, no amounts were outstanding under the revolving line of
credit. Carso Global Telecom is the Company's principal stockholder. See
"Principal Stockholders".
As a result of the Company's outsourcing arrangements, the Company has
significantly reduced the level of capital expenditures needed in its
operations. The Company's July 1997 network agreement with Splitrock eliminated
the need for the Company to maintain and upgrade its own network. The Company's
portal content agreement with Excite eliminated the need, beginning in April
1998, for internal development of content and Prodigy Internet customization and
other programming projects. See "Business -- Principal Outsourcing
Arrangements". The Company's capital expenditures for the six months ended June
30, 1998 were $.3 million, primarily for the purchase of data processing
equipment, compared to $1.4 million, $8.8 million and $8.6 million,
respectively, for the years ended December 31, 1995, 1996 and 1997. The Company
currently anticipates that its capital expenditures for the period July 1, 1998
through December 31, 1999 will be approximately $14.0 million, principally for
the purchase of new equipment for Prodigy Internet.
At August 31, 1998, the Company had cash of $35.0 million, of which $4.1
million secured a letter of credit and was thus unavailable. The Company is
currently experiencing substantial negative cash flow each month and expects to
continue to experience negative cash flow through at least the end of 1999. The
Company's future financing requirements will depend on a number of factors,
including the Company's operating performance and increases in operating
expenses associated with growth in the Company's business. Based on its current
operating plan, the Company believes that the net proceeds from the Offering,
together with its existing cash and available financing under its revolving
credit facility with Carso Global Telecom, will be sufficient to meet its
anticipated cash requirements for at least the next twelve months. The Company
has made no arrangements to obtain additional financing, other than pursuant to
the Carso Global Telecom credit facility, and there can be no assurance that
adequate additional financing on acceptable terms will be available when needed,
if at all. The unavailability of sufficient financing when needed would have a
material adverse effect on the Company. See "Risk Factors -- Need for
Additional Financing".
37
<PAGE>
In August 1998, Telmex purchased 24,500,000 shares of Common Stock from the
Company for gross proceeds of $49.0 million, and in July 1998 Carso Global
Telecom purchased 5,500,000 shares of Common Stock from the Company for gross
proceeds of $11.0 million. The Company used a portion of the proceeds to repay
amounts owed to Banco Inbursa and Bank of America in the aggregate amount of
$32.1 million. See "Corporate History and Certain Transactions" and "Principal
Stockholders".
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
normal business activities. The Company maintains various internal computer
systems and equipment and contracts with third-party vendors for the provision
of computerized customer billing, network operation, Prodigy Internet service
content and certain other information technology and other services.
The Company is currently incurring costs to resolve the potential impact of
the year 2000 on the processing of date-sensitive information by the Company's
internal computer systems and equipment and the computer systems and equipment
of the third-party vendors on which the Company's business relies. The Company
has established a Year 2000 project office staffed by Company personnel and
assisted by a consulting firm.
The Company has completed an inventory of substantially all of its internal
systems and programs related to both the delivery of the Prodigy Internet
service and the daily operations of the business. Based on its preliminary
analysis, the Company estimates that it will spend approximately $3.5 million
through the end of 1999 to remediate potential Year 2000 problems with its
internal systems.
The Company is developing contingency plans in the event that any critical
service component or business process fails due to a Year 2000 problem. The
Company expects to complete contingency planning by mid-1999. With respect to
critical third-party vendor systems, Splitrock has publicly reported that its
network services will be Year 2000 compliant, Excite has publicly reported that
there are no significant Year 2000 issues within its systems or services, and
Prodigy's billing provider has committed to making its billing system Year 2000
compliant. There can be no assurance that the Company will be able to address,
in a timely fashion, all potential Year 2000 problems, or that the systems of
the third-party vendors upon which the Company's business relies (and the
maintenance and operation of which are not within the control of the Company)
will be Year 2000 compliant or will become Year 2000 compliant in a timely
manner. Any Year 2000 problems could impact the provision of products or
services to the Company's customers and could subject the Company to the risk of
litigation, lost revenues and loss of current or future customers.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), effective for years beginning after December 15, 1997. SFAS 131
requires that a company report financial and descriptive information about its
reportable operating segments pursuant to criteria that differ from current
accounting practice. Operating segments, as defined, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The financial information to
be reported includes segment profit or loss, certain revenue and expense items
and segment assets and reconciliations to corresponding amounts in the general
purpose financial statements. SFAS 131 also requires revenues from
38
<PAGE>
products or services, countries where the company has operations or assets and
major customers to be reported. The Company does not believe implementation of
SFAS 131 will have a material impact on its consolidated financial statements.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position No. 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance on
applying generally accepted accounting principles in addressing whether and
under what condition the costs of internal-use software should be capitalized.
SOP 98-1 is effective for transactions entered into in fiscal years beginning
after December 15, 1998, but earlier adoption is encouraged. The Company
adopted the guidelines of SOP 98-1 as of January 1, 1998. Adoption of SOP 98-1
did not have a material impact on the Company's consolidated financial
statements.
In April 1998, the AcSEC issued Statement of Position No. 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"), effective for fiscal years
beginning after December 15, 1998. SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. SOP 98-5 requires that
costs of start-up activities and organization costs be expensed as incurred.
Initial application of SOP 98-5 should be reported as the cumulative effect of a
change in accounting principles, as described in Accounting Principles Board
(APB) Opinion No. 20, "Accounting Changes". When adopting SOP 98-5, entities
are not required to report the pro forma effects of retroactive application.
The Company does not believe implementation of SOP 98-5 will have a material
impact on its consolidated financial statements.
39
<PAGE>
BUSINESS
Prodigy is a leading nationwide ISP that provides fast and reliable Internet
access and related value-added services. Prodigy has nationwide brand
recognition and customer acquisition channels not available to regional and
local ISPs, and utilizes a nationwide network covering approximately 600 cities
in all 50 states allowing approximately 83% of the United States population to
access Prodigy's services with a local telephone call. Combining these
strengths with Prodigy's scalable technology has enabled the Prodigy Internet
service to achieve one of the fastest subscriber growth rates among U.S. ISPs,
with the number of billable subscribers increasing from 221,000 at December 31,
1997 to 386,000 at June 30, 1998. Prodigy Internet enables the Internet to be
used as a productivity tool by allowing subscribers to obtain and communicate
desired information quickly and efficiently in an easy and personalized manner.
Prodigy Internet users receive fast and reliable access to the Internet,
Prodigy-branded content powered by Excite and other Prodigy member services.
Prodigy is in the process of expanding its Web hosting and electronic commerce
activities for business customers, and believes that its extensive experience in
operating a large data center with electronic commerce applications positions it
well for growth in these areas. Prodigy is also in the process of evaluating
and introducing other consumer value-added services, such as the co-branded
marketing of paging, long-distance and cellular telephone services, Internet-
based telephony and fax services and online bill presentment.
Prodigy has been an online pioneer since its inception in 1984. Prodigy's
original online service, now called Prodigy Classic, was launched as the world's
first consumer-focused online service in 1988 and achieved national distribution
in 1990. Prodigy Classic featured custom content, e-mail and chat capabilities
and was based on proprietary technologies. In October 1996, the Company
launched Prodigy Internet, an open standards-based Internet access service.
Since the autumn of 1997, the Company has focused on expanding Prodigy
Internet's subscriber base and introducing additional value-added services. The
Company has also made strategic decisions to outsource its network, discontinue
its development of custom content and use multiple vendors for outsourced
customer service functions. As a result of these initiatives, the Company has
substantially reduced its fixed operating costs and headcount and now has a
business and operating model that it believes can accommodate sustained
subscriber growth on a cost-effective basis without significant capital
expenditures.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet is a collection of computer networks that links millions of
public and private computers to form the largest computer network in the world.
It has become an important global medium enabling millions of people to obtain
and share information and conduct business electronically, and a critical tool
for information and communications for many users. The Internet has grown
rapidly in recent years both in terms of the number of Web users and the number
of Web sites. IDC estimates that at the end of 1997 there were over 38 million
Web users in the United States and over 68 million worldwide, and projects that
by the end of 2002 the number of Web users will increase to over 135 million in
the United States and over 319 million worldwide. The growth in the number of
Web users and the number of Web sites is being driven by a number of factors,
including the large and growing installed base of personal computers, advances
in the performance and speed of personal computers and modems, improvements in
network infrastructure, easier access to the Internet and the increasing
importance of the Internet as a communications medium, an information resource
and a sales and distribution channel.
For many businesses, the Internet has created a new communications and sales
channel enabling large numbers of geographically dispersed organizations and
consumers to be reached quickly and cost-effectively. IDC estimates that the
number of consumers buying goods and services on the Internet will grow from
17.6 million in 1997 to 128.4 million in 2002, and that the total value of goods
and services
40
<PAGE>
purchased over the Internet will increase from approximately $12 billion in 1997
to approximately $426 billion by 2002.
EVOLUTION OF THE INTERNET SERVICES MARKET
Today, the Internet services market consists primarily of Internet access.
Access services include dial-up access for individuals and small businesses and
high-speed dedicated access primarily for larger organizations. Forrester
projects that revenues from Internet access services in the United States will
grow from $5.8 billion in 1997 to $38.1 billion in 2002. The rapid development
and growth of the Internet has resulted in a highly fragmented industry,
consisting of more than 4,000 ISPs in the United States, most of which operate
as small, local businesses. The Internet services industry is expected to
undergo substantial consolidation, especially among mid-sized ISPs, over the
next few years. ISPs vary widely in geographic coverage, customer focus and the
nature and quality of services provided to subscribers. Relatively few ISPs
offer nationwide coverage, have a brand name with nationwide recognition or have
the ability to grow significantly without additional investment in
infrastructure. ISPs may concentrate on specific types of customers that differ
from the target markets of other ISPs. Services offered by ISPs can range from
simple dial-up access to highly organized, personalized access coupled with
value-added services. The Company believes that consumers are generally focused
on speed and reliability of access, ease of use, customer service and price as
they evaluate an ISP. In addition to speed and reliability of access, the
Company believes many business customers want all their Internet-based
requirements, such as access, Web hosting and electronic commerce applications,
met by a single provider.
Internet operations, including Web hosting and electronic commerce, are
increasingly becoming mission-critical to an enterprise's commercial and
communications operations. However, many businesses lack the resources and
expertise to develop, maintain and enhance, on a cost-effective basis, the
facilities and network systems necessary for successful Internet operations. As
a result, businesses increasingly seek outsourcing arrangements to enhance Web
site reliability and performance, provide continuous operation of their Internet
solutions and reduce related operating expenses. By outsourcing these services,
companies can focus on their core competencies rather than utilizing their
resources to support Internet operations. Forrester projects that Internet
hosting revenues will increase from approximately $400 million in 1997 to $10.5
billion in 2002.
As a result, there is increasing demand for ISPs to offer "turnkey"
electronic commerce services. An increasing number of ISPs are beginning to
supplement their basic Internet access services with a variety of commercial
services that facilitate electronic commerce, such as Web hosting, bill
presentment, co-location and other value-added services. Such services expand
an ISP's potential revenue streams from basic monthly access fees to other fees
such as set-up and maintenance charges. In addition to services that enable
electronic commerce, a few larger and more sophisticated ISPs are beginning to
market other value-added services, such as paging, long-distance and cellular
telephone services, to both consumers and business customers nationwide.
THE PRODIGY SOLUTION
The Company currently provides fast and reliable Internet access and certain
value-added services. The Company intends to meet the rapidly changing needs of
its customers by offering new products and additional value-added services as
demand arises. The Company believes the following competitive strengths will
position Prodigy to meet this goal:
NATIONWIDE BRAND NAME RECOGNITION. Since the introduction of its original
service in 1988, Prodigy has established substantial nationwide brand
recognition that the Company believes offers a significant competitive advantage
in attracting new subscribers to its services. The Company uses a variety of
advertising, promotional and distribution channels to leverage the equity of its
brand name, one of the
41
<PAGE>
oldest and best-known in the Internet industry. The Company launched the Prodigy
Internet service in October 1996 as a productivity tool dedicated to the
Internet and designed to make a user's experience simpler and more rewarding.
The Company believes the strength of the Prodigy brand has enhanced the market
positioning of Prodigy Internet and facilitated the rapid growth in the number
of Prodigy Internet subscribers.
NATIONWIDE CUSTOMER ACQUISITION CHANNELS. The Company has in place a variety
of nationwide customer acquisition channels, including: bundling with PCs
shipped by leading PC manufacturers; the Microsoft relationship described below;
Web-based marketing; retail channels; direct mail and telemarketing; and
migration of subscribers from Prodigy Classic to Prodigy Internet. Many of
Prodigy's customer acquisition channels are not available to regional and local
ISPs who lack the required nationwide presence. The Prodigy Internet software
is pre-loaded on the hard drives of selected PC models shipped by many leading
PC manufacturers and is included in the online services folder of every copy of
the Windows 98 and Windows 95 (OSR 2.5 release) operating systems shipped by
Microsoft for sale in retail channels or for loading on new PCs. See "--
Customer Acquisition and Marketing".
SCALABLE BUSINESS MODEL. Over the past 12 months, Prodigy has created a
business and operating model that it believes can accommodate sustained
subscriber growth on a cost-effective basis without significant capital
expenditures. Prodigy has outsourced the major capital and labor intensive
functions to organizations that can provide scalable and dependable network
coverage, customer service and organized content. Prodigy's outsourcing
arrangements enable it to rely on the resources of other organizations while
drawing on its own past experience to manage these services. As a result, the
principal costs of servicing new subscribers, network usage and telephone
customer service, are variable and generally increase only as the subscriber
base increases. In addition, Prodigy's e-mail and customer authentication
systems have been developed in-house to support a large number of customers, and
Prodigy's existing data hosting facilities have the capacity to support millions
of additional subscribers. See "Business".
FAST AND RELIABLE SERVICE. The Prodigy Internet service offers fast and
reliable Internet connections. Prodigy Internet subscribers have direct Internet
access at speeds of up to 56 kbps (kilobits per second). Inverse Network
Technology Inc. ("Inverse") is an independent Internet testing group that
measures and reports eight parameters of ISP network performance. Since
completion of the network used by the Company in May 1998, Inverse has given
Prodigy Internet ratings of A+ or A for 24-hour call failure rate for each of
the months of May, June, July and August 1998, which ratings in each case
exceeded or equalled the comparable overall industry rating given by Inverse
based on 13 major providers of Internet access services. The Company believes
call failure rate is the most important network measure in terms of customer
satisfaction. Overall, Prodigy Internet exceeded or equalled the comparable
industry rating given by Inverse in at least seven of the eight parameters for
each of the months of May, June, July and August 1998. For a fuller discussion
of network performance and the Inverse reports, see "-- Network and Related
Infrastructure -- Reliability and Availability".
NATIONWIDE NETWORK COVERAGE. The network used to offer the Prodigy Internet
service covers approximately 600 cities in all 50 states. The network is able
to provide dial-up access, with a local telephone call, to approximately 83% of
the households in the United States. Prodigy also offers network access via an
800 telephone number for $.10 per minute without an additional enrollment
charge. See "-- Network and Related Infrastructure".
SUPERIOR CUSTOMER EXPERIENCE. In addition to offering an easy-to-use
interface and extensive personalization, the Company believes Prodigy Internet
offers a productive and rewarding customer experience. The Company's customer
services include toll-free telephone support, various online support options and
an online "members helping members" program. The Company distributes its
customer service calls over multiple outsourcing partners to reduce call waiting
times. The Company has developed
42
<PAGE>
proprietary filters to limit unsolicited commercial e-mail, or "spam", sent by
or received by subscribers. The Company accepts banner advertisements and
sponsorships but limits pop-up advertisements and intercept screens so that the
revenue opportunity from advertising is balanced against an enhanced customer
experience. The Company also offers the Prodigy Value Center, which rewards
subscribers for their loyalty. See "--Products and Services".
BUSINESS STRATEGY
Prodigy's objectives are to strengthen its position as a leading nationwide
ISP and to expand the range of services it offers and markets it serves. See
"Risk Factors -- Risks of New Services and Markets; Failure to Implement
Business Strategy". Key elements to the Company's business strategy include:
LEVERAGE STRONG BRAND NAME. The Company intends to increase its brand equity
by promoting the recognition and positive perceptions of the Prodigy brand,
partly through increased marketing and advertising activities. See "Use of
Proceeds". The Company is leveraging the Prodigy brand name to encourage
Prodigy Classic subscribers to migrate to Prodigy Internet, expand its other
customer acquisition activities, offer new services and enter new markets.
INTRODUCE NEW SERVICES. The Company is seeking to expand its Web hosting
business and introduce additional value-added services. The Company's strategy
is to introduce value-added services for business customers that will also be
attractive to consumers. For example, in September 1998 the Company launched
co-branded paging services in partnership with SkyTel Communications, Inc.
("SkyTel"). The Company is also pursuing a variety of other value-added
services, such as the co-branded marketing of long-distance and cellular
telephone services, Internet-based telephony and fax services and online bill
presentment. The Company is enhancing its data mining capabilities to enable
targeted sales and marketing of value-added services to existing subscribers.
In addition, the Company plans to expand its electronic commerce activities and
introduce broadband services. Prodigy already provides the fundamental elements
of electronic commerce, and Prodigy's strategy is to provide turnkey solutions
for electronic commerce. Prodigy's broadband strategy is designed to provide
business customers with a suite of Internet access and value-added services.
See "-- Products and Services".
ENTER NEW MARKETS. The Company intends to leverage its brand recognition to
expand beyond its existing consumer market to include small and medium sized
businesses. The first services offered in this area will be targeted to small-
office/home-office ("SOHO") customers and will include dial-up Internet access,
Web hosting, communications provisioning and related services. See "Business --
Business Services". The Company also plans to market Internet services to
Spanish-speaking and Hispanic customers in the United States in conjunction with
Telmex. Telmex, which recently made a significant equity investment in the
Company, is the leading provider of local and long-distance telephone services
in Mexico and the largest ISP in Mexico. See "Principal Stockholders". The
Company is also seeking a partner with whom to offer a Spanish language portal
to the Internet, which the Company believes will be attractive to Spanish-
speaking and Hispanic Internet users. See "-- Products and Services -- Spanish-
Speaking and Hispanic Market".
EVALUATE ACQUISITION OPPORTUNITIES. The Company evaluates acquisition
opportunities on an ongoing basis and, from time to time, is engaged in
discussions with respect to possible acquisitions or other business
combinations. The Company may seek strategic acquisitions that can complement
the Company's current or planned business activities, particularly the expansion
of value-added services such as Web hosting. The Internet services industry is
expected to undergo substantial consolidation over the next few years, and the
Company may also seek to acquire other ISPs as an additional means of customer
acquisition or entry into new markets.
43
<PAGE>
PRODUCTS AND SERVICES
PRODIGY INTERNET
Prodigy Internet is an open standards-based Internet access service. The
Prodigy Internet service combines the depth and breadth of the Internet with the
ease of use and organization of a traditional online service. Prodigy Internet
users receive fast and reliable access to the Internet, Prodigy-branded content
powered by Excite and other Prodigy member services. See "-- Principal
Outsourcing Arrangements -- Excite".
As of June 30, 1998, there were 386,000 billable subscribers to the Prodigy
Internet service. The Company includes as Prodigy Internet subscribers all
subscribers who are enrolled in a Prodigy Internet/Prodigy Classic combination
plan (111,000 at June 30, 1998). See "Risk Factors -- Migration from Prodigy
Classic Service".
The Prodigy Internet service provides subscribers with direct, high-speed
Internet access, an electronic mailbox enabling subscribers to send and receive
an unlimited number of text, graphics and multimedia messages, and disk space on
Prodigy's servers to host a personal Web page. Prodigy Internet also offers:
(i) Prodigy-branded Web content, as selected, organized and edited by Excite
into a series of 13 "channels" covering topics such as Autos, Business &
Investing, Travel and Shopping; (ii) a personalized home page for each
subscriber which includes personalized news services, stock portfolios, weather,
local TV listings and sports scores; (iii) customer service and online member
support, including help files, tutorials and other online educational tools;
(iv) content generated by community members using communication tools such as
chat, message newsgroups and Web pages; and (v) access to online transactions on
the Web.
The Prodigy Internet service is compatible with Internet standards and
protocols. Standardization of both Prodigy Internet's content and network
permits use of industry-standard client/server software. Unlike some online
services that use proprietary protocols, Prodigy Internet merges seamlessly with
Web content and can be regularly updated to incorporate advances in Internet
technologies, such as new browsers, RealAudio and security devices for
electronic commerce. Prodigy Internet is compatible with Microsoft Internet
Explorer and Netscape Navigator on the Windows 98, Windows 95 and Windows 3.1
operating systems and on Macintosh computers. Microsoft Internet Explorer is
the primary browser shipped on disks that contain the Prodigy Internet software.
The price plans for the Prodigy Internet service vary among acquisition
channels and target market segments and are subject to change. Prodigy
Internet's principal price plans currently are (i) $19.95 per month for
unlimited usage with a 30-day money back guarantee, (ii) a discounted prepaid
annual plan of $189 for one year of unlimited usage (equivalent to $15.75 per
month), (iii) $9.95 per month for three months of unlimited usage, then $19.95
per month thereafter, and (iv) a free trial (for 30 to 60 days) with unlimited
usage and $19.95 per month thereafter. In many distribution channels, Prodigy
is replacing free trial programs with money-back guarantees in order to attract
enrollees who are less likely to terminate service.
PRODIGY CLASSIC
The Prodigy Classic service, launched in 1988 as the world's first consumer-
focused online service, is based on a proprietary architecture and technologies.
Prodigy Classic offers most basic Internet capabilities, including e-mail
exchange, newsgroup support and Web browsing, as well as proprietary content
developed by or with third-party content providers such as Dow Jones and
Associated Press. Prodigy Classic's implementations of these Internet functions
predate current Internet standards and are not readily upgradable. Prodigy
Classic is no longer marketed actively, although new enrollments
44
<PAGE>
continue to occur as a result of residual marketing efforts. The Company
encourages migration with targeted pricing offers, special hardware upgrade
promotions and the introduction of features and functions that have contributed
to the retention of Prodigy Classic subscribers. The Company anticipates that
revenues from Prodigy Classic will continue to decline over the next 12 to 15
months as the Company continues to focus on Internet-based products and
services. See "--Customer Acquisition and Marketing -- Migration from Prodigy
Classic". As of June 30, 1998, there were 252,000 billable subscribers to the
Prodigy Classic service.
Prodigy Classic's principal price plans currently are $19.95 per month for
unlimited usage or $9.95 per month for five hours of usage with additional time
billed at $2.95 per hour. In order to encourage existing Prodigy Classic
subscribers to trial and convert to the Prodigy Internet service, Prodigy also
offers a plan that provides unlimited usage of both Prodigy Classic and Prodigy
Internet for a monthly fee of $19.95 or under a discounted prepaid annual plan
of $189 for one year of unlimited usage.
CONSUMER VALUE-ADDED SERVICES
The Prodigy Shopping Mall currently provides links to over 270 Web-based
stores and retailers, including Amazon.com, JCPenney, PC Flowers and Gifts,
Godiva Chocolate, CD Now, FAO Schwartz and Omaha Steaks. In September 1998, the
Company launched co-branded paging services in partnership with SkyTel. Over
the next six to nine months, the Company plans to roll out additional consumer
value-added services, such as the co-branded marketing of long-distance and
cellular telephone services, Internet-based faxing, online billing services, the
online procurement of additional goods and services and premium services such as
multiple mailboxes. To enable targeted sales and marketing of value-added
services to existing subscribers, the Company is enhancing its data mining
capabilities. There can be no assurance Prodigy will be successful in offering
additional consumer value-added services. See "Risk Factors -- Risks of New
Services and Markets; Failure to Implement Business Strategy".
BUSINESS SERVICES
Prodigy has formed a business services division to develop and market
Internet-based services to commercial and business entities starting in late
1998. These services are planned to include Internet access, basic and enhanced
hosting services and broadband services. The Company also plans to extend its
Web hosting activities to include hosting of intranets and extranets for
businesses and electronic commerce sites. Prodigy initially plans to target its
business services to the SOHO market in specific regions of the United States.
Prodigy does not currently provide any business services, other than Web hosting
to a limited number of customers, and there can be no assurance it will be able
to do so successfully. See "Risk Factors -- Risks of New Services and Markets;
Failure to Implement Business Strategy".
Prodigy was a pioneer in electronic commerce through its establishment of
standards and creation of applications that facilitated online shopping and
transacting, such as online banking and securities trading. Prodigy currently
has the capability to provide the fundamental elements of electronic commerce --
Web hosting, hosting of intranets/extranets and high-speed dial access.
Prodigy's strategy is to provide turnkey solutions for electronic commerce.
Applications that Prodigy plans to roll out during 1999 include electronic
"shopping carts", order processing and tracking, online bill presentation and
payment processing, co-location hosting and, in conjunction with partners,
consulting and integration services for complex and large electronic commerce
sites.
Prodigy's broadband strategy is designed to provide business customers with a
suite of Internet access and value-added services in conjunction with selected
technology and marketing partners. The Company plans to introduce fractional
T1, T1, DS-3 frame relay and ATM (Asynchronous Transfer Mode) services beginning
in the fourth quarter of 1998 and xDSL (Digital Subscriber Line) services
commencing
45
<PAGE>
in the first quarter of 1999. Commencing in 1999, Prodigy also plans to market
VPN (Virtual Private Networks) capability, Internet-based voice and fax services
and real-time EDI (Electronic Data Interface). Splitrock does not currently
support the broadband applications the Company plans to offer. The Company is in
discussions with potential broadband partners, including Splitrock, to support
various broadband applications. There can be no assurance the Company will reach
agreement with Splitrock or any other party, or that Prodigy will be successful
in introducing broadband services. See "-- Network and Related Infrastructure".
SPANISH-SPEAKING AND HISPANIC MARKET
Prodigy plans to market Internet services to Spanish-speaking and Hispanic
customers in the United States utilizing Telmex's marketing experience.
According to United States census data, there are approximately 17 million
persons in the United States age 5 or older who speak Spanish at home, and a
total of approximately 28 million U.S. residents are identified as Hispanic.
Prodigy believes this market is not currently being targeted by any other
nationwide ISP. In addition, the Company is seeking a partner with whom to
offer a Spanish language portal to the Internet. Although the Company has not
yet identified or reached agreement with a partner, the Company believes that a
Spanish language portal, once offered, will be attractive to Spanish-speaking
and Hispanic Internet users.
Prodigy and Telmex are also in discussions for the introduction of Prodigy
Internet in Mexico. However, Prodigy and Telmex have not entered into an
agreement on this topic, and a number of issues must be resolved before Prodigy
Internet can be offered in Mexico, including marketing matters, the possible
migration of Telmex's existing Internet subscribers to Prodigy Internet,
technical issues relating to the interconnection of Telmex's network with the
network used for Prodigy Internet in the United States, and financial
arrangements. There can be no assurance that Prodigy Internet will be offered
in Mexico.
Telmex is the leading provider of local and long-distance telephone services
in Mexico and is the principal full-service telecommunications provider in
Mexico. With approximately 85,000 subscribers, Telmex is also the largest ISP
in Mexico. Telmex owns the nationwide network of local telephone lines and the
principal public long-distance telephone transmission facilities in Mexico, and
has built a nationwide data transmission network. Based on total assets at
December 31, 1997, Telmex was the second-largest company in Mexico and the
largest company listed on the Mexican Stock Exchange. Telmex was the state-owned
monopoly telephone company in Mexico until 1990, when it was privatized and sold
to an investor group led by Grupo Carso, Southwestern Bell Corporation
(currently known as SBC Communications Inc.) and France Telecom, the French
state-owned telecommunications agency. Telmex is currently controlled by Carso
Global Telecom, the Company's principal stockholder. Upon completion of the
Offering, Telmex will own % of the Company's outstanding Common Stock.
See "Principal Stockholders".
CUSTOMER ACQUISITION AND MARKETING
Prodigy utilizes a variety of customer acquisition channels and focuses on
the lowest-cost and most efficient channels, such as PC bundling. The Company
believes that the strong brand recognition of the Prodigy name among consumers
and the nationwide reach of the network utilized by the Company provide the
Company with access to customer acquisition channels not available to local and
regional ISPs.
The Prodigy Internet service is marketed through a variety of media vehicles,
including television and radio advertising. See "Use of Proceeds". Prodigy
Internet's target audiences are: (i) purchasers of new desktop consumer PCs,
(ii) existing subscribers to online services who may be interested in moving to
an ISP and (iii) existing ISP subscribers who are dissatisfied with their
current service or attracted to
46
<PAGE>
the performance and features of Prodigy Internet. The Company believes that the
first target segment listed gives Prodigy effective access to both first-time
Internet users, who may be attracted by Prodigy Internet's ease-of-use, customer
service and online assistance, and existing Internet access subscribers who, in
conjunction with the purchase of a new PC, may be willing to switch to Prodigy
Internet. The Company believes that consumers in the second and third target
segments listed above are less likely to switch back from Prodigy Internet to
another ISP, are less price sensitive and are more receptive to value-added
services.
Prodigy's marketing efforts position the Prodigy Internet service as a
productivity tool to help users obtain and communicate desired information
quickly and efficiently. Marketing themes emphasize that the Prodigy Internet
service is superior in terms of connectivity (availability and reliability),
speed (up to 56 kbps), technology (digital switched ATM in most major markets)
and navigation and personalization (via the co-branded Prodigy/Excite content
services). See "-- Products and Services" and "-- Network and Related
Infrastructure".
PC BUNDLING. The Prodigy Internet service is bundled with PCs under
arrangements where the Company pays a negotiated fee to the PC manufacturer only
if a subscriber enrolls from the PC distributed by the manufacturer. PC
bundling is an attractive acquisition channel because the supplier bears the
distribution cost and it reaches many more potential subscribers than could be
reached through most other acquisition channels. The Prodigy Internet software
is pre-loaded on the hard drives of selected PC models shipped by Packard
Bell/NEC, Hewlett-Packard, IBM, Gateway 2000, Toshiba, Sony, Acer, Fountain
Technology and Proteva. On the Packard Bell/NEC PC units on which the software
is pre-loaded, Packard Bell/NEC promotes the Prodigy Internet service and
automatically selects Prodigy Internet as the customer's Internet service if no
other selection is made. The Company is in the process of requiring new
enrollees through Packard Bell/NEC to supply credit card information for billing
rather than relying on subsequent paper billing. The Company believes this
change may result in a lower level of new subscriber enrollments through the
Packard Bell/NEC channel but that the resultant enrollees will be less likely to
terminate service upon completion of the applicable trial period. See "Risk
Factors -- Dependence on PC Bundling and Microsoft Relationship".
MICROSOFT RELATIONSHIP. Microsoft includes the Prodigy Internet service in
the online services folder of every copy of the Windows 98 and Windows 95 (OSR
2.5 release) operating systems shipped by Microsoft for sale in retail channels
or for loading on new PCs. Prodigy Internet, Microsoft Network, America Online,
CompuServe and AT&T WorldNet are the only services in the online services
folders of Windows 98 and Windows 95 (OSR 2.5 release). The Prodigy Internet
service is also included in Microsoft's ISP Internet Referral Service Program.
The Company believes that these arrangements enhance Prodigy's nationwide brand
presence. See "Risk Factors -- Dependence on PC Bundling and Microsoft
Relationship".
WEB-BASED. Prodigy maintains a Web site (www.prodigy.com) that provides
Internet users with the opportunity to learn about and enroll in the Prodigy
Internet service. Prodigy also has performance-based arrangements with several
leading Internet advertising companies, including Cyber Gold, DoubleClick
Direct, Net Creations and News America Digital Corporation. In addition, as
part of its Excite arrangements, approximately nine million Prodigy banner ad
impressions appear each month throughout Excite's Web site to promote Prodigy
Internet to non-subscribers. The Company believes these banner advertising and
other programs help target the "switcher" audience.
RETAIL. Prodigy has relationships with major retailers in the computer,
software and consumer electronics areas, including Circuit City, CompUSA,
Electronics Boutique, Babbages, Etc., Computer City, Micro Center and Office
Depot. The Prodigy Internet software is currently available without charge at
more than 2,300 retail outlets nationwide. These relationships typically
entitle Prodigy to establish displays containing software, along with incentive
applications such as free games and shareware, in
47
<PAGE>
prime locations next to cash registers. Prodigy supports these relationships
through the use of bounty programs, cooperative advertising and joint
promotional events. Prodigy also maintains a Prodigy Pro Program that provides
information, incentives and access to the Prodigy Internet service to over 4,000
retail sales people in partner stores. Prodigy is currently exploring expanded
distribution through additional retailers, including music stores, video rental
chains and book stores.
DIRECT. Prodigy pursues highly targeted and prequalified audiences in its
direct mailing and telemarketing efforts. Prodigy's direct mail is targeted to
highly-qualified prospects, such as known Internet users and new PC purchasers.
Prodigy's inbound telemarketing program fulfills customer orders, 24 hours a
day, 7 days a week, 365 days a year, via a toll-free telephone number (1-800-
PRODIGY) which is widely promoted. Prodigy's outbound telemarketing programs
focus on the reacquisition of recently disconnected members. Prodigy's
telemarketing services, inbound and outbound, are outsourced. Prodigy maintains
an online, member-assisted referral program in which existing subscribers
receive account credits for signing up new members.
MIGRATION FROM PRODIGY CLASSIC. Prodigy acquires additional subscribers to
the Prodigy Internet service who migrate from Prodigy Classic. Prodigy
encourages migration with targeted pricing offers, special hardware upgrade
promotions and the introduction of features and functions that have contributed
to the retention of Prodigy Classic subscribers, while emphasizing that the
Prodigy Internet service provides direct and reliable Internet access. Because
a substantial portion of the remaining Prodigy Classic subscribers lack the
minimum hardware requirements for the Prodigy Internet service, in the fourth
quarter of 1997 Prodigy initiated special hardware discounts in conjunction with
PC and modem suppliers to encourage migration to the Prodigy Internet service.
As of June 30, 1998, 143,000 of the Prodigy Internet subscribers had migrated
from Prodigy Classic (most of whom are enrolled in a Prodigy Internet/Prodigy
Classic combination plan), and there were 257,000 remaining subscribers to
Prodigy Classic. See "Risk Factors -- Migration from Prodigy Classic Service".
RETENTION PROGRAMS. Prodigy also develops programs to encourage conversion
from trial to paying status and improve customer retention. Typical conversion
promotions are designed to induce usage because usage is a primary determinant
of conversion. For example, in February 1998, Prodigy launched an e-mail
promotion that featured prizes such as Palm Pilots and software titles. The
promotion was entered by approximately 10,000 trialers whose average usage
doubled during their trial period. In June 1998, Prodigy introduced the
Personal Value Center, a member loyalty program designed to increase knowledge
and usage of the Web for transactions and other services. Through the Personal
Value Center, Prodigy members can earn "points" based on usage and redeem such
points for gift certificates at selected retail stores. Prodigy plans to extend
the Personal Value Center to travel services and other merchandise. The Company
also uses incentives to retain subscribers who might otherwise terminate
service.
CUSTOMER SERVICE
Prodigy's customer service programs are designed to contribute to member
satisfaction and retention, while controlling costs, by combining selective
outsourcing with in-house services. Prodigy believes that its customer service
programs, coupled with new release management which is both member-sensitive and
market responsive, have positioned Prodigy to provide customer support services
that are efficient and scalable for future growth.
TELEPHONE SUPPORT. Prodigy outsources its first contact, toll-free telephone
support to various vendors that provide support 365 days per year, 20 hours per
day (support is not available from 3:00 a.m. to 7:00 a.m., Eastern time).
Customers are assisted with Prodigy software installation, enrollment questions,
account management concerns, service access problems and disconnect requests.
By using multiple vendors, Prodigy is able to direct customer traffic flow
volumes on short notice, which Prodigy believes creates a competitive
environment and results in enhanced quality, performance and pricing.
48
<PAGE>
Geographic distribution of call centers allows for uninterrupted service to
Prodigy's member base in the event of regional disasters.
IN-HOUSE CUSTOMER SUPPORT AND SYSTEMS. Prodigy maintains an online member
services content area that provides a variety of support options to all members,
including real-time chat, instant messaging, newsgroups, message boards, e-mail,
and fax back. Prodigy has integrated comprehensive help, tutorials, advisories,
frequently asked questions and tips online. Prodigy also has an online "members
helping members" program, in which selected subscribers receive nominal monthly
compensation in exchange for providing personalized responses to members posting
inquiries on newsgroups and message boards. Prodigy's customer service
organization monitors customer service vendor performance with quantitative
metrics (including average wait time, first call resolution rate and abandon
rate) and qualitative controls (including call monitoring). Prodigy also has
technically-trained customer service representatives to call subscribers with
unresolved problems.
Prodigy maintains detailed customer records and documents each customer
request in a problem tracking system. This system allows recurring problems to
be identified and communicated to the appropriate internal Prodigy function for
resolution. Prodigy maintains a Web-based database that is accessible by all
vendor and employee customer service representatives on a real-time basis to
help ensure delivery of customer service in a consistent manner regardless of
where the contact is handled.
BILLING. Prodigy's customer billing system and services are outsourced to CSG
Systems, Inc. ("CSG"). CSG's billing system is highly customized and flexible
and supports prompt pricing changes. CSG provides credit card and paper
billing, transaction processing and check handling. A substantial majority of
Prodigy's current subscribers are billed through pre-authorized credit card
charges, while the remainder are issued invoices. See "-- Principal Outsourcing
Arrangements -- CSG".
TECHNOLOGY
Prodigy has been a technology pioneer in the online industry since its
formation in 1984 and introduced many concepts that would later be adopted for
the Web. Continuing this pioneering heritage in the Internet industry, the
Prodigy Internet service utilizes a standards-based, proprietary service
provider platform and mail server developed by the Company.
SERVICE PROVIDER PLATFORM. The service provider platform is a suite of
functions which creates the infrastructure of a large-scale ISP. Capabilities
include customer profile management, access control, authentication, billing and
customer care interfaces and other functions necessary to offer large-scale
Internet services. The service provider platform is highly scalable (up to
millions of subscribers) and is compatible with industry standard products, such
as Netscape Web servers, Oracle databases, Net.Commerce (IBM's electronic
commerce solution) and Lotus Domino (an interface between Lotus Notes and the
Web). The service provider platform also interfaces effectively with Prodigy's
mail server, and is built to open standards to enable the utilization of
applications from other suppliers.
MAIL SERVER. The Prodigy Internet service uses a scalable, reliable Internet
mail server. The mail server draws on the fault-tolerance and scalability
provided by the underlying Oracle database to offer flexibility, ease of
operation and scalability. Prodigy's mail server supports standard Internet
protocols, such as SMTP (Simple Mail Transfer Protocol), POP3 (Post Office
Protocol) and MIME (Multi-Purpose Internet Mail Extensions). The mail system
also provides:
Tools for Administrators. Welcome messages, bulk mailers, quota controls
(by realm, domain, household, small business or individual account), tools to
manage spam and operational scripts and tools.
49
<PAGE>
Tools for Users. User configured filters for prioritization and spam
removal, and tools to enable the head of household or small business to
administer a group of accounts. Messages can contain any number of MIME
attachments (up to a size limitation of 10 megabytes per mailbox) and are
delivered without any promotional tag lines.
Features for Business Customers. Support for multiple domains and realms
which enable Prodigy Internet to operate multiple Internet services under
different brands on the same system base, and which enable an off-site
administrator to control enterprise mailboxes.
Configuration and Provisioning Interfaces. The system supports a standard
administrative interface that provides configuration and control of the mail
system from external systems or via an HTML (Hypertext Markup Language)
screen. Standard APIs (Application Programming Interfaces) interface the
system to external databases for user authentication and mailbox provisioning.
Scaling Ability. The system is designed to scale to millions of mailboxes
with an architecture that supports hardware and data redundancy.
NETWORK AND RELATED INFRASTRUCTURE
Subscribers access Prodigy's services by connecting to a network with their
PCs using local, toll-free or long distance telephone service. The network
connects subscribers' PCs to the Internet as well as to Prodigy's hosting
servers, which store some of the data accessed during subscriber sessions.
Network connections are made through communications hardware, such as telephone
lines, routers, switches and modems, which serve to direct data and enable
communication among a variety of computer operating systems. The network used
for the Prodigy Internet service is built to Internet standards, including
TCP/IP (Transmission Control Protocol/Internet Protocol) transmission and PPP
(Point-to-Point Protocol) access. The Prodigy Classic service operates on
certain proprietary standards which are used only for Prodigy Classic. The
Company outsources its network functions to Splitrock. See "-- Principal
Outsourcing Arrangements -- Splitrock".
NETWORK ARCHITECTURE
The network infrastructure utilized by Prodigy Internet consists of three
primary tiers: local points of presence ("POPs"); a middle tier, which connects
the POPs to regional hubs; and a backbone tier, which connects the regional hubs
to the Internet or Prodigy's data hosting center. The network currently
includes approximately 650 POPs nationwide and has the capability to provide
dial-up access, with a local telephone call, to approximately 83% of the
households in the United States. Prodigy also offers access to the Splitrock
network via an 800 telephone number for $.10 per minute without an additional
enrollment charge.
Over 550 POPs currently provide 56 kbps access to Prodigy Internet subscribers
having modems of that speed. Approximately 25% of all Prodigy Internet usage is
currently at 56 kbps. The backbone implemented by Splitrock utilizes the
WorldCom network. Twenty-one fully-meshed core nodes in major cities are
connected via high-speed links using digital ATM technology in all major
metropolitan markets. To optimize data transmission and facilitate the addition
of POPs as necessary, Splitrock employs an "ATM-to-the-edge" architecture,
placing ATM switches in all physical sites rather than only at major
transmission nodes on the backbone. Eight connections from the backbone to the
Internet provide data transmission to and from servers on the Internet, and
Splitrock is building additional connections to other major networks with which
it has peering arrangements.
50
<PAGE>
DATA HOSTING CENTER
Prodigy's data hosting center, located in Yorktown Heights, New York, houses
approximately 400 high-capacity servers to store content and other data. The
data center contains a mainframe complex which supports business support systems
such as subscriber session accounting and reporting, customer service support
systems and business accounting. Prodigy's data center hosts a variety of
applications that are scalable to millions of users. The use of standard
interfaces allows integration of products offered by a broad spectrum of
vendors, including IBM, Microsoft and Netscape. Supported operating system
platforms include UNIX/AIX, NT, MVS and TPF, and installed database products
include Oracle and DB2.
Prodigy's data hosting center is equipped with triple redundant power systems
and is housed in a climate and humidity controlled environment. Both battery
and diesel power backup systems are installed to preclude outages that might
otherwise result from interruption of utility power to the building. All
production host systems have backup processors and peripherals, and all critical
data is backed up to tape daily. Facilities and data are physically secured by
incrementally restrictive card key locks, and logical data security is provided
by built-in operating system security features. Firewall technology is
implemented to protect critical systems, and servers that are open directly to
the Internet are installed on a network separate from those that are not. In
addition, anti-hacking measures are in place.
RELIABILITY AND AVAILABILITY
Reliability and availability are key objectives of Prodigy's network and
hosting configurations. Splitrock has designed and is rolling out its network to
meet specified service level objectives, including the P.01 grade of service (no
more than one busy signal in 100 dial-up attempts during the busiest hour of the
day on the busiest day of the week), and specified objectives for site and
overall system availability and backbone transit delay. Splitrock accumulates
and analyzes statistics on each access line, and lines exhibiting quality
problems are removed from service and referred for repair. In addition, Prodigy
has integrated Inverse's Access Ramp product into the Prodigy Internet software
to gather data on the actual connection experiences of subscribers who have
agreed to have their connection experiences measured. Prodigy reports problem
sites to Splitrock for action.
At Prodigy's data hosting center, Prodigy operates a 24x7 operations control
center and Splitrock operates a 24x7 network operations center. Circular
hunting is employed on local access telephone lines to ensure that a problem
with a single line does not disable the entire access site. Where feasible, the
access lines are distributed among multiple modem subsystems and access servers
to provide diversity. The hosting center is connected to the backbone via
redundant DS3 lines. Splitrock's fully-meshed core node architecture provides
multiple transmission routes across the backbone for optimal speed and
reliability.
Inverse measures and reports eight parameters of ISP network performance (24-
hour call failure rate, evening-hour call failure rate, business-hour call
failure rate, initial modem connect speed, average time to login, average DNS
(Domain Name System) lookup time, average Web throughput and average total Web
failures/timeouts). Since completion of Splitrock's network in May 1998,
Inverse has given Prodigy Internet ratings of A+ or A for 24-hour call failure
rate for each of the months of May, June, July and August 1998, which ratings in
each case exceeded or equalled the comparable overall industry rating given by
Inverse based on 13 major providers of Internet access services. The Company
believes call failure rate is the most important network measure in terms of
customer satisfaction. Overall, Prodigy Internet exceeded or equalled the
comparable industry rating given by Inverse in at least seven of the eight
parameters for each of the months of May, June, July and August 1998. Investors
should not place undue reliance on Inverse's reports as a measure of network
performance because such reports do not measure and report on all factors that
may affect the quality of the Company's services. For example, Inverse's
reports are based on tests conducted on selected days at a random sampling of
only 42 of Splitrock's
51
<PAGE>
POPs, and Inverse's reports cited above cover only a four month period. There
can be no assurance Splitrock's network will be able to sustain the level of
performance indicated by Inverse's reports. See "Risk Factors -- Network Risks".
PRINCIPAL OUTSOURCING ARRANGEMENTS
The Company follows a "best of breed" outsourcing philosophy in which it
selects from among competing suppliers in order to control costs, enhance
service quality and enable the Company to focus on its core strengths.
SPLITROCK
Prodigy owned and operated its own network in the United States until July 1,
1997. Effective July 1, 1997, Prodigy conveyed its network assets to Splitrock
in exchange for Splitrock's agreement to build and operate the Splitrock network
described above, hire all Prodigy employees engaged in Prodigy's network
operations and assume certain POPs leases and other liabilities. The Company
believes its Splitrock network arrangements present a number of significant
advantages to Prodigy. In addition to shifting to Splitrock the capital costs
of network expansion and enhancement as well as network operating and personnel
expenses, the Company believes these arrangements have reduced Prodigy's network
costs and made such costs more predictable. Prodigy also believes the variety
and sophistication of data services available to it will increase due to
anticipated network enhancements and upgrades. See "Risk Factors -- Network
Risks". The Splitrock network arrangements cover only the United States, and
Prodigy would need to make other network arrangements in order to offer services
in foreign countries.
Splitrock is required to provide dial-up network access in all locations in
which Prodigy provided dial-up service as of June 30, 1997. Prodigy may require
additional sites to be added if certain coverage and usage parameters are met.
Splitrock may also provide access to the network to other customers. Splitrock
is requited to provide a backbone network based on ATM technology and is
required to support transmission via SLIP (Serial Line Internet Protocol), PPP
and TCP/IP. Splitrock is also required to support the proprietary standard
utilized by Prodigy Classic through December 31, 1999.
Splitrock is required to meet specified service level objectives, including
the P.01 grade of service and specified objectives for site and overall system
availability and backbone transit delay. Splitrock's failure to meet the
specified service level objectives will result in financial penalties. If
Splitrock fails to meet specified service level objectives for an extended
period of time, Prodigy may terminate the agreement. In addition, if there is a
system-wide failure, or Splitrock breaches specified financial covenants,
Prodigy will have the right to terminate the agreement or assume responsibility
for operating the network at Splitrock's expense.
Splitrock charges Prodigy a monthly fee per subscriber for usage by Prodigy's
subscribers. If the average hourly usage by Prodigy's subscribers in any month
exceeds a specified threshold, Prodigy must pay Splitrock an additional amount
per hour in excess of such threshold for such month. The agreement includes
minimum monthly charges and is terminable by Prodigy upon payment of a specified
early termination charge. During the year ended December 31, 1997 and the six
months ended June 30, 1998, the Company incurred network charges to Splitrock of
$22.7 million and $32.6 million, respectively. See "Risk Factors -- Potential
Conflicts of Interest".
The agreement has an initial term of four years through June 30, 2001 and is
subject to automatic renewal for successive one-year terms unless terminated by
either party upon 12 months' notice. Until termination of the agreement,
Prodigy has agreed that Splitrock will be Prodigy's primary provider of network
services. During this period, Prodigy must give Splitrock advance notice of,
and the opportunity
52
<PAGE>
to discuss with Prodigy, any forms of service access (other than network access)
that Prodigy wishes to pursue in the United States.
EXCITE
In January 1998, Prodigy entered into an agreement with Excite, Inc.
("Excite") under which Excite, commencing in April 1998, provides subscribers to
the Prodigy Internet service with Prodigy-branded Excite content using Excite's
"My Channel" technology. This arrangement enables Prodigy to offer Excite's
extensive editorialized content and content personalization and communication
features under the Prodigy brand without incurring the time or expense to
develop similar capabilities internally.
Prodigy's agreement with Excite (i) has an initial term of three years and
automatically renews for successive one-year terms unless Excite elects not to
renew it, (ii) is terminable by Prodigy upon 60 days' notice, (iii) makes Excite
Search the exclusive search engine, Excite NewsTracker the exclusive
personalized Internet news clipping service and Excite Shopping Search the
exclusive Internet shopping search tool on Web pages provided to subscribers to
the Prodigy Internet service, (iv) does not prohibit Prodigy from entering into
similar agreements with other content providers (except as provided in the
preceding clause (iii)) or prohibit Excite from entering into similar agreements
with other ISPs, (v) provides for a sharing of all revenue derived from the
advertising banners on the co-branded Prodigy/Excite Internet service, and (vi)
gives Prodigy free advertising banner impressions throughout Excite's Web site
to promote the Prodigy Internet service.
CSG
Prodigy outsources its customer billing to CSG. CSG is a leading provider of
customer care and billing solutions for various telecommunications providers,
including many of the largest cable television and direct broadcast satellite
providers. CSG is Prodigy's exclusive provider of billing services for the
Prodigy Internet and Prodigy Classic services but not for premium services or
other billing services. CSG charges Prodigy a monthly fee based on the number
of subscribers, subject to a specified minimum charge, as well as a monthly
minimum fee for ongoing development and support. The agreement between Prodigy
and CSG expires June 30, 2001.
COMPETITION
The industry in which the Company competes is intensely competitive and
includes a number of significant participants, including ISPs, proprietary
online service providers and major international telecommunications companies,
as well as Internet-search services and various other telecommunications
companies. There are more than 4,000 ISPs in the United States, most of which
operate small, local businesses. Additional regional telephone operating
companies, long-distance carriers and cable companies may also elect to compete
with Prodigy. Various partnering arrangements have recently been established
between Internet-search service companies and major telecommunications
companies, which could result in increased competition for Prodigy. Moreover,
the Company faces competition from companies that provide broadband connections
to households, including local and long-distance telephone companies, cable
television companies and electric utility companies. Broadband technologies
offer significantly faster Internet access than conventional modems, and such
companies could include Internet access in their basic service packages, could
offer access for a nominal additional charge or could prevent the Company from
delivering Internet access through the cable or wire connections that such
companies own. See "Risk Factors -- Intense Competition".
Among the larger providers of ISP services are EarthLink Network, Inc. (which
has a strategic relationship with Sprint Corporation), MindSpring Enterprises,
Inc., Microsoft Network, AT&T WorldNet, MCI Internet, IBM Internet Connection,
PSINet Inc., GTE Internetworking (which includes the former ISP
53
<PAGE>
business of BBN Corporation), Netcom On-Line Communications Services, Inc.
(owned by ICG Communications, Inc.) and Concentric Network Corporation.
Microsoft's ownership of the dominant PC operating system and the Microsoft
Internet Explorer browser may give Microsoft Network certain competitive
advantages, including distribution and marketing synergies. Prodigy also
competes with America Online, which offers the America Online and CompuServe
proprietary online services over closed networks, as well as Internet access.
Prodigy believes that the principal competitive factors in the ISP industry
are speed and reliability of access, ease of use, brand name recognition,
network coverage, customer service and price. Prodigy believes that its
services compete effectively on the basis of all of these factors.
GOVERNMENT REGULATION
Internet access and online services are not subject to direct regulation in
the United States, but changes in the regulatory environment relating to the
telecommunications and media industry could have an effect on Prodigy's
business. For example, Federal Communications Commission regulatory review and
rulemaking could result in regulation of the Internet and online services
industry which could result in increased telecommunications costs for
participants in the Internet industry, including Prodigy. The Company cannot
predict whether, or to what extent, any such new rulemaking will occur, or what
effect any such rulemaking would have on Prodigy.
The Communications Decency Act of 1996 (the "Communications Decency Act"),
which was held unconstitutional by the United States Supreme Court in June 1997,
had generally made it illegal, subject to certain defenses, for persons to
knowingly use an interactive computer service to send or display "indecent"
communications to minors. The Company cannot predict whether similar federal or
state legislation will be enacted in the future, whether any such future
legislation would be upheld, how courts would interpret any such future
legislation or what effect, if any, such legislation would have on the Company.
There also are laws that make it illegal to traffic in obscene or child
pornographic materials, including by a computer, and accordingly Prodigy's
servers do not host certain newsgroups which it believes traffic in child
pornography. While the Company does not believe that its activities will
violate any of these laws, it cannot predict how a court would interpret these
laws in the Internet context or whether a court would hold that Prodigy Internet
has a duty to monitor material being transmitted or, if notified that illegal
material is being transmitted, to attempt to stop or restrict such
transmissions. See "Risk Factors -- Government Regulation".
In addition, the applicability to Prodigy of existing laws governing issues
such as intellectual property ownership, defamation and personal privacy is
uncertain. Courts have indicated that, under certain circumstances, online
service providers and ISPs could be held responsible for the publication of
defamatory material or for failure to prevent the distribution of material that
infringes copyrights owned by others. The Company does not edit or otherwise
monitor the content accessed by subscribers to Prodigy Internet, although the
Company does filter certain words on Prodigy Classic. Future interpretations by
the courts of online defamation, privacy, copyright infringement and other legal
issues is also uncertain.
In March 1997, Prodigy entered into a Consent Order with the Federal Trade
Commission (which became effective in March 1998) regarding use of the word
"free" and similar words in advertising, disclosure of the financial terms and
conditions of services, practices with respect to electronic funds transfers and
certain related matters. The Consent Order has a duration of twenty years and
imposes various recordkeeping requirements. The Company believes that it is in
compliance with the Consent Order and that its continuing compliance with the
Consent Order will not have a material adverse affect on Prodigy's business.
America Online is subject to a similar Consent Order which governs its marketing
of services under both the American Online and CompuServe brands.
54
<PAGE>
In September 1998, the Company received a letter from the Office of the
Attorney General of New York notifying the Company that the "advertising and
certain other practices" of Prodigy and other unnamed ISPs were being
investigated by the Attorneys General of New York and 19 other states. The
letter stated that the inquiry was a follow-up to the settlement between America
Online and many states in May 1998 concerning the following issues: disclosures
for free offers, representations concerning pricing, disclosures concerning
premium areas, disclosures for communications charges, advertising to minors,
cancellation procedures, unauthorized charges to credit cards or bank accounts
and changes to the service agreement. The letter requested that the Company
voluntarily supply various documents and other information relating to the
marketing and provision of its services. The Company plans to cooperate with
the inquiry and believes that its outcome will not have a material adverse
effect on the Company.
PROPRIETARY RIGHTS
The Company owns a variety of trademarks, including "Prodigy(R)", "Prodigy
Internet", "It's a Tool for Living", "Prodigy Classic", the Prodigy logo and
others, many of which are the subject of existing or pending registrations in
the United States and various foreign countries. The Company also owns other
intellectual property rights, including proprietary software used in its
business. See "Technology". The Company protects its proprietary technology
through copyright and trade secrets laws, employee and third-party
confidentiality agreements and other methods. See "Risk Factors -- Protection
of Proprietary Technology".
Prodigy and IBM have entered into patent cross-license agreements for their
entire patent portfolios existing as of June 17, 1996 and all additional patents
issued with respect to patent applications filed prior to June 1, 1999. Until
June 17, 2001, the Company is required to grant IBM "most favored nation" status
with respect to Prodigy's software that it makes generally available to the
public. See "Corporate History and Certain Transactions -- Acquisition of
Prodigy Services Company".
EMPLOYEES
At June 30, 1998, the Company had 304 full-time employees, of whom 48 were in
sales and marketing, 85 were in technology and product development, 49 were in
customer service, 76 were in technical services and 46 were in management,
finance and administration. As necessary, the Company supplements its regular
employees with temporary and contract personnel, which totalled 51 persons at
June 30, 1998.
None of the Company's employees is represented by a labor union. The Company
believes that its employee relations are good.
FACILITIES
Prodigy leases 97,000 square feet of office space in White Plains, New York.
The lease expires December 31, 2004 and Prodigy has a right of first offer upon
expiration. The current annual base rent is $2,275,000 and Prodigy is required
to pay an allocated portion of taxes and operating expenses. Prodigy has
established a letter of credit in the initial amount of $3,930,000 (declining
ratably over the lease term) to secure the rent payments.
Prodigy also leases 80,000 square feet in Yorktown Heights. The lease expires
February 28, 2001 with two five-year renewal options in Prodigy's favor. The
current annual base rent is $687,000 and Prodigy is required to pay associated
taxes and operating expenses. Prodigy uses approximately 57,500 square feet of
its Yorktown Heights facility for its data hosting center and subleases the
balance to Splitrock. See "-- Network and Related Infrastructure -- Data
Hosting Center".
55
<PAGE>
The Company leases approximately 16,000 square feet of office space in
Medford, Massachusetts under a lease expiring on August 1, 2001. Prodigy vacated
this facility, which formerly housed the headquarters for Prodigy's
international operations, in June 1998 and is seeking to sublease it.
For additional information regarding the Company's leased facilities and its
aggregate rental expenses, see Note 12 to the Company's Consolidated Financial
Statements.
The Company believes that its existing facilities are adequate for its current
needs and that suitable additional space will be available as needed.
LEGAL PROCEEDINGS
On November 27, 1996, Malcolm Haynes and Lightwave, Ltd., a Cayman Islands
corporation, filed a lawsuit in the District Court of Clark County, Nevada,
against the Company, IW, Comstar Cellular Network, Inc., Greg C. Carr, Terrance
P. Dillon, Duncan E. Wine and Blaize Kaduru. Mr. Carr is the former Chairman of
the Board of the Company and a former principal stockholder of the Company, and
was a director and principal stockholder of IW. Mr. Dillon was a director and
principal stockholder of the Company, was a director, officer and principal
stockholder of IW and was a director and technical advisor to Comstar. Mr. Wine
is a former principal stockholder of the Company and IW. Mr. Kaduru is a former
principal stockholder of the Company and IW, was an officer of IW and was a
director and officer of Comstar. Mr. Haynes was co-founder, President and a
director of Comstar and claims that he and Mr. Wine each hold a 30% interest in
Lightwave. In connection with IW's acquisition of the assets and liabilities of
Comstar in August 1994, IW issued to Comstar all then outstanding common stock
of IW, which Comstar then distributed as a liquidating dividend to the holders
of certificates for common stock of Comstar. Each holder of a certificate for
common stock of Comstar was required to acknowledge and accept the terms of the
Comstar acquisition and release Comstar and IW from all claims which such holder
may have had against either Comstar or IW. See "Corporate History and Certain
Transactions -- Prior Corporate History". Pursuant to the foregoing, Comstar
offered 4,800,000 shares of IW's common stock to Mr. Haynes, but Mr. Haynes
refused to participate and therefore received no shares. The lawsuit filed by
Mr. Haynes and Lightwave alleges, among other things, that Messrs. Dillon, Wine
and Kaduru breached their fiduciary duties to the plaintiffs, that Mr. Wine
defrauded or made misrepresentations to the plaintiffs, that Mr. Wine
misappropriated a corporate opportunity belonging to Lightwave, that all
defendants are liable for conversion of plaintiffs' shares of common stock, and
that IW and Mr. Carr aided and abetted the wrongful conduct of Messrs. Dillon,
Wine and Kaduru. The lawsuit seeks to compel the defendants to provide to the
plaintiffs 18,000,000 shares of Common Stock of the Company or the fair market
value thereof, to impose a constructive trust on the shares of Common Stock
received by Messrs. Dillon, Wine and Kaduru in the Comstar acquisition, and
other monetary damages and declaratory and equitable relief. On February 25,
1998, the Court granted the motion of the Company and Mr. Carr to dismiss the
lawsuit against them for lack of personal jurisdiction in Nevada, and the
lawsuit is continuing against the other defendants. Unless this decision is
overturned on appeal, the plaintiffs cannot pursue this lawsuit against the
Company and Mr. Carr in Nevada, although the plaintiffs could pursue these
claims in a new lawsuit filed in any state or states where personal jurisdiction
over the Company and Mr. Carr could be established and where the applicable
statute of limitations has not expired. If a new lawsuit is filed, the Company
intends to defend it vigorously, but there can be no assurance that its outcome
would not have a material adverse effect on the Company's business, financial
condition, results of operations or prospects or result in substantial dilution
to the Company's stockholders.
On June 11, 1998, Lycos, Inc. ("Lycos") filed a complaint and motion for
preliminary injunction in the Superior Court of Middlesex County, Massachusetts
against the Company. The lawsuit alleges, among other things, that the Company
breached a license agreement with Lycos by entering into its portal outsourcing
agreement with Excite in January 1998 and by terminating the license agreement
between Lycos and the Company. See "-- Principal Outsourcing Arrangements --
Excite". The lawsuit seeks
56
<PAGE>
specific performance of the license agreement between Lycos and the Company, a
preliminary and permanent injunction enjoining the Company from terminating the
license agreement between Lycos and the Company and from performing under its
agreement with Excite, money damages and attorneys' fees. A hearing on Lycos'
motion for preliminary injunction has been adjourned because the parties are in
negotiations to settle the lawsuit. However, there can be no assurance the
lawsuit will be settled. If the lawsuit is not settled, the Company intends to
defend it vigorously, but there can be no assurance that its outcome will not
have a material adverse effect on the Company's business, financial condition,
results of operations or prospects.
57
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages and
their positions with the Company are as follows:
Name Age Position
---- --- --------
Samer F. Salameh...... 34 Chairman of the Board, Chief Executive
Officer
and President
Russell I. Pillar..... 33 Vice Chairman of the Board
Alfredo Sanchez....... 42 Vice Chairman of the Board
David R. Henkel....... 46 Executive Vice President, Finance, Chief
Financial Officer and Director
James P. Dougherty.... 41 Executive Vice President, Business Services
Andrea S. Hirsch...... 40 Executive Vice President, Business
Development
and General Counsel
James L'Heureux....... 46 Executive Vice President, Consumer Services
Carena M. Pooth....... 45 Executive Vice President, Technology
Arturo Elias(1........ 32 Director
James M. Nakfoor(1)... 35 Director
- -------------------
(1) Member of the Compensation Committee
Mr. Salameh has served as Chief Executive Officer, President and a director of
the Company since September 1997 and as Chairman of the Board since August 1998.
From July 1994 until joining the Company, Mr. Salameh served as Director, Long
Distance Division of SBC Communications (formerly Southwestern Bell),
responsible for marketing, strategy, positioning, product management and product
development with respect to Telmex. Mr. Salameh was employed by MCI
Telecommunications as a Product Manager in 1994 and as a Strategic Marketing
Manager from 1991 to 1993. During 1993, Mr. Salameh was employed as Vice
President of Finance by Merl Industries, a start-up management consulting firm.
Mr. Salameh holds a Master's degree from the Fletcher School of Law and
Diplomacy, a B.S. degree in Management and Technology Transfer from Polytechnic
University of New York and a Baccalaureate degree with a concentration in Math
and Physics from Lycee Fenelon in Paris. He is also a director of Splitrock and
serves as an Advisor to the Chief Executive Officer of Telmex. See "Risk
Factors -- Control of the Company and Potential Conflicts of Interest" and
"Business --Principal Outsourcing Arrangements".
Mr. Pillar has served as Vice Chairman of the Company since August 1998. He
joined Prodigy's Board of Directors in October 1996 and served as President and
Chief Executive Officer of the Prodigy Internet division from September 1997
until August 1998. Since October 1991, he also has served as Managing Partner
of Critical Mass, a company that creates new software solution-based businesses
seeking to
58
<PAGE>
capitalize on the migration of communications traffic from circuit-switched to
packet-switched networks. From December 1993 through October 1996, he served as
President, Chief Executive Officer and a director of Precision Systems, Inc., a
publicly traded international telecommunications software provider. In addition
to serving on the boards of a number of private technology companies, Mr. Pillar
is a director of Telescan, Inc. (which develops, markets and operates online
networks and Internet sites) and Summa Four, Inc. (a provider of
telecommunications switches). He holds an A.B. degree in East Asian Studies from
Brown University.
Mr. Sanchez joined the Company's Board of Directors in June 1996 and became
Vice Chairman in August 1998. Mr. Sanchez has served as President of Uninet,
S.A de C.V., a wholly-owned subsidiary of Telmex through which Telmex provides
data transmission services and Internet access to customers, since January 1996.
He has also served as President of Concorcio Red Uno, S.A. de C.V., a network
company founded by Mr. Sanchez and now owned by Carso Global Telecom, since
March 1991. See "Risk Factors -- Control of the Company and Potential Conflicts
of Interest". From 1985 to March 1991, he was President of Onyx Systems, a Unix
microcomputer manufacturer with operations in the United States, Europe and
Mexico. Mr. Sanchez previously held various communications and transportation
positions in the Mexican government. Mr. Sanchez holds a degree in Electronics
Engineering from the Metropolitan Autonomous University of Mexico.
Mr. Henkel joined Prodigy in August 1998 as Executive Vice President, Finance,
Chief Financial Officer and a director. In 1997, Mr. Henkel founded AFX
TraTech, Inc., a wireless data company, and served as its Chief Financial
Officer until joining Prodigy. From 1993 to 1997, Mr. Henkel served in a number
of positions with 7th Level, Inc., a developer of interactive games and
educational products, including Chief Operating Officer from 1995 to 1997 and
Chief Financial Officer from 1994 to 1995. In 1993, Mr. Henkel served as Chief
Financial Officer of Value Added Communications Corporation, a
telecommunications reseller, from 1991 to 1993 he served as Chief Financial
Officer and a director of Micrografx, Inc., a software company, and from 1987 to
1991 he was a partner with Arthur Andersen & Co LLP. Mr. Henkel holds a B.A.
degree from Rice University and an M.B.A. degree from Harvard Business School.
Mr. Dougherty joined Prodigy's former software development division as Senior
Vice President of Marketing and Sales in November 1997, became its Chief
Operating Officer in April 1998 and became its Chief Executive Officer in May
1998. He became the Company's Executive Vice President, Business Services in
August 1998. From May 1996 through September 1997, Mr. Dougherty worked for and
consulted with a number of Internet startup companies. From November 1987
through May 1996, Mr. Dougherty held various executive positions at Lotus
Development Corporation, including general manager of the Electronic
Applications division, which built and marketed Internet applications to global
businesses, and director in the technology consulting practice. Mr. Dougherty
holds a B.A. degree from Framingham State College, a graduate degree
(Certificate of Special Studies) from Harvard University in finance and
administration and a Master's degree from Columbia University in international
economics.
Ms. Hirsch joined Prodigy in September 1998 as Executive Vice President,
Business Development and General Counsel. Prior to joining the Company, Ms.
Hirsch served as Vice President, Corporate Development Counsel for Simon &
Schuster, Inc., a publishing company, from March 1994 to September 1998, and as
Assistant General Counsel for Macmillan, Inc., a publishing company, from June
1991 to January 1994. Ms. Hirsch holds a B.A. degree from Queens College and a
J.D. degree from Washington College of Law at American University.
Mr. L'Heureux joined Prodigy as Senior Vice President of Marketing in July
1997 and became Executive Vice President, Consumer Services in August 1998.
Prior to joining Prodigy, Mr. L'Heureux served as Vice President and General
Manager, Software Publishing, for Scholastic, Inc. from March 1996 to July 1997,
as Senior Director of Marketing, Autodesk Multimedia, for Autodesk, Inc., a
design tool company, from January 1995 to February 1996, as a senior manager for
Apple Computer, Inc. from February 1992 to
59
<PAGE>
January 1995, and as Director of Business Development for Lucasfilm, Ltd. &
LucasArts Entertainment from 1989 to 1992. Previously, Mr. L'Heureux held
consulting and management positions with Arthur D. Little, Inc., PepsiCo, Inc.
and the McCaffrey & McCall advertising agency. Mr. L'Heureux holds a B.S. degree
from the University of Notre Dame and an M.B.A. degree from the University of
Virginia.
Ms. Pooth has been employed by Prodigy for 13 years in a variety of positions,
including Executive Vice President, Technology since August 1998, Senior Vice
President of Technical Services from July 1997 to July 1998, Vice President of
Systems Development from November 1996 to June 1997, Senior Director of Systems
Development from February 1996 to October 1996 and Director of Systems
Programming/Development from November 1990 to February 1996, and various other
technical management positions. Prior to joining Prodigy, Ms. Pooth worked as a
Systems Programmer for IBM for three years. She holds a B.A. degree from Vassar
College and an M.S. degree from State University of New York.
Mr. Elias joined the Company's Board of Directors in September 1997. He
served as Consulting Advisor to the President of Telmex from September 1996 to
May 1998 and has since served as Head of Commercial New Technologies and
Regulation for Telmex. Mr. Elias is also a director of Carso Global Telecom,
Telmex, Sears Roebuck de Mexico, Block Buster Video Mexico and several
privately-held companies. See "Risk Factors -- Control of the Company and
Potential Conflicts of Interest". Mr. Elias holds a bachelor's degree in
Business Administration from Anahuac University and a Master in Business
Management degree from the Instituto Panamericano de Alta Direccion de Empresa
(IPADE).
Mr. Nakfoor joined the Company's Board of Directors in September 1997. Since
1991, Mr. Nakfoor has served as Vice President of Securities Trading for
Inversora Bursatil, S.A. de C.V., a wholly-owned subsidiary of Grupo Financiero
which is engaged in the securities brokerage, investment banking and money
management businesses. Grupo Financiero, which is affiliated with Carso Global
Telecom, is a Mexican financial group whose businesses include banking,
brokerage, insurance, leasing, factoring and other financial services. See
"Risk Factors -- Control of the Company and Potential Conflicts of Interest".
Mr. Nakfoor holds a B.A. degree in Economics and an M.B.A. degree from the
University of Texas at Austin.
Mr. Carlos Slim Helu, a Mexican citizen, and certain members of his immediate
family, directly and through their ownership of a majority of the voting and
economic interests in two trusts, own a majority of the outstanding voting
equity securities of Carso Global Telecom. Mr. Slim may be deemed to control
Carso Global Telecom, Telmex and the Company. Mr. Salameh is married to Mr.
Slim's niece and Mr. Elias is married to Mr. Slim's daughter. There are no
other family relationships among the Company's directors, executive officers and
principal stockholders and their affiliates. See "Risk Factors -- Control of
the Company and Potential Conflicts of Interest" and "Principal Stockholders".
The Company intends to elect two new independent directors prior to or within
90 days after the closing of the Offering.
In connection with the Company's acquisition of Prodigy Services Company, IBM
and Sears agreed to vote their shares of Common Stock received upon conversion
of the Contingent Notes or exercise of the Contingent Warrants held by them in
accordance with the voting recommendations of Prodigy's Board of Directors. See
"Corporate History and Certain Transactions -- Acquisition of Prodigy Services
Company".
Officers of the Company serve at the pleasure of the Board of Directors and
hold office until their successors are duly elected and qualified or until their
earlier resignation or removal. There are no family relationships among any of
the Company's directors and executive officers.
60
<PAGE>
The Company has an Executive Council consisting of Messrs. Henkel, Dougherty,
Hirsch, L'Heureux and Pooth. The Executive Council advises the Company's Chief
Executive Officer and performs certain delegated duties.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee and a Compensation Committee.
There is no standing nominating committee of the Board of Directors. The Audit
Committee (which is expected to be composed of the two new independent
directors) (i) reviews the annual financial statements of the Company prior to
their submission to the Board, (ii) consults with the Company's independent
accountants to review financial results, internal financial controls and
procedures, audit plans and recommendations and (iii) recommends to the Board
the selection, retention or termination of independent accountants and approve
services provided by independent accountants. The Compensation Committee
(composed of Messrs. Elias and Nakfoor) makes recommendations to the Board
regarding the compensation of executive officers, key managers and directors and
administers the Company's stock plans.
DIRECTOR COMPENSATION
All directors are reimbursed for their expenses in attending Board and
Committee meetings in accordance with the Company's expense reimbursement
policies. Directors who are also employees of the Company do not receive
additional compensation for serving as directors.
The Company entered into a one-year Consulting Agreement with Mr. Pillar on
July 31, 1998, which automatically renews for additional one-year periods unless
terminated by either party. Mr. Pillar receives an annual base fee of $250,000
and is eligible to receive either (i) a performance bonus of $125,000 in the
event that the Company closes an initial public offering or (ii) a discretionary
performance bonus payable in February 1999. The Company is required to pay all
reasonable relocation expenses incurred by Mr. Pillar in the event that Mr.
Pillar chooses to relocate out of the New York City area during the term of the
Consulting Agreement. Mr. Pillar is also entitled to certain accelerated
vesting of stock options in the event the Company closes an initial public
offering on or prior to August 1, 1999 or upon a change in control of the
Company. Mr. Pillar's consulting services are provided on a part-time basis and
Mr. Pillar is permitted to accept other employment during the term of the
Consulting Agreement. From November 1, 1996 through June 30, 1997, the Company
also had retained Mr. Pillar as a consultant and paid him a consulting fee of
$50,700.
61
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the total compensation earned in the year ended
December 31, 1997 for the Company's Chief Executive Officer, its former Chief
Executive Officer, its four other most highly compensated executive officers in
1997 who were serving as executive officers on December 31, 1997, one former
executive officer who was not serving as an executive officer on December 31,
1997 and the Company's current executive officers. Such current and former
executive officers are hereinafter referred to as the "Named Executive
Officers". For additional information concerning the terms of employment of the
Named Executive Officers, see "-- Employment Agreements".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
AWARDS PAYOUTS
---------- -------
SECURITIES LTIP ALL OTHER
NAME AND OTHER ANNUAL UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1) (2) (3)
- --------------------------- -------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS:
Samer F. Salameh (4) $ 43,205 $105,000 $16,200 (5) 625,000 -- $1,000
President and Chief
Executive Officer
David R. Henkel (6) -- -- -- -- -- --
Executive Vice President,
Finance and Chief Financial
Officer
James P. Dougherty (7) $ 15,385 $ 20,000 -- 375,000 -- $ 462
Executive Vice President,
Business Services
Andrea S. Hirsch (8) -- -- -- -- -- --
Executive Vice President,
Business Development and
General Counsel
James L'Heureux (9) $ 78,558 $ 51,756 -- 200,000 -- --
Executive Vice President,
Consumer Services
Carena M. Pooth $161,458 $ 26,250 -- 71,000 -- $4,800
Executive Vice President,
Technology
FORMER EXECUTIVE OFFICERS:
Paul W. DeLacey (10) $182,083 $ 30,400 -- -- -- $4,750
Former President and
Chief Executive Officer
</TABLE>
62
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ernest L. Godshalk (10) $160,000 $ 19,200 -- 55,000 -- $4,800
Former Vice President,
Finance and Chief Financial
Officer
Inder S. Gopal (10) $205,858 $ 88,870 -- 70,000 -- $5,759
Former President and
General Manager of
Prodigy's former software
development division
Gerard P. Mueller (11) $255,335 $ 37,800 -- -- $153,479 $4,688
Former Senior Vice
President, Network
Seth D. Radwell (10) $192,292 $ 24,000 -- 55,000 -- $4,769
Former Senior Vice
President, Content
</TABLE>
___________________
(1) Represents the number of shares covered by options to purchase shares of
the Company's Common Stock granted during the year ended December 31, 1997.
The Company has never granted any stock appreciation rights.
(2) Represents final payments due under PSC's 1994 and 1995 Long-Term Incentive
Plan.
(3) Represents Company matching contributions under its 401(k) plan.
(4) Commenced employment with the Company in September 1997.
(5) Represents monthly housing and car allowances.
(6) Commenced employment with the Company in August 1998.
(7) Commenced employment with the Company in November 1997.
(8) Commenced employment with the Company in September 1998.
(9) Commenced employment with the Company in July 1997.
(10) Ceased employment with the Company during 1998.
(11) Ceased employment with the Company during 1997.
63
<PAGE>
OPTION GRANTS DURING 1997
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE
VALUE AS ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS OPTION TERM (2)
UNDER- GRANTED TO -----------------------
LYING EMPLOYEES EXERCISE
OPTIONS IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR SHARE (1) DATE 5% 10%
- ---- ---------- ------------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE
OFFICERS:
Samer F. Salameh 625,000 18.9% $1.00 9/29/07 $393,059 $996,089
David R. Henkel -- -- -- -- -- --
James P. Dougherty 375,000 11.3% $1.00 11/24/07 $235,835 $597,653
Andrea S. Hirsch -- -- -- -- -- --
James L'Heureux 200,000 6.0% $1.00 7/18/07 $125,779 $318,748
Carena M. Pooth 71,000 2.1% $1.00 8/1/07 $ 44,652 $113,156
FORMER EXECUTIVE OFFICERS:
Paul W. DeLacey -- -- -- -- -- --
Ernest L. Godshalk 55,000(3) 1.7% $3.00 8/1/07 $103,768 $262,968
Inder S. Gopal 70,000(4) 2.1% $1.00 8/1/07 $ 44,023 $111,562
Gerard P. Mueller -- -- -- -- -- --
Seth D. Radwell 55,000(5) 1.7% $3.00 8/1/07 $103,768 $262,968
</TABLE>
_______________________
(1) Reflects a repricing in May 1998 of the options held by Messrs. Salameh,
Dougherty, L'Heureux and Gopal and Ms. Pooth from $2.00, $2.00, $3.00,
$3.00 and $3.00 per share, respectively, to $1.00 per share. See "-- Stock
Plans --1996 Stock Option Plan".
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercise and the future
64
<PAGE>
performance of the Common Stock. There can be no assurance that the rates
of appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.
(3) Upon termination of Mr. Godshalk's employment with the Company, 44,000 of
these options were cancelled. The remainder of these options will be
cancelled on September 30, 1999 unless exercised.
(4) Upon termination of Mr. Gopal's employment with the Company, all of these
options were cancelled.
(5) Upon termination of Mr. Radwell's employment with the Company, all of these
options were cancelled.
YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers on
December 31, 1997. No Named Executive Officer exercised a stock option during
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS AT FISCAL
UNDERLYING UNEXERCISED OPTIONS YEAR END(1)
AT FISCAL YEAR END ---------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS:
Samer F. Salameh 100,000 525,000(2) -- --
David R. Henkel -- --
James P. Dougherty 75,000 300,000 -- --
Andrea S. Hirsch -- -- -- --
James L'Heureux -- 200,000 -- --
Carena M. Pooth 22,200 77,800 -- --
FORMER EXECUTIVE OFFICERS:
Paul W. DeLacey 633,333 641,667 -- --
Ernest L. Godshalk 55,000 275,000 -- --
Inder S. Gopal 70,000 175,000 -- --
Gerard P. Mueller 100,000 70,000 -- --
Seth D. Radwell 11,250 88,750 -- --
</TABLE>
____________________
(1) Represents the difference between the fair market value of the Common Stock
at fiscal year end as determined by the Board of Directors of the Company
($1.00 per share) and the option exercise price, after giving pro forma
effect to the subsequent repricing of certain options to $1.00 per share.
See "-- Stock Plans -- 1996 Stock Option Plan".
(2) 75,000 of Mr. Salameh's options will become exercisable upon the closing of
the Offering.
65
<PAGE>
EMPLOYMENT AGREEMENTS
CURRENT EXECUTIVE OFFICERS
Mr. Salameh is employed under an Employment Agreement that expires on
December 31, 2000 under which he currently receives an annual base salary of
$200,000. Mr. Salameh received a sign-on bonus of $90,000 and is eligible to
receive an annual performance bonus of up to 50% of his base salary, contingent
upon the successful completion of personal and corporate goals as mutually
established. Mr. Salameh is also eligible to participate in all of the
Company's fringe benefit programs. The Company has agreed to provide Mr.
Salameh with a monthly housing allowance of $4,000, a monthly car allowance of
$1,050 and monthly roundtrip airfare between New York and Mexico City. Mr.
Salameh is also entitled to certain accelerated vesting of stock options in the
event the Company closes an initial public offering prior to August 1, 1999 or
upon certain changes in control of the Company.
Mr. Henkel is employed pursuant to an Employment Agreement under which he
currently receives an annual base salary of $190,000. Mr. Henkel is eligible to
receive an annual performance bonus of up to 50% of his base salary, contingent
upon the successful completion of personal and corporate goals as mutually
established. The Company has agreed to provide Mr. Henkel with a monthly
housing allowance of $3,000, certain allowances for airfare between New York
City and Dallas for Mr. Henkel and members of his family for up to one year, and
relocation expenses of up to $3,000. Mr. Henkel is also eligible to participate
in all of the Company's fringe benefit programs. In the event the Company
terminates Mr. Henkel's employment other than for cause after his third month of
service with the Company, he will continue to receive his base salary for a
length of time based on his length of service. Mr. Henkel is also entitled to
certain accelerated vesting of stock options upon certain changes in control of
the Company.
Mr. Dougherty is employed under an Employment Agreement that expires on
November 24, 2001 and under which he currently receives an annual base salary of
$170,000. Mr. Dougherty received a sign-on bonus of $20,000 and is eligible to
receive an annual performance bonus of up to 50% of his base salary, contingent
upon the successful completion of personal and corporate goals as mutually
established. Mr. Dougherty is also eligible to participate in all of the
Company's fringe benefit programs. In the event the Company terminates Mr.
Dougherty's employment other than for cause, Mr. Dougherty will continue to
receive his base salary and fringe benefits for nine months if termination
occurs prior to November 24, 1999 (six months if termination occurs on or after
November 24, 1999).
Ms. Hirsch is employed under an Employment Agreement that expires on
September 13, 2001 and under which she currently receives an annual base salary
of $190,000. Prodigy agreed to pay Ms. Hirsch a sign-on bonus of $180,000. Ms.
Hirsch is eligible to receive an annual performance bonus of up to 50% of her
base salary, contingent upon the successful completion of personal and corporate
goals as mutually established. Ms. Hirsch is also eligible to participate in
all of the Company's fringe benefit programs. In the event the Company
terminates Ms. Hirsch's employment other than for cause after Ms. Hirsch's third
month of service with the Company, Ms. Hirsch will continue to receive her base
salary and fringe benefits for six months and will be entitled to certain
accelerated vesting of stock options. In the event that Prodigy has not offered
to renew her Employment Agreement prior to its expiration, Ms. Hirsch will
continue to receive her base salary and fringe benefits for six months and will
be entitled to receive a performance bonus for such six-month period.
Mr. L'Heureux is employed under an Employment Agreement that expires on May
31, 2000 and under which he currently receives an annual base salary of
$190,000. Mr. L'Heureux received a sign-on bonus of $40,000 and is eligible to
receive an annual performance bonus of up to 50% of his base salary, contingent
upon the successful completion of personal and corporate goals as mutually
established. Mr. L'Heureux is eligible to participate in all of the Company's
fringe benefit programs. Mr. L'Heureux is also entitled to certain accelerated
vesting of stock options upon a change in control of the Company. In the
66
<PAGE>
event the Company terminates the employment of Mr. L'Heureux other than for
cause, Mr. L'Heureux will continue to receive his base salary and fringe
benefits for nine months, a performance bonus for such nine-month period and a
severance payment based on his length of service. In the event the Company has
not offered to renew his Employment Agreement prior to its expiration, Mr.
L'Heureux will continue to receive his base salary and fringe benefits for nine
months plus a severance payment based on his length of service.
Ms. Pooth is employed under an Employment Agreement that expires on May 31,
2000 and under which she currently receives an annual base salary of $190,000.
Ms. Pooth is eligible to receive an annual performance bonus of up to 50% of her
base salary, contingent upon the successful completion of personal and corporate
goals as mutually established. Ms. Pooth is eligible to participate in all of
the Company's fringe benefit programs, and is entitled to certain accelerated
vesting of stock options upon a change in control of the Company. In the event
the Company terminates Ms. Pooth's employment other than for cause, Ms. Pooth
will continue to receive her base salary and fringe benefits for nine months, a
performance bonus for such nine-month period and a severance payment based on
her length of service. In the event the Company has not offered to renew her
Employment Agreement prior to its expiration, Ms. Pooth will continue to receive
her base salary and fringe benefits for nine months plus a severance payment
based on her length of service.
FORMER EXECUTIVE OFFICERS
Mr. DeLacey was employed under an Employment Agreement scheduled to expire on
August 31, 1999 providing for an initial annual base salary of $150,000 subject
to annual review and increase, an annual performance bonus of up to 40% of his
base salary, customary fringe benefits and other customary provisions.
Effective September 29, 1997, Mr. DeLacey resigned as President and Chief
Executive Officer and agreed to serve through December 31, 1998 as Strategic
Advisor to the Chairman on a part-time basis with his then base salary
($190,000) proportionately reduced based on the proportion of time worked. The
Company and Mr. DeLacey also agreed that Mr. DeLacey's options would continue to
vest through December 31, 1998, at which time he would hold vested options to
purchase 954,167 shares, and the balance of his options would then terminate.
Effective June 30, 1998, Mr. DeLacey resigned as Strategic Advisor to the
Chairman, received a lump sum payment of $53,200 representing foregone salary
for the balance of 1998, and surrendered all of his options except for options
to purchase 100,000 shares (which will remain exercisable through December 31,
1999). Effective July 24, 1998, Mr. DeLacey resigned as a director of the
Company. See "Corporate History and Certain Transactions -- Certain
Transactions Involving Carso Global Telecom, Telmex and Greg C. Carr -- Certain
Stock Purchases by Telmex".
Mr. Godshalk was employed under an Employment Agreement scheduled to expire
on February 5, 2001 providing for an initial annual base salary of $125,000
subject to annual review and increase, a sign-on bonus of $10,000, an annual
performance bonus of up to 25% of his base salary (with a guaranteed bonus of
$31,250 for 1996), customary fringe benefits and other customary provisions.
Effective September 29, 1997, Mr. Godshalk resigned but continued to serve as
Acting Vice President of Finance and Chief Financial Officer until January 1998
at his then base salary ($160,000), and the Company agreed to pay him severance
consisting of continued salary and fringe benefits through September 30, 1998.
The Company and Mr. Godshalk also agreed that Mr. Godshalk's options would
continue to vest through February 5, 1998, at which time he would hold vested
options to purchase 121,000 shares, and the balance of his options would then
terminate.
Mr. Gopal was employed under an Employment Agreement scheduled to expire on
September 1, 2000 providing for an initial annual base salary of $210,000
subject to annual review and increase, a sign-on bonus of $90,000, an annual
performance bonus of up to 30% of his base salary (with a guaranteed bonus of
$46,000 for 1996), customary fringe benefits and other customary provisions.
Effective May 15, 1998, Mr. Gopal resigned, and the Company agreed to pay him
severance consisting of continued salary
67
<PAGE>
and fringe benefits through May 15, 1999, which Mr. Gopal agreed to take in a
lump sum payment on May 30, 1998. The Company also agreed that 70,000 of Mr.
Gopal's options would vest upon termination of employment.
Mr. Mueller was employed under an Employment Agreement scheduled to expire on
August 1, 1998 providing for an initial annual base salary of $250,000, a sign-
on bonus of $250,000 (payable in lieu of certain other prior bonus commitments
made to Mr. Mueller), an annual performance bonus of up to 20% of his base
salary, additional bonuses payable in February 1997 and February 1998 of $28,000
and $122,500, respectively, customary fringe benefits and other customary
provisions. Effective August 15, 1997, Mr. Mueller resigned, and pursuant to
the terms of the Employment Agreement the Company made a lump sum payment to Mr.
Mueller of $275,000 representing all salary and bonuses payable through the
balance of the term of the Employment Agreement.
Mr. Radwell was employed pursuant to a letter agreement scheduled to expire
on September 29, 2000 providing for an initial annual base salary of $170,000
subject to annual review and increase, a sign-on bonus of $10,000, an annual
performance bonus of up to 20% of his base salary, customary fringe benefits and
other customary provisions. Mr. Radwell resigned effective March 13, 1998 and
did not receive any severance payments.
STOCK PLANS
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") permits the issuance
of up to 12,500,000 shares of Common Stock upon the exercise of options granted
under the Option Plan. The Option Plan is currently administered by the
Compensation Committee of the Board of Directors. Under the Option Plan, the
Board or Compensation Committee may grant incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 ("incentive stock
options") and stock options not intended to qualify as incentive stock options
("non-statutory stock options"). Stock options may be granted under the Option
Plan to employees, directors, consultants and advisors of the Company. Only
employees of the Company and its subsidiaries are eligible to receive incentive
stock options. The Option Plan expires in June 2006.
Subject to the provisions of the Option Plan, the Board and Compensation
Committee have the authority to determine: (i) to whom options will be granted;
(ii) the time when options may be granted; (iii) the number of shares to be
covered by each option; (iv) when the option becomes exercisable; and (v) the
exercise price of the option (which price, in the case of incentive stock
options, may not be less than the fair market value of the Common Stock on the
date of grant, or in the case of incentive stock options granted to employees
who own, directly or indirectly, more than 10% of the total combined voting
power of all classes of stock of the Company, 110% of the fair market value of
the Common Stock on the date of grant). The Company's Chief Executive Officer
has authority, without prior Board or Compensation Committee approval, to grant
options under the Option Plan and to determine the terms of such options,
provided that no grants may be made to executive officers and options may not
exceed 100,000 shares per employee per year.
The Company's philosophy is to utilize equity incentives to motivate and
retain management and employees. In June 1997, the exercise price of all
outstanding options held by active employees with exercise prices in excess of
$3.00 per share was reduced to $3.00 per share, representing the then-current
fair market value as determined by the Board of Directors. In this repricing,
options to purchase an aggregate of 1,533,549 shares with exercise prices
ranging from $5.00 to $7.00 per share were repriced to $3.00 per share,
including an option to purchase 29,000 shares held by Ms. Pooth. In May 1998,
the exercise price of all outstanding options held by active employees with
exercise prices in excess of $1.00
68
<PAGE>
per share was reduced to $1.00 per share, representing the then current fair
market value as determined by the Board of Directors. In this repricing, options
to purchase an aggregate of 5,828,515 shares with exercise prices ranging from
$2.00 to $3.00 per share were repriced to $1.00 per share, including options to
purchase 625,000, 375,000, 200,000, 70,000 and 71,000 shares held by Messrs.
Salameh, Dougherty, L'Heureux and Gopal and Ms. Pooth, respectively. The purpose
of these repricings was to restore the performance incentives intended to be
provided by options.
As of August 31, 1998, (i) there were outstanding options under the Option
Plan to purchase an aggregate of 9,472,312 shares of Common Stock at a weighted-
average exercise price of $1.56 per share, (ii) an aggregate of 6,089 shares of
Common Stock had been issued upon exercises and (iii) 3,021,599 additional
shares of Common Stock were reserved for future option grants. As of August 31,
1998, Messrs. Salameh, Dougherty, L'Heureux and Pooth held options to purchase
625,000, 375,000, 375,000 and 375,000 shares, respectively, at an exercise price
of $1.00 per share, and Mr. Henkel held an option to purchase 750,000 shares at
$2.00 per share. The Board of Directors intends, at its next Board meeting, to
grant Ms. Hirsch an option to purchase 375,000 shares at $2.00 per share in
accordance with the terms of her Employment Agreement.
1998 EMPLOYEE STOCK PURCHASE PLAN
In September 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") which becomes effective upon the closing of the Offering.
The Purchase Plan authorizes the issuance of up to 2,000,000 shares of Common
Stock ("Shares") to eligible employees of the Company and its subsidiaries.
Employees are eligible to join the Purchase Plan if their customary employment
is more than 20 hours per week and for more than five months in any calendar
year. Employees who own (directly or indirectly, taking into account the Shares
subject to purchase under the Purchase Plan) 5% or more of the total combined
voting power or value of all classes of stock of the Company are not eligible to
participate.
The Purchase Plan permits shares to be purchased at the end of "Purchase
Periods" occurring during each "Offering Periods". Unless otherwise provided
by the Board prior to commencement, an Offering Period will begin on each May 16
and November 16, and continue for a period of 24 months. A Purchase Period will
begin on each May 16 and November 16, and will continue for a period of six
months, ending on the following November 15 or May 15, respectively. The first
Offering Period and the first Purchase period will commence upon the closing of
the Offering. The last day of each Purchase Period (i.e., May 15 or November
15) is the date on which Shares are actually purchased (a "Purchase Date").
Each eligible employee may enroll in an Offering Period by filing an election
by the first payroll date occurring during the Offering Period (or up to 45 days
after the start of the Offering Period if approved in advance by the Board),
provided such eligible employee is not already participating in an Offering
Period which began earlier. When enrolling in an Offering Period, the employee
must specify the amount to be withheld from pay on each payroll date occurring
during the Offering Period, which cannot exceed 10% of the employee's basic rate
of pay (determined at the beginning of the Offering Period).
The amount withheld from a participating employee's pay is credited to his or
her account under the Purchase Plan. Unless the electing employee withdraws
from participation (in which case the employee will be refunded the amount in
his account, without interest), the funds in his or her account will be used on
each Purchase Date to purchase that number of Shares which can be purchased at a
price equal to the lower of 85% of the fair market value of the Shares on the
first day of the Offering Period and 85% of the fair market value of the Shares
on the Purchase Date. "Fair market value" is defined as the last sale price of
the Common Stock on the Nasdaq National Market on the applicable day.
69
<PAGE>
The number of Shares otherwise subject to purchase by an employee on a
Purchase Date will be reduced proportionately (as described in the Purchase
Plan) if the number of Shares available under the Purchase Plan, or available
with respect to the Offering Period, is not sufficient to satisfy the purchase
rights of all employees on such Purchase Date. In addition, the number of
Shares otherwise subject to purchase on a Purchase Date will be reduced to the
extent necessary to insure that the employee's right to acquire Shares under the
Purchase Plan does not accrue at a rate which exceeds $25,000 in fair market
value (as determined on the first day of the Offering Period of reference) for
each calendar year during which the employee was an active participant in the
Purchase Plan.
If an employee terminates employment for any reason (including death or
disability), or withdraws from an Offering Period, such employee will not be
entitled to acquire Shares on any succeeding Purchase Date occurring with
respect to such Offering Period, and the amount in his or her account will be
refunded without interest. An employee withdrawing from an Offering Period
will not be entitled to rejoin the Purchase Plan with respect to such Offering
Period but may, if such employee otherwise qualifies, rejoin the Purchase Plan
with respect to any subsequent Offering Period.
The Purchase Plan will be administered by the Compensation Committee of the
Board. The amounts paid to the Company with respect to the purchase of Shares
may be used for any corporate purpose. The employees participating in the
Purchase Plan will have no interest, voting rights or other privileges with
respect to the Shares until they receive a certificate representing such Shares.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of Shares to be purchased by any particular current
executive officer, by all Named Executive Officers as a group or by non-
executive employees as a group.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Elias and Nakfoor. No executive officer of the Company has served
as a director or member of the compensation committee (or other committee
serving an equivalent function) of any other entity, whose executive officers
served as a director of or member of the Compensation Committee of the Board of
Directors.
70
<PAGE>
CORPORATE HISTORY AND CERTAIN TRANSACTIONS
ACQUISITION OF PRODIGY SERVICES COMPANY
ACQUISITION TERMS
On June 17, 1996, the Company acquired PSC from its owners, IBM and Sears,
for $46,950,000 in cash (including $6,150,000 paid to financial advisors) plus
the issuance of 8% Contingent Convertible Promissory Notes (the "Contingent
Notes") valued at $30,500,000 by an independent appraiser. The Contingent Notes
entitled IBM and Sears to receive in the aggregate (i) in the event of a
qualifying initial public offering, 15% of the Company's Common Stock on a
fully-diluted basis, or (ii) in the event the Company is acquired, 15% of the
consideration received, provided that the value of the consideration payable to
IBM and Sears in either case was limited to $200,000,000 plus accrued interest.
IBM and Sears assumed PSC's four existing retirement plans and all obligations
thereunder. Effective as of the closing, IBM received sole ownership of six
patents jointly-owned with PSC, the Company received sole ownership of two other
jointly-owned patents, and IBM and the Company entered into the patent cross-
license agreements described under "Business -- Proprietary Rights". The
Company is obligated to indemnify IBM and Sears for claims and liabilities
arising out of PSC's business, whether arising before or after the closing of
the Prodigy Acquisition, except with respect to the retirement plans assumed by
IBM and Sears.
In November 1997, IBM and Sears (i) agreed that the consideration receivable
upon conversion of the Contingent Notes would be based on the valuation of the
Company in excess of $250,000,000 (with the aggregate consideration payable to
IBM and Sears still limited to $200,000,000 plus interest from June 17, 1996)
and (ii) were granted Contingent Stock Purchase Warrants (the "Contingent
Warrants") to purchase up to 15% of the Common Stock of the Company at 130% of
the fair market value thereof at the time of conversion of the Contingent Notes.
As a condition to these arrangements, Carso Global Telecom prepaid (on behalf of
and as an advance to the Company) the balance due on the Company's former White
Plains lease ($5,831,000) and established a $4,000,000 letter of credit,
declining quarterly over three years, to secure certain payment obligations of
the Company under PSC contracts for which IBM and Sears remain liable. See
Notes 1, 4 and 9 to the Company's Consolidated Financial Statements.
REORGANIZATION
In connection with the Prodigy Acquisition, the Company was formed to acquire
PSC and to hold all of the outstanding stock of IW, and IW retained its existing
cellular telephone assets and conveyed its other assets to other subsidiaries of
the Company. The new holding-company structure was created to effect the
Prodigy Acquisition and to consolidate the Company's cellular telephone assets
within IW in order to position IW for separate sale or financing. As a result
of this reorganization, all outstanding Common Stock of IW was automatically
converted into Common Stock of the Company on a one-for-one basis. See "--
Prior Corporate History".
TREATMENT OF CONVERTIBLE NOTES AND CONTINGENT WARRANTS IN THE OFFERING
Upon the closing of the Offering (at an assumed initial public offering price
of $ per share), IBM and Sears will each (i) receive shares of Common
Stock pursuant to the conversion of its Contingent Note and (ii) hold a
Contingent Warrant to purchase shares of Common Stock at an exercise
price of $ per share (subject to customary anti-dilution adjustments) at
any time prior to the third anniversary of the Offering. IBM and Sears have
customary piggyback and demand registration rights, at the Company's expense,
with respect to the Common Stock issuable upon conversion of the Contingent
Notes or exercise of the Contingent Warrants, including customary
indemnification and other provisions. After conversion of the Contingent Notes
or exercise of the Contingent Warrants, IBM and Sears have
71
<PAGE>
agreed to vote their shares of Common Stock in accordance with the voting
recommendations of the Company's Board of Directors.
OTHER ARRANGEMENTS WITH IBM AND SEARS
In September 1998, the Company agreed in principle to sell to IBM a version
of Prodigy's service provider platform software enabling an ISP to manage
subscriber data. IBM will pay the Company $2,000,000, and the Company will
retain a perpetual, royalty-free license to use and upgrade the software for its
own use. The Company does not use such software to manage its own subscriber
data. See "Business -- Technology".
Between the closing of the Prodigy Acquisition and October 1997, IBM and
Sears paid the State of New York $3.4 million for sales and use taxes assessed
against PSC for certain periods ended prior to the Prodigy Acquisition. In
October 1997, the Company, IBM and Sears agreed that each of them would be
liable for one-third of all sales and use taxes assessed against PSC for periods
ended prior to the Prodigy Acquisition, and Carso Global Telecom paid (as an
advance to the Company) $567,000 to each of IBM and Sears in light of prior
payments of such taxes by IBM and Sears.
Prior to outsourcing its network to Splitrock, Prodigy utilized a network
backbone and certain POPs provided by Advantis (a joint venture of IBM and
Sears) and subsequently by IBM Global Services after IBM acquired Sears'
interest in Advantis during 1997. Splitrock continues to use certain POPs
provided by IBM Global Services. The Company also purchases computer equipment
from IBM on normal commercial terms. During the period June 17, 1996 through
December 31, 1996, the year ended December 31, 1997 and the six months ended
June 30, 1998, respectively, the Company paid IBM/Advantis an aggregate of
$17,116,000, $37,995,000 and $22,867,000 for network services and equipment
purchases.
At the time of outsourcing its network to Splitrock, Prodigy had certain non-
cancellable commitments to purchase network services from Advantis/IBM Global
Services. In September 1998, in settlement of such commitments, the Company
agreed in principle to purchase from IBM, on normal commercial terms, certain
maintenance and voice-related network services in the aggregate amount of
$7,500,000 prior to December 31, 2000.
Prior to the Prodigy Acquisition, PSC utilized a network backbone and certain
POPs provided by Advantis and purchased computer equipment from IBM. During the
year ended December 31, 1995 and the period January 1, 1996 through June 16,
1996, PSC paid Advantis $3,347,000 and $4,355,000, respectively, for network
services and paid IBM $13,686,000 and $4,893,000, respectively, for computer
equipment. See Note 4 to the Consolidated Financial Statements of Prodigy
Services Company for a description of certain other transactions among PSC, IBM
and Sears.
CERTAIN TRANSACTIONS INVOLVING CARSO GLOBAL TELECOM, TELMEX AND GREG C. CARR
FUNDING AGREEMENT
In connection with the Prodigy Acquisition, the Company entered into a
Funding Agreement with Carso Global Telecom and Greg C. Carr on May 12, 1996
(the "Funding Agreement") under which Carso Global Telecom and Mr. Carr granted
the Company stock puts giving the Company the right to require Carso Global
Telecom and Mr. Carr to purchase shares of Common Stock with an aggregate
purchase price of up to $125,000,000 and $12,500,000, respectively, subject to
reduction in certain circumstances. The stock puts originally were exercisable
at a price of $6.00 per share until the earlier of November 12, 1997 or the
closing of the Company's initial public offering with gross proceeds of at least
$25,000,000. The Funding Agreement also contained a commitment from Carso Global
Telecom and Mr. Carr to invest $5,000,000 and $2,000,000, respectively, in the
Company's next private placement. The Company also
72
<PAGE>
granted Carso Global Telecom an option, which was not exercised, to purchase the
Company's cellular telephone licenses and assets in the Ivory Coast and Guinea
for $69,000,000 prior to July 26, 1996. On October 31, 1996, the Funding
Agreement was amended to reduce the exercise price of the stock puts to $3.00
per share and the investment commitments of Carso Global Telecom and Mr. Carr in
the Company's next private placement were changed to $3,500,000 each. On March
18, 1997, the Funding Agreement was further amended as follows: (i) the amount
of Carso Global Telecom's stock put was reduced by $8,444,762, (ii) the amount
of Mr. Carr's stock put was increased by $8,500,000, (iii) Carso Global Telecom
and Mr. Carr agreed to the exercise of $65,000,000 and $15,000,000 of the stock
puts, respectively, and (iv) the expiration of the remaining stock puts was
extended to May 12, 1998. The proceeds of the foregoing $65,000,000 and
$15,000,000 of stock puts, together with the proceeds of their additional
financing commitments of $3,500,000 each, were paid to the Company in connection
with the October 1996 Placement described below under "-- Prior Equity
Financings". The final amount of the stock puts, after giving effect to certain
reductions contained in the Funding Agreement and the changes made by the March
18, 1997 amendment to the Funding Agreement, was $103,938,467 for Carso Global
Telecom and $20,990,533 for Mr. Carr. By October 1, 1997, the stock puts had
been fully exercised for 34,646,155 shares and 6,996,844 shares, respectively.
Pending expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), applicable to certain of
the stock put exercises, (i) Carso Global Telecom loaned $71,500,000 to the
Company on an interest-free basis (subsequently converted into 28,833,333
shares), (ii) Carso Global Telecom caused Banco Inbursa, S.A. ("Banco Inbursa"),
an affiliate of Carso Global Telecom, to loan $13,650,000 to the Company at 9%
interest (subsequently repaid in full), (iii) Mr. Carr loaned $16,000,000 to the
Company on an interest-free basis (subsequently converted into 5,333,333 shares)
and (iv) Mr. Carr loaned $1,500,000 to the Company at 9% interest (subsequently
converted into 500,000 shares). All such loans were unsecured, and the proceeds
were used to finance the Company's operations, except that $40,000,000 of the
proceeds was used to repay indebtedness owed to Banco Inbursa under its prior
revolving line of credit. See "-- Loans from Banco Inbursa".
WARRANTS
In consideration of their commitments under the Funding Agreement, the
Company granted Carso Global Telecom and Mr. Carr (i) warrants to purchase
2,700,000 shares and 270,000 shares, respectively, of Common Stock for $3.00 per
share (the "Initial Warrants"), exercisable until December 31, 1996, and (ii)
warrants to purchase 2,000,000 shares and 1,000,000 shares, respectively, of
Common Stock for $9.00 per share (the "Additional Warrants"), exercisable until
the earlier of (a) the closing of the Company's initial public offering or (b)
November 12, 1997. On October 2, 1996, Mr. Carr exercised his Initial Warrant
at the Company's request for $2.93 per share, reflecting a discount (based on
the interest rate paid under the Company's bank debt) from the original exercise
price in order to induce early exercise. On December 27, 1996, Carso Global
Telecom exercised its Initial Warrant for $3.00 per share. In connection with
the October 31, 1996 amendment of the Funding Agreement, Mr. Carr's Additional
Warrant was cancelled and the number of shares subject to Carso Global Telecom's
Additional Warrant was reduced from 2,000,000 to 1,000,000 and its exercise
price was reduced to $7.00 per share. In consideration of the increased
financing commitments under the March 18, 1997 amendment to the Funding
Agreement, the Company granted Carso Global Telecom and Mr. Carr warrants (the
"March 1997 Warrants") to purchase 13,000,000 shares and 2,000,000 shares,
respectively, of Common Stock for $3.00 per share, exercisable prior to the
expiration of the stock puts, and Carso Global Telecom's Additional Warrant was
cancelled. In consideration of certain interim financing commitments made by
Carso Global Telecom and Mr. Carr in October 1997, the exercise price of the
March 1997 Warrants was reduced from $3.00 per share to $1.00 per share. Carso
Global Telecom exercised its March 1997 Warrant in April 1998. Mr. Carr
subsequently transferred his March 1997 Warrant to a third party, who exercised
such March 1997 Warrant in May 1998.
73
<PAGE>
BOARD ARRANGEMENTS
Mr. Carr was Chairman of the Board and a director of the Company from its
formation in June 1996 until his resignation in July 1998 and was also a
director of IW from March 1995 until January 1997. The Company paid Mr. Carr an
annual fee of $135,000 from May 1996 until his resignation in recognition of the
fact that Mr. Carr's duties as Chairman of the Board were significantly greater
than the duties ordinarily assumed by a Chairman of the Board.
In connection with the March 18, 1997 amendment of the Funding Agreement,
Carso Global Telecom and Mr. Carr agreed that, until the earlier of March 18,
2007 or one year after the Company's initial public offering with gross proceeds
of at least $25,000,000, (i) Carso Global Telecom would have the right to
designate 60% of the Company's directors, (ii) Mr. Carr would have the right to
designate 40% of the Company's directors, (iii) Mr. Carr would vote all shares
over which he (or any affiliate of Mr. Carr) exercised voting control in favor
of the election of the directors designated by Carso Global Telecom and (iv)
Carso Global Telecom would vote all shares over which it (or any affiliate of
Carso Global Telecom) exercised voting control in favor of the election of the
directors designated by Mr. Carr. In connection with Telmex's purchase of
13,000,000 shares from Mr. Carr in August 1998, Carso Global Telecom and Mr.
Carr agreed to terminate the foregoing voting agreement, and Carso Global
Telecom agreed to continue, until the earlier of July 24, 1999 or Mr. Carr's
resignation as a director, to vote all shares over which it (or any of its
affiliates) exercised voting control in favor of the election of Mr. Carr as a
director. On July 24, 1998, Mr. Carr resigned as Chairman of the Board and, on
July 31, 1998, Mr. Carr resigned as a director of the Company. See "-- Certain
Stock Purchases by Telmex".
CERTAIN STOCK PURCHASES BY TELMEX
In August 1998, Telmex purchased 13,000,000 shares of Common Stock from Mr.
Carr for $2.00 per share for an aggregate purchase price of $26,000,000. If
Telmex, Carso Global Telecom, Prodigy or any of their affiliates purchases or
sells any Common Stock for more than $2.00 per share in a transaction
aggregating at least $500,000 on or before January 20, 1999 (a "Qualifying
Transaction"), Telmex will be required to pay to Mr. Carr an amount equal to (i)
13,000,000 multiplied by (ii) the difference between $2.00 and the price per
share in the Qualifying Transaction, subject to a maximum additional payment of
$.40 per share. The Offering will be a Qualifying Transaction. Upon the
closing of the Offering (at an assumed initial public offering price of $
per share), Telmex will be obligated to pay Mr. Carr $ pursuant to
this arrangement. Mr. Carr concurrently purchased 1,154,625 shares at the same
price from family members and certain other stockholders. Pending the
termination of the waiting period under the HSR Act applicable to Telmex's
purchase from Mr. Carr, Telmex loaned $26,000,000 to Mr. Carr. Such loan did not
bear interest and was secured by Mr. Carr's pledge to Telmex of 13,000,000
shares. In connection with this transaction, the Company granted Mr. Carr
piggyback registration rights entitling Mr. Carr to participate in any
registered public offering in which Carso Global Telecom and/or Telmex proposes
to sell shares. The registration rights agreement contains customary
underwriter cutback, indemnification and other provisions. Telmex and Carso
Global Telecom also granted Mr. Carr certain co-sale rights to participate in
subsequent sales by Telmex or Carso Global Telecom, which rights will expire
upon the closing of the Offering.
In August 1998, Telmex purchased 150,000 shares of Common Stock from Paul W.
DeLacey for $2.00 per share for an aggregate purchase price of $300,000. Mr.
DeLacey served as President and Chief Executive Officer of the Company from June
1996 until September 1997 and as a director of the Company from June 1996 until
July 1998. Mr. DeLacey concurrently purchased 25,000 shares at the same price
from family members. Pending the termination of the waiting period under the
HSR Act applicable to Telmex's purchase from Mr. DeLacey, Telmex loaned $300,000
to Mr. DeLacey. Such loan did not bear interest and was secured by Mr.
DeLacey's pledge to Telmex of 150,000 shares. In connection with this
transaction, Mr. DeLacey resigned as a director on July 24, 1998.
74
<PAGE>
LOANS FROM BANCO INBURSA
In June 1996, Banco Inbursa agreed to provide the Company with a $50,000,000
revolving line of credit with an original maturity of June 13, 1997. In June
1996, the Company borrowed $48,000,000 in order to pay the cash portion of the
purchase price for the Prodigy Acquisition and related expenses and subsequently
borrowed the remaining $2,000,000. In March 1997, the Company repaid
$40,000,000 to Banco Inbursa. See "-- Funding Agreement". In June 1997, Banco
Inbursa agreed to extend the line of credit for $10,000,000 until January 31,
1998. Advances under the line of credit bore interest at the prime rate plus
one-half percentage point. Between February 1998 and July 1998, Banco Inbursa
made additional advances to the Company in the aggregate amount of $32,100,000
to fund operations; such loans bore 9% interest and were due December 31, 1999.
In late July 1998, the Company repaid all $32,100,000 then owed to Banco
Inbursa. Banco Inbursa also made interim loans to the Company pending the
closing of certain equity financings, all of which loans have been repaid. See
"-- Prior Equity Financings".
In June 1996, Carso Global Telecom and Mr. Carr pledged 7,000,000 shares and
10,000,000 shares of Common Stock, respectively, owned by them to secure amounts
outstanding under the Banco Inbursa line of credit. In connection with the
October 31, 1996 amendment of the Funding Agreement, Mr. Carr agreed to continue
his stock pledge until June 13, 1998 to secure a new line of credit from a
United States bank or other debt financing to replace the Banco Inbursa line of
credit. In October 1997, Mr. Carr agreed to pledge 7,500,000 shares of Common
Stock to secure advances of $3,750,000 from Banco Inbursa to the Company until
the closing of the Company's rights offering in December 1997. All stock
pledges of Carso Global Telecom and Mr. Carr were released in July 1998.
LOANS FROM GREG C. CARR
In November and December 1996, Mr. Carr loaned $6,000,000 to the Company.
Such loans bore interest at the prime rate plus 1 1/4 percentage points and were
repaid with interest on January 2, 1997.
From March 31, 1995 to May 15, 1995, Mr. Carr provided a revolving line of
credit of $1,250,000 to the Company. See "-- Prior Corporate History -- ACI
Merger". As of May 15, 1995, Mr. Carr converted the advances and accrued
interest then outstanding ($730,000 in total) into Common Stock at $2.50 per
share. From November 15, 1995 to June 12, 1996, Mr. Carr provided a revolving
line of credit of $4,500,000 to the Company. Effective as of March 31, 1996,
Mr. Carr converted $3,000,000 in advances into 1,000,000 shares of Common Stock
at $3.00 per share in connection with the November 1995 Placement described
below under "-- Prior Equity Financings". Effective as of June 12, 1996, Mr.
Carr converted the remaining $1,500,000 in advances into 500,000 shares of
Common Stock at $3.00 per share. Advances under both facilities were secured by
all of the Company's assets, bore interest at a floating interest rate based on
the prime rate and were used to finance the Company's operations. Upon
establishment of the $4,500,000 facility, the Company paid Mr. Carr a commitment
fee equal to 1% of the total facility ($45,000) through the issuance of 15,000
shares of Common Stock valued at $3.00 per share.
PRIOR EQUITY FINANCINGS
In August 1998, Telmex purchased 24,500,000 shares of Common Stock from the
Company for $2.00 per share for aggregate gross proceeds of $49,000,000, and in
July 1998 Carso Global Telecom purchased 5,500,000 shares of Common Stock from
the Company for $2.00 per share for aggregate gross proceeds of $11,000,000.
Pending the termination of the applicable waiting period under the HSR Act,
Telmex's investment in the Company was represented by an unsecured, interest-
free loan to the Company.
In November 1997, the Company made a rights offering in which each
stockholder of the Company was entitled to purchase one share of Common Stock at
a price of $1.00 per share for each one share held
75
<PAGE>
as of October 10, 1997. The offering price was determined by the Company's Board
of Directors to equal the fair market value of the Common Stock at that time
upon consideration of certain analyses undertaken by a financial advisor as to
the range within which the purchase price would be fair to the Company from a
financial point of view and after consideration of other factors. On December
19, 1997, the Company closed the rights offering by issuing an aggregate of
50,561,915 shares to 36 stockholders of the Company, including 49,543,822 shares
to Carso Global Telecom and 500,000 shares to Mr. Carr. Mr. Carr paid the
purchase price for his shares through the conversion of $500,000 of prior
advances to the Company without interest. In payment for its 49,543,822 shares,
Carso Global Telecom (i) was credited with $4,000,000 by reason of the issuance
of the IBM/Sears LC, (ii) paid $13,750,000 directly to Banco Inbursa on the
Company's behalf in repayment of $13,750,000 of indebtedness owed by the Company
to Banco Inbursa (see "--Loans from Banco Inbursa") and (iii) paid the remaining
$31,793,822 to the Company. Each calendar quarter, Carso Global Telecom is
required to pay the Company an amount equal to $333,333 less any draws on the
IBM/Sears LC during such quarter until the entire $4,000,000 has been paid to
the Company or drawn under the IBM/Sears LC. As of June 30, 1998, Carso Global
Telecom had paid $666,666 pursuant to such commitment and the IBM/Sears LC had
been reduced to $3,333,334.
Between October 1996 and May 1997, the Company received aggregate gross
proceeds of $88,843,235 from the private placement (the "October 1996
Placement") of 29,614,412 shares of Common Stock for $3.00 per share. In the
October 1996 Placement, Carso Global Telecom and Mr. Carr invested $68,500,000
and $18,500,000, respectively, through exercises of the stock puts and the
financing commitments contained in the Funding Agreement, and Mr. Pillar
invested $30,000. See "-- Funding Agreement". The Company also granted a
warrant to purchase 68,056 shares of Common Stock for $3.00 per share,
exercisable at any time prior to December 13, 2001, to a placement agent in the
October 1996 Placement.
Pursuant to an agreement dated April 11, 1996, Carso Global Telecom purchased
7,000,000 shares of Common Stock from the Company for $3.00 per share (for
aggregate gross proceeds of $21,000,000) on various dates between March 1996 and
September 1996.
Between November 1995 and March 1996, the Company received aggregate gross
proceeds of $7,376,508 from the private placement (the "November 1995
Placement") of 2,458,836 shares of Common Stock for $3.00 per share. Mr. Carr
purchased 1,000,000 shares in the November 1995 Placement for $3,000,000 upon
the conversion of advances made by him to the Company under a line of credit.
See "-- Loans from Greg C. Carr".
Between May 1995 and October 1995, the Company received aggregate gross
proceeds of $3,081,250 from the private placement (the "May 1995 Placement") of
1,232,500 shares of Common Stock for $2.50 per share. Mr. Carr purchased
400,000 shares in the May 1995 Placement for $1,000,000.
Between October 1994 and February 1995, the Company received aggregate gross
proceeds of $907,456 from the private placement (the "October 1994 Placement")
of 453,728 shares of Series A Convertible Preferred Stock ("Series A Stock") for
$2.00 per share. On March 31, 1995, each share of Series A Stock was
reclassified and changed into 1.25 shares of Common Stock (for an aggregate of
567,160 shares of Common Stock), resulting in an effective purchase price for
the investors in the October 1994 Placement of $1.60 per share of Common Stock.
The rate at which Series A Stock was exchanged for Common Stock was intended to
compensate the holders of Series A Stock for the value of the liquidation
preference they relinquished upon the reclassification of their shares into
Common Stock.
76
<PAGE>
PRIOR CORPORATE HISTORY
COMSTAR TRANSACTION
The Company's predecessor, IW, was formed in Delaware in May 1994 to develop
and operate cellular telephone systems in Africa. On August 10, 1994, IW
acquired all of the assets of Comstar Cellular Network, Inc. and assumed
Comstar's outstanding accounts payable. At the time of the acquisition,
Comstar's corporate records were incomplete and there had been an overissuance
of Comstar's common stock. Comstar also required an immediate cash infusion in
order to complete the activities required to convert the two provisional
communications licenses it held in Africa into definitive licenses. In exchange
for Comstar's assets, IW issued to Comstar all then outstanding common stock of
IW, which Comstar then distributed as a liquidating dividend to the holders of
certificates for common stock of Comstar. Each holder of a certificate for
common stock of Comstar was required to acknowledge and accept the terms of the
Comstar acquisition and release Comstar and IW from all claims which such holder
may have had against either Comstar or IW. The terms of the Comstar acquisition
were accepted by the holders of 98% of the certificates for common stock of
Comstar (representing 78% of the number of shares covered by outstanding
certificates for common stock of Comstar), and an aggregate of 21,636,850 shares
of IW common stock were issued to the former holders of Comstar certificates.
Three persons chose not to participate in the Comstar acquisition and received
no IW shares. See "Business -- Legal Proceedings". In March 1995, Comstar was
dissolved under Nevada law. The Company believes that the Comstar acquisition
provided the holders of certificates for common stock of Comstar with the
opportunity to acquire equity participation, without further investment, in a
properly constituted corporation without the corporate irregularities or claims
of creditors faced by Comstar and in substantially the same proportions as they
would have had in Comstar had their certificates been validly issued.
ACI MERGER
On March 31, 1995, African Communications Incorporated ("ACI") was merged
with and into IW (the "ACI Merger"). Prior to the ACI Merger, IW and ACI had
jointly evaluated certain African markets and established IW's initial foreign
subsidiaries. ACI had no material assets or liabilities other than its equity
interests in the initial foreign subsidiaries and loans of approximately
$450,000 to IW and certain of its foreign subsidiaries. Immediately prior to
the ACI Merger, ACI assigned these loans to Mr. Carr (who was then ACI's sole
stockholder), and Mr. Carr agreed to make approximately $800,000 in additional
loans available to IW. See "-- Loans from Greg C. Carr". In the ACI Merger,
Mr. Carr received 11,162,255 shares of common stock of IW, representing 33.8% of
the outstanding common stock immediately after the ACI Merger and 32.3% of the
then outstanding common stock on a fully-diluted basis. The terms of the ACI
Merger were negotiated to reflect the fact that the initial foreign subsidiaries
were owned by IW and ACI in a two-to-one ratio.
DISPOSITIONS OF FORMER INTERNATIONAL OPERATIONS
Effective January 27, 1997, the Company sold all of IW's issued and
outstanding capital stock to an acquisition corporation (the "Cellular Buyer")
formed by Terrance P. Dillon, a former director and principal stockholder of the
Company and IW. At the time of the sale, IW's assets consisted of cellular
communications licenses and license applications in certain African countries
and the associated rights and assets used in the Company's cellular telephone
operations. The original purchase price consisted of (i) the surrender of
5,571,429 shares of Common Stock of the Company (valued by the parties at $6.75
per share), (ii) a Promissory Note (the "Cellular Note") in the original
principal amount of $21,500,000 (including $1,500,000 in reimbursement of
capital expenditures made by the Company for the benefit of IW) and (iii) the
cancellation of options to purchase 500,000 shares of Common Stock of the
Company. In October 1997, the Cellular Buyer surrendered an additional 2,294,321
shares of Common Stock of the
77
<PAGE>
Company held by the Cellular Buyer (valued by the parties at $3.00 per share) to
reduce its unpaid obligations under the Cellular Note and to satisfy unpaid
indemnification obligations owed to the Company. As of June 30, 1998,
$17,009,000 in principal amount and accrued interest was outstanding under the
Cellular Note. Due to uncertainties associated with the efforts of the Cellular
Buyer to obtain financing, the Cellular Note has been recorded in the Company's
accounts at a book value of zero.
The Company currently owns Africa Online, Inc. ("AFOL"), an ISP operating in
various African countries. The Company has agreed in principle to sell AFOL for
$2,815,000 in cash, of which $1,407,000 will be placed in escrow for six months
to secure the Company's indemnification obligations to the buyer. The
transaction is scheduled to close in September 1998 but is subject to certain
conditions, and there can be no assurance that the closing will occur as
scheduled. If AFOL is not sold as scheduled, the Company intends to seek
another buyer for AFOL or wind-down its operations.
The Company formerly participated in several joint ventures which offered
Internet, online, voice messaging and fax messaging services in China. In March
1998, the Company terminated its Chinese joint ventures and operations. See
Note 5 to the Company's Consolidated Financial Statements.
78
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 31, 1998 and as
adjusted to give effect to the Offering by (i) each person or entity known to
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each of the directors of the Company, (iii) each of the Named Executive Officers
and (iv) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING (1)(2)
-------------------------- ---------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
- -------------------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
CURRENT DIRECTORS, EXECUTIVE OFFICERS AND
5% STOCKHOLDERS:
Carso Global Telecom (3).............. 117,587,644 65.3% 117,587,644 %
Telmex (4)............................ 37,650,000 20.9 37,650,000
Samer F. Salameh (5)(6)............... 275,000 * 350,000 *
Russell I. Pillar (7)................. 485,000 * 560,000 *
Alfredo Sanchez(6).................... -- * -- *
Arturo Elias(6)....................... -- * -- *
James M. Nakfoor(6)................... 37,500 * 37,500 *
David R. Henkel....................... -- * -- *
James P. Dougherty (8)................ 75,000 * 75,000 *
Andrea S. Hirsch...................... -- * -- *
James L'Heureux(9).................... 50,000 * 50,000 *
Carena M. Pooth (10).................. 44,400 * 44,400 *
All current executive officers and 966,900 * 1,116,900 *
directors as a group
(10 persons) (6)(11) ..............
OTHER 5% STOCKHOLDERS:
IBM(12)............................... -- *
Sears(13)............................. -- *
OTHER NAMED EXECUTIVE OFFICERS:
Paul W. DeLacey (14).................. 100,000 * 100,000 *
Inder S. Gopal (15)................... 70,000 * 70,000 *
Seth D. Radwell....................... -- * -- *
Ernest L. Godshalk (16)............... 161,000 * 161,000 *
Gerard P. Mueller (17)................ 100,000 * 100,000 *
</TABLE>
__________________
* Denotes ownership of less than 1%
79
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual or entity has sole
or shared voting power or investment power and any shares as to which the
individual or entity has the right to acquire within 60 days after August
31, 1998 through the exercise of any stock option, warrant or other right
(but such shares are not deemed outstanding for purposes of calculating the
percentage ownership of any other person). The inclusion herein of any such
shares, however, does not constitute an admission that the named stockholder
is a direct or indirect beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity.
(2) Shares to be beneficially owned after the Offering give pro forma effect to
the Offering and the issuance to IBM and Sears of an aggregate of shares
upon the closing of the Offering (at an assumed initial public offering
price of $ per share) pursuant to the conversion of the Contingent Notes
held by them. See "Corporate History and Certain Transactions -- Acquisition
of Prodigy Services Company" and Notes 1, 4 and 9 to the Company's
Consolidated Financial Statements.
(3) Excludes the listed shares held by Telmex, with respect to which Carso
Global Telecom may be deemed to be the beneficial owner. In June 1996,
Carso Global Telecom was spun-off from Grupo Carso, a holding company with
interests in the tobacco, mining, metallurgical and paper industries, in the
operation of restaurants and department stores, in the production of copper,
copper alloys, copper cable, aluminum wire and tires, and in Mexican banks
and brokerage houses. Mr. Carlos Slim Helu, a Mexican citizen, and certain
members of his immediate family, directly and through their ownership of a
majority of the voting and economic interests in two trusts, own a majority
of the outstanding voting equity securities of Carso Global Telecom, Grupo
Carso and Grupo Financiero. Mr. Slim may be deemed to be the beneficial
owner of all Common Stock of the Company held by Carso Global Telecom and
Telmex. See "Risk Factors -- Control of the Company and Potential Conflicts
of Interest". As used herein with respect to the Company, all references
to Carso Global Telecom mean and include Grupo Carso prior to the date Carso
Global Telecom was spun-off from Grupo Carso. The business address of Carso
Global Telecom and Mr. Slim is Paseo de las Palmas, #736, Col. Lomas de
Chapultepec, Mexico City, Mexico 11000.
(4) The listed shares are held by Sercotel, S.A. de C.V., a wholly-owned
subsidiary of Telmex. Telmex's business address is Parque Via 190, Oficina
1016, Colonia Cuauhtemoc, Mexico City, Mexico 06599. See footnote (3).
(5) Consists of 200,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998 and, upon
closing of the Offering, 75,000 additional shares of Common Stock subject to
stock options that will become exercisable upon the closing of the Offering.
(6) Excludes the listed shares held by Carso Global Telecom and Telmex, with
respect to which such person may be deemed to be the beneficial owner. If
such shares were included, the number of shares held by all directors and
executive officers as a group would be 156,204,544, or % of the
outstanding shares, prior to the Offering and 156,354,544, or % of the
outstanding shares, following the Offering. See "Management".
(7) Pre-Offering figures include 275,000 shares of Common Stock subject to
outstanding stock options that are exercisable within 60 days after August
31, 1998. Post-Offering figures include 75,000
80
<PAGE>
additional shares of Common Stock subject to stock options that will become
exercisable upon the closing of the Offering.
(8) Consists of 75,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(9) Consists of 50,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(10) Consists of 44,400 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(11) Pre-Offering figures include an aggregate of 500,000 shares of Common Stock
subject to outstanding stock options that are exercisable within 60 days
after August 31, 1998. Post-Offering figures include 150,000 additional
shares of Common Stock subject to stock options that will become
exercisable upon the closing of the Offering.
(12) Upon the closing of the Offering (at an assumed initial public offering
price of $ per share), consists of (i) shares issued to IBM
pursuant to the conversion of the Contingent Note held by IBM and (ii)
shares of Common Stock issuable to IBM upon exercise of the Contingent
Warrant held it. See "Corporate History and Certain Transaction --
Acquisition of Prodigy Services Company". IBM's business address is New
Orchard Road, Armonk, New York 10504.
(13) Upon the closing of the Offering (at an assumed initial public offering
price of $ per share), consists of (i) shares issued to Sears
pursuant to the conversion of the Contingent Note held by Sears and (ii)
shares of Common Stock issuable to Sears upon exercise of the Contingent
Warrant held it. See "Corporate History and Certain Transaction --
Acquisition of Prodigy Services Company". Sears' business address is 3333
Beverly Road, Hoffman Estates, Illinois 60179.
(14) Consists of 100,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(15) Consists of 70,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(16) Includes 121,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
(17) Consists of 100,000 shares of Common Stock subject to outstanding stock
options that are exercisable within 60 days after August 31, 1998.
81
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the Offering, the authorized capital stock of the Company
will consist of shares of Common Stock, $.01 par value per share, and
shares of Preferred Stock, $.01 par value per share. As of August 31, 1998,
there were outstanding (i) 180,225,727 shares of Common Stock held by 395
stockholders of record, (ii) options to purchase an aggregate of 9,472,312
shares of Common Stock at a weighted-average exercise price of $1.56 per share,
(iii) warrants to purchase an aggregate of 437,389 shares of Common Stock at a
weighted-average exercise price of $2.76 per share and (iv) the Contingent Notes
and Contingent Warrants held by IBM and Sears. Upon the closing of the Offering
(at an assumed initial public offering price of $ per share), (i) there
will be outstanding shares of Common Stock, after giving effect to the
conversion of the Contingent Notes held by IBM and Sears into an aggregate of
shares of Common Stock, and (ii) the Contingent Warrants will be exercisable for
an aggregate of shares of Common Stock at an exercise price of $
per share until the third anniversary of the Closing. See "Management -- Stock
Plans" and "Corporate History and Certain Transactions -- Acquisition of Prodigy
Services Company".
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, Certificate of Incorporation and By-laws, as in effect upon the
closing of the Offering, is not intended to be complete and is qualified by
reference to the provisions of applicable law and to the Company's Certificate
of Incorporation and By-laws included as exhibits to the Registration Statement
of which this Prospectus is a part. See "Additional Information".
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. Upon the closing of the Offering, certain
holders of Common Stock have the right to require the Company to effect the
registration of their shares of Common Stock in certain circumstances. See
"Shares Eligible for Future Sale -- Registration Rights".
PREFERRED STOCK
The Board of Directors is authorized, without any further action by the
Company's stockholders, to designate and issue shares of Preferred Stock in one
or more series and to fix the rights and preferences thereof, including the
voting, dividend, conversion, redemption and liquidation rights and preferences.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could adversely affect the rights of the holders of Common Stock and, under
certain circumstances, be used as a means of discouraging, delaying or
preventing a change of control or acquisition of the Company. The Company has
no present plans to issue any Preferred Stock.
82
<PAGE>
DELAWARE ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable to
publicly-held corporations organized under the laws of Delaware, including the
Company. Subject to certain exceptions set forth therein, Section 203 of the
DGCL provides that a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (a) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (b) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares) or
(c) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified therein, an interested stockholder is defined
to mean any person that (i) is the owner of 15% or more of the outstanding
voting stock of the corporation, or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at anytime within three years immediately prior to the relevant
date and the affiliates and associates of such person referred to in (i) or (ii)
of this sentence. Under certain circumstances, Section 203 of the DGCL makes it
more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective
twelve months after adoption. The Company's Certificate of Incorporation and
By-laws do not exclude the Company from the restrictions imposed under Section
203 of the DGCL.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Certificate of Incorporation contains certain provisions permitted under
the DGCL relating to the liability of directors. The provisions eliminate a
director's liability for monetary damages for a breach of fiduciary duty, except
in certain circumstances involving wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. Further, the Certificate of
Incorporation contains provisions to indemnify the Company's directors and
officers to the fullest extent permitted by the DGCL. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
83
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the securities of
the Company. Upon completion of the Offering, based upon the number of shares
outstanding on the date of this Prospectus and after giving pro forma effect to
the conversion upon the closing of the Offering (at an assumed initial public
offering price of $ per share) of the Contingent Notes held by IBM and
Sears into an aggregate of shares of Common Stock, there will be
shares of Common Stock of the Company outstanding (assuming no exercise of the
Underwriters' over-allotment option or outstanding warrants or options of the
Company). Of these shares, the shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately
shares of Common Stock, which are not subject to the 180-day lock-up agreements
(the "Lock-up Agreements") with the Representatives of the Underwriters, will be
eligible for immediate sale in the public market pursuant to Rule 144(k) under
the Securities Act. Approximately additional shares of Common Stock,
which are not subject to Lock-up Agreements, will be eligible for sale in the
public market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. Upon expiration of the
Lock-up Agreements 180 days after the date of this Prospectus, approximately
additional shares of Common Stock will be available for sale in the public
market, subject to the provisions of Rule 144 under the Securities Act.
The Company and certain stockholders of the Company (including Carso Global
Telecom, Telmex, IBM, Sears and all directors and executive officers of the
Company) who will hold, upon consummation of the Offering at an assumed initial
public offering price of $ per share, an aggregate of approximately
shares of Common Stock, have agreed, pursuant to the Lock-up Agreements, not to
offer, sell, contract to sell or otherwise dispose of any Common Stock, or any
options, warrants or other securities convertible into or exercisable for Common
Stock, for 180 days after the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. except, in the case of the Company, for the
shares of Common Stock to be issued in connection with the Offering or pursuant
to employee benefit plans existing on the date of this Prospectus and, in the
case of the executive officers, directors and existing stockholders, certain
permitted transfers to related parties that agree to be bound by the foregoing
restrictions and certain permitted sales of shares acquired in the open market
following the completion of the Offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately shares immediately after the Offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule
144(k), if a period of at least two years has elapsed between the later of the
date restricted securities were acquired from the Company or (if applicable) the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate of the Company for at least three months prior to the sale
84
<PAGE>
is entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the Option
Plan and the Purchase Plan. The Company intends to file registration statements
on Form S-8 with respect to the shares of Common Stock issuable under the Option
Plan and the Purchase Plan as early as the day of the consummation of the
Offering. Shares issued upon the exercise of stock options after the effective
date of the Form S-8 registration statements will be eligible for resale in the
public market without restriction, subject to Rule 144 limitations applicable to
Affiliates and the Lock-Up Agreements noted above, if applicable.
REGISTRATION RIGHTS
In connection with the Company's acquisition of Prodigy Services Company from
IBM and Sears in June 1996, the Company issued to IBM and Sears the Contingent
Notes and Contingent Warrants. IBM and Sears hold customary piggyback and
demand registration rights, at Prodigy's expense, with respect to the Common
Stock issuable upon conversion of the Contingent Notes and exercise of the
Contingent Warrants. See "Corporate History and Certain Transactions --
Acquisition of Prodigy Services Company". Upon the closing of the Offering (at
an assumed initial public offering price of $ per share), IBM and Sears
will each (i) receive shares of Common Stock pursuant to the conversion
of its Contingent Note and (ii) hold a Contingent Warrant to purchase
shares of Common Stock for $ per share (subject to customary anti-
dilution adjustments) at any time prior to the third anniversary of the
Offering. In addition, Greg C. Carr holds piggyback registration rights with
respect to shares of Common Stock held by him. See "Corporate History
and Certain Transactions -- Certain Transactions Involving Carso Global Telecom,
Telmex and Greg C. Carr -- Certain Stock Purchases by Telmex".
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
85
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Bear, Stearns & Co.
Inc., BancBoston Robertson Stephens Inc., ING Baring Furman Selz LLC and Volpe
Brown Whelan & Company, LLC are acting as representatives (the
"Representatives") and Wit Capital Corporation is facilitating online
distribution ("e-Manager"), have severally agreed to purchase from the Company
the following respective number of shares of Common Stock at the initial public
offering price less underwriting discounts and commissions set forth on the
cover page of this Prospectus:
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Bear, Stearns & Co. Inc. ......................................
BancBoston Robertson Stephens Inc. ............................
ING Baring Furman Selz LLC ....................................
Volpe Brown Whelan & Company, LLC .............................
---------
Total ..........................................
=========
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession to certain
other dealers not in excess of $ per share. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise this option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it in the above table bears to the
shares of Common Stock initially offered hereby and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby
86
<PAGE>
creating a short position in the Underwriters' syndicate account. Additionally,
to cover such over-allotments or to stabilize the market price of the Common
Stock, the Underwriters may bid for, and purchase, shares of the Common Stock in
the open market. Any of these activities may maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market. The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Underwriters have reserved for sale at the initial public offering price
up to shares of Common Stock for sale to certain directors, officers
and employees, friends and family of the Company who have expressed an interest
in purchasing such shares of Common Stock in the Offering. Such persons are
expected to purchase, in the aggregate, not more than % of the Common Stock
offered in the Offering. The number of shares available for sale to the general
public in the Offering will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered to the
general public on the same basis as other shares offered hereby.
The Underwriters, at the request of the Company, have reserved for sale at
the initial public offering price up to shares of Common Stock to
current or prior subscribers to the Company's services who express an interest
in purchasing such shares. The sale of such shares will be made by Wit Capital
Corporation (acting as e-Manager) in the Offering. Purchases of the reserved
shares are to be made through an account at Wit Capital Corporation in
accordance with Wit Capital Corporation's procedures for opening an account and
transacting in securities. Any reserved shares not purchased by subscribers to
the Company's services will be offered by the Underwriters on the same basis as
other shares offered hereby.
The Underwriters have informed the Company that they do not expect to confirm
sales to any accounts over which they exercise discretionary authority.
The Company and certain stockholders of the Company (including Carso Global
Telecom, Telmex, IBM, Sears and all directors and executive officers of the
Company) who will hold, upon consummation of the Offering at an assumed initial
public offering price of $ per share, an aggregate of approximately
shares of Common Stock, have agreed, pursuant to the Lock-up Agreements, not to
offer, sell, contract to sell or otherwise dispose of any Common Stock, or any
options, warrants or other securities convertible into or exercisable for Common
Stock, for 180 days after the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. except, in the case of the Company, for the
shares of Common Stock to be issued in connection with the Offering or pursuant
to employee benefit plans existing on the date of this Prospectus and, in the
case of the executive officers, directors and existing stockholders, for the
shares of Common Stock sold in connection with the Offering (if any), sales or
dispositions to the Company, certain permitted transfers to related parties that
agree to be bound by the foregoing restrictions and certain permitted sales of
shares acquired in the open market following the completion of the Offering.
ING Baring Furman Selz LLC acted as the Company's financial advisor in the
Prodigy Acquisition and was paid a fee of $750,000. The Company also agreed
that if it undertook an initial public offering prior to June 17, 1998, ING
Baring Furman Selz LLC would be permitted to act as a co-manager of such
offering and receive per-share compensation no less favorable than the per-share
compensation paid to other underwriters of the offering. The selection of ING
Baring Furman Selz LLC as one of the Representatives in the Offering was not
made pursuant to these arrangements. See "Corporate History and Certain
Transactions -- Acquisition of Prodigy Services Company".
Wit Capital Corporation acted as financial advisor in connection with the
Company's issuance of 5,500,000 shares of Common Stock to Carso Global Telecom
in July 1998 and 24,500,000 shares of Common
87
<PAGE>
Stock to Telmex in August 1998 and was paid a fee of $50,000. See "Corporate
History and Certain Transactions -- Prior Equity Financings".
Prior to this Offering, there was no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company's business and the industry in which it competes, an
assessment of the Company's management, the Company's past and present
operations and financial results, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of the Offering and the price-earnings ratios and
market prices of securities of comparable companies at the time of the Offering.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offering at or above the initial public offering price.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Hale and Dorr LLP, Boston, Massachusetts. A partner of Hale
and Dorr LLP owns 30,000 shares of the Company's Common Stock. Certain legal
matters relating to the Offering will be passed upon for the Underwriters by
O'Sullivan Graev & Karabell, LLP, New York, New York.
EXPERTS
The consolidated financial statements of Prodigy Services Company for the
year ended December 31, 1995 and the five and one-half month period ended June
16, 1996 and the consolidated financial statements of Prodigy Communications
Corporation as of December 31, 1996 and 1997 and for each of the two years in
the period ended December 31, 1997, included in this Prospectus, have been so
included in reliance of the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In addition, the Company is required to file electronic versions to these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a
Web site at http://www.sec.gov
88
<PAGE>
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
89
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Prodigy Communications Corporation
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997 and June 30, 1998 (unaudited) F-3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997 and for the six months ended
June 30, 1997 and 1998 (unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996 and 1997 and for
the six months ended June 30, 1998 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997 and for the six months ended
June 30, 1997 and 1998 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
Prodigy Services Company
Report of Independent Accountants F-29
Consolidated Statements of Operations for the year ended
December 31, 1995 and the five and one-half month period
ended June 16, 1996 F-30
Consolidated Statements of Cash Flows for the year ended
December 31, 1995 and the five and one-half month period
ended June 16, 1996 F-31
Notes to Consolidated Financial Statements F-32
The Company does not believe that the consolidated financial statements of
International Wireless Incorporated and Subsidiaries are meaningful, as the
related operations have been disposed of, or in the case of Africa Online, Inc.,
are being held for sale (see Note 5 of Notes to Consolidated Financial
Statements of Prodigy Communications Corporation). However, these financial
statements have been included as additional disclosure.
International Wireless Incorporated and Subsidiaries
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-39
Consolidated Statements of Operations for the period from
May 23, 1994 (Date of Inception) to December 31, 1994 and
the year ended December 31, 1995 F-40
Consolidated Statements of Stockholders' Equity (Deficiency)
for the period from May 23, 1994 (Date of Inception) to
December 31, 1994 and the year ended December 31, 1995 F-41
Consolidated Statements of Cash Flows for the period from
May 23, 1994 (Date of Inception) to December 31, 1994 and
the year ended December 31, 1995 F-42
Notes to Consolidated Financial Statements F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prodigy Communications Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Prodigy Communications Corporation (formerly Prodigy, Inc.) and its subsidiaries
at December 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
April 30, 1998, except as to
the information presented under
Additional Financing in Notes 8 and 11
for which the date is September 21, 1998
F-2
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Consolidated Balance Sheets
(in thousands, except share information)
<TABLE>
<CAPTION>
December 31, June 30,
------------------- ----------
ASSETS 1996 1997 1998
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 21,275 $ 12,363 $ 9,607
Trade accounts receivable, net of allowances for doubtful accounts of $930,
$685 and $664 at December 31, 1996, 1997 and June 30, 1998, respectively 2,795 1,740 692
Other receivable -- 674 752
Prepaid expenses 2,744 1,379 1,048
Other current assets 546 1,251 243
--------- --------- ---------
Total current assets 27,360 17,407 12,342
Restricted cash -- 4,148 4,148
Property and equipment, net 27,775 16,261 13,164
Deferred software development costs, net 3,105 -- --
Other intangible assets, net 28,422 33,692 31,206
Investment in joint venture 5,160 -- --
Assets held for sale 11,263 1,650 2,082
Other assets 176 510 500
--------- --------- ---------
Total assets $ 103,261 $ 73,668 $ 63,442
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable 2,000 2,000 2,000
Accounts payable 26,615 15,650 5,911
Accrued compensation 3,438 2,348 2,456
Accrued restructuring and other special costs 11,468 7,875 5,551
Other accrued expenses 35,141 33,344 29,967
Unearned revenue 3,359 4,552 9,422
--------- --------- ---------
Total current liabilities 82,021 65,769 55,307
Notes payable - related parties 56,000 10,000 26,400
--------- --------- ---------
Total liabilities 138,021 75,769 81,707
--------- --------- ---------
Commitments and contingencies (Note 12)
Stockholders' deficit:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued or outstanding
Contingent convertible notes 30,500 30,500 30,500
Common stock, $.01 par value; 140,000,000, 280,000,000 and 280,000,000 shares
authorized; 49,241,702, 135,215,577 and 150,215,577 shares issued and
outstanding at December 31, 1996, 1997 and June 30, 1998, respectively 492 1,353 1,503
Additional paid-in capital 52,514 217,721 232,581
Accumulated deficit (118,236) (247,486) (279,343)
Accumulated other comprehensive loss (30) (189) (173)
Note receivable from stockholder -- (4,000) (3,333)
--------- --------- ---------
Total stockholders' deficit (34,760) (2,101) (18,265)
--------- --------- ---------
Total liabilities and stockholders' deficit $ 103,261 $ 73,668 $ 63,442
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Six-Months Ended
Years Ended December 31, June 30,
----------------------------- ---------------------------
(Unaudited)
1996 1997 1997 1998
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Internet and on-line service revenues $ 90,713 $ 128,252 $ 65,480 $ 63,190
Other 8,201 5,940 4,021 4,120
-------------- ------------- ------------- ------------
Total revenues 98,914 134,192 69,501 67,310
-------------- ------------- ------------- ------------
Operating costs and expenses:
Costs of revenue 69,437 98,758 61,760 52,147
Marketing 21,253 60,461 21,455 15,452
Product development 8,921 16,822 9,996 6,289
General and administrative 52,332 61,161 21,054 24,951
Acquired incomplete technology 46,090 - - -
Restructuring and other special costs 3,147 9,854 4,700 -
Write-down of assets held for sale - 2,400 - -
Loss on sale of cellular assets - 848 - -
-------------- ------------- ------------- ------------
Total operating costs and expenses 201,180 250,304 118,965 98,839
-------------- ------------- ------------- ------------
Operating loss (102,266) (116,112) (49,464) (31,529)
Loss on equity investment in joint venture 539 12,101 2,295 -
Write-down (recovery) of equity investments 9,053 (250) - -
Interest income (392) (272) (545) (702)
Interest expense 2,643 1,559 1,543 1,030
-------------- ------------- ------------- ------------
Net loss $ (114,109) $ (129,250) $ (52,757) $ (31,857)
-------------- ------------- ------------- ------------
Net loss per common share - basic $ (2.75) $ (1.86) $ (1.07) $ (0.23)
============== ============= ============= ============
Net loss per common share - diluted $ (2.75) $ (1.86) $ (1.07) $ (0.23)
============== ============= ============= ============
Weighted average number of common shares outstanding - basic 41,447 69,350 49,513 140,487
============== ============= ============= ============
Weighted average number of common shares outstanding -
diluted 41,447 69,350 49,513 140,487
============== ============= ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands)
<TABLE>
<CAPTION>
Contingent
Convertible Additional Accumulated
Notes Common Stock Paid-in Capital Deficit
------------- ----------------------------- --------------- ----------
Shares Amount
------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 34,528 $ 345 $ 3,825 (4,127)
Issuance of common stock 12,834 129 43,067
Common stock exchanged for services 30 90
Issuance of common stock to purchase
minority interest in subsidiary 350 3 1,047
Conversion of credit facility 1,500 15 4,485
Issuance of contingent convertible notes $ 30,500
Comprehensive loss:
Net loss (114,109)
Other comprehensive losses:
Translation adjustment
Comprehensive loss
------------- ------------- ----------- ------------ -------------
Balance at December 31, 1996 30,500 49,242 492 52,514 (118,236)
------------- ------------- ----------- ------------ -------------
Issuance of common stock 93,840 940 173,750
Acquisition and retirement of treasury shares (7,866) (79) (8,543)
Comprehensive loss:
Net loss (129,250)
Other comprehensive losses:
Translation adjustment
Comprehensive loss
------------- ------------- ----------- ------------ -------------
Balance at December 31, 1997 30,500 135,216 1,353 217,721 (247,486)
------------- ------------- ----------- ------------ -------------
Issuance of common stock 15,000 150 14,860
Comprehensive loss:
Net loss (31,857)
Other comprehensive losses:
Translation adjustment
Comprehensive loss
------------- ------------- ----------- ------------ -------------
Balance at June 30, 1998 (unaudited) $ 30,500 150,216 $ 1,503 $ 232,581 $ (279,343)
============= ============= =========== ============ =============
<CAPTION>
Accumulated
Other Note Receivable
Comprehensive from Comprehensive
Loss Stockholder Loss Total
--------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (4) $ 39
Issuance of common stock 43,196
Common stock exchanged for services 90
Issuance of common stock to purchase
minority interest in subsidiary 1,050
Conversion of credit facility 4,500
Issuance of contingent convertible notes 30,500
Comprehensive loss:
Net loss $ (114,109) (114,109)
Other comprehensive losses:
Translation adjustment (26) (26) (26)
---------------
Comprehensive loss $ (114,135)
------------- ---------------- =============== ------------
Balance at December 31, 1996 (30) (34,760)
------------- ---------------- ------------
Issuance of common stock $ (4,000) 170,690
Acquisition and retirement of treasury shares (8,622)
Comprehensive loss:
Net loss (129,250) (129,250)
Other comprehensive losses:
Translation adjustment (159) (159) (159)
---------------
Comprehensive loss $ (129,409)
------------- ---------------- =============== ------------
Balance at December 31, 1997 (189) (4,000) (2,101)
------------- ---------------- ----------
Issuance of common stock 667 15,677
Comprehensive loss:
Net loss (31,857) (31,857)
Other comprehensive losses:
Translation adjustment 16 16 16
---------------
Comprehensive loss $ (31,841)
------------- ---------------- =============== ------------
Balance at June 30, 1998 (unaudited) $ (173) $ (3,333) $ (18,265)
============= ================ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------- -------------------------
1996 1997 1997 1998
------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (114,109) $ (129,250) $ (52,757) $ (31,857)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on equity investment in joint venture 539 12,101 2,295 --
Write-down (recovery) of equity investments 9,053 (250) -- --
Acquired incomplete technology 46,090 -- -- --
Services settled by issuance of common stock 90 -- -- --
Loss on sale of cellular assets -- 848 -- --
Depreciation and amortization of property and equipment 6,341 10,581 6,121 4,498
Amortization of tradename 1,613 2,897 1,517 1,321
Amortization of deferred network costs -- 1,335 -- 1,166
Write-down of assets held for sale -- 2,400 -- --
Amortization of deferred software development costs 1,047 1,159 894 --
Write-down of deferred software development costs to net realizable value 1,399 1,946 -- --
Provision for doubtful accounts 930 (245) (18) (21)
Change in operating assets and liabilities, net of effects of
acquisitions and disposals
Trade accounts receivable 690 1,838 572 1,141
Other receivable -- (674) -- (78)
Prepaid expenses 436 1,340 1,118 440
Other current assets (257) (1,016) 26 989
Assets held for sale (10,334) (5,325) -- (1,977)
Accounts payable 21,279 (9,314) (10,653) (9,738)
Accrued compensation 3,438 (1,089) (178) 107
Accrued restructuring and other special costs 730 (2,178) 2,873 (3,645)
Other accrued expenses -- (2,336) (8,673) (2,056)
Unearned revenue (4,269) 1,193 447 4,870
---------- ---------- --------- ---------
Net cash used in operating activities (35,294) (114,039) (56,416) (34,840)
---------- ---------- --------- ---------
Cash flows from investing activities:
Cash paid for Prodigy Services Company, net of cash acquired (21,088) -- -- --
Equity investments (9,053) -- -- --
Acquisition of property and equipment (8,820) (8,556) (5,501) (265)
Deferred software development costs (3,575) -- -- --
Investment in joint venture (5,700) (7,006) (3,167) --
Increase in other assets 323 308 178 257
---------- ---------- --------- ---------
Net cash used in investing activities (47,913) (15,254) (8,490) (8)
---------- ---------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 43,196 170,690 88,386 15,009
Repayment of notes payable to related parties -- (46,000) (32,350) --
Proceeds from notes payable to related parties 58,900 -- -- 16,400
Proceeds from borrowings 2,000 -- -- --
Repayment of note receivable from stockholder -- -- -- 667
Increase in restricted cash -- (4,148) -- --
Other (26) (161) (27) 16
---------- ---------- --------- ---------
Net cash provided by financing activities 104,070 120,381 56,009 32,092
---------- ---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 20,863 (8,912) (8,897) (2,756)
---------- ---------- --------- ---------
Cash and cash equivalents, beginning of period 412 21,275 21,275 12,363
---------- ---------- --------- ---------
Cash and cash equivalents, end of period $ 21,275 $ 12,363 $ 12,378 $ 9,607
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts)
1. Basis of Presentation
Prodigy Communications Corporation (the "Company") is a leading nationwide
Internet Service Provider ("ISP"). The Company is controlled by Carso
Global Telecom, S.A. de C.V. ("Carso Global Telecom") through a majority
voting equity interest in the Company's common stock. The Company was
formed in June 1996, under the name Prodigy, Inc., to acquire Prodigy
Services Company ("PSC") and to hold International Wireless Incorporated
("IW") and other communications interests. All outstanding common stock of
IW was converted into common stock of the Company on a one-for-one basis in
June 1996. The assets and liabilities of IW were carried over to the
Company at historical cost as the respective shareholders maintained their
relative ownership percentages existing immediately prior to the
conversion. Accordingly, the financial statements prior to the acquisition
of Prodigy Services on June 17, 1996, consist solely of IW. IW was
incorporated on May 23, 1994, to develop and operate cellular telephone
systems in Africa. IW's other communications interests consisted of Africa
Online, Inc. (see Note 5 - Dispositions), a wholly-owned subsidiary engaged
in interest access and online services in Africa, an equity investment in
Global Enterprise Services, Inc. (see Note 4-Acquisitions) and an equity
investment in a start-up joint venture in China (see Note 5 -
Dispositions).
Since the acquisition of PSC, the Company has been in the midst of a major
transformation, both domestically and internationally. In the United
States, the Company launched its open standards based Internet access
service ("Prodigy Internet") in October 1996. The Company's cellular
telephone assets and operations were sold in January 1997. In 1997, the
Company determined that its primary focus will be as an ISP and decided to
discontinue the production of its own content for Prodigy Internet. The
Company plans to sell its African operations and has negotiated a
settlement of its liabilities in connection with the closing of its Asian
operations (see Note 5 - Dispositions).
The acquisition of PSC was accounted for as a purchase. Accordingly, the
results of operations of PSC since the date of acquisition, June 17, 1996,
are included in the accompanying consolidated statements of operations for
the year ended December 31, 1996. The consolidated statements of operations
and cash flows of PSC for the year ended December 31, 1995 and for the five
and one-half month period ended June 16, 1996 are included elsewhere in the
Prospectus. The Company's accounts as of the date of the acquisition
reflect the fair value of the assets acquired and liabilities assumed (see
Note 4 - Acquisitions).
F-7
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those
estimates.
Interim Financial Information
The consolidated financial statements of the Company for the six months
ended June 30, 1998 are unaudited. All adjustments (consisting only of
normal recurring adjustments) have been made, which, in the opinion of
management, are necessary for a fair presentation. Results of operations
for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998, or
for any other future period.
Foreign Currency Translation
The functional currencies of the Company's foreign subsidiaries are the
local currencies. Accordingly, assets and liabilities of foreign
subsidiaries are translated to U.S. dollars at period-end exchange rates
and revenues and expenses are translated using the average rates during the
period. The effects of foreign currency translation adjustments have been
accumulated and are included as a separate component of stockholders'
equity (deficit). Foreign currency transaction gains and losses, arising
from exchange rate fluctuations on transactions denominated in currencies
other than the functional currencies, were immaterial for all periods
presented.
Revenue Recognition
Internet and on-line service revenues encompass subscription and usage fees
and are earned over the period services are provided. Other revenues,
consisting principally of marketing services and transaction fees from the
sale of merchandise, are recognized as services are provided or fees are
earned. Unearned revenue consists primarily of monthly subscription fees
billed in advance.
Subscriber Acquisition Costs
Direct response advertising costs which result in subscriber registrations
without further effort required by the Company are capitalized and
amortized over their estimated useful life subject to recoverability
limitations. No such subscriber acquisition costs have been capitalized due
to the uncertainty of recovery. General marketing costs, as well as all
other costs related to the acquisition of subscribers, are expensed as
incurred.
F-8
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Advertising Costs
Advertising costs are included in marketing expenses and are expensed as
incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities at date of purchase of three months or less to be cash
equivalents. Cash and cash equivalents are stated at cost, which
approximates fair value because of the short maturity of these instruments.
Restricted Cash
Restricted cash represents collateral for outstanding letters of credit.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. When assets are
sold or otherwise disposed of, the cost and related accumulated
depreciation are relieved and any resulting gain or loss is recognized.
Product Development Costs
Software development costs are expensed as incurred until technological
feasibility has been established. The Company determines technological
feasibility upon the completion of a working model. Once technological
feasibility has been established, such costs are capitalized until the
software is available for general release to customers. Amortization is
calculated on a product-by-product basis, using the greater of the
straight-line basis over the estimated economic lives of the related
products, two years, or the ratio of current gross revenue to total current
and expected future gross revenue of the related products. The amortization
and write-down of deferred software development costs is included in "Costs
of Revenue."
Research and Development
Research and development costs are expensed as incurred.
Investment in Joint Venture
The Company had an investment in a foreign joint venture operating in China
which was accounted for under the equity method of accounting, as the
Company did not have a controlling interest. As of December 31, 1997, the
Company's investment was written down to its net realizable value of zero
(see Note 5 - Dispositions).
The assets and revenues of the joint venture were immaterial for all
periods presented.
F-9
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Tradename
The "Prodigy" tradename was recorded at fair value as of June 17, 1996,
upon the acquisition of PSC. The tradename is amortized on a straight-line
basis over 10 years.
Long-Lived Assets
The Company periodically evaluates the net realizable value of long-lived
assets, including the Prodigy tradename and property and equipment, relying
on a number of factors including operating results, business plans,
economic projections and anticipated future cash flows. An impairment in
the carrying value of an asset is recognized when the expected future
operating cash flows derived from the asset are less than its carrying
value. In addition, the Company's evaluation considers nonfinancial data
such as market trends, product and development cycles, and changes in
management's market emphasis.
Income Taxes
Deferred tax liabilities and assets are recognized based on temporary
differences between the financial statement and tax bases of assets and
liabilities using current statutory rates. A valuation allowance is applied
against net deferred tax assets if, based on the weighted available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
Contingent Convertible Notes
The contingent convertible notes issued in connection with the acquisition
of PSC are classified in stockholders' Equity (deficit). In 1997, the
Company exchanged the contingent convertible notes for contingent
convertible notes and contingent warrants (see Note 9 - Contingent
Convertible Notes and Warrants).
Accounting for Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation," in 1996. As
permitted by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value methodology provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," for the grants
or awards of equity instruments to employees. As required by SFAS No. 123,
the Company has disclosed the pro forma effect on net loss of using a fair
value approach to measure compensation for grants or awards of equity
instruments in 1996 and 1997 (see Note 11 - Stockholders' Equity
(Deficit)).
Net Loss Per Share
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share." SFAS 128 requires the Company to report both basic
earnings per share, which is based on the weighted average number of common
shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive
potential common shares outstanding. As the Company incurred losses for all
periods presented, there is no difference between basic and diluted
earnings per share.
F-10
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. Concentration of credit risk with respect to cash is limited
as the Company invests its cash in deposits with several financial
institutions. Concentration of credit risk with respect to trade
receivables is limited as the outstanding total represents a large number
of customers with individually small balances. The Company does not require
collateral or other security against trade receivable balances; however, it
does maintain reserves for potential credit losses and such losses have
been within management's expectations.
Reclassifications
Certain amounts from the prior year have been reclassified to conform with
the current year presentation.
3. Restructuring and Other Special Costs
Fiscal Year 1996 Restructurings and Other Special Costs
The components of the Company's restructuring provision at December 31,
1996 are detailed below:
(A) Prodigy Services $ 8,321
(B) Cost reduction plan 3,147
-------
$11,468
=======
(A) In connection with the acquisition of PSC as of June 17, 1996, the
Company assumed non-recurring liabilities classified as "accrued
Restructuring and Other Special Costs" of $10,738, of which $8,321
remained outstanding as of December 31, 1996, and payable in 1997.
These non-recurring liabilities related to restructuring plans which
occurred prior to the acquisition date in connection with (i) a lease
cancellation penalty for PSC's lease of its White Plains, NY
facilities, of which $7,826 was outstanding as of December 31, 1996,
and (ii) salary continuance and related liabilities resulting from job
eliminations and early retirements of certain executives, of which
$495 was outstanding as of December 31, 1996.
(B) In 1996, subsequent to the PSC acquisition, the Company approved
another restructuring plan to reduce costs through additional job
eliminations and a reduction in the use of leased office space, and as
a result, recorded a restructuring charge of $3,147. Approximately 20
employees were terminated in January 1997 and the related severance
F-11
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
cost of $659 was included in "Accrued Restructuring and Other Special
Costs" at December 31, 1996. Beginning in November 1996, the Company
vacated 29% of its leased space in White Plains, NY. The cost of the
lease attributed to the idle leased facility amounted to $2,488 and
was included in "Accrued Restructuring and Other Special Costs" as of
December 31, 1996.
During 1997, the Company paid the balance of the 1996 accrued
restructuring and other special costs.
Fiscal Year 1997 Restructurings and Other Special Costs
In an effort to decrease cash outflows and more efficiently manage its
business, the Company decided to restructure its operations and outsource
its network and content production functions. The Company's provisions,
expenditures and remaining balances to be paid are detailed below:
<TABLE>
<CAPTION>
Accrued
Costs at
1997 1997 December 31,
Costs Expenditures 1997
---------------- ----------------- ---------------
<S> <C> <C> <C>
(A) Network termination costs $ 4,740 $ 4,740
(B) Employee severance 2,900 $ 1,979 921
(C) Discontinuance of content production 585 585
(D) Medford, MA Facility Closing 1,629 1,629
---------------- ----------------- ---------------
$ 9,854 $ 1,979 $ 7,875
================ ================= ===============
</TABLE>
(A) In connection with the sale of its network (see Note 5 - Dispositions,
sale of network), the Company incurred liabilities related primarily
to early termination payments and other contractual obligations for
certain non-cancelable network related agreements.
(B) The Company implemented a restructuring plan to reduce costs through
job elimination, and as a result, recorded a charge of $2,900.
Approximately 80 employees throughout the Company were terminated.
(C) The Company decided to discontinue the production of its own content,
and as a result, recorded a charge of $585 to account for the employee
termination costs and the costs to settle content related contractual
obligations. Approximately 25 employees were terminated.
(D) The Company's Medford, Massachusetts location has been closed and a
charge of $1,629 was recorded to account for the costs of employee
terminations and lease cancellation.
F-12
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
The terminated employees were involved with the Company's
international operations and/or former headquarters management.
Approximately 20 employees were terminated.
4. Acquisitions
Acquisition of Minority Interest in Subsidiary
In January 1996, the Company purchased 90 shares of common stock of Comstar
Cellular S.A. Cote d'Ivoire ("Comstar Cote d'Ivoire") from a minority
shareholder and employee in exchange for $300 in cash and 350,000 shares of
common stock of the Company with a value of $3 per share. As a result of
this transaction, the Company's equity interest in Comstar Cote d'Ivoire
increased from 91% to 100%.
The acquisition was accounted for as a purchase and the excess of the
purchase price over the fair value of the assets acquired and liabilities
assumed, representing goodwill, amounted to $1,350 and was included with
assets held for sale in connection with the sale of International Wireless,
which included the cellular operations of Comstar Cote d'Ivoire.
Investment in Global Enterprise Services, Inc. ("GES")
During the period from January 1996 to March 1996, the Company acquired a
48% voting interest in GES, represented by 4,800,000 shares of convertible
preferred stock, for $9,000. The preferred stock has voting rights and is
convertible into common stock. In 1996, the Company recorded a charge of
$9,053 to reduce the carrying value of its investment in GES to an
estimated net realizable value of zero.
In January 1997, pursuant to a redemption agreement, the Company disposed
of its 48% interest in GES for $250.
Acquisition of Prodigy Services
On June 17, 1996, the Company acquired all of the partnership interests of
International Business Machines Corporation ("IBM") and Sears Roebuck and
Co. ("Sears") in PSC. The Company acquired the assets and assumed the
liabilities of PSC, with the exception of certain patents and all
obligations and liabilities related to employee retirement and other
postretirement benefit plans. The assets purchased and liabilities assumed,
and related results of operations, are included in the consolidated
financial statements of the Company from the date of acquisition. The
aggregate purchase price of $78,116 consisted of a cash payment of $40,800,
the issuance of Contingent Convertible Notes (see Note 9 - Contingent
Convertible Notes and Warrants) valued at $30,500, and direct acquisition
related expenses of $6,816.
The acquisition was accounted for as a purchase. Accordingly, the purchase
price was allocated to the identifiable assets and liabilities of PSC based
on fair values. The fair value of intangible assets was determined using a
risk adjusted discounted cash flows approach.
F-13
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Specifically, the Prodigy Internet technology acquired was evaluated
through extensive interviews and analysis of data concerning the state of
the technology and needed developments. The evaluation of the underlying
technology acquired considered the inherent difficulties and uncertainties
in completing the development, and thereby achieving technological
feasibility, and the risks related to the viability and potential changes
to target markets. Incomplete technology had no alternative future use.
Therefore, the Company recognized a charge of $46,090 for the purchase of
incomplete technology in 1996.
In connection with the acquisition, the Company entered into a Funding
Agreement (the "Funding Agreement"), as described in Note 8 - Notes
Payable, with Carso Global Telecom and another stockholder of the Company
(the "Stockholder"). The Funding Agreement was amended in October 1996 and
March 1997.
5. Dispositions
Sale of International Wireless
Effective January 1997, the Company sold all issued outstanding capital
stock of IW to a company (the "Buyer") formed by a former executive and
shareholder of the Company (the "Executive"). The assets of IW at the time
of the sale consisted of cellular communications licenses and license
applications in certain African countries, and the associated rights and
assets used in the Company's cellular telephone activities. Africa Online,
Inc., formerly a wholly-owned subsidiary of IW, had been transferred to
another subsidiary of the Company (see Exit of International Operations,
below). The Company also retained the joint venture investment in China
previously held by IW (see Exit of International Operations, below). The
selling price consisted of (i) the surrender of 5,571,429 shares of common
stock of the Company, (ii) a Promissory Note (the "Note") in the amount of
$21,500 due in full on July 27, 1997, including $1,500 in reimbursement of
capital expenditures made by the Company for the benefit of IW, secured by
a pledge of 67% of the shares of IW purchased from the Company, and bearing
interest at 9% until April 27, 1997 and 12% thereafter, and (iii) the
termination of the Executive's fully vested options to purchase 500,000
shares of common stock for $0.25 per share and 500,000 shares of common
stock for $2.00 per share.
In October 1997, the Company and the Buyer modified the Note as follows:
(i) the due date was extended to January 31, 1999, (ii) the Note is
unsecured, (iii) the interest rate was reduced to 8%, (iv) the Note is
subject to mandatory repayment out of the net proceeds from an acquisition
of IW, (v) the Note is also subject to mandatory repayment to the extent of
10% of the first $5,000 in net financing proceeds received by IW (with
certain exceptions), 20% of the next $5,000 in proceeds and 40% of all
proceeds in excess of $10,000, and (vi) the Company is allowed to convert
the Note upon maturity into equity securities of IW at a 20% discount from
the price at which IW has sold equity securities to investors. The Buyer
also surrendered an additional 2,294,321 shares of common stock of the
Company in exchange for a reduction in IW's unpaid obligations at October
31, 1997 to $16,148.
F-14
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
As a result of the restructuring of the Note and the revaluation of the
Company's stock from $3 to $1 per share, a loss on the sale of IW of $848
was recorded in 1997. The Note has been valued at zero. Any future cash
collected against the Note will be accounted for as a gain in "Other
Income." As of December 31, 1996, the Company reclassified certain assets
of $11,263 as "Assets Held for Sale" in connection with the sale of IW.
Sale of Network
Prodigy owned and operated its own network in the United States until July
1, 1997. Effective July 1, 1997, the Company sold to Splitrock Services,
Inc. ("Splitrock") certain of its network assets. Splitrock agreed to: (i)
assume all equipment leases, maintenance and license liabilities related to
network assets, and (ii) enter into a Full Service Agreement whereby
Splitrock will provide certain network services to the Company including
commitments to meet certain capacity and performance requirements. Carso
Global Telecom owns a minority interest in Splitrock.
The Company also entered into a Sublease Agreement pursuant to which
Splitrock subleases a portion of the Company's leased space in Yorktown
Heights, New York, effective July 1, 1997 through February 28, 2001.
Pursuant to the Full Service Agreement, effective July 1, 1997, Splitrock
provides to the Company network services consisting primarily of end-to-end
connection services from subscriber dial-up lines to the Company's data
center. Splitrock charges Prodigy at a fixed rate per subscriber, subject
to a monthly maximum usage limit, after which an incremental hourly rate is
charged, and certain minimum charges (see Note 12 - Commitments and
Contingencies).
Under a transition services agreement, Prodigy agreed to pay for certain of
Splitrock's operating expenses and to provide temporary network-related
services to Splitrock, including accounting, human resources and purchasing
functions. Splitrock agreed to reimburse Prodigy for expenses incurred and
the cost of providing these support services (excluding termination
penalties under existing network contracts). The total of the reimbursed
expenses and service costs in 1997 was $27,532. The reimbursed amounts have
been offset against the corresponding expenses and costs in the statements
of operations. The transition services agreement terminated on December 31,
1997, although the Company continued to provide certain incidental services
and make payments on behalf of Splitrock through June 30, 1998. The net
amount due from Splitrock under the Full Service Agreement and the
transition services agreement as of December 31, 1997 was $674. This amount
is recorded under the heading "Other Receivable" on the balance sheet.
Splitrock has notified Prodigy of the PLS leases, which it wishes to
assume, and Prodigy remains liable for all PLS leases not assumed by
Splitrock. Prodigy also remains liable for all obligations and termination
penalties under its existing agreements with IBM Global Network Services
and other third-party providers of Points of Presence ("POPs"). The costs
associated with the PLS leases retained by the Company and the termination
penalties have been accrued as part of network termination costs as of
December 31, 1997 (see Note 3 - Restructuring and Other Special Costs).
F-15
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Upon termination of the transition services agreement, a Full Services
Agreement became effective, and Splitrock hired all Prodigy employees
engaged in Prodigy's network operations. Splitrock is required to provide
dial-up network access in all locations in which Prodigy provided dial-up
services as of July 1, 1997. Commencing December 31, 1999, Splitrock will
not be required to support the proprietary standards on which the Prodigy
Classic service operates.
Under the Full Service Agreement, Splitrock is required to meet specified
service level objectives. Splitrock's failure to meet the service level
objectives results in financial penalties. If Splitrock fails to meet the
service level objectives for an extended period of time, Prodigy may
terminate the Full Service Agreement. In addition, if there is a
system-wide failure, or Splitrock breaches specified financial covenants,
Prodigy has the right to terminate the Full Service Agreement or assume
responsibility for operating the network at Splitrock's expense.
As a result of the sale of the network effective July 1, 1997, the Company
sold property and equipment with a net book value of approximately $9,400
and did not record any gain or loss upon the sale of these assets. The net
book value of the equipment was removed from property and equipment on the
balance sheet and classified in "Other Intangible Assets, Net" and is being
amortized over the four year term of the Splitrock contract on a
straight-line basis.
Exit of International Operations
In December 1997, management decided to exit its international operations
in order to focus on its domestic internet service business. During 1996
and 1997, the Company's incurred losses of $539 and $12,101, respectively,
in relation to its joint venture operation in China.
The assets of Africa Online, Inc., a wholly-owned subsidiary, are carried
as assets held for sale at their estimated fair value of $1,650, as of
December 31, 1997. Africa Online, Inc. was originally part of IW. The
Company recorded a charge of $2,400 in 1997 to reduce the carrying value of
Africa Online, Inc. long lived assets to their estimated net realizable
value.
F-16
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
6. Property and Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
Useful Life 1996 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Computer equipment 3-5 years $ 28,943 $ 21,204
Leasehold improvements 3-5 years 3,752 4,177
Furniture and equipment 5-8 years 1,221 1,008
Buildings 40 years 33 -
-------------- ---------------
33,949 26,389
Less accumulated depreciation and amortization 6,174 10,128
-------------- ---------------
$ 27,775 $ 16,261
============== ===============
</TABLE>
7. Other Intangible Assets
Other intangible assets consisted of the following at December 31:
1996 1997
-------------- --------------
Tradename $ 30,035 $ 30,035
Deferred network costs - 9,502
-------------- --------------
30,035 39,537
Less accumulated amortization 1,613 5,845
-------------- --------------
$ 28,422 $ 33,692
============== ==============
F-17
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
8. Notes Payable
Notes payable consisted of the following at December 31:
1996 1997
---- ----
Loan from Banco Inbursa $50,000 $10,000
Loan from stockholder 6,000 --
------- -------
Notes payable - related parties $56,000 $10,000
======= =======
Loan from corporate lender $ 2,000 $ 2,000
======= =======
In June 1996, the Company entered into a loan agreement with Banco Inbursa
("Inbursa"), an affiliate of Carso Global Telecom, whereby Inbursa agreed
to provide a credit facility to the Company of up to $50,000 with an
original maturity date in June 1997, at an interest rate of prime plus
1/2%. Borrowings under this credit facility are collateralized by a pledge
of 17,000,000 shares of the Company's common stock of which 7,000,000
shares were pledged by Carso Global Telecom and 10,000,000 shares are
pledged by the stockholder. As a result of an extension of the credit
facility from Inbursa, the maturity date for outstanding borrowings of
$10,000 was extended from June 17, 1997 to December 31, 1999. The
Stockholder had agreed to continue to make available for pledge, until June
13, 1998, 10,000,000 shares of common stock to secure a new line of credit
from a U.S. bank or other debt financing to replace or extend the line of
credit from Inbursa. Subsequent to December 31, 1997, all loans were repaid
and stock pledges terminated.
Pursuant to an amendment to the Company's original Funding Agreement
effective March 18, 1997, the Company exercised a Put option to issue
common stock to the Stockholder for $15,000 and to Carso Global Telecom for
$65,000, of which $40,000 was used to partially repay the $50,000 loan from
Inbursa. The remaining Put of $45,000 was allocated $39,000 to Carso Global
Telecom and $6,000 to the Stockholder. The aggregate proceeds of $80,000
from the exercise of the Put, as well as proceeds from subsequent Put
exercises of $9,000, were raised through the issuance of 29,666,667 shares
of common stock at $3 per share. All amounts available under the Put have
been exercised.
In October 1997, Carso Global Telecom and the Stockholder arranged interim
financing for the Company. Carso Global Telecom agreed to (i) establish a
$4,000 letter of credit required as part of the revised Contingent
Convertible Notes and Warrants (see Note 9 - Contingent Convertible Notes
and Warrants), (ii) arrange for Inbursa to lend $13,750 to the Company, of
which $3,750 is secured by the Stockholder's pledge of 7,500,000 shares of
common stock, and (iii) indicate its intention to purchase, under a rights
offering, its maximum allocation of 49,543,822 shares of common stock. In
payment for its 49,543,822 shares, Carso Global Telecom will (i) be
credited with $4,000 for the issuance of the $4,000 letter of credit, (ii)
pay $13,750 directly to Inbursa on the Company's behalf,
F-18
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
and (iii) pay to the Company the remainder of the purchase price of $31,794
less any other funds advanced to the Company prior to the closing of the
rights offering. Subsequent to the issuance of the $4,000 letter of credit,
on a quarterly basis, Carso Global Telecom will contribute $333, less any
draws on the letter of credit, until the $4,000 has been paid to the
Company. The Stockholder agreed to (i) lend the Company up to $2,250
without interest, (ii) pledge 7,500,000 shares of common stock to secure
advances of $3,750 from Inbursa until the earlier of the closing of the
rights offering (see Note 11 - Stockholders' Equity (Deficit)) or December
15, 1997, and (iii) convert its advances to the Company into common stock
upon the closing of the rights offering. As of December 31, 1997, interim
financing of $27,100 had been re-paid in connection with the rights
offering.
In March 1996, the Company borrowed $2,000 from a network company (the
"Corporate Lender") pursuant to an 8-1/4% convertible note. Principal and
interest were due on March 31, 1997. The note has not been formally
extended. The Corporate Lender had the right within 30 days after the
completion of a private placement and prior to March 31, 1997 to convert
the principal and interest into common stock at the price per share at
which the Company's common stock is issued in the private placement.
Additional Financing
In February 1998, the Company entered into an additional loan agreement
with Inbursa in the amount of $16,400, payable December 31, 1999 at an
interest rate of 9%. In July 1998, a further $5,700 was borrowed from
Inbursa, payable December 31, 1999 at an interest rate of 9%. Also in July
1998, the Company borrowed $30,000 from Bank of America National Trust and
Savings Association ("Bank of America"), payable on August 14, 1998 at an
interest rate of 6.5%. This loan was collateralized by the funds of Carso
Global Telecom held with Bank of America. The proceeds from this loan were
used to pay down the Inbursa notes payable. Subsequent to December 31,
1997, the Bank of America loan was repaid in full.
In August 1998, the Company secured a $35,600 line of credit commitment
from Carso Global Telecom. This credit facility expires on December 31,
1999 and bears interest at the LIBOR rate plus between one and five
percentage points (as negotiated on a case-by-case basis).
9. Contingent Convertible Notes and Warrants
The Contingent Convertible Notes ("Contingent Notes") issued in connection
with the acquisition of PSC (see Note 4 - Acquisitions), would have accrued
interest at a rate of 8% annually commencing on December 17, 1997.
F-19
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
The Contingent Notes were convertible into shares constituting 15% of the
Company's then outstanding common stock on a fully diluted basis (or 15% of
the consideration received in the event that the Company is acquired),
limited to a value equal to $200,000 plus contingent interest, upon the
earlier of (i) an initial public offering by the Company resulting in gross
proceeds of at least $25,000, (ii) an acquisition of the Company, (iii)
following an initial public offering with gross proceeds of less than
$25,000, the first date on which the Company's market value exceeds
$200,000, or (iv) June 17, 2006. Principal and contingent interest were not
required to be paid in cash, except in the event that the Company is
acquired for cash. In lieu of conversion upon an initial public offering or
upon maturity, the Company had the option, but not the obligation, to
redeem the Contingent Notes for $200,000 plus accrued contingent interest
in cash.
In November 1997, IBM and Sears exchanged the Contingent Notes for (i)
contingent notes in the face amount of $200,000 and (ii) contingent
warrants to acquire up to 15% of the Company. Subject to a maximum of
$200,000, the contingent notes are convertible into 15% of the value of the
Company's common stock in excess of $250,000. The warrants allow IBM and
Sears to purchase up to 15% of the Company at 130% of the fair market value
at the date of conversion of the contingent notes. The warrants are
exercisable at any time prior to the third anniversary of the conversion of
the contingent notes. As a condition to these arrangements, Carso Global
Telecom prepaid (as an advance to the Company) the balance due on the White
Plains lease of $5,831. Carso Global Telecom also established a $4,000
letter of credit, declining quarterly over three years, to secure other
payment obligations of the Company under contracts for which IBM and Sears
retained liability. After conversion of the contingent notes or exercise of
the contingent warrants, IBM and Sears have agreed to vote their shares of
common stock in accordance with the voting recommendations of the Company's
Board of Directors.
F-20
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
10. Income Taxes
The Company had no income tax expense for the years ended December 31, 1996
and 1997 as a result of net losses. As of December 31, 1996 and 1997, the
Company's deferred tax assets (liabilities) were as follows:
1996 1997
-------- --------
Domestic net operating loss carryforwards $ 21,602 $ 46,000
Foreign net operating loss carryforwards 3,350 8,840
Intangible assets 5,236 4,698
Equity investments 3,621 -
Restructuring and other nonrecurring reserves 1,259 5,357
Other (1,359) 4,045
Valuation allowance (33,709) (68,940)
-------- --------
Net deferred tax asset $ - $ -
======== ========
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $115,000 which may be used to
offset future taxable income, beginning to expire in 2009. The utilization
of the federal income tax loss carryforwards is subject to limitation as a
result of a change of ownership. The Company also has operating loss
carryforwards in various foreign subsidiaries of approximately $22,100
which began to expire in 1998 and may be used to offset future taxable
income in those countries.
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are
comprised principally of net operating loss carryforwards. Under the
applicable accounting standards, management has considered the Company's
history of losses and concluded that it is more likely than not that the
Company will not realize these favorable tax attributes. Accordingly, the
deferred tax assets have been fully reserved. Management revaluates the
positive and negative evidence periodically.
11. Stockholders' Equity (Deficit)
Authorized Shares of Common Stock
In 1996, the Board of Directors and the stockholders approved an increase
in the authorized shares of common stock to 140,000,000 shares.
In 1997, the Board of Directors and the stockholders approved a further
increase in the authorized shares of common stock to 280,000,000 shares.
F-21
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Private Placement
In October 1996, the Company offered up to 8,000,000 shares of its common
stock in a private placement, resulting in net proceeds to the Company from
investors (other than Carso Global Telecom and the Stockholder) of
approximately $1,843. In February 1997, the Company increased the size of
the offering from 8,000,000 shares to 16,000,000 shares of common stock and
reduced the offering price to $3.00 per share from $7.00 per share. As a
result of the reduction in the offering price, the Company offered to each
investor the choice of either (i) receiving additional shares to reduce
their average purchase price to $3.00 or (ii) rescinding their
subscriptions and receiving refunds without interest upon the closing. The
Company received aggregate gross proceeds of $88,843 and issued 29,614,412
shares of common stock.
In November 1997, the Company made a Rights Offering whereby each eligible
stockholder was entitled to purchase at a price of $1.00 per share, one
share of the Company's common stock for each share held. The Company issued
50,561,915 additional shares and received $46,554 in cash and a $4,000 note
receivable from Carso Global Telecom for the issuance of the IBM/Sears
letter of credit (see Note 9 - Contingent Convertible Notes and Warrants).
On a quarterly basis, Carso Global Telecom will contribute $333 less any
draws on the letter of credit until the $4,000 has been paid to the
Company.
Additional Financing
In August 1998, the Company sold 24,500,000 shares of common stock at a
price of $2.00 per share to Telefonos de Mexico, S.A. de C.V. ("Telmex"),
an affiliate of Carso Global Telecom, resulting in proceeds of $49,000 to
the Company. At the same time Carso Global Telecom purchased an additional
5,500,000 shares of common stock at a price of $2.00 per share, resulting
in proceeds of $11,000 to the Company. These proceeds were used to repay
the $30,000 note payable to Bank of America and a remaining $2,100 in notes
payable to Inbursa, with the balance to be used for general corporate
purposes.
Stock Option Plan
In 1996, the Board of Directors and the stockholders approved a Stock
Option Plan (the "Plan"). Under the Plan, options to purchase up to
9,500,000 shares of common stock may be granted to employees, directors,
consultants and advisors of the Company. Options granted may be either
"incentive stock options" or "nonqualified options." All options issued
under the Plan are exercisable over periods determined by the Board of
Directors, not to exceed 10 years from the date of grant. Options generally
vest over periods ranging from 3-5 years. In September 1997, the Board of
Directors and the stockholders approved an increase of 3,000,000 to the
number of shares of common stock available for future grants. These options
have the same terms and conditions as the shares initially authorized under
the 1996 Plan.
Stock option plan activity for the years ended December 31, 1996 and 1997
follows (in thousands):
F-22
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
1996 1997
---- ----
Outstanding at January 1 4,791 9,144
Options granted 6,811 3,315
Options canceled (2,458) (3,260)
-------------- -------------
Outstanding at December 31 9,144 9,199
============== =============
Exercisable at December 31 1,878 3,472
============== =============
Available for grant at December 31 356 3,301
============== =============
Weighted average option exercise price information for the years ended
December 31, 1996 and 1997 follows:
1996 1997
---- ----
Outstanding at January 1 $ 2.15 $ 3.12
Options granted $ 3.00 $ 2.51
Options canceled $ 2.73 $ 2.33
Outstanding at December 31 $ 3.12 $ 2.68
========= =========
Exercisable at December 31 $ 1.97 $ 2.74
========= =========
The following table summarizes information about stock options outstanding
at December 31, 1997:
Options Outstanding Options Exercisable
----------------------------------------------------- -----------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding Remaining Average Exercisable Average
Range of (in Contractual Exercise (in Exercise
Exercise Prices thousands) Life Price thousands) Price
--------------- ----------- ----------- --------- ----------- ---------
$0.25 25 7.2 years $0.25 25 $0.25
$1.00 50 7.3 years $1.00 50 $1.00
$2.00 to $3.00 9,124 5.8 years $2.70 3,397 $2.78
----- -----
$0.25 to $3.00 9,199 5.8 years $2.68 3,472 $2.74
===== --------- ----- ----- -----
Had compensation cost for the Company been determined based upon the fair
value at the grant date for awards under the plan consistent with the
methodology prescribed under SFAS No. 123, the Company's net losses
F-23
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
for the years ended December 31, 1996 and 1997 would have been
approximately $116,512 and $133,395, respectively. The effects of this pro
forma disclosure are not indicative of future amounts. Additional awards
are anticipated in future years. The weighted average fair value of the
options granted during the years ended December 31, 1996 and 1997 was
estimated at $1.69 and $0.28 per share, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: no dividend yield, volatility of 55% for 1996 and 1997, risk-
free rate of 6.16% for 1996 and 5.99% for 1997, and an expected option life
of 4.6 years from date of vesting for 1996 and 1997.
In determining the fair value of the common stock at the date of grant
under the Plan, the Board considered a broad range of factors including the
illiquid nature of an investment in the Company's common stock,
transactions in the Company's common stock, the Company's historical
financial performance relative to that of comparable companies and its
future prospects.
Repricing of Stock Options
In June 1997, the Board approved a repricing plan to reprice employee stock
options under the Plan to restore the long-term employee retention and
performance incentives of the stock options outstanding. In accordance with
the repricing plan, all stock options held by current, active full-time
employees, with exercise prices above $3.00 per share, were canceled and
replaced by the same number of options exercisable at $3.00 per share, the
fair value of the Company's common stock as determined by the Board on the
date of the repricing.
In May 1998, the Board approved a repricing plan to reprice employee stock
options under the Plan to restore the long-term employee retention and
performance incentives of the stock options outstanding. In accordance with
the repricing plan, all stock options held by current, active full-time
employees, with exercise prices above $1.00 per share, were canceled and
replaced by the same number of options exercisable at $1.00 per share, the
fair value of the Company's common stock as determined by the Board on the
date of the repricing.
The exercise and vesting periods of the outstanding options were not
altered by the repricings.
In making the determinations of the fair value of the Company's common
stock, the Board considered a broad range of factors including the illiquid
nature of an investment in the Company's common stock, transactions of the
Company's common stock, the Company's historical financial performance
relative to that of comparable companies and its future prospects.
F-24
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except share and per share amounts)
Stock Warrants
In October 1996, the Stockholder exercised his warrant to purchase 270,000
shares of common stock at a price of $3.00 per share, less a discount
resulting in proceeds of $792 to the Company. The discount was approved by
the Company's Board of Directors and was agreed upon to reflect the fact
that the Stockholder exercised the warrant prior to its expiration date of
December 31, 1996. In December 1996, Carso Global Telecom exercised its
warrant to purchase 2,700,000 shares of common stock at a price of $3.00
per share, resulting in proceeds of $8,100 to the Company. These warrants
were granted in consideration of the commitments described in the Funding
Agreement (see Note 4 - Acquisition of Prodigy Services).
The warrant to purchase 1,000,000 shares issued to Carso Global Telecom in
1996 was canceled in March 1997, at which time the Company granted Carso
Global Telecom and the Stockholder warrants to purchase 13,000,000 shares
and 2,000,000 shares, respectively, of common stock for $3 per share,
exercisable prior to or on November 12, 1997. In October 1997, in
consideration of the interim financing (see Note 8 - Notes Payable), the
exercise price was reduced from $3.00 per share to $1.00 per share.
At December 31, 1997, the Company had warrants outstanding with various
shareholders, including Carso Global Telecom, to purchase 15,437,389 shares
of the Company's common stock at an average price of $1.05 per share. Of
the outstanding warrants, 15,000,000 may be exercised at any time until the
earlier of May 12, 1998, or an initial public offering. Of the remainder,
88,056 warrants expire between May and December 2001, and 349,333 expire
between May and August 2005. In April 1998, 13,000,000 warrants were
exercised at $1.00 per share. In May 1998, 2,000,000 warrants were
exercised at $1.00 per share.
12. Commitments and Contingencies
Commitments
At December 31, 1997, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more than
one year were as follows:
Year ended December 31,
1998 $ 2,777
1999 2,861
2000 3,102
2001 2,414
2002 and thereafter 7,317
--------------
$ 18,471
==============
F-25
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except per share amounts)
The Company's rent expense in the years ended December 31, 1996 and 1997
was approximately $5,800 and $9,192, respectively.
In December 1993, PSC entered into a noncancelable agreement with a
telephone company to provide certain services at the Company's White Plans,
NY and Yorktown, NY facilities. The agreement has a term ("service period")
of ten years. The agreement calls for line charges totaling $510 per year.
The Company has the right to terminate the agreement for certain services
at any time at a cost of 80% of the line charges over the remaining
services period.
The Company is party to a contract for a subscription management system
through June 2001. This contract requires minimum annual payment of
processing fees of $900. For the years ended 1996 and 1997, the Company
paid $5,055 and $3,628, respectively.
The Company is party to a number of other agreements with information
providers which require payment of fees based upon the number of
subscribers or subscriber usage of providers' data.
Under the Company's four-year agreement with Splitrock, the Company is
obligated to minimum annual payments of $39,000 in 1998, $45,000 in 1999,
$51,000 in 2000 and $27,000 in 2001 and maximum monthly charges based on
the number of the Company's subscribers for the month. The agreement
provides for early termination charges of $7,000 in the first year,
declining thereafter of an annual basis. The agreement is automatically
renewed for successive 12-month periods unless terminated by either party
upon 12-months notice.
In September 1997, the Company entered into a 22-month agreement with a
vendor to provide network licensing and technical support. This agreement
requires annual payments of $714 and $429, in 1998 and 1999, respectively.
Upon 30-day prior written notice, the Company can terminate the agreement
without penalty. The agreement can be extended for an additional 12 months.
As of December 31, 1997, the Company was contractually obligated to pay IBM
a network termination penalty of $7,500 as part of the sale of the
Company's network. The Company is currently negotiating with IBM to settle
this liability through a defined purchasing plan, whereby the Company will
be obliged to purchase services from IBM through December 31, 2000, up to
$7,500 in value, with any shortfall being paid as a penalty. The Company
has accrued $2,000 as of December 31, 1997, representing management's best
estimate of the anticipated penalty to IBM. This amount is included in the
Company's accrued network termination cost (see Note 3 - Restructuring and
Other Special Costs).
Contingencies
In June 1998, Lycos, Inc. ("Lycos") filed a complaint and motion for
preliminary injunction in the Superior Court of Middlesex Country,
Massachusetts against the Company. The lawsuit alleges, among other things,
that the Company breached a license agreement with Lycos by
F-26
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except per share amounts)
entering into a portal outsourcing agreement with Excite in January 1998
and by terminating the license agreement between Lycos and the Company. The
lawsuit seeks specific performance of the license agreement between Lycos
and the Company, a preliminary and permanent injunction enjoining the
Company from terminating the license agreement between Lycos and the
Company and from performing under its agreement with Excite, money damages
and attorneys' fees. A hearing on Lycos' motion for preliminary injunction
has been adjourned because the parties are in negotiations to settle the
lawsuit. However, there can be no assurance the lawsuit will be settled. If
the lawsuit is not settled, the Company intends to defend it vigorously. It
is not currently possible to estimate the effect of an unfavorable outcome
to this lawsuit; however, it is possible that such an outcome could have a
material adverse impact on the Company's operations.
13. Defined Contribution Plan
On June 17, 1996, as part of the Company's acquisition of PSC (see Note 4 -
Acquisitions), the Company took on responsibility for the administration
and sponsorship of the Prodigy Services Corporation Capital Accumulation
Plan (the "Plan").
The Plan is a defined contribution plan covering all employees of the
Company. Employees can participate in the Plan from their first day of
employment.
Each year, active participants may contribute up to 12 percent of their
pre-tax base salaries, up to the maximum amount allowed by the Plan. The
Company contributes a matching contribution equal to 100 percent of an
employee's pre-tax contributions, limited to a maximum of 3 percent of a
participant's compensation. The Plan also has an after-tax savings feature
that permits employees to contribute from 1 percent to 10 percent of their
base salaries subject to Internal Revenue Code limitations.
The Company's contributions were $600 and $596 in 1996 and 1997,
respectively.
F-27
<PAGE>
PRODIGY COMMUNICATIONS CORPORATION
Notes to Consolidated Financial Statements, Continued
(in thousands, except per share amounts)
14. Valuation and Qualifying Accounts
The following table sets forth activity in the Company's reserve accounts:
Accounts Receivable
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Charges to End of
of Period Operations Deductions Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended:
December 31, 1996 $ - $ 4,002 $ 3,072 $ 930
December 31, 1997 930 4,749 4,994 685
Six months ended June 30, 1998 (unaudited) 685 1,384 1,405 664
</TABLE>
15. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Cash paid for interest $ 2,428 $ 1,177
=============== ===============
Noncash investing and financing activities:
Conversion of advances from stockholder to common stock $ 4,500 $ 129,750
Contingent convertible notes and contingent warrants
issued in exchange for contingent convertible note - 30,500
Sale of network assets in exchange for service agreement - $ 9,502
Acquisition of minority interest in "Comstar Cote
d' Ivoire," in exchange for 350,000 shares of
common stock $ 1,050 -
=============== ===============
Acquisition of business, net of cash acquired:
Fair value of assets acquired $ 136,095 -
Cash paid for assets, including direct costs (47,616) -
Issuance of contingent convertible notes (30,500) -
-------------- ---------------
Liabilities assumed $ 57,979 -
============== ===============
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Prodigy Communications Corporation:
In our opinion, the accompanying consolidated statements of operations and of
cash flows present fairly, in all material respects, the consolidated results of
operations and cash flows of Prodigy Services Company and its subsidiary for the
year ended December 31, 1995 and for the five and one-half month period ended
June 16, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
September 10, 1998
F-29
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Consolidated Statements of Operations
For the year ended December 31, 1995 and the five and one-half month period
ended June 16, 1996
(in thousands)
Year Ended January 1, 1996
December 31, Through June 1
1995 1996
------------ ---------------
Revenues:
On-line service revenues $ 230,562 $ 98,242
Other 12,837 8,900
------------ -------------
Total revenues 243,399 107,142
------------ -------------
Operating costs and expenses:
Costs of revenue 120,457 67,833
Marketing 67,411 43,527
Product development 22,509 11,277
General and administrative 68,738 32,948
Restructuring and other special costs - 14,561
------------ -------------
Total operating costs and expenses 279,115 170,146
------------ -------------
Operating loss (35,716) (63,004)
Interest income 1,133 61
------------ -------------
Net loss $ (34,583) $ (62,943)
============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
F-30
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
CONSOLIDATED STATEMENTS of CASH FLOWS
For the year ended December 31, 1995 and the five and one-half month period
ended June 16, 1996
(in thousands)
<TABLE>
<CAPTION>
January 1, 1996
Year Ended Through
December 31, June 16
1995 1996
------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (34,583) $ (62,943)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for doubtful accounts (2,434) 883
Depreciation and amortization of property and equipment 19,032 8,824
Amortization of deferred software development costs 2,719 1,215
Write-down of deferred software development costs
to net realizable value - 3,359
Amortization of deferred subscriber acquisition costs 12,700 7,800
Write-down of deferred subscriber acquisition costs
to net realizable value - 9,221
Gain on sale of property and equipment (1,273) -
Write-off of leasehold improvements - 5,593
Changes in operating assets and liabilities:
Trade accounts receivable 6,788 3,096
Prepaid expenses and other current assets (2,424) 3,827
Deferred subscriber acquisition costs (16,848) (5,076)
Accounts payable 4,833 (7,715)
Accrued pension expense (1,146) 984
Accrued restructuring and other special costs - 8,101
Other accrued expenses (7,571) 3,957
Unearned revenue (5,565) (10,094)
------------- ----------------
Net cash used in operating activities (25,772) (28,968)
------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (25,746) (14,057)
Proceeds from disposals of property and equipment 2,783 85
Deferred software development costs (2,880) (3,498)
------------- ----------------
Net cash used in investing activities (25,843) (17,470)
------------- ----------------
Cash flows from financing activities:
Partners' capital contributions 48,613 67,300
------------- ----------------
Net (decrease) increase in cash and cash equivalents (3,002) 20,862
Cash and cash equivalents at beginning of period 8,668 5,666
------------- ----------------
Cash and cash equivalents at end of period $ 5,666 $ 26,528
============= ================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-31
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements
(in thousands)
1. Organization and Basis of Presentation
Prodigy Services Company (the "Partnership") is a joint venture of
International Business Machines Corporation ("IBM") and Sears, Roebuck &
Co. ("Sears"). The Partnership was formed to develop and market PRODIGY(SM)
(the "PRODIGY Service" or the "Service"), the national network that
provides on-line services to households with personal computers.
The Partnership was organized on February 13, 1984 as a New York State
general partnership.
On June 16, 1996, the Partners sold the PRODIGY Service, and the related
assets and liabilities, of the Partnership to Prodigy, Inc., with the
exception of certain patents and all obligations and liabilities related to
employee retirement and postretirement benefit plans, for an aggregate
purchase price of $78,116. These consolidated financial statements present
the results of operations for the year ended December 31, 1995 and for the
five and one-half month period from January 1, 1996 through June 16, 1996,
and have been prepared using the Partnership's historical basis in the
results of operations.
2. Significant Accounting Policies
Principles of Consolidation and Estimates
The consolidated financial statements include the accounts of the
Partnership and its majority-owned subsidiary, SonicNet, Inc. All
significant intercompany transactions have been eliminated on
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with a maturity of
three months or less when purchased and consist of deposits with banks and
financial institutions which are unrestricted as to withdrawal or use.
F-32
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
Revenue Recognition
On-line service revenues encompass subscription and usage fees. Term
subscription fees are recognized on a pro-rata basis over the life of the
related subscriptions. Other revenues consist principally of marketing
services and transaction fees generated from goods and services purchased
through the service. Revenues are recorded when services are rendered or
products are delivered.
Income Taxes
The Partnership is not a taxable entity; accordingly, no provision for
income taxes has been made in the financial statements. The Partners'
respective shares of partnership losses are reportable on the individual
Partner's corporate income tax returns.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful life of
the asset or the lesser of the remaining lease term or the life of the
improvement. Estimated service lives of these assets range principally from
three to seven years.
Repair and maintenance charges are expensed as incurred. When assets are
sold, retired or otherwise disposed of, the applicable costs and
accumulated depreciation and amortization are removed from the accounts and
the resulting gain or loss is included in the consolidated statement of
operations.
Deferred Subscriber Acquisition Costs
Certain subscriber acquisition costs are deferred and charged to operations
using the straight-line method beginning the month after such costs are
incurred. These costs are amortized over a fifteen to eighteen month
period. These costs relate directly to subscriber solicitations and
principally include printing, production and shipping of start-up kits.
Costs incurred other than those targeted at specific identifiable prospects
for the Partnership's services are expensed as incurred.
Product Development
The Partnership capitalizes the cost of developing computer software used
in the sale of its services. The capitalization of these costs begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Costs incurred prior to
technological feasibility are expensed as incurred. Amortization expense is
computed on a product-by-product basis using the straight-line method,
primarily over a twenty-four month period beginning the month after the
date of product release.
F-33
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
Concentrations of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash and trade
receivables. Concentration of credit risk with respect to cash is limited
as the Partnership invests its cash in deposits with several financial
institutions. Concentration of credit risk with respect to trade
receivables is limited as the outstanding total represents a large number
of customers with individually small balances. The Partnership does not
require collateral or other security against trade receivable balances;
however, it does maintain reserves for potential credit losses and such
losses have been within management's expectations.
3. Investments
In December 1995, the Partnership purchased a 53 percent ownership interest
in SonicNet, Inc., a company formed to provide an interactive service of
alternative rock music made available through a Prodigy web site on the
Internet and through other interactive media. The investment consists of
voting securities issued in exchange for the Partnership's commitment to
provide funding of approximately $2,100 for SonicNet, Inc. in scheduled
monthly payments through February 1997. The results of operations from the
date of acquisition are included in the Partnership's net losses and are
not material.
F-34
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
4. Related Party Transactions
a. The Partnership recognized revenues from contracts with its Partners
as follows:
January 1,
Year Ended 1996 Through
December 31, June 16,
1995 1996
---------------- ----------------
IBM $ 41 $ 5
Sears 163 23
--------- ----------------
$ 204 $ 28
========= ================
b. The Partnership purchased data processing and office equipment from
IBM and Sears as follows:
Year Ended 1996 Through
December 31, June 16,
1995 1996
---------------- ----------------
IBM $ 7,193 $ 356
Sears 6 -
---------- ----------
$ 7,199 $ 356
========== ==========
c. Payments to IBM for technical services, software license fees,
equipment maintenance and installation charges, and training services
totaled approximately $6,200 and $2,300 for the year ended December
31, 1995 and the five and one-half month period ended June 16, 1996,
respectively.
d. In March 1995, the Partnership contracted with Advantis, a joint
venture of IBM and Sears, to provide an inbound 800 number calling
service. During the year ended December 31, 1995 and the five and
one-half month period ended June 16, 1996, the Partnership made net
payments of approximately $1,200 and $1,400, respectively, relating to
this agreement.
e. In September 1995, the Partnership entered into an agreement with IBM
to participate in the IBM licensing agreement with Netscape, Inc. for
the latter's "Navigator" Internet browser. Under the agreement the
Partnership is obligated to reimburse IBM for certain contractual fees
in proportion to the benefits derived from underlying services. These
F-35
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
reimbursements were $239 and $0 for the year ended December 31, 1995
and the five and one-half month period ended June 16, 1996,
respectively.
f. In October 1993, the Partnership entered into an agreement with IBM to
provide PRODIGY Service start-up kits and an on-line service
application for inclusion in IBM personal computers. Payments to IBM
totaled $416 and $331 for the year ended December 31, 1995 and the
five and one-half month period ended June 16, 1996, respectively.
g. In December 1991, the Partnership entered into an agreement with IBM
for business recovery services in the event a disaster interrupted
operations at the Partnership's data center. Partnership payments to
IBM under this agreement totaled $398 and $183 for the year ended
December 31, 1995 and the five and one-half month period ended June
16, 1996, respectively.
5. Lease Agreements
During 1992, the Partnership executed a lease agreement with Metropolitan
Life Insurance Company for a ten-year lease on the partnership's
headquarters premises in White Plains, New York, commencing January 1,
1993.
The Partnership also leases space for numerous computer installation sites
throughout the United States. Leases for the computer installation sites
generally have three-year terms with options to renew for at least one
additional term.
Rent expense approximated $9,900 and $4,800 for the year ended December 31,
1995 and the five and one-half month period ended June 16, 1996,
respectively.
6. Employee Benefit Plans
Pension Plan
The Partnership has a noncontributory defined benefit pension plan (the
"Pension Plan") for all full-time employees. The benefits are based upon
years of service and the employee's average compensation during the
highest-paid consecutive five years of the last ten years of employment.
The Pension Plan is funded in accordance with the requirements of the
Employee Retirement Income Security Act of 1974 ("ERISA").
F-36
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
Net Pension Plan expense included the following components for the year
ended December 31, 1995:
Service cost $ 1,714
Interest cost 2,214
Actual return on assets (8,350)
Net amortization and deferral 5,148
-----------
Net pension plan expense $ 726
===========
The Partnership recorded a net Pension Plan expense of $360 in the five and
one-half month period ended June 16, 1996.
Supplemental Retirement Plans
The Partnership also maintains two unfunded supplemental retirement plans
(the "Plans") for certain employees. The benefits are based upon years of
service and the employee's average compensation during the highest-paid
consecutive five years of the last ten years of employment.
Net expense for the Plans included the following components for the year
ended December 31, 1995:
Service cost $ 63
Interest cost 495
Net amortization and deferral (70)
-------------
Net plan expense $ 488
=============
The Partnership recorded a net expense for the Plans of $224 in the five
and one-half month period ended June 16, 1996.
F-37
<PAGE>
PRODIGY SERVICES COMPANY and its Subsidiary
Notes to Consolidated Financial Statements, Continued
(in thousands)
Capital Accumulation Plan
The Partnership has a voluntary capital accumulation plan for all full-time
employees. The plan is a defined contribution plan and is subject to the
provisions of ERISA. Under the provisions of the plan, the Partnership
matches the first 3% of base salary employee-deferred pre-tax
contributions. The Partnership contributed approximately $1,100 and $600 to
the plan in the year ended December 31, 1995 and the five and one-half
month period ended June 16, 1996, respectively.
7. Other Postretirement Benefits
The Partnership sponsors a defined benefit postretirement medical and life
insurance plan for all full-time employees. The plan is unfunded.
In 1995, the Partnership adopted Statement of Financial Accounting
Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement
Benefits Other than Pensions." The standard requires recognition of the
estimated future cost of providing health and other postretirement benefits
on the accruals basis.
Net periodic postretirement benefit cost included the following components
for the year ended December 31, 1995:
Service cost $ 212
Interest cost 377
Amortization of net obligation at transition 205
-----------
$ 794
===========
The Partnership recorded a net periodic postretirement benefit cost of $400
in the five and one-half month period ended June 16, 1996.
8. Restructuring and Other Special Costs
In April 1996, the Company approved a restructuring plan to reduce costs
through job eliminations and a reduction in the use of leased office space,
and as a result recorded a restructuring charge of $14,561. This charge
consisted of severance costs of $5,300 in connection with the planned
termination of 20 employees, a lease termination penalty of $7,826, a
write-down of $5,593 related to leasehold improvements, less the write-off
of deferred rent concessions of $4,158.
F-38
<PAGE>
INTERNATIONAL WIRELESS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
December 31,
ASSETS 1994 1995
CURRENT ASSETS:
Cash and equivalents $242,362 $ 413,513
Accounts receivable -- 5,466
Note receivable - stockholder -- 100,000
Interest receivable -- 7,700
Prepaid expenses -- 76,699
-------- ----------
Total current assets 242,362 603,378
-------- ----------
PROPERTY, PLANT AND EQUIPMENT, Net 52,618 1,491,092
-------- ----------
OTHER ASSETS:
Licenses 75,235 72,215
Deposits -- 17,426
Goodwill -- 316,807
-------- ----------
Total other assets 75,235 406,448
-------- ----------
TOTAL $370,215 $2,500,918
======== ==========
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' December 31,
EQUITY (DEFICIENCY) 1994 1995 1995
(Pro Forma)
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 110,628 $ 617,373
Accrued interest - stockholders -- 11,118
Advances from stockholders 11,476 32,529
Customer deposits -- 201,402
----------- -----------
Total current liabilities 122,104 862,422
----------- -----------
DUE TO STOCKHOLDER 422,786 1,600,000
----------- -----------
Total liabilities 544,890 2,462,422
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Series A convertible preferred stock, $.01 par value;
1,000,000 shares authorized; 433,728 and 0 shares
issued and outstanding in 1994 and 1995, respectively 4,337 --
Common stock, $.01 par value; 70,000,000
shares authorized; 32,499,105, and 34,527,765
shares issued and outstanding in 1994 and 1995,
respectively; 41,458,467 shares pro forma 324,991 345,278 $ 414,585
Additional paid-in capital 535,636 3,824,562 24,494,962
Deficit (1,039,639) (4,127,365) (4,127,365)
Cumulative translation adjustment -- (3,979) (3,979)
----------- ----------- -----------
Total stockholders' equity (deficiency) (174,675) 38,496 $20,778,203
----------- ----------- -----------
TOTAL $ 370,215 $ 2,500,918
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
INTERNATIONAL WIRELESS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Period From May 23, 1994
(Date of Inception) to Year Ended
December 31, 1994 December 31, 1995
REVENUES $ -- $ 12,195
----------- -----------
COSTS AND EXPENSES:
Cost of revenues -- 82,000
Selling, general and administrative 1,039,639 3,007,209
----------- -----------
Total 1,039,639 3,089,209
----------- -----------
LOSS FROM OPERATIONS (1,039,639) (3,077,014)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income -- 7,832
Interest expense -- (18,544)
----------- -----------
Total -- (10,712)
----------- -----------
NET LOSS $(1,039,639) $(3,087,726)
=========== ===========
See notes to consolidated financial statements.
F-40
<PAGE>
INTERNATIONAL WIRELESS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Preferred Stock Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Acquisition of Comstar 21,336,850 $ 213,369 -- $ -- $ (285,574)
Sale of preferred stock, net of costs of $19,200 -- -- 433,728 4,337 843,919
Issuance of common stock 11,162,255 111,622 -- -- (22,709)
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 32,499,105 324,991 433,728 4,337 535,636
Sale of preferred stock -- -- 20,000 200 39,800
Conversion of preferred stock 567,160 5,672 (453,728) (4,537) (1,135)
Common stock issued for services 55,000 550 -- -- 144,450
Sale of common stock, net of costs of $146,374 806,500 8,065 -- -- 1,861,811
Conversion of amount due to stockholder 400,000 4,000 -- -- 996,000
Acquisition of Karisi Communications, Inc. 200,000 2,000 -- -- 248,000
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 34,527,765 $ 345,278 -- $ -- $ 3,824,562
=========== =========== =========== =========== ===========
<CAPTION>
Cumulative
Translation
Deficit Adjustment Total
<S> <C> <C> <C>
Acquisition of Comstar $ -- $ -- $ (72,205)
Sale of preferred stock, net of costs of $19,200 -- -- 848,256
Issuance of common stock -- -- 88,913
Net loss (1,039,639) -- (1,039,639)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (1,039,639) -- (174,675)
Sale of preferred stock -- -- 40,000
Conversion of preferred stock -- -- --
Common stock issued for services -- -- 145,000
Sale of common stock, net of costs of $146,374 -- -- 1,869,876
Conversion of amount due to stockholder -- -- 1,000,000
Acquisition of Karisi Communications, Inc. -- -- 250,000
Net loss (3,087,726) -- (3,087,726)
Translation adjustment -- (3,979) (3,979)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $(4,127,365) $ (3,979) $ 38,496
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE>
INTERNATIONAL WIRELESS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from May 23, 1994 Year Ended
(Date of Inception) to December 31,
December 31, 1994 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,039,639) $(3,087,726)
Adjustments to reconcile net loss to cash used
in operating activities:
Common stock issued for services -- 145,000
Depreciation and amortization 4,291 28,478
Changes in assets and liabilities:
Accounts receivable -- (1,561)
Interest receivable -- (7,700)
Prepaid expenses -- (75,301)
Deposits -- (17,426)
Accounts payable and accrued expenses 38,070 377,327
Accrued interest - stockholders -- 11,118
Customer deposits -- 199,355
Advances from stockholders 11,476 43,989
----------- -----------
Cash used in operating activities (985,802) (2,384,447)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (52,596) (1,425,419)
Acquisition of licenses (79,195) (2,094)
----------- -----------
Cash used in investing activities (131,791) (1,427,513)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 88,913 1,869,876
Borrowings from stockholder 422,786 2,177,214
Note receivable from stockholder -- (100,000)
Net proceeds from issuance of Convertible
Preferred Stock 848,256 40,000
Other -- (3,979)
----------- -----------
Cash provided by financing activities 1,359,955 3,983,111
----------- -----------
INCREASE IN CASH AND EQUIVALENTS 242,362 171,151
CASH AND EQUIVALENTS, BEGINNING OF PERIOD -- 242,362
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 242,362 $ 413,513
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE>
INTERNATIONAL WIRELESS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - International Wireless Incorporated (the "Company")
was incorporated on May 23, 1994, as a Delaware corporation to develop and
operate cellular telephone systems together with voice mail, paging and
other enhanced services, including Internet access and on-line services, in
developing countries throughout the world. In January 1996, through its
investment in Global Enterprise Services, Inc., the Company expanded its
Internet-related activities to the United States. In May 1996, the Company
entered into an agreement to acquire Prodigy Services Company ("Prodigy"),
resulting in a substantial change in the nature of the Company's
activities. As a result of the Prodigy acquisition, the Company has become
a major provider of on-line and Internet services while continuing to
pursue the development of its cellular and other on-line activities in
developing countries.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
Pro Forma Stockholders' Equity (Unaudited) - Pro forma stockholders' equity
reflects the following transactions in 1996 as if they had occurred on
December 31, 1995: the sale of the first 4,000,000 of 7,000,000 shares of
common stock to a subsidiary of Grupo Carso, S.A. de C.V. ("Carso"), at $3
per share pursuant to a stock subscription agreement (see Note 8 - Stock
Subscription); the receipt of additional advances of $2,900,000 from a
stockholder (the "Stockholder") and conversion of the additional advances
and the outstanding advances at December 31, 1995 of $1,600,000 into
1,500,000 shares of common stock at $3 per share (see Note 8 - Stockholder
Advances); and, the sale in a private placement of 1,430,702 shares of
common stock resulting in net proceeds to the Company of $4,239,707 (see
Note 8 - Private Placement).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenues - Cellular service revenue is recognized as services are provided.
Customer deposits represent receipts for cellular service subscriptions
received by the Company's subsidiary in Cote d'lvoire.
Cash Flow Information - Cash equivalents include highly liquid securities
purchased with remaining maturities of less than three months. No cash was
paid for income taxes or interest in 1994 and 1995.
Property, Plant and Equipment - Property and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, ranging from 3 to 8 years for
automobiles and equipment and 40 years for buildings.
F-43
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Licenses - Licenses consist of cellular telephone licenses in certain
African countries. The costs of obtaining the licenses have been deferred
and are being amortized over the lesser of the period of the license or its
estimated useful life. Amortization expense for the period ended December
31, 1994 and for the year ended December 31, 1995 amounted to $3,960 and
$9,074, respectively.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of net assets acquired and is being amortized over 10 years.
Goodwill is periodically reviewed for impairment by comparison to future
expected cash flows to be generated by the underlying operations.
Foreign Currency Translation - The functional currencies of the Company's
foreign subsidiaries are the local currency. Accordingly, assets and
liabilities of foreign subsidiaries are translated to U.S. dollars at
period-end exchange rates and revenues and expenses are translated using
the average rates during the period. The effects of foreign currency
translation adjustments have been accumulated and are included as a
separate component of stockholders' equity.
Income Taxes - Deferred tax assets and liabilities are provided to
recognize differences in the book and tax bases of assets and liabilities.
Financial Instruments - The carrying values of cash and equivalents,
receivables and accounts and other payables approximate fair value due to
the short-term nature of these instruments. Management believes that the
amount due to stockholder approximates fair value because the terms were
negotiated in the latter part of 1995.
Impairment of Long-Lived Assets - The Company will be required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," in 1996. The adoption of this statement is not expected to
have a material effect on the Company's consolidated financial statements.
Accounting for Stock-Based Compensation - The Company will be required to
adopt SFAS No. 123, "Accounting for Stock-Based Compensation," in 1996. As
permitted by SFAS No. 123, the Company will elect to continue to apply the
intrinsic value methodology provisions of Accounting Principles Board
Opinion No. 25 for grants or awards of equity instruments to employees.
Also, as required by SFAS No. 123, the Company will use a fair value
methodology to measure the compensation element of grants or awards of
equity instruments to nonemployees and will disclose in its annual
consolidated financial statements, beginning in 1996, the pro forma effect
on net income of using a fair value approach to measure compensation for
all grants or awards of equity instruments.
F-44
<PAGE>
2. ACQUISITIONS
Comstar Cellular Network, Inc. ("Comstar") - In August 1994, the Company
issued 21,336,850 shares of common stock in exchange for certificates of
common stock of Comstar representing 79% of the number of shares covered by
outstanding certificates of common stock of Comstar. The assets of Comstar
consisted primarily of provisional licenses to develop cellular
communications systems in Cote d'lvoire and Nigeria. The Company has
recorded the assets acquired and liabilities assumed at their historical
carrying amounts due to the common control of both companies. The excess of
liabilities assumed over assets acquired was $72,205. The accompanying
consolidated financial statements include the results of operations of
Comstar from the date of acquisition.
African Communications Incorporated ("ACI") - On March 31, 1995, the
Company merged with ACI. This transaction was accounted for in a manner
similar to a pooling of interests because of the common ownership of both
companies. Prior to March 31, 1995, the Company and ACI were jointly
developing the Company's cellular systems through subsidiaries of the
Company that were approximately 67% owned by the Company and 33% owned by
ACI. The Company and ACI had no operations that were independent of these
joint development efforts. The Company issued 11,162,255 shares of common
stock representing a 33% interest in the Company in exchange for all of the
outstanding shares of ACI. The consolidated financial statements for 1994
have been restated to include the operations of ACI.
Karisi Communications, Inc. ("Karisi") - In November 1995, the Company
acquired Karisi including a 79% equity interest in Karisi Communications
(Kenya) Ltd. Karisi, which changed its name to Africa Online, Inc., is
primarily engaged in providing online services to Kenyan subscribers. The
initial purchase price consisted of 100,000 shares of the Company's common
stock valued at $2.50 per share and assumption of net liabilities of
$30,085. Additional consideration of 100,000 shares is currently held in
escrow and may be released over a two-year period based on the attainment
of future subscriber levels.
The acquisition has been accounted for as a purchase. Accordingly, the
results of operations of Karisi have been included in the accompanying
consolidated statements of operations from the date of acquisition. The
excess of purchase over the fair value of net assets acquired has been
allocated to goodwill.
The following unaudited pro forma information for the year ended December
31, 1995 reflects the combined results of operations of the Company and
Karisi as if the acquisition occurred on January 1, 1995:
Revenue $ 141,395
Net loss 3,231,637
Karisi did not have any significant operations prior to January 1, 1995.
F-45
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1994 and 1995 consisted of
the following:
1994 1995
Land $ 49,000 $ 78,064
Buildings -- 195,834
Computer equipment -- 190,078
Cellular system equipment -- 721,612
Furniture and equipment 3,896 241,404
Automobiles -- 87,870
----------- -----------
Total 52,896 1,514,862
Less accumulated depreciation (278) (23,770)
----------- -----------
Property, plant and equipment $ 52,618 $ 1,491,092
=========== ===========
4. DUE TO STOCKHOLDER - CREDIT FACILITY
Under a credit facility provided by the Stockholder in 1994, the Company
was able to borrow up to a maximum of $1,250,000 without interest through
March 31, 1995 and with interest at prime plus 2% thereafter. On May 31,
1995, the credit facility was terminated and the outstanding borrowings at
that date of $1,000,000 were converted into 400,000 shares of common stock.
Pursuant to a loan and security agreement dated November 15, 1995, the
Stockholder agreed to make additional loans to the Company in the aggregate
amount up to $4,500,000. Borrowings bear interest payable monthly at prime
plus 1.25% on the first $1 million; prime plus 1.5% on the second $1
million; and prime plus 2% on amounts in excess of $2 million. Borrowings
are collateralized by all assets of the Company, including a pledge of the
common stock of the subsidiaries. All borrowings are due on December 31,
1998. Prior to December 31, 1996, borrowings are convertible into shares of
the Company's common stock at a conversion price of $3 per share.
The Company paid the Stockholder a commitment fee equal to 1% of the
maximum borrowings through the issuance of 15,000 shares of the Company's
common stock.
5. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
tax assets as of December 31, 1994 and 1995 are approximately as follows:
1994 1995
U.S. net loss carryforwards $ 51,000 $ 608,000
Net loss carryforwards of foreign subsidiaries 200,000 592,000
Deferred liabilities -- (4,000)
Valuation allowances (251,000) (1,196,000)
--------- -----------
Net tax asset -- $ --
========= ===========
F-46
<PAGE>
5. INCOME TAXES (CONTINUED)
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of $1,673,000 which may be used to offset
future taxable income, expiring in 2010. The Company also has operating
loss carryforwards in Cote d'lvoire and Kenya, which begin to expire in
1998, of $1,696,000, which may be used to offset future taxable income in
those countries. Due to the uncertainty of realization, the Company has
provided a 100% valuation allowance of all deferred tax assets.
6. STOCKHOLDERS' EQUITY
Stock Recapitalization - On March 31, 1995, the stockholders approved the
following recapitalization: conversion of the existing outstanding
preferred stock into common stock at a rate of one and one quarter shares
of common stock for each share of preferred stock; an increase in the
number of authorized shares of common stock from 35,000,000 to 70,000,000;
an increase in the number of authorized shares of preferred stock from
1,000,000 shares of "Series A" preferred stock to 10,000,000 shares of
"blank check" preferred stock. In 1996, the Board of Directors and the
stockholders approved an increase in the authorized shares of common stock
to 140,000,000 shares.
Stock Option Plan - Under the Company's 1994 Stock Option Plan (the
"Plan"), options to purchase up to 6,000,000 shares of common stock may be
granted to employees, directors, consultants, and advisors of the Company.
Options granted may be either "incentive stock options" or nonqualified
options. Stock options are exercisable over a period determined by the
Board of Directors.
In 1996, the Board of Directors and the stockholders adopted an amendment
to the Plan increasing the number of shares available for grant to
9,500,000.
A summary of stock option activity is as follows:
Shares Price
Granted 1,084,000 $0.25 - $2.00
Exercised - -
Canceled - -
--------- ------------
Balance, December 31, 1994 1,084,000 $0.25 - $2.50
Granted 3,707,000 $0.25 - $2.50
Exercised - -
Canceled - -
--------- ------------
Balance, December 31, 1995 4,791,000 $0.25 - $2.50
========= =============
Exercisable at December 31, 1995 915,000 $0.25 - $2.50
========= =============
Stock Warrants - At December 31, 1995, the Company had outstanding warrants
to purchase 216,000 shares of the Company's common stock at $2.50 per
share. The warrants may be exercised at any time and expire in 2005.
F-47
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
As of December 31, 1995, the Company and its subsidiaries leased facilities
in Ivory Coast and in Cambridge, MA. The leases expire from 1996 to 2000
and contain renewal options. Future minimum rental payments are as follows:
Year ended December 31
1996 $ 171,000
1997 122,000
1998 45,000
1999 50,000
2000 55,000
Thereafter 71,000
------
Total future minimum rentals $ 514,000
=========
Total rent expense for the period ended December 31, 1994 and the year
ended December 31, 1995 was $3,000 and $86,000, respectively.
At December 31, 1995, the Company has outstanding purchase commitments of
approximately $4.7 million for equipment relating to its cellular telephone
development activities in Africa.
Litigation - Pursuant to the acquisition described in Note 2, holders of
Comstar stock certificates were required to release Comstar and the Company
from any claims which such holders may have had and to surrender their
Comstar stock certificates. Certain holders of the Comstar certificates did
not participate in the reorganization, and there can be no assurance that
they will not bring claims against the Company. The consolidated financial
statements contain no provision or liability for such potential claims;
however, the Company believes that the reorganization provided the holders
with the opportunity to acquire equity participation in the Company,
without further investment, in the same relative proportion as they would
have had in Comstar. The Company does not expect that this matter will have
a material impact on its financial position or the results of operations.
8. SUBSEQUENT EVENTS (UNAUDITED)
Acquisition of Minority Interest in Subsidiary - In January 1996, the
Company purchased 90 shares of common stock of Comstar Cellular S.A. Cote
d'lvoire ("Comstar Cote d'lvoire") from a minority shareholder and employee
in exchange for 350,000 shares of common stock of the Company and $300,000
in cash. As a result of this transaction, the Company's equity interest in
Comstar Cote d'Ivoire increased from 91% to 100%.
The acquisition will be accounted for as a purchase and the purchase price
of $1,350,000 is expected to be allocated to goodwill associated with the
cellular operations of Comstar Cote d'Ivoire.
Investment in Global Enterprise Services, Inc. ("GES") - In 1996, the
Company acquired a 48% voting interest in GES, represented by 4,800,000
shares of convertible preferred stock, for $9 million. The preferred stock
has voting rights and is convertible into common stock of GES stock.
F-48
<PAGE>
8. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Investment in Global Enterprise Services, Inc. ("GES") (Continued) -The
Company also received a warrant to purchase up to 1,380,000 additional
shares of GES' convertible preferred stock at an exercise price of $2.8125
per share. The warrant is exercisable from January 1, 1997 through June 30,
1997 only in the event that GES reports both revenues of less than $15
million and a loss before interest, taxes, depreciation and amortization
for the year ending December 31, 1996.
The Company will account for its investment using the equity method since
essentially all of the capital at risk in GES belongs to the Company.
Note Payable - In March 1996, the Company borrowed $2 million from Bay
Networks, Inc. ("Bay Networks") pursuant to an 8-1/4% convertible note.
Principal and interest are due on the earlier of six months after the
completion of a private placement with aggregate gross proceeds of at least
$1,000,000 or March 31, 1997. Bay Networks has the right within 30 days
after the completion of such a private placement and prior to March 31,
1997 to convert the principal and interest into common stock at the price
per share at which the Company's common stock is sold in the private
placement.
Private Placement - Subsequent to December 31, 1995, the Company has sold
in a private placement 1,430,702 shares of common stock resulting in net
proceeds to the Company of $4,239,707.
Stock Subscription - Pursuant to a subscription agreement dated February
20, 1996, as amended, Carso agreed to acquire for cash 7,000,000 shares of
common stock of the Company at a price of $3 per share as follows:
Date Shares Amount
February 20, 1996 1,000,000 $ 3,000,000
March 11, 1996 2,000,000 6,000,000
May 1, 1996 1,000,000 3,000,000
September 3, 1996 3,000,000 9,000,000
--------- -----------
Total 7,000,000 $21,000,000
========= ===========
In addition, Carso may purchase an additional 3,000,000 shares of the
Company's common stock from existing stockholders.
Stockholder Advances - Subsequent to December 31, 1995, the Stockholder
advanced the Company an additional $2,900,000 under the terms of the
existing credit facility (Note 4) and all advances have been converted into
1,500,000 shares of common stock at $3 per share. The credit facility has
been terminated.
Acquisition of Prodigy Services Company - On June 17, 1996, the Company
acquired the partnership interests of International Business Machines
Corporation ("IBM") and Sears Roebuck and Co. ("Sears") in Prodigy. The
Company acquired the assets and assumed liabilities of Prodigy, with the
exception of certain patents and all obligations and liabilities related to
employee retirement and other postretirement benefit plans. The purchase
price was $46.2 million in cash subject to adjustments plus contingent
convertible notes (the "Contingent Convertible Notes"), payable to IBM and
Sears.
F-49
<PAGE>
8. SUBSEQUENT EVENTS (CONTINUED)
Acquisition of Prodigy Services Company (Continued) - Commencing December
1998, the Contingent Convertible Notes accrue interest at $4 million on a
quarterly basis. Upon the earlier of (i) an initial public offering by the
Company resulting in gross proceeds of at least $25 million, (ii) an
acquisition of the Company, (iii) following an initial public offering, the
Company's market value exceeds $200 million, or (iv) the tenth anniversary
of the closing date, the Contingent Convertible Notes are convertible into
shares constituting 15% of the Company's outstanding common stock on a
fully diluted basis (or 15% of the consideration received in the event the
Company is acquired), limited to a value equal to $200 million plus accrued
interest. Principal and interest are not required to be paid in cash,
except in the event that the Company is acquired for cash.
As part of the above agreement, the Company is required to have available
funds in the amount of $155 million to provide a portion of the necessary
funds for the purchase and operations of Prodigy. In order to meet this
requirement, the Company entered into a funding agreement with Carso and
the Stockholder described below.
Commencing with the Prodigy closing and terminating on the earlier of (i)
November 12, 1997 or (ii) the closing of an underwritten public offering in
which the gross proceeds to the Company exceed $25 million, the Company has
the right from time to time to require Carso and the Stockholder to
purchase shares of common stock from the Company at $6 per share up to a
maximum amount of $144.5 million (the "Maximum Amount"). The Maximum Amount
is reduced by (i) the net amount realized from the sale by the Company of
certain cellular assets (see below), (ii) the net amount realized, after
expenses, from the sale of common stock in a private placement, (iii) the
net amount realized by the Company in an initial public offering, (iv) the
amount realized by the Company from the exercise of the warrants described
below. The Maximum Amount is allocated 90% to Carso and 10% to the
Stockholder.
The Company has granted Carso and the Stockholder warrants to purchase
2,700,000 shares and 270,000 shares, respectively, of common stock at $3
per share after the initial closing of a private placement and on or before
December 31, 1996. Warrants to purchase 2,000,000 shares and 1,000,000
shares of the Company's common stock were also granted to Carso and the
Stockholder, respectively, at $9 per share at any time after the initial
closing of a private placement and on or before the earlier of the closing
of an initial public offering or November 12, 1997.
In connection with these arrangements, the Company granted Carso an option
to purchase, on or before July 26, 1996, its cellular telephone assets
located in Cote d'lvoire and Guinee for a purchase price of $69 million. If
the option is exercised, Carso will be granted a right of first refusal,
from January 1, 1997 to March 31, 1997, to purchase additional cellular
assets the Company may have at that time.
F-50
<PAGE>
8. SUBSEQUENT EVENTS (CONTINUED)
Acquisition of Prodigy Services Company (Continued) - As a result of the
Prodigy acquisition, the Company has entered into employment and stock
option agreements with certain Prodigy management.
Summarized financial information with respect to Prodigy is as follows (in
thousands):
As of
December 31,
1994 1995
Total assets $ 80,121 $ 84,702
Partners' capital (deficit) (4,279) 9,751
For the Years Ended
December 31,
1993 1994 1995
Revenues $ 195,194 $ 210,900 $ 243,399
Net loss (59,973) (51,980) (34,583)
Credit Facility - In June 1996, the Company entered into a loan agreement
with Banco Inbursa, S.A. ("Inbursa"), an affiliate of Carso, whereby
Inbursa agreed to provide a credit facility to the Company of up to $50
million for a period of one year at an interest rate of prime plus 1/2%.
Borrowings under this credit facility are collateralized by a pledge of
17,000,000 shares of the Company's common stock held by two of the
Company's stockholders. Any outstanding borrowings mature within 30 days of
the date of borrowing at which time the Company may re-borrow any unpaid
balances. Through June 17, 1996, the Company had borrowed $48 million under
the agreement primarily to fund the Prodigy acquisition.
Reorganization - On June 13, 1996, a reorganization was effected through
which the Company became a wholly owned subsidiary of a new holding
company, Prodigy, Inc.
* * * * * *
F-51
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
____________________
TABLE OF CONTENTS
Page
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 9
Use of Proceeds ........................................................... 20
Dividend Policy ........................................................... 20
Capitalization ............................................................ 21
Dilution .................................................................. 22
Selected Consolidated Financial Information
and Other Data .......................................................... 24
Management's Discussion and
Analysis of Financial Condition and
Results of Operations .................................................. 28
Business .................................................................. 40
Management ................................................................ 58
Corporate History and Certain Transactions ................................ 71
Principal Stockholders .................................................... 79
Description of Capital Stock .............................................. 82
Shares Eligible for Future Sale ........................................... 84
Underwriting .............................................................. 86
Legal Matters ............................................................ 88
Experts ................................................................... 88
Additional Information .................................................... 88
Index to Consolidated Financial Statements ................................ F-1
____________________
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
Shares
[PRODIGY LOGO]
Common Stock
--------------------
PROSPECTUS
--------------------
Bear, Stearns & Co. Inc.
BancBoston Robertson Stephens
ING Baring Furman Selz LLC
Volpe Brown Whelan & Company
Wit Capital Corporation
as e-Manager
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
SEC registration fee........................................ $25,433.75
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees........................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and mailing expenses............................... *
Miscellaneous............................................... *
------------
Total..................................................... $ *
============
*to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article NINTH of the Registrant's Certificate of Incorporation provides that
a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section of the Purchase Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Purchase Agreement filed as Exhibit 1.1 hereto.
The Registrant has an insurance policy with coverage of $8,000,000 that
insures the directors and officers of the Registrant against certain liabilities
which might be incurred by such directors and officers in connection with the
performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is certain information regarding
securities issued by the Registrant and its predecessor, International
Wireless Incorporated ("IW"), without registration under the Securities Act of
1933, as amended (the "Securities Act"), since May 1, 1995. The information
presented in this Item 15 has not been adjusted to reflect the -for-
reverse stock split of the Registrant's Common Stock that the Company will
effect prior to the closing of the Offering.
1. In May 1995, IW issued 10,000 shares of Common Stock for nominal cash
consideration to an employee.
2. Between May 1995 and October 1995, IW issued, in connection with a
private placement transaction, an aggregate of 1,232,500 shares of Common Stock
to selected private investors for a purchase price of $2.50 per share for
aggregate cash proceeds of $3,081,250. D.E. Wine Investments, Inc. acted as
placement agent in this private placement and was paid a cash fee of $77,438.
II-2
<PAGE>
3. In June 1995, IW issued 400,000 shares of Common Stock to Greg C. Carr
for $2.50 per share for aggregate cash proceeds of $1,000,000 (including the
conversion of $730,000 in cash advances from Mr. Carr).
4. In June 1995, IW issued 10,000 shares of Common Stock to an employee for
$2.50 per share for aggregate cash proceeds of $25,000.
5. Between November 1995 and March 1996, IW issued, in connection with a
private placement transaction, an aggregate of 2,458,836 shares of Common Stock
to selected private investors for a purchase price of $3.00 per share for
aggregate cash proceeds of $7,376,508 (including the conversion of $3,000,000 in
cash advances from Greg C. Carr). D.E. Wine Investments, Inc. acted as placement
agent in this private placement and was paid a cash fee of $50,000.
6. In November 1995, IW issued 15,000 shares of Common Stock to Greg C. Carr
as a commitment fee valued at $3.00 per share ($45,000 total) in consideration
of the establishment of a $4,500,000 credit facility by Mr. Carr in favor of IW.
7. In December 1995, IW issued an aggregate of 9,500 shares of Common Stock
to two former holders of certificates for common stock of Comstar Cellular
Network, Inc. ("Comstar") in exchange for their release of any claims against IW
and related parties arising out of IW's acquisition of Comstar's assets and
accounts payable in August 1994.
8. In January 1996, IW issued 350,000 shares of Common Stock in exchange for
a 9% equity interest in Comstar Cellular S.A. Cote d'Ivoire, IW's Ivory Coast
subsidiary, held by IW's Ivory Coast consultant.
9. In February 1996, IW issued 16,734 shares of Common Stock to an executive
search firm in exchange for such firm's placement of an executive employee with
IW.
10. In March 1996 and May 1996, IW issued an aggregate of 4,000,000 shares of
Common Stock to Grupo Carso, S.A. de C.V. ("Grupo Carso") for a purchase price
of $3.00 per share for aggregate cash proceeds of $12,000,000 pursuant to an
agreement dated April 11, 1996 (the "Initial Grupo Carso Agreement").
11. In May 1996, IW issued 13,333 shares of Common Stock to an executive
search consultant in exchange for such consultant's placement of an executive
employee with IW.
12. In May 1996, IW granted Grupo Carso and Greg C. Carr, in connection with
financing commitments made by Grupo Carso and Mr. Carr under a Funding Agreement
dated May 12, 1996 (the "Funding Agreement"), (i) warrants to purchase 2,700,000
shares and 270,000 shares, respectively, of Common Stock for $3.00 per share,
exercisable prior to December 31, 1996, and (ii) warrants to purchase 2,000,000
shares and 1,000,000 shares, respectively, of Common Stock for $9.00 per share,
exercisable prior to the earlier of (a) the closing of an initial public
offering or (b) November 12, 1997.
13. In June 1996, IW issued 500,000 share of Common Stock to Greg C. Carr for
$3.00 per share upon the conversion of $1,500,000 in cash advances from Mr.
Carr.
14. In June 1996, the Registrant issued, in connection with its
incorporation, 100 shares of Common Stock to IW for an aggregate cash purchase
price of $10.
15. In June 1996, the Registrant issued, in connection with a holding-company
reorganization in which a wholly-owned subsidiary of the Registrant was merged
with and into IW, an aggregate of
II-3
<PAGE>
21,636,850 shares of Common Stock in exchange for all outstanding Common Stock
of IW and simultaneously assumed the outstanding options and warrants of IW.
16. In June 1996, the Registrant issued, in connection with its
acquisition of Prodigy Services Company ("PSC"), 8% Contingent Convertible
Promissory Notes to International Business Machines Corporation ("IBM") and
Sears, Roebuck and Co. ("Sears") in the aggregate face amount of $200,000,000.
In connection with the Registrant's acquisition of PSC, Wasserstein, Perella &
Co., Inc. acted as the financial advisor to PSC's management and received a fee
of $5,400,000 and ING Baring Furman Selz LLC acted as the Registrant's financial
advisor and received a fee of $750,000.
17. In September 1996, the Registrant issued 3,000,000 shares of
Common Stock to Carso Global Telecom, S.A. de C.V. ("Carso Global Telecom") for
a purchase price of $3.00 per share for aggregate cash proceeds of $9,000,000.
In June 1996, Carso Global Telecom was spun-off from Grupo Carso and assumed
Grupo Carso's obligations under the Initial Grupo Carso Agreement and the
Funding Agreement.
18. In September 1996, the Registrant issued 100,000 shares of Common
Stock to a former holder of a certificate for common stock of Comstar in
exchange for his release of any claims against IW, the Registrant and related
parties arising out of IW's acquisition of Comstar's assets and accounts payable
in August 1994.
19. In October 1996, in connection with an amendment to the Funding
Agreement, (i) Mr. Carr's warrant to purchase 1,000,000 shares for $9.00 per
share was cancelled and (ii) Grupo Carso's warrant to purchase 2,000,000 shares
for $9.00 per share was exchanged for a warrant to purchase 1,000,000 shares for
$7.00 per share and assigned to Carso Global Telecom.
20. In October 1996, the Registrant issued 270,000 shares of Common
Stock to Greg C. Carr upon the exercise of an outstanding warrant for a purchase
price of $2.93 per share for aggregate cash proceeds of $792,000, reflecting a
discount (based on the interest rate charged on the Registrant's bank debt) from
the original exercise price in order to induce early exercise.
21. Between October 1996 and February 1997, the Registrant issued, in
connection with a private placement transaction, an aggregate of 1,309,034
shares of Common Stock to selected private investors for a purchase price of
$7.00 per share for aggregate cash proceeds of $9,163,238. In March 1997, the
Registrant reduced the offering price from $7.00 per share to $3.00 per share.
The purchasers of an aggregate of 50,000 shares at $7.00 per share elected to
receive cash refunds totalling $350,000 and the other purchasers at $7.00 per
share elected to receive an aggregate of 1,678,711 additional shares to reduce
their average purchase price to $3.00 per share. In March 1997, the Registrant
issued Convertible Promissory Notes to Carso Global Telecom and Greg C. Carr in
the principal amounts of $65,000,000 and $15,000,000, respectively, which
automatically converted into an aggregate of 26,666,667 shares at $3.00 per
share upon receipt of regulatory approvals in June 1997. In May 1997, the
Registrant issued 10,000 additional shares to an investor at $3.00 per share.
In total, the Registrant issued an aggregate of 29,614,412 shares for $3.00 per
share for aggregate cash proceeds of $88,843,235 in this private placement.
Tucker Anthony Incorporated acted as placement agent and financial advisor in
this private placement and was paid cash fees totalling $150,000. ANZ, Inc.
also acted as placement agent in this private placement and was granted a
warrant to purchase 68,056 shares of Common Stock for $3.00 per share,
exercisable at any time prior to December 13, 2001.
22. In December 1996, the Registrant issued 2,700,000 shares of
Common Stock to Carso Global Telecom upon the exercise of an outstanding warrant
for a purchase price of $3.00 per share for aggregate cash proceeds of
$8,100,000.
23. In March 1997, in connection with an amendment to the Funding
Agreement, the Registrant (i) granted warrants to purchase 13,000,000 and
2,000,000 shares of Common Stock to Carso Global Telecom
II-4
<PAGE>
and Mr. Carr, respectively, with an exercise price of $3.00 per share and (ii)
cancelled Carso Global Telecom's warrant to purchase 1,000,000 shares for $7.00
per share.
24. In June 1997, the Registrant issued 2,166,667 shares and 833,333
shares of Common Stock to Carso Global Telecom and Greg C. Carr, respectively,
upon the exercise of stock puts under the Funding Agreement for a purchase price
of $3.00 per share for aggregate cash proceeds of $9,000,000.
25. In July 1997, the Registrant issued 8,450,000 shares and 200,000
shares of Common Stock to Carso Global Telecom and Greg C. Carr, respectively,
upon the exercise of stock puts under the Funding Agreement for a purchase price
of $3.00 per share for aggregate cash proceeds of $25,950,000.
26. In August 1997, the Registrant issued 363,511 shares of Common
Stock to Greg C. Carr upon the exercise of stock puts under the Funding
Agreement for a purchase price of $3.00 per share for aggregate cash proceeds of
$1,090,533.
27. In September 1997, the Registrant issued 2,362,822 shares and
166,667 shares of Common Stock to Carso Global Telecom and Greg C. Carr,
respectively, upon the exercise of stock puts under the Funding Agreement for a
purchase price of $3.00 per share for aggregate cash proceeds of $7,588,467.
28. In October 1997, the Registrant issued 433,333 shares of Common
Stock to Greg C. Carr upon the exercise of stock puts under the Funding
Agreement for a purchase price of $3.00 per share for aggregate cash proceeds of
$1,300,000.
29. In October 1997, in connection with interim financing commitments
made by Carso Global Telecom and Greg C. Carr, the Registrant reduced the
exercise price of the warrants held by Carso Global Telecom and Mr. Carr to
purchase 13,000,000 and 2,000,000 shares of Common Stock, respectively, from
$3.00 per share to $1.00 per share.
30. In November 1997, Prodigy Services Corporation issued to IBM and
Sears, in exchange for the 8% Contingent Convertible Promissory Notes described
in paragraph 16 above, (i) 8% Contingent Convertible Promissory Notes in the
aggregate face amount of $200,000,000 and (ii) Contingent Common Stock Purchase
Warrants.
31. In December 1997, the Registrant issued, in connection with a
private placement transaction involving a rights offering to all stockholders of
the Registrant, an aggregate of 50,561,915 shares of Common Stock for a purchase
price of $1.00 per share for aggregate proceeds of $50,561,915, of which (i)
$32,811,915 was paid in cash (including the conversion of $500,000 in cash
advances from Greg C. Carr), (ii) Carso Global Telecom was credited with
$4,000,000 by reason of the issuance of a letter of credit on behalf of the
Registrant (and with respect to which Carso Global Telecom will pay the
Registrant each calendar quarter an amount equal to $333,333 less any draws on
such letter of credit during such quarter until the entire $4,000,000 has been
paid to the Registrant or drawn under such letter of credit), and (iii)
$13,750,000 was paid by Carso Global Telecom directly to Banco Inbursa, S.A.
("Banco Inbursa") on the Registrant's behalf in repayment of $13,750,000 of
indebtedness owed by the Registrant to Banco Inbursa. Tucker Anthony
Incorporated acted as financial advisor in this private placement and was paid a
cash fee of $150,000.
32. In April 1998, the Registrant issued 13,000,000 shares of Common
Stock to Carso Global Telecom upon the exercise of a warrant at a purchase price
of $1.00 per share for aggregate cash proceeds of $13,000,000.
33. In May 1998, the Registrant issued 2,000,000 shares of Common
Stock to an investor upon exercise of a warrant at a purchase price of $1.00 per
share for aggregate cash proceeds of $2,000,000.
II-5
<PAGE>
34. In July 1998, the Registrant issued 5,500,000 shares of Common
Stock to Carso Global Telecom for a purchase price of $2.00 per share for
aggregate cash proceeds of $11,000,000, and in August 1998 the Registrant issued
24,500,000 shares of Common Stock to Telefonos de Mexico, S.A. de C.V. for a
purchase price of $2.00 per share for aggregate cash proceeds of $49,000,000.
Wit Capital Corporation acted as financial advisor in this private placement and
was paid a cash fee of $50,000.
Since May 1, 1995, the Registrant (including its predecessor) has
granted stock options to employees and consultants to purchase an aggregate of
18,294,645 shares of Common Stock with exercise prices ranging from $1.00 to
$7.00 per share. During this same period, the Registrant (including its
predecessor) has issued an aggregate of 6,089 shares of Common Stock for
aggregate cash proceeds of $17,767 pursuant to the exercise of stock options.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from registration set forth in
Sections 3(b) and 4(2) of the Securities Act, or regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering,
(ii) in the case of certain sales to non-United States persons, pursuant to
Regulation S promulgated under the Securities Act, or (iii) in the case of
certain options to purchase shares of Common Stock and shares of Common Stock
issued upon the exercise of such options, such offers and sales were made in
reliance upon an exemption from registration under Rule 701 of the Securities
Act. Except as noted above, no underwriters or placement agents were involved
in the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
Exhibit
No. Description
------- -----------
1.1 Form of Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-laws of the Registrant, as amended.
3.3* Form of Certificate of Incorporation of the Registrant, as
in effect upon the closing of the Offering.
3.4* Form of By-laws of the Registrant, as in effect upon the
closing of the Offering.
4.1* Specimen certificate for shares of Common Stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 Agreement and Plan of Corporate Reorganization, dated July 8,
1994, among International Wireless Incorporated, Comstar
Cellular Network, Inc., Terrance Dillon, Duncan Wine, Blaize
Kaduru and Herbert Orji.
10.2 Partnership Purchase Agreement, dated May 12, 1996, among
International Wireless Incorporated, Prodigy Services Company,
International Business Machines Corporation and Sears, Roebuck
and Co., as amended by Amendment dated June 3, 1996.
10.3 Note Exchange Agreement, dated October 20, 1997, among the
Registrant, Prodigy Services Corporation, International Business
Machines Corporation and Sears, Roebuck and Co., as amended by
Amendment to Note Exchange Agreement dated October 31, 1997.
10.4 Letter agreement, dated October 20, 1997, between the Registrant
and Carso Global Telecom, S.A. de C.V., relating to the Note
Exchange Agreement.
10.5 Form of 8% Contingent Convertible Promissory Note issued by
Prodigy Services Corporation to IBM and Sears.
II-6
<PAGE>
10.6 Form of Contingent Common Stock Purchase Warrant issued by
Prodigy Services Corporation to IBM and Sears.
10.7 Letter agreement, dated April 11, 1996, between International
Wireless Incorporated and Grupo Carso, S.A. de C.V.
10.8 Funding Agreement, dated May 12, 1996, among International
Wireless Incorporated, Grupo Carso, S.A. de C.V. and Greg C.
Carr.
10.9 Amendment to Funding Agreement, dated October 31, 1996, among
the Registrant, Carso Global Telecom, S.A. de C.V. and Greg C.
Carr.
10.10 Amendment No. 2 to Funding Agreement, dated March 18, 1997,
among the Registrant, Carso Global Telecom, S.A. de C.V. and
Greg C. Carr.
10.11 Put Exercise Agreement, dated May 6, 1997, among the Registrant,
Carso Global Telecom, S.A. de C.V. and Greg C. Carr.
10.12 Interim Financing Agreement, dated October 30, 1997, among the
Registrant, Greg C. Carr and Carso Global Telecom, S.A. de C.V.
10.13 Stock Purchase Agreement, dated July 24, 1998, between the
Registrant and Telefonos de Mexico, S.A. de C.V.
10.14 Stock Purchase Agreement, dated July 24, 1998, between the
Registrant and Carso Global Telecom, S.A. de C.V..
10.15 Stock Purchase Agreement, dated July 24, 1998, among the
Registrant, Telefonos de Mexico, S.A. de C.V., Greg C. Carr and
Carso Global Telecom, S.A. de C.V..
10.16 Registration Rights Agreement, dated July 24, 1998, between the
Registrant and Greg C. Carr.
10.17+ Software License and Services Agreement, dated April 16, 1997,
between Prodigy Services Corporation and ORACLE Worldwide Tech
Support.
10.18 Understanding Agreement, dated August 5, 1998, for line of
credit granted by Carso Global Telecom, S.A. de C.V. to the
Registrant.
10.19+ Splitrock Full Service Agreement, dated June 24, 1997, between
Splitrock Services, Inc. and Prodigy Services Corporation.
10.20 Agreement of Sublease, dated June 24, 1997, between Splitrock
Services, Inc. and Prodigy Services Corporation.
10.21* Employment Agreement, dated September 1, 1998, between the
Registrant and Samer F. Salameh.
10.22* Consulting Agreement, dated July 31, 1998, between the
Registrant and Russell I. Pillar.
10.23* Employment Agreement, dated July 21, 1998, between the
Registrant and David R. Henkel.
10.24* Employment Agreement, dated November 24, 1997, between the
Registrant and James P. Dougherty.
10.25* Employment Agreement, dated September 14, 1998, between the
Registrant and Andrea S. Hirsch.
10.26* Employment Agreement, dated June 1, 1998, between the Registrant
and James L'Heureux.
10.27* Employment Agreement, dated June 1, 1998, between the Registrant
and Carena M. Pooth.
10.28* 1996 Stock Option Plan of the Registrant, as amended.
10.29* 1998 Employee Stock Purchase Plan of the Registrant.
II-7
<PAGE>
10.30 Lease, dated August 14, 1997, between Prodigy Services
Corporation and Westchester One LLC, as amended.
10.31+ Promotion & Distribution Agreement, effective October 7, 1996,
between Microsoft Corporation and Prodigy Services Corporation,
as amended.
10.32+ Distribution and Licensing Agreement, effective October 1, 1996,
between Packard Bell NEC, Inc. and Prodigy Services Corporation.
10.33+ Excite Services Distribution and Co-Branded Area Agreement,
dated January 20, 1998, between Excite, Inc. and Prodigy
Services Corporation.
10.34 Lease Agreement, dated June 6, 1988, between Prodigy Services
Company and Crow-Kelly#1, as amended.
10.35+ Internet-Sign Up Wizard Referral and Microsoft Internet Explorer
License and Distribution Agreement, dated January 8, 1997,
between Prodigy Services Corporation and Microsoft Corporation.
10.36+ Software Development and Processing Services Agreement, dated
January 1, 1992, between Prodigy Services Company and CSG
Systems, Inc., as amended.
10.37 Form of Prodigy Service Member Agreement.
11.1* Computation of earnings per common share.
23.1 Consent of PriceWaterhouseCoopers LLP.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-10).
27.1 Financial Data Schedule.
_________
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Purchase Agreement, certificates in
such denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation, as amended, of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of
II-8
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in White Plains, New York, on this 23rd
day of September, 1998
PRODIGY COMMUNICATIONS CORPORATION
By: /s/SAMER F. SALAMEH
---------------------------------------
Samer F. Salameh, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Prodigy Communications
Corporation, hereby severally constitute and appoint Samer F. Salameh, David R.
Henkel, Marc Jacobson and David A. Westenberg, and each of them singly, our true
and lawful attorneys with full power to them, and each of them singly, to sign
for us and in our names in the capacities indicated below, the Registration
Statement on Form S-1 filed herewith and any and all pre-effective and post-
effective amendments to said Registration Statement, and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b), and generally to do all such things in our names and on our behalf in
our capacities as officers and directors to enable Prodigy Communications
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------- ------------------------------------------ ------------------
<S> <C> <C>
/s/Samer F. Salameh Chairman of the Board, President and Chief September 17, 1998
- ----------------------- Executive Officer (principal executive
Samer F. Salameh officer)
/s/Russell I. Pillar Vice Chairman of the Board September 23, 1998
- -----------------------
Russell I. Pillar
/s/Alfredo Sanchez Vice Chairman of the Board September 23, 1998
- -----------------------
Alfredo Sanchez
/s/David R. Henkel Executive Vice President, Finance, Chief September 23, 1998
- ----------------------- Financial Officer and Director
David R. Henkel (principal financial and accounting officer)
/s/Arturo Elias Director September 23, 1998
- -----------------------
Arturo Elias
/s/James M. Nakfoor Director September 23, 1998
- -----------------------
James M. Nakfoor
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
1.1* Form of Purchase Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-laws of the Registrant, as amended.
3.3* Form of Certificate of Incorporation of the Registrant, as in effect
upon the closing of the Offering.
3.4* Form of By-laws of the Registrant, as in effect upon the closing of
the Offering.
4.1* Specimen certificate for shares of Common Stock.
5.1* Opinion of Hale and Dorr LLP.
10.1 Agreement and Plan of Corporate Reorganization, dated July 8, 1994,
among International Wireless Incorporated, Comstar Cellular Network,
Inc., Terrance Dillon, Duncan Wine, Blaize Kaduru and Herbert Orji.
10.2 Partnership Purchase Agreement, dated May 12, 1996 among International
Wireless Incorporated, Prodigy Services Company, International
Business Machines Corporation and Sears, Roebuck and Co., as amended
by Amendment dated June 3, 1996.
10.3 Note Exchange Agreement, dated October 20, 1997, among the
Registrant, Prodigy Services Corporation, International Business
Machines Corporation and Sears, Roebuck and Co., as amended by
Amendment to Note Exchange Agreement dated October 31, 1997.
10.4 Letter agreement, dated October 20,1997, between the Registrant and
Carso Global Telecom, S.A. de C.V., relating to the Note Exchange
Agreement.
10.5 Form of 8% Contingent Convertible Promissory Note issued by Prodigy
Services Corporation to IBM and Sears.
</TABLE>
<PAGE>
10.6 Form of Contingent Common Stock Purchase Warrant issued by
Prodigy Services Corporation to IBM and Sears.
10.7 Letter agreement, dated April 11, 1996, between International
Wireless Incorporated and Grupo Carso, S.A. de C.V.
.
10.8 Funding Agreement, dated May 12, 1996, among International
Wireless Incorporated, Grupo Carso, S.A. de C.V. and Greg C.
Carr.
10.9 Amendment to Funding Agreement, dated October 31, 1996, among the
Registrant, Carso Global Telecom, S.A. de C.V. and Greg C. Carr.
10.10 Amendment No. 2 to Funding Agreement, dated March 18, 1997, among
the Registrant, Carso Global Telecom, S.A. de C.V. and Greg C.
Carr.
10.11 Put Exercise Agreement, dated May 6, 1997, among the Registrant,
Carso Global Telecom, S.A. de C.V. and Greg C. Carr.
10.12 Interim Financing Agreement, dated October 30, 1997, among the
Registrant, Greg C. Carr and Carso Global Telecom, S.A. de C.V.
10.13 Stock Purchase Agreement, dated July 24, 1998, between the
Registrant and Telefonos de Mexico, S.A. de C.V.
10.14 Stock Purchase Agreement, dated July 24, 1998, between the
Registrant and Carso Global Telecom, S.A. de C.V.
10.15 Stock Purchase Agreement, dated July 24, 1998, among the
Registrant, Telefonos de Mexico, S.A. de C.V., Greg C. Carr and
Carso Global Telecom, S.A. de C.V.
10.16 Registration Rights Agreement, dated July 24, 1998, between the
Registrant and Greg C. Carr.
10.17+ Software License and Services Agreement, dated April 16, 1997,
between Prodigy Services Corporation and ORACLE Worldwide Tech
Support.
10.18 Understanding Agreement, dated August 5, 1998, for line of credit
granted by Carso Global Telecom, S.A. de C.V. to the Registrant.
10.19+ Splitrock Full Service Agreement, dated June 24, 1997, between
Splitrock Services, Inc. and Prodigy Services Corporation.
10.20 Agreement of Sublease, dated June 24, 1997, between Splitrock
Services, Inc. and Prodigy Services Corporation.
10.21* Employment Agreement, dated September 1, 1998 between
the Registrant and Samer F. Salameh.
10.22* Consulting Agreement, dated July 31, 1998, between the Registrant
and Russell I. Pillar.
10.23* Employment Agreement, dated July 21, 1998, between the
Registrant and David R. Henkel.
10.24* Employment Agreement, dated November 24, 1997, between the
Registrant and James P. Dougherty.
10.25* Employment Agreement, dated September 14, 1998 between the
Registrant and Andre S. Hirsch.
10.26* Employment Agreement, dated June 1, 1998, between the Registrant
and James L'Heureux.
10.27* Employment Agreement, dated June 1, 1998, between the Registrant
and Careno M. Pooth.
10.28* 1996 Stock Option Plan of the Registrant, as amended.
10.29* 1998 Employee Stock Purchase Plan of th Registrant.
<PAGE>
10.30 Lease, dated August 14, 1997, between Prodigy Services
Corporation and Westchester One LLC, as amended.
10.31+ Promotion and Distribution Agreement, effective October 7, 1996,
between Microsoft Corporation and Prodigy Services Corporation,
as amended.
10.32+ Distribution and Licensing Agreement, effective October 1, 1996,
between Packard Bell NEC, Inc. and Prodigy Services Corporation.
10.33+ Excite Services Distribution and Co-Branded Area Agreement,
dated January 20, 1998, between Excite, Inc. and Prodigy
Services Corporation.
10.34 Lease Agreement, dated June 6, 1998, between Prodigy Services
Company Crow-Kelly#1, as amended.
10.35+ Internet-Sign Up Wizard Referral and Microsoft Internet Explorer
License and Distribution Agreement, dated January 8, 1997,
between Prodigy Services Corporation and Microsoft Corporation.
10.36+ Software Development and Processing Services Agreement, dated
January 1, 1992, between Prodigy Services Company and CSG
Systems, Inc., as amended.
10.37 Form of Prodigy Service Member Agreement.
11.1* Computation of earnings per common share.
23.1 Consent of PriceWaterhouseCoopers LLP.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-10).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PRODIGY, INC.
FIRST. The name of the Corporation is: Prodigy, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 150,000,000 shares, of which 140,000,000 shares shall
be Common Stock, $.01 par value per share, and 10,000,000 shares shall be Series
Preferred Stock, $.01 par value per share, set aside for designation from time
to time by the Board of Directors of the Corporation in accordance with the
provisions of the General Corporation Law of the State of Delaware.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled
<PAGE>
to vote, irrespective of the provisions of section 242(b)(2) of the General
Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one of more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
special voting rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted by law. Except as otherwise
specifically provided in this Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
<PAGE>
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Ernest L. Godshalk One Kendall Square
Building 200, 2nd Floor
Cambridge, MA 02139
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 79 of Title of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment
<PAGE>
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
---------------------------------------------------------------
the Corporation. The Corporation shall indemnify each person who was or is a
- ---------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including
<PAGE>
attorneys' fees) which the Court of Chancery of Delaware or such other court
shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---- ----------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel of the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
<PAGE>
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article or any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, provided,
--------
however, that the payment of such expenses incurred by an Indemnitee in advance
- -------
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority
vote of a quorum of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), (b) if no such quorum is obtainable, a majority
vote of a committee of two or more disinterested directors, (c) a majority vote
of a quorum of the outstanding shares of stock of all classes entitled to vote
for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (d) independent legal counsel (who may be regular legal counsel to
the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the
<PAGE>
action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
<PAGE>
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the Indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Cambridge, MA, on June 13, 1996.
/s/ E. Godshalk
---------------------------------
Incorporator
Ernest L. Godshalk
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PRODIGY, INC.
____________________________________________________________________
PRODIGY, INC. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
FIRST: The Board of Directors of the Corporation, at a meeting thereof
duly called and held on September 23, 1997, acting pursuant to Section 242 of
the General Corporation Law of the State of Delaware, duly adopted the following
resolution:
RESOLVED: That it is hereby proposed and declared advisable to amend the
Corporation's Certificate of Incorporation by deleting the first
paragraph of Article FOURTH and inserting in lieu thereof the
following:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 280,000,000 shares of Common
Stock, $.01 par value per share ("Common Stock"), and (ii) 10,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock")."
SECOND: The stockholders of the Corporation duly approved this
Certificate of Amendment of Certificate of Incorporation and the amendment
<PAGE>
contained herein by written consent in accordance with Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this September 30, 1997.
PRODIGY, INC.
By: [signature appears here]
---------------------------
President
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PRODIGY (NEW YORK), INC.
(A DELAWARE CORPORATION)
INTO
PRODIGY, INC.
(A DELAWARE CORPORATION)
Prodigy, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That the Corporation was incorporated on the 13th day of June,
-----
1996, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares of each
------
class of the stock of Prodigy (New York), Inc., a corporation incorporated on
the 17th day of July, 1996 pursuant to the General Corporation Law of the State
of Delaware.
THIRD: That the Board of Directors of the Corporation, at a meeting duly
-----
held on the 6th day of July, 1998, duly adopted the following resolutions:
RESOLVED: That, pursuant to Section 253 of the Delaware General
Corporation Law, the Corporation is hereby authorized to
merge Prodigy (New York), Inc., a Delaware corporation which
is a wholly owned subsidiary of the Corporation, into the
Corporation;
RESOLVED: That the President and Secretary of the Corporation be and
each hereby is, authorized to execute a Certificate of
Ownership and Merger with respect to the merger of Prodigy
(New York), Inc. into the Corporation and to cause the same
to be filed with the Secretary of State of Delaware, and to
take all such other actions and to execute all such other
instruments and agreements as they or any of them may deem
appropriate to effect such merger;
<PAGE>
RESOLVED: That the merger of Prodigy (New York), Inc. into the
Corporation shall be effective upon the filing of a
Certificate of Ownership and Merger with the Secretary of
State of Delaware.
RESOLVED: That the name of the Corporation effective upon the filing
of a Certificate of Ownership and Merger with the Secretary
of State of Delaware shall be Prodigy Communications
Corporation.
IN WITNESS WHEREOF, Prodigy, Inc. has caused this Certificate to be signed
by Samer F. Salameh as President and attested by Marc Jacobson as Secretary,
this 3rd day of August, 1998.
PRODIGY, INC.
By: /s/ Samer F. Salameh
--------------------------------
Samer F. Salameh
President
ATTEST:
/s/ Marc Jacobson
- --------------------------------
Marc Jacobson
Secretary
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
PRODIGY COMMUNICATIONS CORPORATION
<PAGE>
BY- LAWS
--------
OF
--
PRODIGY COMMUNICATIONS CORPORATION
----------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 -- Stockholders 1
Section 1.1 Place of Meetings 1
Section 1.2 Annual Meeting 1
Section 1.3 Special Meetings 1
Section 1.4 Notice of Meetings 1
Section 1.5 Voting List 2
Section 1.6 Quorum 2
Section 1.7 Adjournments 2
Section 1.8 Voting and Proxies 2
Section 1.9 Action at Meeting 3
Section 1.10 Action without Meeting 3
ARTICLE 2 -- Directors 3
Section 2.1 General Powers 3
Section 2.2 Number; Election and Qualification 3
Section 2.3 Enlargement of the Board 4
Section 2.4 Tenure 4
Section 2.5 Vacancies 4
Section 2.6 Resignation 4
Section 2.7 Regular Meetings 4
Section 2.8 Special Meetings 4
Section 2.9 Notice of Special Meetings 4
Section 2.10 Meetings by Telephone Conference Calls 5
Section 2.11 Quorum 5
Section 2.12 Action at Meeting 5
Section 2.13 Action by Consent 5
Section 2.14 Removal 5
Section 2.15 Committees 6
Section 2.16 Compensation of Directors 6
ARTICLE 3 -- Officers 6
Section 3.1 Enumeration 6
Section 3.2 Election 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3.3 Qualification 7
Section 3.4 Tenure 7
Section 3.5 Resignation and Removal 7
Section 3.6 Vacancies 7
Section 3.7 Chairman of the Board and
Vice-Chairman of the Board 7
Section 3.8 President 8
Section 3.9 Vice Presidents 8
Section 3.10 Secretary and Assistant Secretaries 8
Section 3.11 Treasurer and Assistant Treasurers 9
Section 3.12 Salaries 9
ARTICLE 4 -- Capital Stock 9
Section 4.1 Issuance of Stock 9
Section 4.2 Certificates of Stock 9
Section 4.3 Transfers 10
Section 4.4 Lost, Stolen or Destroyed Certificates 10
Section 4.5 Record Date 11
ARTICLE 5 -- General Provisions 11
Section 5.1 Fiscal Year 11
Section 5.2 Corporate Seal 11
Section 5.3 Waiver of Notice 11
Section 5.4 Voting of Securities 12
Section 5.5 Evidence of Authority 12
Section 5.6 Certificate of Incorporation 12
Section 5.7 Transactions with Interested Parties 12
Section 5.8 Severability 13
Section 5.9 Pronouns 13
ARTICLE 6 -- Amendments 13
Section 6.1 By the Board of Directors 13
Section 6.2 By the Stockholders 13
</TABLE>
<PAGE>
BY-LAWS
OF
PRODIGY COMMUNICATIONS CORPORATION
ARTICLE 1 -- Stockholders
-------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 10 days before every meeting of
stockholders, a
<PAGE>
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, at a place within the city where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
<PAGE>
1.10 Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 -- Directors
----------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
------
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders
<PAGE>
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
--------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without
<PAGE>
further notice other than announcement at the meeting, until a quorum shall be
present.
2.12 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation Law
-------
of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall
<PAGE>
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 -- Officers
---------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and
<PAGE>
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The
President shall perform such other duties and shall have such other powers as
the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the
<PAGE>
Assistant Secretary (or if there shall be more than one, the Assistant
Secretaries in the order determined by the Board of Directors) shall perform the
duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 -- Capital Stock
--------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice-Chairman, if any, of the Board
of Directors, or
<PAGE>
the President or a Vice President, and the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
<PAGE>
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the date on which the
first written consent is properly delivered to the corporation. The record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 -- General Provisions
-------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
<PAGE>
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
<PAGE>
5.8 Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 -- Amendments
-----------------------
6.1 By the Board of Directors. These By-Laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-Laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
<PAGE>
Exhibit 10.1
------------
AGREEMENT AND PLAN OF CORPORATE REORGANIZATION
----------------------------------------------
AGREEMENT made this 8th day of July, 1994 by and between Comstar Cellular
Network, Inc. ("Comstar Nevada"), a Nevada corporation, Terrance Dillon, Duncan
Wine, Blaize Kaduru and Herbert Orji and International Wireless Incorporated, a
Delaware corporation ("International Wireless").
Preliminary Statement
---------------------
1. Comstar Nevada and its affiliates own certain assets, including but
not limited to, an interest in a telecommunications license to provide mobile
cellular, paging, virtual mailbox and payphone services in Nigeria, an
authorization to commence in-country studies leading to a full deployment of
nationwide cellular and ancillary services in the Republic of the Ivory Coast
and goodwill relating to and arising out of certain proposals made to the
governments of other African countries in connection with the provision of
cellular services by Comstar Nevada. (Collectively, all rights to
telecommunications licenses held by Comstar Nevada or its affiliates in Nigeria,
the Republic of the Ivory Coast and any other country are hereafter referred to
as the "Communication Licenses.")
2. International Wireless was organized as a Delaware corporation with an
initial capitalization of 35,000,000 shares of common stock, $.01 par value per
share. There currently are no issued and outstanding shares of International
Wireless. Mr. Terrance Dillon, the current President of Comstar Nevada, is the
President of International Wireless. Mr. Dillon, a current director of Comstar
Nevada, and Shane E. Dillon are the current directors of International Wireless.
3. Comstar Nevada has agreed to transfer to International Wireless all of
its Assets (as defined in Section 1.01 below), subject to the assumption of the
Assumed Liabilities (as defined in Section 1.02 below), in exchange for the
original issue of all of the outstanding shares of common stock, $.01 par value
per share, of International Wireless (the "Common Stock"), in a transaction
qualifying as a tax-free reorganization under Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "1986 Code")
Plan of Reorganization
----------------------
The parties hereby adopt a Plan of Reorganization intended to effect a tax-
free reorganization under Section 368(a) (1) of the 1986 Code. Pursuant to the
terms and provisions of the Agreement hereinafter set forth, the reorganization
will consist of:
1. The transfer by Comstar Nevada to International Wireless of all of the
Assets, subject to the Assumed Liabilities, in exchange solely for all of the
Common Stock;
2. The distribution by Comstar Nevada to the parties set forth on Exhibit
-------
A attached hereto of that number of shares of Common Stock as is set forth
- -
opposite each party's name thereon (the "Shares") in exchange for the execution
and delivery of (i) a release agreement substantially in the form attached as
Exhibit B hereto (the "Release, Acknowledgment and Acceptance"), and (ii) the
- ---------
surrender of any certificates for stock in Comstar Nevada in the name of such
party (the "Certificates"); and
3. The best efforts of International Wireless to negotiate and form a
strategic alliance between International Wireless and African Communications,
Inc., a company to be formed as a Delaware corporation ("Newco"), based
substantially upon the terms set forth in a Letter of Intent, dated July 5,
1994, attached as Exhibit C hereto (the "Letter of Intent").
---------
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Transfer of Assets to International Wireless in Exchange for all of
-------------------------------------------------------------------
the Common Stock.
- ----------------
Upon the terms and subject to the conditions of this Agreement,
Comstar Nevada and International Wireless shall take, or cause to be taken, the
following actions on or prior to the Closing Date (as hereinafter defined):
1.01 Transfer of the Assets of Comstar Nevada to International
---------------------------------------------------------
Wireless.
- --------
(a) Comstar Nevada shall transfer, convey, assign and deliver to
International Wireless, and International Wireless shall acquire and accept from
Comstar Nevada, all of the assets, business, and goodwill of every kind,
character and description, whether tangible or intangible, whether real,
personal, or mixed, and wherever located, including but not limited to the stock
of the subsidiaries of Corns tar Nevada which are being formed in the Republic
of the Ivory Coast and Nigeria, those assets set forth on Schedule 6.06 and the
Communication Licenses, of Comstar Nevada (the "Assets"), subject to the Assumed
Liabilities of Comstar Nevada.
(b) Upon the transfer and assignment of the Assets to
International Wireless, Comstar Nevada shall deliver an Assignment Agreement
(the "Assignment Agreement"), substantially in the form of Exhibit D attached
---------
hereto, together with such other appropriate instruments of conveyance, transfer
and assignment as counsel to International Wireless may reasonably request.
1.02 Assumption of Liabilities by International Wireless. Upon the
---------------------------------------------------
transfer of the Assets to International Wireless, International Wireless shall
execute and deliver to Comstar Nevada an Instrument of Assumption of Liabilities
(the "Instrument of Assumption") substantially in the form attached hereto as
Exhibit E, pursuant to which International Wireless shall assume and agree to
- ---------
perform, pay, honor and discharge all liabilities, obligations and commitments
of Comstar Nevada specifically set forth in Schedule 1.02 hereto (the "Assumed
-------------
Liabilities")
1.03 Transfer of the Common Stock to Comstar Nevada. In exchange for
----------------------------------------------
the transfer of the Assets to International Wireless, International Wireless
agrees to transfer, convey, assign, and deliver the Common Stock to Corns tar
Nevada, which shall constitute all of the issued and outstanding stock of
International Wireless.
2. Exchange of the Shares for the Certificates.
-------------------------------------------
Promptly after the Closing Date, Comstar Nevada agrees to transfer,
convey, assign, and deliver to the holders of Certificates set forth on Exhibit
-------
A that have executed and delivered a Release, Acknowledgment and Consent, the
- -
Shares pursuant to an irrevocable stock power substantially in the form of
Exhibit G attached hereto (the "Stock Power"), which Shares shall constitute all
- ---------
of the Shares of International Wireless owned by Comstar Nevada at the Closing
Date, in exchange for (i) the execution and delivery by the holders of
Certificates of a Release, Acknowledgment and Acceptance and (ii) the delivery
of any Certificates in the name of such holder. Each holder of Certificates that
complied with the conditions set forth above shall receive that number of Shares
as is set forth opposite such holder's name on Exhibit A.
---------
-2-
<PAGE>
3. Dissolution of Comstar Nevada. Promptly after the Closing Date,
-----------------------------
Comstar Nevada agrees to take all steps necessary to effect its dissolution
pursuant to Chapter 78.580 of the Nevada General Corporation Law.
4. Closing. The Closing shall take place on or before July 31, 1994 at
-------
the office of Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, or at
such other place, time or date as may be mutually agreed upon in writing by the
parties (the "Closing Date").
5. Conditions to Closing.
---------------------
5.01 Obligations of Comstar Nevada. The obligations of Comstar Nevada
-----------------------------
under this Agreement are subject to the fulfillment, on or prior to the Closing
Date, of the following conditions precedent, each of which may be waived in
writing in the sole discretion of Comstar Nevada:
(a) Continued Truth of Representations and Warranties of
----------------------------------------------------
International Wireless; Compliance with Covenants and Obligations. The
- -----------------------------------------------------------------
representations and warranties of International Wireless in this Agreement shall
be true on and as of the Closing Date as though such representations and
warranties were made on and as of such date, except for any changes consented to
in writing by Comstar Nevada. International Wireless shall have performed and
complied with all terms, conditions, covenants, obligations, agreements and
restrictions required by this Agreement to be performed or complied with by it
on or prior to the Closing Date.
(b) The Shares. The Common Stock shall have been duly authorized
----------
and validly issued and shall be owned beneficially and of record by Comstar
Nevada, free and clear of any liens, claims, charges, options, or encumbrances.
(c) Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of International Wireless to authorize or carry
out this Agreement shall have been taken.
(d) Assumption of Liabilities. International Wireless shall have
-------------------------
assumed and agreed to perform, pay, honor and discharge all of the Assumed
Liabilities, and in connection therewith, shall have executed and delivered to
Comstar Nevada the Instrument of Assumption.
(e) The number of directors constituting the entire Board of
Directors of International Wireless shall have been fixed at three (3) and
Herbert Orji shall have been elected as a director and shall hold such position
as of the Closing Date.
(f) Blaize Kaduru shall have been appointed as an Executive Vice
President of International Wireless and, in connection therewith, shall have
executed an Employment Agreement with International Wireless.
(g) Closing Deliveries. Comstar Nevada shall have received at or
------------------
prior to the Closing, such documents, instruments or certificates as Corns tar
Nevada shall reasonably request including, without limitation:
(i) a certificate of the President of International
Wireless, dated the Closing Date, to the effect that, in the case of
International Wireless, the condition specified in Section 5.01(a) has been
satisfied;
-3-
<PAGE>
(ii) incumbency certificates, dated the Closing Date, for
the officers of International Wireless executing this Agreement or any of the
agreements contemplated hereby;
(iii) a certificate of the Secretary of International
Wireless, certifying the attached copies of the Bylaws of International Wireless
and the resolutions adopted by the Board of Directors of International Wireless
authorizing the execution and delivery by International Wireless of this
Agreement and the consummation of the transactions contemplated thereby;
(iv) a copy of the Certificate of Incorporation of
International Wireless, certified by the Secretary of State of the State of
Delaware;
(v) certificates of the Secretary of State of the State of
Delaware, dated a recent date, certifying as to the good standing of
International Wireless in the State of Delaware;
(vi) the stock certificates representing the Common Stock
duly endorsed in accordance with Section 1.03 of this Agreement; and
(vii) a cross-receipt executed by International Wireless and
Comstar Nevada.
(h) All corporate and legal proceedings taken by International
Wireless in connection with the transactions contemplated by this Agreement and
all documents and papers relating to such transactions shall be reasonably
satisfactory in form and substance to Comstar Nevada and its counsel.
5.02 Obligations of International Wireless.
-------------------------------------
The obligations of International Wireless under this Agreement are
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions precedent, each of which may be waived in writing in the sole
discretion of International Wireless:
(a) Continued Truth of Representations and Warranties of Comstar
------------------------------------------------------------
Nevada; Compliance with Covenants and Obligations. The representations and
- -------------------------------------------------
warranties of Comstar Nevada in this Agreement shall be true on and as of the
Closing Date as though such representations and warranties were made on and as
of such date, except for any changes consented to in writing by International
Wireless. Comstar Nevada shall have performed and complied with all terms,
conditions, covenants, obligations, agreements and restrictions required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(b) Transfer of the Assets. Comstar Nevada shall have
----------------------
transferred, conveyed and assigned all of its right, title and interest in and
to the Assets in exchange for all of the Common Stock and, in connection
therewith, shall have executed and delivered to International Wireless the
Assignment Agreement.
(c) Corporate Proceedings. All corporate and other proceedings
---------------------
required to be taken on the part of International Wireless to authorize or carry
out this Agreement shall have been taken.
(d) Promissory Note. Comstar Nevada shall have executed a
---------------
Promissory Note in the amount of $110,000, in favor of International Wireless in
consideration of the amounts paid
-4-
<PAGE>
by International Wireless on behalf of Comstar Nevada in connection with the
Communications Licenses and the creation of the subsidiaries of Comstar Nevada
in Nigeria and the Republic of the Ivory Coast.
(e) Release, Acknowledgment and Acceptance. Corns tar Nevada
--------------------------------------
shall have received from each of the holders of Certificates set forth on
Exhibit F attached hereto a fully executed Release, Acknowledgment and
- ---------
Acceptance together with the delivery of all Certificates registered in such
holder's name.
(f) Closing Deliveries. International Wireless shall have
------------------
received at or prior to the Closing, such documents, instruments or certificates
as International Wireless shall reasonably request including, without
limitation:
(i) a certificate of the President of Comstar Nevada,
dated the Closing Date, to the effect that, in the case of Comstar Nevada, the
condition specified in Section 5.02(a) has been satisfied;
(ii) incumbency certificates, dated the Closing Date, for
the officers of Comstar Nevada executing this Agreement or any of the agreements
contemplated hereby;
(iii) a certificate of the Secretary of Comstar Nevada,
certifying the attached copies of the By-laws of Comstar Nevada and the
resolutions adopted by the Board of Directors and stockholders of Corns tar
Nevada authorizing the execution and delivery by Corns tar Nevada of this
Agreement and the consummation of the transactions contemplated thereby;
(iv) a copy of the Articles of Incorporation of Comstar
Nevada, certified by the Secretary of State of the State of Nevada;
(v) certificates of the Secretary of State of the State of
Nevada, dated a recent date, certifying as to the good standing of Comstar
Nevada in the State of Nevada; and
(vi) a cross-receipt executed by International Wireless and
Comstar Nevada.
(g) All corporate and legal proceedings taken by Comstar Nevada
in connection with the transactions shall be reasonably satisfactory in form and
substance to International Wireless and its counsel.
6. Representations and Warranties of Comstar Nevada.
------------------------------------------------
Cornstar Nevada represents and warrants to International Wireless as
follows:
6.01 Organization. Comstar Nevada is a corporation duly organized,
------------
validly existing, and in good standing under the laws of the State of Nevada.
Certified copies of the Articles of Incorporation and By-laws of Comstar Nevada,
as amended to date, have been delivered to International Wireless, are complete
and correct, and no amendments have been made thereto or have been authorized
since the date thereof.
6.02 Original Capitalization. To the best knowledge of Comstar
-----------------------
Nevada, Comstar Nevada's authorized capital stock consists of 75,100 shares of
common stock, $1.00 par value per share, of which 50,100 shares are issued and
outstanding on the date hereof. All such issued and outstanding shares of common
stock have been and on the Closing Date will be duly and validly issued and are,
-5-
<PAGE>
or will be on such date, fully paid and non-assessable. There are not, and on
the Closing Date there will not be, outstanding any options or other rights to
purchase from Comstar Nevada any capital stock of Comstar Nevada.
6.03 Authorization. The execution and delivery by Comstar Nevada of
-------------
this Agreement and the agreements provided for herein, and the consummation by
Corns tar Nevada of all transactions contemplated hereunder and thereunder by
Corns tar Nevada have been duly authorized by all requisite corporate action.
This Agreement has been duly executed by Comstar Nevada. This Agreement and all
other agreements and obligations entered into and undertaken in connection with
the transactions contemplated hereby to which Corns tar Nevada is a party
constitute the valid and legally binding obligations of Comstar Nevada,
enforceable against it in accordance with their respective terms. The
execution, delivery and performance by Corns tar Nevada of this Agreement and
the agreements provided for herein, and the actions contemplated hereby and
thereby, will not violate the provisions of the Articles of Incorporation or By-
laws of Comstar Nevada. Schedule 6.03 attached hereto sets forth a true, correct
-------------
and complete list of all consents and approvals of third parties that are
required in connection with the consummation by Corns tar Nevada of the
transactions contemplated by this Agreement.
6.04 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
reflected on Schedule 1.02, either individually or in the aggregate, Comstar
Nevada has no liabilities or obligations, secured or unsecured, which are
material to the condition (financial or otherwise) of the Assets, properties,
business or prospects of Comstar Nevada.
6.05 Litigation. There is no action, suit or proceeding to which
----------
Corns tar Nevada is a party (either as a plaintiff or defendant) pending before
any court or governmental agency, authority, body or arbitrator.
6.06 Assets. Schedule 6.06 attached hereto sets forth a true, correct
------ -------------
and complete list of all Assets of Comstar Nevada as of the date hereof which
are in the possession of or used or useful in the business of Comstar Nevada.
6.07 Tax Matters.
-----------
(a) Except as set forth on Schedule 6.07 attached hereto:
-------------
(i) Within the times and in the manner prescribed by law,
Comstar Nevada has filed all federal, state and local tax returns which are
required to be filed; and
(ii) Comstar Nevada has paid all taxes, interest,
penalties, assessments and deficiencies which have become due or which have been
claimed to be due.
6.08 Disclosure. To the best of its knowledge, Comstar Nevada has
----------
disclosed to International Wireless all material facts pertaining to the
transactions contemplated by this Agreement and the Exhibits hereto. Copies of
all documents heretofore or hereafter delivered or made available to
International Wireless pursuant to this Agreement were or will be complete and
accurate copies of such documents.
6.09 Assets of International Wireless. On the Closing Date, all of
--------------------------------
the Assets, properties, business, and goodwill of every kind, character, and
description, whether tangible or intangible, whether real, personal, or mixed,
and wherever located, including but not limited to the stock of the subsidiaries
of Corns tar Nevada being formed in Nigeria and the Republic of the Ivory Coast
and the Communication Licenses, of Comstar Nevada, subject to the debts,
liabilities, contracts,
-6-
<PAGE>
and obligations of Comstar Nevada described in Sections 1.01 and 1.02
respectively, shall have been transferred, assigned, conveyed, and delivered to
International Wireless.
7. Affirmative Covenants of Comstar Nevada.
---------------------------------------
7.01 Further Assurances. At any time and from time to time after the
------------------
Closing Date, at the request of International Wireless and without further
consideration, Comstar Nevada shall promptly execute and deliver such
instruments of transfer, conveyance, assignment and confirmation, and take all
such other action as International Wireless may reasonably request:
(a) to put International Wireless in actual possession and
operating control of the Assets and business of Comstar Nevada;
(b) to assist International Wireless in exercising all rights
with respect thereto and to carry out the purpose and intent of this Agreement;
and
(c) to prosecute or otherwise enforce in its own name for the
benefit of International Wireless, and at International Wireless's expense, any
and all claims or rights in the name of Comstar Nevada, which, or the benefits
of which, are acquired by International Wireless pursuant to this Agreement and
which are required to be prosecuted or otherwise enforced in Comstar Nevada's
name.
7.02 Distribution of the Shares. Immediately following the Closing
--------------------------
Date, Comstar Nevada agrees to distribute to each of the holders of Certificates
set forth on Exhibit F attached hereto that have executed and delivered a
---------
Release, Acknowledgment and Consent, that number of Shares as is set forth
opposite such holders name Exhibit A, together with a fully executed Stock
---------
Power.
7.03 Dissolution of Comstar Nevada. Promptly following the
-----------------------------
distribution of the Certificates as described in Section 7.02, Comstar Nevada
agrees to take all steps necessary to undertake a liquidation, dissolution and
winding up of its operations and to dissolve itself as a corporation in the
State of Nevada.
8. Representations and Warranties of International Wireless.
--------------------------------------------------------
International Wireless represents and warrants to Comstar Nevada as
follows:
8.01 Organization of International Wireless. International Wireless is
--------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and will have all necessary corporate power and
authority to own and conduct the business of Comstar Nevada. Certified copies
of the Articles of Incorporation and By-laws of International Wireless, as
amended to date, have been delivered to Comstar Nevada, are complete and
correct, and no amendments have been made thereto or have been authorized since
the date thereof.
8.02 Authorized Capital of International Wireless. The authorized
--------------------------------------------
capital of International Wireless consists of 35,000,000 shares of common stock,
$.01 par value per share, none of which is currently issued and outstanding. On
the Closing Date, all of the issued and outstanding shares shall have been duly
authorized and validly issued and shall be owned beneficially and of record by
Comstar Nevada, free and clear of any liens, claims, charges, options, or
encumbrances. There are not, and on the Closing Date there will not be,
outstanding any options or other rights to purchase from International Wireless
any capital stock of International Wireless.
-7-
<PAGE>
8.03 Authorization. The execution and delivery by International
-------------
Wireless of this Agreement and the agreements provided for herein, and the
consummation by International Wireless of all transactions contemplated
hereunder and thereunder by International Wireless have been duly authorized by
all requisite corporate action. This Agreement has been duly executed by
International Wireless. This Agreement and all other agreements and obligations
entered into and undertaken in connection with the transactions contemplated
hereby to which International Wireless is a party constitute the valid and
legally binding obligations of International Wireless, enforceable against it in
accordance with their respective terms. The execution, delivery and performance
by International Wireless of this Agreement and the agreements provided for
herein, and the actions contemplated hereby and thereby, will not violate the
provisions of the Articles of Incorporation or By-laws of International
Wireless.
9. Covenant of International Wireless.
----------------------------------
9.01 Strategic Alliance with Newco. International Wireless shall use
-----------------------------
its best efforts to negotiate and form a strategic alliance with Newco based
substantially on the terms set forth in the Letter of Intent.
10. Indemnification.
---------------
10.01 Indemnification by International Wireless. International
-----------------------------------------
Wireless agrees to indemnify Comstar Nevada and hold it harmless against and in
respect of any and all payments, damages, claims, demands, losses, expenses,
costs, obligations and liabilities (including, without limitation, settlement
costs and any other legal, accounting or other expenses for investigating or
defending any actions or threatened actions) in connection with:
(a) any breach of or failure of International Wireless to
perform any representation and warranty, commitment, obligation, covenant or
condition under this Agreement, any of the Schedules or Exhibits hereunder or
any of the agreements contemplated hereby; or
(b) the operation of the business of Comstar Nevada subsequent
to the Closing Date.
International Wireless shall reimburse Corns tar Nevada on demand for any
payment made or loss suffered by Comstar Nevada at any time after the Closing
Date, based upon the judgment of any court of competent jurisdiction or pursuant
to a bona fide compromise or settlement (which shall be approved by
International Wireless, such approval not to be withheld unreasonably). No
indemnity pursuant to this Section 10 shall be available until the aggregate
amount of all claims made hereunder shall exceed $25,000 and then shall be
available only to the extent that such claims in the aggregate exceed $100,000.
10.02 Indemnification by Comstar Nevada. Comstar Nevada, its officers
---------------------------------
and directors each jointly and severally agrees to indemnify International
Wireless and hold it harmless against and in respect of any and all payments,
damages, claims, demands, losses, expenses, costs, obligations and liabilities,
(including, without limitation, settlement costs and any other legal, accounting
or other expenses for investigating or defending any actions or threatened
actions) in connection with:
(a) any breach or failure of Comstar Nevada to perform any
representation and warranty, commitment, obligation, covenant or condition under
this Agreement, any of the Schedules hereunder or any of the agreements
contemplated hereby; or
-8-
<PAGE>
(b) any claim arising out of any and all actions taken by
Comstar Nevada prior to the Closing Date.
Comstar Nevada, its officers and directors shall reimburse International
Wireless on demand for any payment made or loss suffered by International
Wireless at any time after the Closing Date, based upon the judgment of any
court of competent jurisdiction or pursuant to a bona fide compromise or
settlement (which shall be approved by Comstar Nevada, such approval not to be
withheld unreasonably). No indemnity pursuant to this Section 10 shall be
available until the aggregate amount of all claims made hereunder shall exceed
$25,000 and then shall be available only to the extent that such claims in the
aggregate exceed $100,000.
10.03 Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification under this Section 10, the party seeking indemnification (the
"Indemnified Party") shall promptly notify the party required to indemnify (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice shall specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent, which shall not be
unreasonably withheld or delayed, of the Indemnifying Party; provided, however,
-----------------
that if suit shall have been instituted against the Indemnified Party and the
Indemnifying Party shall not have taken control of such suit after notification
thereof as provided in Subsection 10.04 of this Agreement, the Indemnified Party
shall have the right to settle or compromise such claim upon giving notice to
the Indemnifying Party as provided in this Subsection 10.03.
10.04 Defense by the Indemnifying Party. In connection with any claim
---------------------------------
which may give rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at the sole cost and expense of the Indemnifying Party, may,
upon written notice to the Indemnified Party, assume the defense of any such
claim or legal proceeding if the Indemnifying Party acknowledges to the
Indemnified Party in writing the obligation of the Indemnifying Party to
indemnify the Indemnified Party with respect to all elements of such claim. If
the Indemnifying Party assumes the defense of any such claim or legal
proceeding, the Indemnifying Party shall select counsel reasonably acceptable to
the Indemnified Party to conduct the defense of such claims or legal proceedings
and at the sole cost and expense of the Indemnifying Party shall take all steps
necessary in the defense or settlement thereof. The Indemnifying Party shall
not consent to a settlement of, or the entry of any judgment arising from, any
such claim or legal proceeding, without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld or delayed).
The Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made: (a) the
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense.
10.05 Payment of Indemnification Obligation. All indemnification by
-------------------------------------
the parties hereunder, shall be effected by payment of cash or delivery of a
cashier's or certified check in the amount of the indemnification liability.
-9-
<PAGE>
10.06 Survival of Representations; Claims for Indemnification. All
-------------------------------------------------------
representations and warranties made by Comstar Nevada or International Wireless
in this Agreement, or in any instrument or document furnished in connection with
this Agreement or the transactions contemplated hereby, shall survive the
Closing for a period of one year. All such representations and warranties shall
expire on the one year anniversary of the Closing Date, except for claims, if
any, asserted in writing prior to such one year anniversary identified as a
claim for indemnification pursuant to this Section 10.
11. Termination of Agreement.
------------------------
This Agreement may be terminated by the mutual written agreement of
the parties hereto at any time prior to the Closing Date. In the event of such
termination by agreement, Comstar Nevada shall have no further obligation or
liability to International Wireless under this Agreement and International
Wireless shall have no further obligation to Corns tar Nevada under this
Agreement.
12. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by registered or
certified mail, postage prepaid, addressed as follows or to such other address
of which the parties may have given notice:
To Comstar Nevada:
Terrance Dillon
8603 S. Jamestown Avenue
Tulsa, OK 74137
With a copy to:
Gary Duhon, Esq.
c/o Lionel, Sawyer & Collins
Suite 1100, Bank of America Plaza
50 West Liberty Street
Reno, Nevada 89501
To International Wireless:
Terrance Dillon
8603 S. Jamestown Avenue
Tulsa, OK 74137
With a copy to:
John A. Burgess, Esq.
c/o Hale and Dorr
60 State Street
Boston, MA 02109
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally, or (b) three
business days after being sent, if sent by registered or certified mail.
-10-
<PAGE>
13. Successors and Assigns.
----------------------
This Agreement shall not be assignable.
14. Entire Agreement; Attachments.
-----------------------------
14.01 Entire Agreement. This Agreement, all Schedules and Exhibits
----------------
hereto, and all agreements and instruments to be delivered by the parties
pursuant hereto represent the entire understanding and agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
oral and written and all contemporaneous oral negotiations, commitments and
understandings between such parties.
14.02 Attachments. If the provisions of any Schedule or Exhibit to
-----------
this Agreement are inconsistent with the provisions of this Agreement, the
provisions of the Agreement shall prevail. The Exhibits and Schedules attached
hereto or to be attached hereafter are hereby incorporated as integral parts of
this Agreement.
15. Severability.
------------
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
16. Expenses.
--------
Except as otherwise expressly provided herein, Corns tar Nevada will
pay all fees and expenses (including, without limitation, legal and accounting
fees and expenses) incurred by it in connection with this Agreement or the
transactions contemplated hereby. International Wireless will pay all fees and
expenses (including without limitation, legal and accounting fees and expenses)
incurred by International Wireless in connection with this Agreement or the
transactions contemplated hereby.
17. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
18. Section Headings.
----------------
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
19. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same document.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
INTERNATIONAL WIRELESS INCORPORATED
By: /s/ Terrance Dillon
--------------------------------
Terrance Dillon
President
COMSTAR CELLULAR NETWORK, INC.
By: /s/ Terrance Dillon
--------------------------------
Terrance Dillon
President
Only with respect to
--------------------
Section 10 herein
-----------------
/s/ Terrance Dillon
--------------------------------
Terrance Dillon
/s/ Duncan Wine
--------------------------------
Duncan Wine
/s/ Blaize Kadura
--------------------------------
Blaize Kaduru
/s/ Herbert Orji
--------------------------------
Herbert Orji
-12-
<PAGE>
Exhibit 10.2
------------
PARTNERSHIP PURCHASE AGREEMENT
by and among
Sears, Roebuck and Co.
and
International Business Machines Corporation
as "Sellers",
Prodigy Services Company
as the "Company",
and
International Wireless Incorporated
as "Buyer"
Dated: May 12, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................... 1
1.1 Defined Terms............................................ 1
1.2 Other Defined Terms...................................... 2
ARTICLE II PURCHASE AND SALE OF PARTNERSHIP INTERESTS.................... 3
2.1 Transfer of Partnership Interests........................ 3
2.2 Consideration for Partnership Interests.................. 3
2.3 Purchase Price Adjustments............................... 3
ARTICLE III CLOSING...................................................... 3
3.1 Closing.................................................. 3
3.2 Documents to be Delivered................................ 4
ARTICLE IV-A REPRESENTATIONS AND WARRANTIES OF SELLERS................... 4
A.4.1 Organization of Sellers.................................. 4
A.4.2 Authorization............................................ 5
A.4.3 Consents and Approvals................................... 5
A.4.4 No Brokers............................................... 5
A.4.5 No Other Agreements to Sell the Assets or the Company.... 5
A.4.6 No Conflict or Violation................................. 5
ARTICLE IV-B REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
B.4.1 Organization of the Company.............................. 5
B.4.2 Absence of Certain Changes or Events..................... 6
B.4.3 Title to Assets.......................................... 6
B.4.4 Condition of Tangible Assets............................. 7
B.4.5 No Conflict or Violation................................. 7
B.4.6 Financial Statements..................................... 7
B.4.7 Litigation............................................... 7
B.4.8 Liabilities.............................................. 8
B.4.9 Compliance with Law...................................... 8
B.4.10 Proprietary Rights....................................... 8
B.4.11 Employee Benefit Plans................................... 8
B.4.12 Consents and Approvals................................... 9
B.4.13 No Brokers............................................... 9
B.4.14 No Other Agreements to Sell the Assets of the Company.... 10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER........................ 10
5.1 Organization of Buyer.................................... 10
5.2 Authorization............................................ 10
5.3 Consents and Approvals................................... 10
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
5.4 No Brokers............................................... 10
5.5 No Conflict or Violation................................. 10
5.6 Litigation............................................... 11
5.7 Financing Commitment..................................... 11
ARTICLE VI ACTIONS BY SELLERS THE COMPANY AND BUYER PRIOR TO THE CLOSING. 11
6.1 Maintenance of Business.................................. 11
6.2 Patents.................................................. 11
6.3 Investigation by Buyer................................... 11
6.4 Consents and Best Efforts................................ 12
6.5 Notification of Certain Matters.......................... 12
6.6 No Mergers, Consolidations, Sale of Partnership
Interests, Etc........................................... 12
6.7 Certain Employee Benefit Plan Matters.................... 13
ARTICLE VII CONDITIONS TO SELLERS' OBLIGATIONS........................... 13
7.1 Representations Warranties and Covenants................. 13
7.2 Consents................................................. 13
7.3 No Governmental Proceeding or Litigation................. 14
7.4 Certificates............................................. 14
7.5 HSR Act.................................................. 14
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS........................... 14
8.1 Representations, Warranties and Covenants................ 14
8.2 Consents................................................. 14
8.3 No Governmental Proceeding or Litigation................. 14
8.4 Certificates............................................. 15
8.5 HSR Act.................................................. 15
8.6 Lease.................................................... 15
ARTICLE IX ACTIONS BY SELLERS, THE COMPANY AND BUYER AFTER THE CLOSING... 15
9.1 Books and Records........................................ 15
9.2 Further Assurances....................................... 15
9.3 Funding of the Company................................... 16
9.4 Employee Matters......................................... 16
9.5 Tax Returns and Payments................................. 16
9.6 Solicitation of Employees................................ 18
9.7 Organization............................................. 18
9.8 Financial Information.................................... 18
ARTICLE X INDEMNIFICATION................................................ 18
10.1 Survival of Representations Etc.......................... 18
10.2 Indemnification.......................................... 18
10.3 Indemnification Procedures............................... 19
10.4 No Right of Contribution................................. 19
ARTICLE XI SECURITIES LAWS............................................... 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
11.1 Acquisition for Investment............................... 20
11.2 Contingent Payment Notes................................. 20
ARTICLE XII MISCELLANEOUS................................................ 20
12.1 Termination.............................................. 20
12.2 Assignment............................................... 20
12.3 Notices; Transfer of Funds............................... 21
12.4 Choice of Law............................................ 22
12.5 Entire Agreement; Amendments and Waivers................. 23
12.6 Counterparts............................................. 23
12.7 Invalidity............................................... 23
12.8 Headings................................................. 23
12.9 Expenses................................................. 23
12.10 Publicity................................................ 23
12.11 Confidential Information................................. 23
</TABLE>
EXHIBIT A Form of Contingent Convertible Note
EXHIBIT B Form of Instrument of Assignment, Transfer and Conveyance
EXHIBIT C Funding Agreement
EXHIBIT D Form of Patent License Agreement
EXHIBIT E Form of Patent Cross License Agreement
SCHEDULE 1.1 Financial Statements
-iii-
<PAGE>
PARTNERSHIP PURCHASE AGREEMENT
------------------------------
This Partnership Purchase Agreement ("Agreement"), dated as of May 12,
1996, is by and among International Wireless Incorporated, a Delaware
corporation ("Buyer"), Sears, Roebuck and Co., a New York corporation ("Sears"),
International
Business Machines Corporation, a New York corporation ("IBM") (Sears and IBM are
collectively or alternatively referred to herein as "Sellers"), and Prodigy
Services Company, a New York general partnership (the "Company").
RECITALS
--------
A. Sears and IBM each own a 50% partnership ownership interest
("Partnership Interest") in the Company, constituting all of the Partnership
Interests in the Company.
B. Buyer desires to purchase from Sellers, and Sellers desire to
transfer to Buyer, Sellers' Partnership Interests subject to the terms and
conditions of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings:
"Balance Sheet" shall mean the unaudited Balance Sheet of the Company
-------------
as of March 31, 1996, previously delivered to Buyer and attached hereto as
Schedule 1.1.
"Balance Sheet Date" shall mean March 31, 1996.
------------------
"Closing Date" shall mean the close of business on the fifth business
------------
day following the expiration of the applicable waiting period under the HSR Act,
or such other date as may be mutually agreed upon in writing by Sellers and
Buyer.
"Code" shall mean the Internal Revenue Code of 1986, as it may be
----
amended from time to time.
"Disclosure Schedule" means a schedule executed and delivered by the
-------------------
Company to Buyer prior to the date hereof which sets forth exceptions to its
representations and warranties contained in Article IV hereof and certain other
information called for by Article IV hereof and other provisions of this
Agreement.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
------------
easement, security interest, right-of-way, encumbrance or other rights of third
parties.
-1-
<PAGE>
"Facilities" shall mean the offices in White Plains, New York, New
----------
York City, and Yorktown Heights, New York and related facilities which are
leased by the Company.
"Financial Statements" shall mean the Balance Sheet, the unaudited
--------------------
Income Statements and Statements of Cash Flow for the period ended as of March
31, 1996, and the Income Statements and Statements of Cash Flow for the Company
for the period ended as of December 31, 1995 together with the notes thereon and
the related report of Coopers & Lybrand L.L.P., the Company's independent
certified public accountants, previously delivered to Buyer and attached hereto
as Schedule 1.1.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, machinery and equipment owned by the Company and located in, at or
upon the Facilities as of the Balance Sheet Date plus all additions,
replacements or deletions since the Balance Sheet Date in the ordinary course of
the Company's business.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976, as amended.
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
1.2 Other Defined Terms. The following terms shall have the
-------------------
meanings defined for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
- ---- ---------
<S> <C>
Action IV-B.4.7
Assets IV-B.4.3
Closing 3.1
Damages 10.2
ERISA IV-B.4.11
Proprietary Rights IV-B.4.10
</TABLE>
ARTICLE II
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
------------------------------------------
2.1 Transfer of Partnership Interests. Upon the terms and subject
---------------------------------
to the conditions contained herein, Sellers will sell, convey, transfer, assign
and deliver to Buyer, and Buyer will acquire on the Closing Date, Sellers'
Partnership Interests, and Buyer will assume all liabilities of the Company,
except as set forth herein.
2.2 Consideration for Partnership Interests. Upon the terms and
---------------------------------------
subject to the onditions contained herein, as consideration for the purchase of
Sellers' Partnership Interests, Buyer shall pay a purchase price (the "Purchase
Price") of (i) Thirty Five Million Six Hundred Thousand Dollars ($35,600,000),
subject to adjustment as set forth in Section 2.3 (the "Cash Purchase Price"),
payable by the delivery to each of Sears and IBM of one half of such adjusted
amount in immediately available funds, plus (ii) two contingent, convertible
promissory notes payable to Sears and IBM, respectively, each in the principal
amount of One Hundred Million Dollars ($100,000,000) in the form attached as
Exhibit A hereto (each, a "Contingent Convertible Note").
2.3 Purchase Price Adjustments. The Cash Purchase Price shall be
--------------------------
adjusted on the Closing Date as follows:
-2-
<PAGE>
(a) the Cash Purchase Price shall be increased by the difference
between (i) the amount of all cash contributions made by Sellers to the Company
during June 1996 minus (ii) the product of $216,667 multiplied by the number of
days elapsed in June 1996 prior to the Closing Date.
(b) the Cash Purchase Price shall be reduced by the amounts to
be paid by Buyer on the Closing Date to Wasserstein Perella & Co., Inc. and
Furman Selz Incorporated pursuant to letter agreements dated as of April 3, 1996
and April 26, 1996, respectively with respect to the transactions contemplated
herein, which amounts collectively shall not exceed Six Million Dollars
($6,000,000).
ARTICLE III
CLOSING
-------
3.1 Closing. The closing of the transactions contemplated herein
-------
(the "Closing") shall be held at 10:00 a.m. local time on the Closing Date at
the offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022
unless the parties hereto otherwise agree.
3.2 Documents to be Delivered. To effect the transfer referred to
-------------------------
in Section 2.1 and the delivery of the consideration described in Section 2.2
hereof, Sellers and Buyer shall, on the Closing Date, deliver the following:
(a) The Company, Sellers and Buyer shall each deliver all
documents respectively required to be delivered pursuant to Articles VII and
VIII.
(b) Buyer shall deliver immediately available funds and the
Contingent Payment Notes as provided in Section 2.2.
(c) Each Seller shall deliver to Buyer an instrument of
assignment, transfer and conveyance in the form attached hereto as Exhibit B.
(d) All instruments and documents executed and delivered to
Buyer pursuant hereto shall be in form and substance, and shall be executed in a
manner, reasonably satisfactory to Buyer. All instruments and documents executed
and delivered to Sellers pursuant hereto shall be in form and substance, and
shall be executed in a manner, reasonably satisfactory to Sellers.
(e) Sears shall deliver to Buyer immediately available funds in
the amount of One Hundred Fifty Thousand Dollars ($150,000).
ARTICLE IV-A
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
Each of Sears and IBM, with respect to representations and warranties
of such Seller only, represent and warrant to Buyer as follows:
A.4.1 Organization of Sellers. Each Seller is duly organized,
-----------------------
validly existing and in good standing under the laws of the State of New York,
has full corporate power and authority to conduct its business as it is
presently being conducted and to own and lease its properties and assets. Each
Seller is duly qualified to do business as a foreign corporation and is in good
standing in each
-3-
<PAGE>
jurisdiction in which such qualification is necessary under the applicable law
as a result of the conduct of its business or the ownership of its properties
and where the failure to be so qualified would have a material adverse effect on
the business or financial condition of Seller. Sellers collectively own all
Partnership Interests of the Company free and clear of all Encumbrances and the
consummation of the transaction contemplated by Article II shall convey to Buyer
all such Partnership Interests and the properties and assets of the Company,
free and clear of all Encumbrances imposed as a result of the ownership of the
Partnership Interests by the Sellers. Neither Seller has, in its own name and
without the knowledge of the Company's present senior management, (i) taken any
action to bind the Company to any obligations, contracts or commitments or (ii)
executed any agreements on behalf of the Company.
A.4.2 Authorization. Each Seller has all necessary corporate power
-------------
and authority to enter into this Agreement and has taken all corporate action
necessary to consummate the transaction contemplated by Article II and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Sellers and is a legal, valid and binding obligation of each
Seller, enforceable against each Seller in accordance with its terms.
A.4.3 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Sellers in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby other than the filings required under the
HSR Act.
A.4.4 No Brokers. Neither Seller nor any affiliate of either Seller
----------
(other than the Company) has entered into or will enter into any contract,
agreement, arrangement or understanding with any person or firm which will
result in the obligation of Buyer to pay any finder's fee, brokerage commission
or similar payment in connection with the transactions contemplated hereby.
A.4.5 No Other Agreements to Sell the Assets or the Company. Neither
-----------------------------------------------------
Seller has any legal obligation, absolute or contingent, to any other person or
firm to sell the Assets, to sell any Partnership Interest of the Company or to
effect any merger, consolidation or other reorganization of the Company or to
enter into any agreement with respect thereto.
A.4.6 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement nor the consummation of the transactions contemplated hereby
will result in (a) a violation of or a conflict with any provision of the
respective Certificates of Incorporation or Bylaws of Sellers, as amended, or
(b) a violation by either Seller of any statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree or award, which violation would
have a material adverse effect on the ability of the Sellers to consummate the
transactions contemplated hereby.
ARTICLE IV-B
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to Buyer as follows:
B.4.1 Organization of the Company. The Company is duly organized
---------------------------
and validly existing under the laws of the State of New York and has all
requisite partnership power and authority to conduct its business as it is
presently being conducted and to own and lease its properties and assets. The
Company is duly qualified to do business and is in good standing in each
jurisdiction in which such qualification is necessary under the applicable law
as a result of the conduct of its
-4-
<PAGE>
business or the ownership of its properties and where the failure to be so
qualified would have a material adverse effect on the business or financial
condition of the Company.
B.4.2 Absence of Certain Changes or Events. Since the Balance Sheet
------------------------------------
Date, there has not been any:
(a) change in the Company's condition (financial or
otherwise), assets, liabilities, working capital, reserves, earnings or
operations, except for changes contemplated hereby, changes disclosed to Buyer,
matters of public knowledge relating to general economic conditions or the
Company's industry as a whole or changes which have not, individually or in the
aggregate, been materially adverse;
(b) sale, assignment or transfer of any of the assets of the
Company, material singly or in the aggregate, other than in the ordinary course;
(c) cancellation of any indebtedness or waiver of any rights
of substantial value to the Company, whether or not in the ordinary course of
business;
(d) damage, destruction or loss not covered by insurance
materially adversely affecting the properties, business or prospects of the
Company;
(e) declaration, setting aside or payment of distributions in
respect of any Partnership Interest;
(f) payment, discharge or satisfaction of any liabilities
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against in the Balance Sheet or incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date;
(g) indebtedness incurred by the Company for borrowed money or
any commitment to borrow money entered into by the Company, or any loans made or
agreed to be made by the Company; or
(h) agreement by the Company to do any of the foregoing.
B.4.3 Title to Assets. The Company has good and marketable fee
---------------
simple title to the assets reflected on the Balance Sheet or acquired in the
ordinary course of business since the Balance Sheet Date (the "Assets"). None of
the Assets is subject to any Encumbrances, except for minor liens which in the
aggregate are not substantial in amount, do not materially detract from the
value of the property or assets subject thereto or interfere with the present
use and have not arisen other than in the ordinary course of business. The
Company has in all material respects performed all the obligations required to
be performed by it with respect to all Assets leased by it through the date
hereof, except where the failure to perform would not have a material adverse
effect on the business or financial condition of the Company.
B.4.4 Condition of Tangible Assets. The Facilities and Fixtures and
----------------------------
Equipment are in good operating condition and repair (except for ordinary wear
and tear and any defect the cost of repairing which would not be material) and
are sufficient for the operation of the Company's business as presently
conducted.
B.4.5 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement nor the consummation of the transactions contemplated hereby
will result in (a) a violation
-5-
<PAGE>
of or a conflict with any provision of the Partnership Agreement of the Company,
as amended, (b) a breach of, or a default under, any term or provision of any
contract, agreement, indebtedness, lease, Encumbrance, commitment, license,
franchise, permit, authorization or concession to which the Company is a party
or by which the Assets are bound, which breach or default would have a material
adverse effect on the business or financial condition of the Company, (c) a
violation by the Company of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would have a
material adverse effect on the business or financial condition of the Company or
the ability of the Company to consummate the transactions contemplated hereby,
or (d) an imposition of any material Encumbrance, restriction or charge on the
business of the Company or on any of the Assets.
B.4.6 Financial Statements. The Company has heretofore delivered to
--------------------
Buyer the Financial Statements. Except as otherwise set forth therein, the
Financial Statements accurately reflect the assets, liabilities and financial
condition and results of operations indicated thereby in accordance with
generally accepted accounting principles consistently applied, and contain and
reflect all necessary adjustments for a fair representation of the Financial
Statements as of the date and for the periods covered thereby.
B.4.7 Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding, labor
dispute (other than routine grievance procedures or routine, uncontested claims
for benefits under any benefit plans for personnel), arbitral action or
investigation (collectively, "Actions") pending or threatened or anticipated
against or relating to (i) any Employee Benefit Plan or any fiduciary or
administrator thereof or (ii) the transactions contemplated by this Agreement.
The Company is not in default with respect to any judgment, order, writ,
injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against the Company or the business or activities of the
Company. There is not a reasonable likelihood of an adverse determination of any
pending Actions which would, individually or in the aggregate, have a material
adverse effect on the business or financial condition of the Company.
B.4.8 Liabilities. The Company has no liabilities or obligations
-----------
(absolute, accrued, contingent or otherwise) except (i) liabilities which are
reflected and reserved against on the Balance Sheet, (ii) liabilities incurred
in the ordinary course of business and consistent with past practice since the
Balance Sheet Date, and (iii) liabilities arising under contracts, letters of
credit, purchase orders, licenses, permits, purchase agreements and other
agreements, business arrangements and commitments arising in the ordinary course
of business which because of the dollar amount or other qualifications
(including rights of termination) are not material to the Company.
B.4.9 Compliance with Law. The Company and the conduct of its
-------------------
business are in compliance with all applicable laws, statutes, ordinances and
regulations, whether federal, state or local, except where the failure to comply
would not have a material adverse effect on the business or financial condition
of the Company. The Company has not received any written notice to the effect
that, or otherwise been advised that, it is not in compliance with any of such
statutes, regulations, orders, ordinances or other laws where the failure to
comply would have a material adverse effect on the business or financial
condition of the Company, and the Company has no reason to anticipate that any
presently existing circumstances are likely to result in violations of any such
regulations which would, in any one case or in the aggregate, have a material
adverse effect on the business or financial condition Of the Company.
B.4.10 Proprietary Rights. No proceedings have been instituted
------------------
against or notices received by the Company that are presently outstanding
alleging that the Company's use of any of its registrations of trademarks and of
other marks, trade names or other trade rights, pending
-6-
<PAGE>
applications for any such registrations, and its patents and copyrights and all
pending applications therefor; and all other trade secrets, designs, plans,
specifications and other proprietary rights owned by the Company that are
material to the business of the Company (collectively, "Proprietary Rights")
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights.
B.4.11 Employee Benefit Plans.
----------------------
(a) Copies or descriptions of all "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and all other material employee benefit plans or other
benefit arrangements which the Company maintains, contributes to or has any
obligation to or liability for (each an "Employee Benefit Plan" and
collectively, the "Employee Benefit Plans") (and, where applicable, the most
recent summary plan description, actuarial report, determination letter, most
recent Form 5500 and trust agreement), have been made available to Buyer for
review prior to the date hereof.
(b) As of the date hereof, (i) all material payments required
to be made by or under any Employee Benefit Plan, any related trusts, or any
collective bargaining agreement have been made or are being processed in
accordance with normal operating procedures, and except as set forth in the
Financial Statements, all material amounts required to be reflected thereon have
been properly accrued to date as liabilities under or with respect to each
Employee Benefit Plan for the current year; (ii) the Company has performed all
material obligations required to be performed by it under any Employee Benefit
Plan, (iii) the Employee Benefit Plans have been administered in material
compliance with their terms and the requirements of ERISA, the Code and other
applicable laws; (iv) there are no actions, suits, arbitrations or claims (other
than routine claims for benefits) pending or threatened with respect to any
Employee Benefit Plan; and (v) the Company has no liability as a result of any
"prohibited transaction" (as defined in Section 406 of ERISA and Section 4975 of
the Code) for any material excise tax or civil penalty.
(c) None of the Employee Benefit Plans other than the Prodigy
Services Company Retirement Plan (the "Retirement Plan"), the Prodigy Services
Company Supplemental Executive Retirement Plan (the "SERP") and the SERP
Transfer Agreement (the "Transfer Agreement") is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA which is subject to Title IV
of ERISA.
(d) None of the Employee Benefit Plans is a "multiemployer
plan", as defined in Section 3(37) of ERISA.
(e) Except as disclosed on the Disclosure Schedule, each of
the Employee Benefit Plans which is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so "qualified".
B.4.12 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by the Company in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby other than the filings required under
the HSR Act.
B.4.13 No Brokers. Neither the Company nor any affiliate of the
----------
Company has entered into or will enter into any contract, agreement, arrangement
or understanding with any person or firm which will result in the obligation of
Buyer to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
-7-
<PAGE>
B.4.14 No Other Agreements to Sell the Assets of the Company. The
-----------------------------------------------------
Company has no legal obligation, absolute or contingent, to any other person or
firm to sell the Assets or any material portion thereof (other than in the
ordinary course of business) or to enter into any agreement with respect
thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Sellers as follows:
5.1 Organization of Buyer. Buyer is duly organized, validly
---------------------
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to conduct its business and to own and lease
its properties.
5.2 Authorization. Buyer has all necessary corporate authority to
-------------
enter into this Agreement and has taken all necessary corporate action to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. This Agreement and the Contingent Payment Notes have been duly
executed and delivered by Buyer and are the valid and binding obligations of
Buyer, enforceable against it in accordance with their terms.
5.3 Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration, filing or registration with, any United States federal or
state governmental or regulatory authority is required to be made or obtained by
Buyer in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby other
than the filings required under the HSR Act.
5.4 No Brokers. Neither Buyer, nor any affiliate of Buyer has
----------
entered into or will enter into any agreement, arrangement or understanding with
any person or firm which will result in the obligation of Seller to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
5.5 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement nor the consummation of the transactions contemplated hereby
will result in (a) a violation of or a conflict with any provision of the
Certificate of Incorporation or Bylaws of Buyer, (b) a breach of, or a default
under, any term or provision of any contract, agreement, indebtedness, lease,
commitment, license, franchise, permit, authorization or concession to which
Buyer is a party which breach or default would have a material adverse effect on
the business or financial condition of Buyer or its ability to consummate the
transactions contemplated hereby or (c) a violation by Buyer of any statute,
rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or
award, which violation would have a material adverse effect on the business or
financial condition of Buyer or its ability to consummate the transactions
contemplated hereby.
5.6 Litigation. Buyer has received no notice of any Actions, or,
----------
to the knowledge of Buyer, threatened or anticipated Actions, relating to the
transactions contemplated by this Agreement. Buyer is not in default with
respect to any judgment, order, writ, injunction or decree of any court or
governmental agency, and there are no unsatisfied judgments against Buyer or its
business or activities.
5.7 Financing Commitment. Buyer has obtained the financing
--------------------
commitment set forth in the Funding Agreement attached hereto as Exhibit C (the
"Financing Commitment"), which Financing Commitment is in full force and effect,
for a minimum total of $155 million.
-8-
<PAGE>
ARTICLE VI
ACTIONS BY SELLERS THE COMPANY AND BUYER PRIOR TO THE CLOSING
-------------------------------------------------------------
Sellers, the Company and Buyer covenant as follows for the period from
the date hereof through the Closing Date:
6.1 Maintenance of Business. The Sellers shall contribute the
-----------------------
following cash amounts to the Company: On or before May 14, 1996, a sum not to
exceed $4.3 million; on or before June 3, 1996, a sum not to exceed $12 million,
subject to Section 2.3 herein.
6.2 Patents. The Company and IBM shall execute on the Closing Date
-------
the patent agreements between the Company and IBM in the form attached hereto as
Exhibits D and E, respectively.
6.3 Investigation by Buyer. Sellers and the Company shall allow
----------------------
Buyer during regular business hours through Buyer's employees, agents and
representatives, to make such investigation of the business, properties, books
and records of the Company, and to conduct such examination of the condition of
the Company, as Buyer deems necessary or advisable to familiarize itself with
such business, properties, books, records, condition and other matters; provided
however, that any information obtained from Sellers or the Company is subject to
the confidentiality agreement dated May 9, 1996 among Sears, IBM and Buyer.
6.4 Consents and Best Efforts. Within five business days after
-------------------------
execution and delivery of this Agreement, Buyer, Sellers and the Company shall
make all filings required under the HSR Act. Sellers, Buyer and the Company
will, as soon as possible, commence to take all action required to obtain all
consents, approvals and agreements of, and to give all notices and make all
other filings with, any third parties, including governmental authorities,
necessary to authorize, approve or permit the full and complete sale,
conveyance, assignment or transfer of the Partnership Interests, and Buyer shall
cooperate with Sellers with respect thereto. The Sellers agree to make
reasonable efforts between signing and three months after the Closing Date
requested by the Buyer (which shall not obligate the Sellers to incur monetary
expense or other consideration to third parties) to assist the Buyer in
obtaining consents from any persons or entities that are parties to agreements
with the Company where such contracts permit such other parties to terminate the
agreements or to obtain penalties or increases in fees or charges paid by the
Company thereunder, as a result of the change of control in the Company on the
Closing Date under this Agreement. In addition, subject to the terms and
conditions herein provided, each of the parties hereto covenants and agrees to
use its best efforts to take, or cause to be taken, all action or do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby and to cause the fulfillment of the parties' obligations hereunder.
6.5 Notification of Certain Matters. Each Seller shall give prompt
-------------------------------
notice to Buyer, and Buyer shall give prompt notice to Sellers, of the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty of such Seller or Buyer,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect any time from the date hereof to the Closing Date. Each Seller,
the Company or Buyer, as the case may be, shall give prompt notice to the other
parties hereto of the failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and each party shall use all reasonable efforts to remedy same.
6.6 No Mergers, Consolidations, Sale of Partnership Interests, Etc.
--------------------------------------------------------------
The Company and Sellers will not, directly or indirectly, solicit any inquiries
or proposals or enter into or continue
-9-
<PAGE>
any discussions, negotiations or agreements relating to the sale or exchange of
the Partnership Interests, merger of the Company with, or the direct or indirect
disposition of a significant amount of the Company's assets or business to any
person other than Buyer or its affiliates or provide any assistance or any
information to or otherwise cooperate with any person in connection with any
such inquiry, proposal or transaction. In the event that the Company or Sellers
receive an unsolicited offer for such a transaction or obtain information that
such an offer is likely to be made, the Company or Sellers will provide Buyer
with notice thereof as soon as practical after receipt, including the identity
of the prospective purchaser or soliciting party and the terms and conditions of
any such offer or proposal, and copies of any written materials received in
connection with such offer or proposal.
6.7 Certain Employee Benefit Plan Matters.
-------------------------------------
(a) Before the Closing, the Company shall take all necessary
actions to cause the Retirement Plan, the SERP, the Transfer Agreement and the
Prodigy Services Company Post Retirement, Medical & Life Plan (the "Retiree
Plan") to be amended to provide that no additional benefits shall accrue to
participants under such plans after the Closing Date and to provide for the
transfers of assets and the assumption of liabilities as contemplated herein.
(b) Effective as of the Closing, one or both of the Sellers, as
they may in their sole discretion determine and as they shall notify Buyer in
writing at least 10 days prior to the Closing, shall assume all of the Company's
obligations and liabilities under the Retirement Plan, the SERP, the Transfer
Agreement and the Retiree Plan.
(c) Effective as of the Closing, the Company shall cause the
trustee of the Trust under the Retirement Plan and any trustee or other person
holding any assets which fund benefits under the SERPs or the Retiree Plan to
transfer all such assets to such persons as the Sellers shall designate in
writing.
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
----------------------------------
The obligations of Sellers to transfer the Partnership Interests to
Buyer on the Closing Date are subject, in the discretion of Sellers, to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
7.1 Representations. Warranties and Covenants. All representations
------------------------------------------
and warranties contained in Article V of Buyer contained in this Agreement shall
be true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing Date, and
Buyer shall have performed in all material respects all agreements and covenants
required hereby to be performed by it prior to or at the Closing Date. There
shall be delivered to Sellers a certificate to the foregoing effect.
7.2 Consents. All consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit Sellers to transfer the
Partnership Interests to Buyer as contemplated hereby shall have been obtained,
unless the failure to obtain any such consent, approval or waiver would not have
a material adverse effect upon Sellers.
7.3 No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental authority or
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and
-10-
<PAGE>
which could reasonably be expected materially to damage Sellers if the
transactions contemplated hereunder are consummated.
7.4 Certificates. Buyer will furnish Sellers with such certificates
------------
of its officers, directors and others to evidence compliance with the conditions
set forth in this Article VII as may be reasonably requested by Seller.
7.5 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
ARTICLEVIII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to purchase the Partnership Interests as
provided hereby are subject, in the discretion of Buyer, to the satisfaction, on
or prior to the Closing Date, of each of the following conditions:
8.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties contained in Article IV-A of Sellers contained in this Agreement
shall be true and correct in all material respects at and as of the Closing Date
as if such representations and warranties were made at and as of the Closing
Date, and Sellers and the Company shall have performed in all material respects
all agreements and covenants required hereby to be performed by either of them
prior to or at the Closing Date. There shall be delivered to Buyer certificates
to the foregoing effect.
8.2 Consents. All consents, approvals and waivers from governmental
--------
authorities and other parties necessary to permit Sellers to transfer the
Partnership Interests to Buyer as contemplated hereby shall have been obtained,
unless the failure to obtain any such consent, approval or waiver would not have
a material adverse effect upon Buyer.
8.3 No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental authority or
other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected materially and adversely to affect the value of the
Partnership Interests or business of the Company.
8.4 Certificates. Sellers and the Company shall furnish Buyer with
------------
such certificates of the respective officers of Sellers and the Company and
others to evidence compliance with the conditions set forth in this Article VIII
as may be reasonably requested by Buyer.
8.5 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
8.6 Lease. On or prior to May 31, 1996, the Company shall not have
-----
received notice from the landlord of 445 Hamilton, White Plains, New York, that
the Company is in default under the lease of such premises (the "Lease") due to
any alleged attempt by Sellers to sell their Partnership Interests, unless (i)
any such default notice, if given by the landlord, has been withdrawn or (ii)
Sellers shall agree to indemnify Buyer for any contractual Damages (as defined
in Section 10.2 hereof) incurred by Buyer or the Company under the Lease as a
result of such default determination in excess of the amounts that would have
been payable by the Company or the Buyer if the early termination of the entire
Lease had been effective in accordance with its terms on December 31, 1997.
Sellers shall be entitled to control, at their sole expense, any negotiations
with the landlord relating to
-11-
<PAGE>
any default notice under the Lease and the defense of any litigation arising in
connection with a claim against Buyer or the Company indemnified by Sellers;
provided that the Buyer and the Company may elect to participate, at their
respective sole expense, in any such negotiations and/or defense.
ARTICLE IX
ACTIONS BY SELLERS, THE COMPANY AND BUYER AFTER THE CLOSING
-----------------------------------------------------------
9.1 Books and Records. Sellers and Buyer agree that so long as any
-----------------
books, records and files relating to the business, properties, assets or
operations of the Company, to the extent that they pertain to the operations of
the Company prior to the Closing Date, remain in existence and available, each
party (at its expense) shall have the right to inspect and to make copies of the
same at any time during business hours for any proper purpose.
9.2 Further Assurances. On and after the Closing Date, Sellers, the
------------------
Company and Buyer will take all appropriate action and execute all documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof, including without
limitation, putting Buyer in possession and operating control of the business
and Assets of the Company.
9.3 Funding of the Company. Buyer shall (i) use all reasonable
----------------------
efforts to maintain in effect the Financing Commitment and (ii) draw funds on
the Financing Commitment as necessary to fund the operations and capital
requirements of the Buyer and, if the operations of the Company are conducted by
a subsidiary of the Buyer, to contribute such funds as equity contributions to
such subsidiary.
9.4 Employee Matters. The Buyer shall, within one month of the
----------------
Closing Date, publish and distribute to the Company employees the practices
relating to their employment, including the severance compensation and benefits
as set forth in the last sentence of this Section 9.4. With respect to any
employee of the Company terminated without cause within twelve months following
the Closing Date, Buyer and the Company shall provide severance compensation and
benefits as follows: such severance shall be no less than one month of
compensation plus one week for every year of service with the Company.
9.5 Tax Returns and Payments. The Company (prior to the Closing) or
------------------------
Buyer (after the Closing), as appropriate, shall prepare and timely file (or
cause to be prepared and timely filed) for the Company all tax returns and
reports of the Company for all taxable periods. All such tax returns and
reports for all Pre-Closing Taxable Periods and Straddle Periods shall be
prepared in a manner consistent with the Company's past tax practices and prior
tax returns and reports filed by the Company, except as otherwise required by
law. The Company and Buyer shall not (x) defer or shift deductions and other
similar items out of Pre-Closing Taxable Periods or (y) accelerate or shift
income and other similar items into Pre-Closing Taxable Periods, through
original or amended tax returns or reports. The Company and Buyer may not amend
any tax return or report of the Company related to any Pre-Closing Taxable
Period or Straddle Period without the prior written consent of each Seller
(which consent may be withheld in either Seller's sole discretion, except that
consent to amendments required to correct mathematical errors shall not be
unreasonably withheld). Sellers shall cooperate and assist the Company and
Buyer in the preparation and filing of all such tax returns and reports and any
related applications for automatic or other extensions of time to file such
income tax returns and reports. All items of income, gain, loss, deduction and
credit for any Straddle Period shall be allocated between the Pre- and Post-
Closing Taxable Periods (a) on the basis of an interim closing of the books of
Company at the close of the Closing Date to the extent possible, or (b) if not
possible, by allocation based on the number of days in the taxable period prior
to and including the Closing Date
-12-
<PAGE>
and the number of days in such period after the Closing Date. Sellers may
request that their tax advisors be permitted to review, and provide, at Sellers'
expense, such advice and assistance in connection with the preparation and
filing of such returns and reports of the Company as is reasonably necessary.
The Company or Buyer, as appropriate, shall provide Sellers with final drafts of
such income tax returns and reports for Pre-Closing Taxable Periods and Straddle
Periods not less than 20 days prior to the filing thereof. Sellers, the Company
and Buyer shall in good faith consult with each other and their respective tax
advisors in an effort to resolve any differences with respect to the preparation
and accuracy of such tax returns and reports for Pre-Closing Taxable Periods and
Straddle Periods and all tax items reflected thereon; provided, however, that
-------- -------
Sellers shall have the right of final approval with respect to any such income
tax returns and reports and the treatment of any tax item therein as to which
agreement of the parties cannot be obtained with respect to Pre-Closing Taxable
Periods or Straddle Periods. Sellers shall be solely responsible for any real
estate transfer taxes or equivalent state or local taxes, including the New York
transfer gains tax, incurred in connection with this transaction up to an amount
not to exceed $50,000. Buyer and Sellers shall, respectively, be responsible for
50% of any taxes referred to in the preceding sentence in excess of $50,000
payable by reason of the real estate transfer from the Company to Buyer at the
Closing.
The Company or Buyer, as appropriate, shall notify Sellers promptly
upon receipt of any notice of any pending or threatened audit, litigation or
other contest (a "Contest") with respect to any Pre-Closing Taxable Period or
Straddle Period of the Company that could affect the amount of taxes payable by
the Sellers with respect to such Taxable Period as a result of their ownership
of partnership interests in the Company or any items of income, gain, loss,
deduction or credit allocable to the Sellers with respect to the assets and
operations of the Company with respect to such Taxable Period. Sellers shall
have the sole right to control, and to represent the interests of all affected
taxpayers in, any such Contest with respect to any Pre-Closing Taxable Period or
Straddle Period and to employ counsel of their choice at their expense;
provided, however, that Buyer shall have the right to participate in (but not
control) any such Contest at its own expense. The Company and Buyer (i) shall
execute and deliver to the Sellers or their designated counsel or other
representatives such powers of attorney and other documents as may be reasonably
necessary to permit Sellers to so control any such Contest, (ii) shall provide
such other documents, certificates, information, testimony and assistance as may
be reasonably requested by Sellers in connection with any such Contest and (iii)
except as authorized by Sellers, shall not take any action (including the
execution of extensions of statutes of limitations) in relation to, or at the
request of, any taxing authority with respect to any such Contest.
The Company or the Buyer, as appropriate, shall pay (or cause to be
paid) all taxes shown to be due and payable by the Company on all of its tax
returns and reports. Sellers shall be solely responsible for all taxes imposed
upon them and arising from their status as partners of the Company for all Pre-
Closing Taxable Periods.
For purposes of this Section 9.5, "taxes" shall mean any domestic or
foreign net income, gross income, gross receipts, sales, use, excise, franchise,
transfer, payroll, stamp, gains, capital, premium, property or windfall profits
tax, alternative, add-on or other minimum tax, value added, or other tax, fee or
assessment, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority, whether any such tax is
imposed directly or through withholding. For purposes of this Section 9.5,
"Pre-Closing Taxable Period" shall mean any taxable period of the Company (or,
in the case of a Straddle Period, the portion thereof) that begins before and
ends on or before the Closing Date; "Post-Closing Taxable Period" shall mean any
taxable period of the Company (or, in the case of a Straddle Period, the portion
thereof) that begins after and ends after the Closing Date; and "Straddle
Period" shall mean any taxable period of the Company that begins before and ends
after the Closing Date.
-13-
<PAGE>
9.6 Solicitation of Employees. From and after the date of this
-------------------------
Agreement for a period of one year, (i) Sellers shall not, and shall cause their
subsidiaries to not, actively solicit the employment of any current employee of
the Company or Buyer, and (ii) Buyer shall not, and shall cause any subsidiary
to not, actively solicit the employment of any current employee of either Sears
or IBM. Active solicitation shall not include non-directed general recruiting
activities or activity not initiated by the Buyer or the Sellers.
9.7 Organization. Buyer shall take such action as may be necessary
------------
so that as of the Closing Date, the status of the Company as a partnership shall
terminate.
9.8 Financial Information. Buyer shall provide to Sellers on a
---------------------
regular basis, no less frequently than annually: (i) any available audited
financial statement of the Buyer and any subsidiary or parent of Buyer that is
engaged in the operation of the Company's business, and (ii) statements of the
amount of the Company's outstanding common stock and instruments convertible
into common stock. Sellers shall treat such financial information as
confidential, and use such information for internal evaluation purposes only.
ARTICLE X
INDEMNIFICATION
---------------
10.1 Survival of Representations Etc. The representations and
-------------------------------
warranties of Sellers and Buyer contained herein shall terminate on the Closing
Date, except that the representation of Sellers contained in the last two
sentences of Section 4.1 herein shall survive the Closing. The representations
and warranties of the Company are solely for the purpose of assisting the Buyer
in evaluating the Company and making a decision to enter into this Agreement.
10.2 Indemnification. Sellers shall indemnify Buyer and the Company
---------------
against, and hold Buyer and the Company harmless from, any damage, claim,
liability or expense, including without limitation, interest, penalties and
reasonable attorneys' fees (collectively "Damages"), (a) arising out of the
breach of any warranty, representation, covenant or agreement of Sellers
contained in this Agreement; (b) arising out of the Retirement Plan, the SERPs
and the Retiree Plan; and (c) arising out of claims relating to any prior
partnership ownership interest; provided, however, that Sellers shall have no
-----------------
liability under this Section for Damages that in the aggregate do not exceed a
threshold amount of Five Hundred Thousand Dollars ($500,000) (the "Threshold
Amount"). Buyer shall indemnify and hold Sellers harmless from (a) any Damages
arising out of the breach of any warranty, representation, covenant or agreement
of Buyer contained in this Agreement; and (b) any Damages arising out of
transactions entered into or events occurring with respect to the business of
the Company, including without limitation any Damages relating to employee
severance matters referred to in Section 9.4 herein, but excluding liabilities
relating to the Retirement Plan, the SERP, the Transfer Agreement and the
Retiree Plan assumed by Sellers; provided, however, that Buyer shall have no
-----------------
liability under the Section for Damages that in the aggregate do not exceed the
Threshold Amount. The term "Damages" as used in this Section 10.2 is not
limited to matters asserted by third parties against Sellers, the Company or
Buyer, but includes Damages incurred or sustained by Sellers, the Company or
Buyer in the absence of third party claims.
10.3 Indemnification Procedures. Upon Buyer or the Company becoming
--------------------------
aware of a fact, condition or event which constitutes a breach of any of the
representations, warranties, covenants or agreements of Sellers and the Company
contained herein, if a claim for Damages in respect thereof is to be made
against Sellers under this Article X, Buyer or the Company, as the case may be,
will with reasonable promptness notify Sellers in writing of such fact,
condition or event. If such fact, condition or event is the assenion of a claim
by a third party, Sellers will be entitled to
-14-
<PAGE>
participate in or take charge of the defense against such claim, provided that
Sellers and their counsel shall proceed with diligence and in good faith with
respect thereto.
Upon Sellers becoming aware of a fact, condition or event which
constitutes a breach of any of the representations, warranties, covenants or
agreements of Buyer contained herein, if a claim for Damages in respect thereof
is to be made against Buyer under this Article X, Sellers will with reasonable
promptness notify Buyer in writing of such fact, condition or event. If such
fact, condition or event is the assertion of a claim by a third party, Buyer
will be entitled to participate in or take charge of the defense against such
claim, provided that Buyer and its counsel shall proceed with diligence and in
good faith with respect thereto.
10.4 No Right of Contribution. After the Closing, the Company shall
------------------------
have no liability to indemnify either Buyer or Sellers on account of the breach
of any representation or warranty or the nonfulfillment of any covenant or
agreement of Sellers or the Company; and Sellers shall have no right of
contribution against the Company. In addition to any other remedy which may be
available at law or in equity, Buyer or the Company shall be entitled to
specific performance and injunctive relief, without posting bond or other
security.
ARTICLE XI
SECURITIES LAWS
---------------
11.1 Acquisition for Investment. Buyer hereby acknowledges that the
--------------------------
Partnership Interests to be purchased pursuant to the terms of this Agreement
shall be acquired for investment for its own account and not with a view to a
distribution or resale of any of such Partnership Interests.
11.2 Contingent Payment Notes. Each Seller hereby acknowledges that
------------------------
the Contingent Payment Note to be purchased pursuant to the terms of this
Agreement shall be acquired for investment for its own account and not with a
view to a distribution or resale of such Contingent Payment Note.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Termination. If any condition precedent to Sellers' obligations
-----------
hereunder is not satisfied and such condition is not waived by Sellers at or
prior to the Closing Date, or if any condition precedent to Buyer's obligations
hereunder is not satisfied and such condition is not waived by Buyer at or prior
to the Closing Date, the party who has the obligation to cause the condition to
be fulfilled may, by written notice to the other party, extend the Closing Date
to a day which is on or prior to June 30, 1996. In the event that a condition
precedent to its obligations is not satisfied, nothing contained herein shall be
deemed to require any party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the transactions contemplated hereby.
This Agreement may be terminated and the transactions contemplated
hereby abandoned by either party if the conditions set forth in Articles VII and
VIII have not been satisfied on or before June 30, 1996 (unless waived by the
party entitled to the benefit thereof), without liability of either party
hereto; provided, however, that no party shall be released from liability
-----------------
hereunder if this Agreement is terminated and the transactions abandoned by
reason of (i) willful failure of any party to have performed its obligations
hereunder, or (ii) any knowing misrepresentation made by any party of any matter
set forth herein.
-15-
<PAGE>
12.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Sellers without the prior written
consent of Buyer, or by Buyer without the prior written consent of Sellers,
except that Buyer shall have the right to assign its rights and obligations
hereunder to any wholly-owned subsidiary or any parent corporation of Buyer,
provided that such assignee assumes all of Buyer's obligations hereunder. If
Buyer assigns this Agreement to any parent corporation of Buyer, the Contingent
Payment Notes shall be issued by such parent corporation. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other person shall have any right,
benefit or obligation hereunder.
12.3 Notices; Transfer of Funds. Unless otherwise provided herein,
--------------------------
any notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
telegraphed, telexed or by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective on
the date of such receipt is acknowledged), as follows:
If to Sears:
Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, IL 50179
Attn: Michael D. Levin, Esq.,
Senior Vice President,
General Counsel and Secretary
with a copy to: Alan Lacy, Executive Vice President and
Chief Financial Officer
If to IBM:
International Business Machines Corporation
Old Orchard Road
Armonk, NY 10504
Attn: Lee A. Dayton, General Manager
Real Estate and Business Development
with a copy to:
Gregory C. Bomberger, Esq.,
Associate General Counsel
-16-
<PAGE>
If to the Company:
632 Broadway, 10th Floor
New York, NY 10012
Attn: Edward A. Bennett, President and
Chief Executive Officer
with a Copy to:
Marc Jacobson, Esq., Vice President and General Counsel
If to Buyer:
International Wireless Incorporated
One Kendall Square
Building 200, Second Floor
Cambridge, MA 02139
Attn: Greg C. Carr, Co-Chairman
with a copy to:
David A. Westenberg, Esq.
c/o Hale and Dorr
60 State Street
Boston, MA 02109
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
Payments to be made to Sears and IBM hereunder shall be made by wire
transferred funds to be delivered to the following account numbers: If to Sears:
Bank of America, 231 5. LaSalle Street, Chicago, Illinois 60697, Account of
Sears, Roebuck and Co., Account Number 77-24578, ABA Routing No. 07100039. If
to IBM: Chemical Bank, 55 Water Street, New York, NY 10041, IBM Concentration
Account, Account Number 323-213499, ABA Routing No. 021000128.
12.4 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of New York except with respect to matters of law concerning the internal
corporate. affairs of any corporate entity which is a party to or the subject
of this Agreement, and as to those matters the law of the jurisdiction under
which the respective entity derives its powers shall govern.
12.5 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, except for the confidentiality
agreement referred to in Section 6.3 herein. No supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
-17-
<PAGE>
12.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.7 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
12.8 Headings. The headings of the Articles and Sections herein are
--------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
12.9 Expenses. Sellers and Buyer will each be liable for its own,
--------
costs and expenses incurred in connection with the negotiation, preparation,
execution and performance of this Agreement.
12.10 Publicity. Neither party shall issue any press release or make
---------
any public statement, either prior to or after the Closing, regarding the
transactions contemplated hereby or the operations of the Company prior to the
Closing, without the prior approval of the other party, and the parties hereto
shall issue a mutually acceptable press release as soon as practicable after the
Closing Date.
12.11 Confidential Information. The parties acknowledge that the
------------------------
transaction described herein is of a confidential nature and shall not be
disclosed except to consultants, advisors, affiliates and funding sources, or as
required by law, until such time as the parties make a public announcement
regarding the transaction as provided in Section 12.10. Neither Sellers nor
Buyer shall make any public disclosure of the specific terms of this Agreement,
except as required by law. In connection with the negotiation of this Agreement
and the preparation for the consummation of the transactions contemplated
hereby, each party acknowledges that it will have access to confidential
information relating to the other parties. Each party shall treat such
information as confidential, preserve the confidentiality thereof and not
duplicate or use such information, except to advisors, consultants, affiliates
and funding sources in connection with the transactions contemplated hereby.
Sellers, at a time and in a manner which they reasonably determine and after
prior notice to and consultation with Buyer, may notify employees of the fact of
the subject transaction. In the event of the termination of this Agreement for
any reason whatsoever, each party shall return to the others all documents, work
papers and other material (including all copies thereof) obtained in connection
with the transactions contemplated hereby and will use all reasonable efforts,
including instructing its employees and others who have had access to such
information, to keep confidential and not to use any such information, unless
such information is now, or is hereafter disclosed, through no act or omission
of such party, in any manner making it available to the general public.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the date and year
first above written.
SEARS, ROEBUCK AND CO.
("Seller")
By: /s/
-------------------------
Name:_______________________
Its:________________________
INTERNATIONAL BUSINESS MACHINES PRODIGY SERVICES COMPANY
CORPORATION ("Company")
("Seller")
By: /s/
-------------------------
Name:_______________________
Its:________________________
By: /s/
-------------------------
Name:_______________________
Its:________________________
INTERNATIONAL WIRELESS
INCORPORATED
By: /s/
-------------------------
Name:_______________________
Its:________________________
-19-
<PAGE>
Amendment dated as of June 3, 1996
by and among Sears, Roebuck and Co.
and International Business Machines
Corporation as "Sellers", Prodigy
Services Company as the "Company",
and International Wireless
Incorporated as "Buyer", to the
Partnership Purchase Agreement (the
"Agreement") dated May 12, 1996,
among such parties.
The parties agree that:
1. The following definition in Section 1.1 of the Agreement is
amended to read as follows:
"Closing Date" shall mean June 17, 1996.
-------------
2. The following definition in Section 2.3(a) is amended to read, in
its entirety, as follows:
"the cash Purchase Price shall be increased by (i) the amount of all
cash contributions made by Sellers to the Company on or after May 31, 1996,
minus (ii) $650,000."
3. Buyer shall pay, be delivery to the Company in immediately
available funds, (i) $216,667 on each of June 5, 6, 10, 11, 12 and 13 and (ii)
$650,000 on each of June 7 and 14. Such payment shall be non-refundable,
whether or not the purchase of the Partnership Interests in consummated;
provided, that, in the event either or both of Sellers do not comply with
Section 8.4 of the Agreement and if the Buyer by reason of the foregoing elects
not to purchase the Partnership Interests, then Sellers shall pay or cause the
Company to pay, in immediately available funds to Buyer upon demand, all such
amounts paid to the Company by Buyer. Sellers agree that prior to June 18,
1996, such payments will be retained in the Company's bank account and will not
be used for the Company's business or be distributed to the Sellers. Payments
to the Company hereunder shall be made by wire transferred funds to be delivered
prior to 2:00 PM on each day on which payments are due to the following account:
The Bank of New York, 48 Wall Street, New York, NY 10286, Account #01583670.
4. In the event Buyer fails to make any of the payments set forth in
paragraph 3 above (except where Buyer has properly directed its bank to effect
the wire transfer an such transfer is delayed due to circumstances outside of
Buyer's control) or the Closing of the transactions contemplated in the
Agreement do not occur on the Closing Date, then, in addition to any other
remedies the Sellers have under the Agreement, Section 6.6 of the Agreement
shall be deleted in its entirety.
5. Except as amended hereby, the Agreement shall remain in full
force and effect. Capitalized terms used herein have the meanings ascribed to
them in the Agreement.
6. This Amendment shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of New York
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Amendment,
and as to those matters the law of the jurisdiction under which the respective
entity derives its powers shall govern.
-1-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered as
of the date first above written.
International Business Machines International Wireless
Corporation Incorporated
/s/ /s/
By:--------------------------- By:---------------------------
Name:_________________________ Name:_________________________
Its:__________________________ Its:__________________________
Sears, Roebuck and Co. Prodigy Services Company
/s/ /s/
By:--------------------------- By:---------------------------
Name:_________________________ Name:_________________________
Its:__________________________ Its:__________________________
-2-
<PAGE>
Exhibit 10.3
------------
NOTE EXCHANGE AGREEMENT
NOTE EXCHANGE AGREEMENT (this "Agreement"), entered into on this 20th day
of October, 1997, among Prodigy, Inc., a Delaware corporation (the "Company"),
Prodigy Services Corporation, a Delaware corporation and an indirect wholly-
owned subsidiary of the Company formerly known as Prodigy Acquisition
Corporation ("PSC"), Sears, Roebuck and Co., a New York corporation ("Sears"),
and International Business Machines Corporation, a New York corporation ("IBM")
(Sears and IBM are collectively or alternatively referred to herein as the
"Sellers").
WHEREAS, the Company (as assignee of International Wireless Incorporated),
Prodigy Services Company, a New York general partnership ("Old Prodigy"), and
the Sellers are parties to a Partnership Purchase Agreement dated as of May 12,
1996 and amended as of June 3, 1996 (as so amended, the "Purchase Agreement")
pursuant to which PSC purchased all of the partnership interests (the
"Partnership Interests") in Old Prodigy from the Sellers;
WHEREAS, simultaneously with the purchase of the Partnership Interests by
PSC, the Company issued to each Seller an 8% Contingent Convertible Promissory
Note dated June 17, 1996 in the face amount of $100,000,000 (individually, an
"Old Note" and collectively, the "Old Notes"); and
WHEREAS, the parties wish to modify the Old Notes and related arrangements;
NOW, THEREFORE, in consideration of the undertakings and commitments
contained herein and other good and valuable consideration, the sufficiency of
which is acknowledged, the parties agree as follows:
1. Exchange of Old Notes. At the Closing (as defined below), each Old
---------------------
Note shall be exchanged for (i) an 8% Contingent Convertible Promissory Note in
the face amount of $100,000,000 issued by PSC in the form of Exhibit A attached
---------
hereto (individually, a "New Note" and collectively, the "New Notes") and (ii) a
Contingent Common Stock Purchase Warrant granted by PSC in the form of Exhibit B
---------
attached hereto (individually, a "Warrant" and collectively, the "Warrants").
Effective as of the Closing, the Sellers hereby release the Company from all
obligations under the Old Notes.
2. Lease Arrangements.
------------------
(a) Prepayment of Obligations. PSC shall terminate, not later than
-------------------------
December 31, 1997, PSC's existing lease with Metropolitan Life Insurance Company
("Landlord") covering PSC's facility at 445 Hamilton Avenue, White Plains, New
York (the "Lease"). PSC shall timely perform all of its obligations under the
Lease and vacate the premises covered by the Lease not later than December 31,
1997. Prior to Closing, Carso Global Telecom, S.A. de C.V. ("Carso") shall
prepay to the Landlord in full all rent due and to become due under the Lease
through December 31, 1997, together with the entire amount of the early
termination fee provided under the Lease, less any negotiated discount for
prepayment agreed to by the Landlord (the net amount of the foregoing, the
"Lease Amount"). At Closing, Carso shall deliver to the Sellers the Termination
Deposit (as defined in Section 2(b) below), together with evidence reasonably
satisfactory to Sellers that the Lease Amount has been fully paid to the
Landlord.
(b) Termination Deposit. Carso shall deliver at Closing to each
-------------------
Seller the sum of $500,000 (collectively, the "Termination Deposit"), which
shall be held by Sellers, subject to the provisions of this Section 2, as
collateral security for the obligations of PSC set forth in Section 2(a) above
and Section 2(d) below. PSC shall be entitled to return of the Termination
Deposit upon termination of the Lease on or prior to December 31, 1997 in
accordance with its terms and after
<PAGE>
satisfaction (including but not limited to timely vacating the premises covered
by the Lease on or prior to December 31, 1997) of all of PSC's obligations under
the Lease ("Lease Termination"). PSC shall, as a condition precedent to its
right to return of the Termination Deposit based on Lease Termination, deliver
to Sellers a certificate, addressed to Sellers and signed by the chief financial
officer or chief executive officer of PSC, stating that, as of the date of such
certificate, PSC has (i) timely vacated the premises covered by the Lease as of
a date on or prior to December 31, 1997, (ii) timely performed all of its
obligations under the Lease and is not in default under the Lease, and (iii)
timely complied with all of the provisions of the Lease required to terminate,
and has terminated, the Lease as of a date on or prior to December 31, 1997.
(c) Investment of Termination Deposit. The Termination Deposit shall
---------------------------------
be invested by each Seller, in its own name, in a segregated, interest-bearing
bank money market account, mutual fund money market account or other form of
investment customarily used by such Seller for its own short-term cash
investments. Interest earned thereon shall be added to and become part of the
Termination Deposit.
(d) Indemnification. If Lease Termination does not occur on or prior
---------------
to December 31, 1997, PSC shall indemnify and hold harmless each Seller from and
against all liabilities of whatsoever kind that such Seller may have to Landlord
under or in connection with the Lease, and pay and reimburse each Seller for its
costs and expenses (including reasonable attorneys' fees) incurred by such
Seller in respect of any claim made by the Landlord against Sellers, or either
of them, under or in connection with the Lease. PSC hereby grants each Seller a
senior lien and security interest in the Termination Deposit to secure
satisfaction of PSC's obligations set forth herein. Sellers shall be entitled
to apply the Termination Deposit to satisfy PSC's obligations as set forth
herein, which shall include, but not be limited to, the right to apply the
Termination Deposit to reimburse themselves for any sums that they have paid the
Landlord in respect of the Lease, whether paid pursuant to a judgment entered
against either Seller, a settlement with the Landlord, or otherwise.
3. Closing Conditions. The closing (the "Closing") of the transactions
------------------
contemplated hereby shall occur as soon as possible after satisfaction of the
conditions set forth in this Section 3. If the conditions specified in this
Section 3 have not been satisfied by October 31, 1997, the Closing shall not
occur and this Agreement shall automatically terminate with no liability of any
party hereunder to any other party hereunder. If this Agreement terminates as
provided in the preceding sentence, the Old Notes shall not be modified and
shall continue in accordance with their terms. The conditions to Closing are as
follows:
(a) Lease Arrangements. Carso shall have fully paid the Lease Amount
------------------
to the Landlord and delivered to Sellers evidence reasonably satisfactory to
Sellers that the Lease Amount has been fully paid to the Landlord. Carso shall
have delivered the Termination Deposit to the Sellers.
(b) Letter of Credit Arrangements. Carso shall have caused the
-----------------------------
execution and delivery to Sellers at Closing of a clean irrevocable letter of
credit issued or confirmed by a domestic bank in the United States or a branch
of a foreign bank, which branch is located in the United States, in each case
acceptable to Sellers (the "Carso LC"). The Carso LC shall be in form and
substance mutually agreed to by Sellers and Carso and shall be in the initial
face amount of $4,000,000 (with the face amount declining at the end of each
subsequent calendar quarter to an amount equal to $4,000,000 minus the greater
of (i) $333,333.33 multiplied by the number of full calendar quarters elapsed
since the Closing or (ii) the aggregate amount of all draws against the Carso LC
since the Closing). The Carso LC shall secure, and may be drawn against only
with respect to, the obligation of the Company under Section 10.2 of the
Purchase Agreement to indemnify Sellers against Covered Damages. "Covered
Damages" shall mean Damages (as defined in Section 10.2 of the Purchase
Agreement) arising from claims by third parties (i.e., parties other than either
Seller or any entity controlled by or
-2-
<PAGE>
affiliated with either Seller); provided, however, that Covered Damages shall
-------- -------
include Damages arising from claims for taxes (as defined in Section 9.5 of the
Purchase Agreement) of Old Prodigy for Pre-Closing Taxable Periods (as defined
in Section 9.5 of the Purchase Agreement) only to the extent that PSC does not
comply with its obligations under Section 9 below. The Carso LC shall be subject
to multiple draws, in each case upon presentation, at any time prior to
September 30, 2000, of a sight draft purporting to be signed by an officer of
either Seller accompanied by a certificate signed by an officer of the drawer,
in form and substance mutually agreed to by Sellers and Carso, stating that the
drawer has incurred Covered Damages for which the drawer is entitled to be
indemnified under Section 10.2 of the Purchase Agreement. Carso shall have the
right to control the defense and settlement (with counsel of its choosing
reasonably acceptable to Sellers) of all claims which may give rise to Covered
Damages and, if it does not do so within a reasonable period of time after being
notified of any such claims, Sellers shall be entitled to retain counsel of
their choosing (and reasonably acceptable to Carso) to provide such defense (in
which case the reasonable fees and expenses of one firm of outside counsel to
represent Sellers with respect to such claims shall also constitute Covered
Damages).
(c) Additional Agreements Regarding the Carso LC. The Company hereby
--------------------------------------------
agrees that (i) any obligation to reimburse the issuing bank, Carso or any other
party in respect of draws on the Carso LC shall not be secured by any assets of
a "Prodigy Entity" (as defined below) and shall not give rise to a claim against
a Prodigy Entity that does not have liability for Covered Damages under the
Purchase Agreement or give rise to a claim against a Prodigy Entity senior in
priority to the Sellers' claim for Covered Damages under the Purchase Agreement
(such prohibitions being hereinafter referred to as the "Prohibited
Attributes"); and (ii) in the event the Carso LC is determined to possess
Prohibited Attributes, or if a stay, restraining order or injunction is in
effect that prevents either Seller from drawing on the Carso LC based in whole
or in part upon an allegation that the Carso LC possesses Prohibited Attributes,
then Carso shall provide a substitute Carso LC that does not possess Prohibited
Attributes. The documentation and arrangements respecting the Carso LC shall be
made available to Sellers for review prior to Closing and shall establish to
their satisfaction that the Carso LC does not possess Prohibited Attributes. As
used herein, the term "Prodigy Entity" means and includes the Company and any
direct or indirect subsidiary of the Company, including but not limited to PSC.
4. The Closing. At the Closing:
-----------
(a) PSC shall execute and deliver a New Note to each Seller.
(b) PSC shall execute and deliver a Warrant to each Seller.
(c) Each Seller shall return to the Company its Old Note, marked
"cancelled".
(d) Carso shall deliver the Termination Deposit to the Sellers.
(e) Carso shall make the payments to the Sellers contemplated by
Section 9.
5. Representations of the Sellers. Each Seller hereby represents and
------------------------------
warrants as follows as to itself:
(a) Authorization. Seller has all necessary right, power and
-------------
authority to enter into this Agreement. The execution, delivery and performance
by Seller of this Agreement has been duly authorized by all requisite corporate
action on the part of Seller. This Agreement constitutes the valid and legally
binding obligation of Seller, enforceable against Seller in accordance with its
terms.
-3-
<PAGE>
(b) Certain Tax Payments. Each Seller paid the State of New York
--------------------
$1,107,764 in January 1997 and $588,045 in October 1997 in respect of certain
sales and use taxes assessed against Old Prodigy for periods ending prior to
June 17, 1996. Each Seller also paid, after June 17, 1996, $4,796.50 to the
State of Illinois in respect of certain sales and use taxes assessed against Old
Prodigy for periods ending prior to June 17, 1996.
(c) Securities Representations. Seller has substantial knowledge and
--------------------------
experience in making investment decisions of the type contemplated by the
exchange of an Old Note for a New Note and Warrant and is capable of evaluating
the merits and risks of such exchange. Seller has received and reviewed the
Company's Confidential Private Placement Memorandum dated October 31, 1997
(draft dated October 16, 1997) (the "Memorandum"). The Company has made
available to Seller all documents requested and has provided answers to all of
its questions relating to an investment in the Company or PSC. In evaluating
the exchange of its Old Note for a New Note and Warrant, Seller has not relied
upon any representations or other information (whether oral or written) other
than as set forth in the Memorandum. Seller has had an opportunity to discuss
such exchange with representatives of the Company and to ask questions of them.
Seller understands that an investment in the Company or PSC involves significant
risks, and Seller has reviewed and is aware of the risk factors described in the
Memorandum under the caption "Risk Factors". Seller is acquiring its New Note
and Warrant, the Common Stock (as defined in the New Notes) issuable upon
conversion of its New Note and the Common Stock (or other securities) issuable
upon exercise of its Warrant (collectively, the "Securities") for its own
account for investment, not for resale to any other person and not with a view
to or in connection with any resale or distribution. Seller understands that
the Securities have not been registered under the federal securities laws or the
securities laws of any other jurisdiction and cannot be transferred or resold
except as permitted pursuant to a valid registration statement or an applicable
exemption from registration. Seller acknowledges that neither the Company nor
PSC has made any representations with respect to registration of the Securities
under applicable securities laws (except as provided in Section 5 of the New
Notes), that no such registration is contemplated, that there can be no
assurance that there will be any market for the Securities in the foreseeable
future and that, as a result, Seller must be prepared to bear the economic risk
of its investment for an indefinite period of time. Seller understands that the
certificates or other instruments representing the Securities shall bear
restrictive legends under the Securities Act of 1933. Seller acknowledges that
no representations have been made to it concerning the size, valuation or timing
of an initial public offering or other financing by the Company or PSC.
6. Representations of the Company. The Company hereby represents and
------------------------------
warrants as follows to the Sellers. The Company has all necessary right, power
and authority to enter into this Agreement. The execution, delivery and
performance by the Company of this Agreement has been duly authorized by all
requisite corporate action on the part of the Company. This Agreement
constitutes the valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms.
7. Representations of PSC. PSC hereby represents and warrants as follows
----------------------
to the Sellers:
(a) Authorization by PSC. PSC has all necessary right, power and
--------------------
authority to enter into this Agreement. The execution, delivery and performance
by PSC of this Agreement has been duly authorized by all requisite corporate
action on the part of PSC. This Agreement constitutes the valid and legally
binding obligation of PSC, enforceable against PSC in accordance with its terms.
(b) PSC's Issuance of Securities. Prior to the Closing, the issuance
----------------------------
and delivery of the New Notes in accordance with this Agreement, the issuance
and delivery of the Warrants in accordance with this Agreement, the issuance and
delivery of the shares of Common Stock
-4-
<PAGE>
issuable upon conversion of the New Notes and the issuance and delivery of the
shares of Common Stock issuable by PSC upon exercise of the Warrants will be
duly authorized by all necessary corporate action on the part of PSC, and all
such shares will be duly reserved for issuance. The shares of Common Stock
issuable upon conversion of the New Notes, when so issued in accordance with the
provisions of the New Notes, and the shares of Common Stock issuable by PSC upon
exercise of the Warrants, when so issued against payment therefor in accordance
with the Warrants, will be duly and validly issued, fully paid and non-
assessable.
(c) Enforceablility. Upon their issuance as contemplated hereby, the
---------------
New Notes and Warrants will constitute the valid and legally binding obligations
of PSC, enforceable against PSC in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies.
8. Representations of the Company and PSC. The Company and PSC hereby
--------------------------------------
represent and warrant as follows to the Sellers:
(a) The Lease Amount paid pursuant to Section 2(a) above, the
Termination Deposit paid pursuant to Section 2(b) above and the tax settlement
payment to each Seller pursuant to Section 9 hereof (collectively, the "Carso
Funded Payments") have all been paid directly by Carso solely from funds
provided by Carso (the "Carso Funds") pursuant to that certain letter dated
October 20, 1997 addressed to the Company from Carso (the "Carso Letter").
(b) The Carso Funds shall be reimbursed to Carso only from the
proceeds of the Company's equity financings or through the issuance of equity
securities in the Company to Carso.
(c) Any payment of the Carso Funded Payments made by the Company or
any payments by Carso of the Carso Funded Payments on behalf of the Company
shall be on behalf of PSC and shall constitute an equity capital contribution by
the Company to PSC.
(d) The execution and delivery of this Agreement by the Sellers is a
condition precedent to Carso's willingness to provide the Carso Funds and is
also a condition precedent to the Company's issuance of new equity securities
and the securing of new and additional equity financing in the rights offering
contemplated by the Memorandum.
(e) The Company and PSC acknowledge that the Sellers have required
the payment of the Carso Funded Payments from the Carso Funds on the terms set
forth herein in exchange for their entry into this Agreement.
9. Tax Settlement. PSC and the Sellers agree that each of them shall be
--------------
liable for one-third (1/3) of all taxes (as defined in Section 9.5 of the
Purchase Agreement) of Old Prodigy for Pre-Closing Taxable Periods (as defined
in Section 9.5 of the Purchase Agreement) which taxes were unpaid as of June 17,
1996, whether such taxes are assessed prior to or after the date hereof. Based
on the Sellers' representation contained in Section 5(b) above, Carso shall pay
$566,868.50 to each Seller at the Closing with respect to this Section 9. As of
the Closing, the parties agree that the Threshold Amount (as defined in Section
10.2 of the Purchase Agreement) shall be deemed satisfied.
10. Acquisition or IPO by the Company.
---------------------------------
(a) IPO by the Company. If, prior to an IPO (as defined in the New
------------------
Notes) by PSC, the Company undertakes a transaction which would constitute an
IPO if undertaken by PSC (a "Company IPO"), then, simultaneously with and as a
condition to the Company IPO, the Company
-5-
<PAGE>
shall assume the New Notes and Warrants, provision shall be made so that the
Sellers shall be entitled to receive, upon conversion of the New Notes and
exercise of the Warrants, shares of stock or other securities or property of the
Company as described in the following sentence, and PSC shall be released from
the New Notes and Warrants. Upon a Company IPO, the Sellers shall be entitled to
receive upon conversion of the New Notes and exercise of the Warrants shares of
stock or other securities or property of the Company based on the ratio of the
Fair Market Value (as defined below) of PSC divided by the fair market value of
the Company (on a consolidated basis) immediately prior to the Company IPO.
"Fair Market Value" of PSC and the Company (on a consolidated basis) shall be
determined by an independent appraiser, jointly selected by the Company and the
Sellers, whose fees and expenses shall be shared in equal thirds by the Company
and the Sellers and whose determination of the Fair Market Value of PSC and the
Company (on a consolidated basis) shall be conclusive and binding on all parties
in the absence of fraud or manifest error.
(b) Acquisition of the Company. If, prior to an Acquisition
--------------------------
Transaction (as defined in the New Notes) by PSC, the Company undertakes a
transaction which would constitute an Acquisition Transaction (a "Company
Acquisition") if undertaken by PSC, then, simultaneously with and as a condition
to the Company Acquisition, the Acquiror (as defined below) shall assume the New
Notes and Warrants, provision shall be made so that the Sellers shall be
entitled to receive, upon conversion of the New Notes and exercise of the
Warrants, shares of stock or other securities or property of the Acquiror as
described in the following sentence, and PSC shall be released from the New
Notes and Warrants. Upon a Company Acquisition, the Sellers shall be entitled
to receive upon conversion of the New Notes and exercise of the Warrants shares
of stock or other securities or property of the Acquiror based on the ratio of
the Fair Market Value of PSC divided by the Fair Market Value of the Company (on
a consolidated basis) immediately prior to the Company Acquisition. "Acquiror"
shall mean the Company or other entity, as applicable, surviving the Company
Acquisition.
11. Confidentiality. The Sellers shall treat the Memorandum as
---------------
confidential, preserve the confidentiality thereof and not duplicate, use or
disclose the Memorandum, except to employees and advisors who have a need to
know in connection with the transactions contemplated hereby and except to the
extent that information in the Memorandum becomes publicly available other than
through a breach of this Section 11 by a Seller.
12. Notices. All notices required or permitted under this Agreement shall
-------
be given in accordance with Section 12.3 of the Purchase Agreement, except that
the address for the Company and PSC shall be 445 Hamilton Avenue, White Plains,
NY 10601 until December 31, 1997 and 44 South Broadway, White Plains, NY 10601
thereafter, in each case to the attention of the President.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
14. Amendment. This Agreement may be amended or modified only by a
---------
written instrument executed by all parties hereto.
15. Governing Law. This Agreement shall be construed, interpreted and
-------------
enforced in accordance with the laws of the State of New York, without reference
to conflict of laws principles.
16. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns.
-6-
<PAGE>
17. Miscellaneous.
-------------
(a) No delay or omission by any party in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by any party on any one occasion shall be effective only in
that instance and shall not be construed as a bar or waiver of any right on any
other occasion.
(b) The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
(c) In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which shall be one and
the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
PRODIGY, INC.
By: /s/
--------------------------
Title:__________________________
PRODIGY SERVICES CORPORATION
By: /s/
--------------------------
Title:__________________________
-7-
<PAGE>
SEARS, ROEBUCK AND CO.
/s/
By:-----------------------------
Title: _________________________
INTERNATIONAL BUSINESS MACHINES
CORPORATION
/s/
By:----------------------------
Title: ________________________
-8-
<PAGE>
AMENDMENT TO NOTE EXCHANGE AGREEMENT
Reference is made to the Note Exchange Agreement (the "Agreement") dated as
of October 20, 1997 among Prodigy, Inc., a Delaware corporation (the "Company"),
Prodigy Services Corporation, a Delaware corporation and an indirect wholly-
owned subsidiary of the Company ("PSC"), Sears, Roebuck and Co., a New York
corporation ("Sears"), and International Business Machines Corporation, a New
York corporation ("IBM").
For good and valuable consideration, the sufficiency of which is
acknowledged, the parties hereby agree to amend the Agreement by changing the
date "October 31, 1997" in Section 3 to "November 5, 1997".
In all other respects, the Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 31st day of October, 1997.
PRODIGY, INC.
/s/
By: --------------------------
Title:__________________________
PRODIGY SERVICES CORPORATION
/s/
By: --------------------------
Title:__________________________
SEARS, ROEBUCK AND CO.
/s/
By:----------------------------
Title: ________________________
INTERNATIONAL BUSINESS MACHINES
CORPORATION
/s/
By:----------------------------
Title: ________________________
<PAGE>
Exhibit 10.4
------------
October 20, 1997
Prodigy, Inc.
10 Cabot Road
Medford, MA 02155
Ladies/Gentleman:
The purpose of this letter is to confirm the agreement of Prodigy, Inc.
(the "Company") and Carso Global Telecom, S.A. de C.V. ("Carso") as follows:
1. Carso shall arrange for the issuance of the letter of credit (the
"Carso LC") contemplated by Section 3(b) of the Note Exchange Agreement attached
hereto (the "Exchange Agreement").
2. The Carso LC shall not possess Prohibited Attributes (as defined in
Section 3(c) of the Exchange Agreement). In the event the Carso LC is determined
to possess Prohibited Attributes, or if a stay, restraining order or injunction
is in effect that prevents either IBM or Sears from drawing on the Carso LC
based in whole or in part upon an allegation that the Carso LC possesses
Prohibited Attributes, then Carso shall provide a substitute Carso LC that does
not possess Prohibited Attributes.
3. Any obligation of the Company or Prodigy Services Corporation ("PSC")
to reimburse Carso for any amounts drawn under the Carso LC shall be payable
only from the proceeds of the Company's equity financings or through the
issuance of equity securities to Carso.
4. Carso shall advance the Company an amount equal to $7,964,578 by (i)
paying $5,830,841 to Metropolitan Life Insurance Company as contemplated by
Section 2(a) of the Exchange Agreement, (ii) depositing $500,000 with each of
IBM and Sears as contemplated by Section 2(b) of the Exchange Agreement and
(iii) paying $566,868.50 to each of IBM and Sears as contemplated by Section 8
of the Exchange Agreement. Any obligation of the Company or PSC to repay such
amounts shall be payable only from the proceeds of the Company's equity
financings or through the issuance of equity securities to Carso.
This letter is delivered pursuant to the requirements of the Exchange
Agreement and may be relied upon by IBM and Sears.
Very truly yours,
CARSO GLOBAL TELECOM, S.A. DE C.V.
By: /s/
-----------------------------
Title:__________________________
<PAGE>
Exhibit 10.5
------------
THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER,
AS SET FORTH HEREIN.
8% CONTINGENT CONVERTIBLE PROMISSORY NOTE
U.S. $100,000,000 November 5, 1997
FOR VALUE RECEIVED, PRODIGY SERVICES CORPORATION, a Delaware corporation
(the "COMPANY"), hereby promises, subject to the provisions set forth below, to
pay to _________________________ (the "NOTEHOLDER"), the principal sum of ONE
HUNDRED MILLION DOLLARS ($100,000,000) plus accrued interest on the outstanding
principal amount of this Note at the rate of 8% per annum (on the basis of a
365-day year), commencing December 17, 1997. Interest on this 8% Contingent
Convertible Promissory Note (this "NOTE") shall accrue on a quarterly basis on
the unpaid principal balance of this Note until this Note is paid in full;
provided, however, that all accrued and unpaid interest hereunder shall be
- -------- -------
converted together with the principal amount of this Note upon conversion of
this Note pursuant to Section 4 hereof.
This Note supersedes and replaces the 8% Contingent Convertible Promissory
Note, dated June 17, 1996, in the face amount of $100,000,000 issued by Prodigy,
Inc. to the Noteholder.
SECTION 1. Certain Definitions. The following terms shall have the
-------------------
following meanings:
(a) "ACQUISITION TRANSACTION" shall mean (i) the sale, lease or other
transfer, in one or a series of transactions, of all or substantially all of the
Company's assets to any Person or group (as such term is defined in Section
13(d)(3) of the Exchange Act) (a "Group") or (ii) the consummation of any
transaction or series of transactions the result of which is that any Person or
Group (other than the stockholders of the Company immediately prior to such
transaction or transactions or their Related Parties) beneficially owns,
directly or indirectly, 50% or more of the voting power of the voting stock of
the Company, provided, however, that transfers of assets of the Company to any
direct or indirect wholly owned subsidiary shall not constitute an Acquisition
Transaction (subject to Section 10 below); and provided, further, that
investments in the Company by Carso Global Telecom, S.A. de C.V., Greg C. Carr
and/or their respective affiliates shall not constitute an Acquisition
Transaction.
(b) "BANKRUPTCY LAW" shall mean Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
(c) "COMMISSION" shall mean the Securities and Exchange Commission
including any governmental body or agency succeeding to the functions thereof.
(d) "COMMON STOCK" shall mean the common stock, par value $.01 per
share, of the Company.
(e) "CONTINGENT ACQUISITION PAYMENT AMOUNT" shall mean, subject to
Section 2.2, the lesser of (i) seven and one-half percent (7.5%) of the amount
by which the total consideration received by the Company or its stockholders
pursuant to an Acquisition Transaction, net of any actual taxes paid by the
Company as a result of such transaction, exceeds $250,000,000 (or, in the case
of an Acquisition Transaction for less than all of the Common Stock or assets of
the Company, seven and
<PAGE>
one-half percent (7.5%) of the amount by which the total value of the Company,
based upon the valuation established by such Acquisition Transaction, exceeds
$250,000,000), in each case, as adjusted pursuant to Section 7 herein, or (ii)
the Maximum Security Return. In the event of an Acquisition Transaction, the
Contingent Acquisition Payment Amount shall be paid in like kind consideration
with the consideration received by the Company or its stockholders in such
Acquisition Transaction.
(f) "CONTINGENT IPO PAYMENT AMOUNT" shall mean, subject to Section
2.2, shares with a fair market value (based on the price per share at which
Common Stock is offered to the public in the IPO) on the IPO Valuation Date
equal to the lesser of (i) seven and one-half percent (7.5%) of the amount by
which the total value of the Company (based on the number of shares of Common
Stock outstanding immediately prior to the IPO, as shown in the final prospectus
for the IPO) multiplied by the price per share at which Common Stock is offered
to the public in the IPO) exceeds $250,000,000 or (ii) the Maximum Security
Return.
(g) "CONTINGENT PAYMENT AMOUNT" shall mean either the Contingent IPO
Payment Amount, the Contingent Acquisition Payment Amount or the payment
specified in clause (y) of Section 4.1, as applicable.
(h) "CONVERSION EVENT" shall mean an event, the occurrence of which
entitles the Noteholder to receive Common Stock or other consideration equal to
the Contingent Payment Amount as set forth in Section 4 hereof.
(i) "CUSTODIAN" shall mean any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
(j) "DEMAND REGISTRATION" shall mean a registration pursuant to
Section 5.2 hereof.
(k) "HOLDER" shall mean the beneficial owner of a security. For all
purposes of this Agreement, the Company shall be entitled to treat the record
owner of a security as the beneficial owner of such security unless it has been
given written notice of the existence and identity of a different beneficial
owner.
(l) "IPO" shall mean a bona fide public offering and sale of Common
Stock pursuant to a registration statement filed under the Securities Act and
declared effective by the Commission.
(m) "IPO VALUATION DATE" shall mean the date on which the price for
the shares to be offered in the IPO is established among the Company, the
selling shareholders, if any, and the underwriters of such offering.
(n) "MATURITY DATE" shall mean June 17, 2006.
(o) "MAXIMUM SECURITY RETURN" shall mean consideration with a fair
market value equal to $100,000,000 plus all accrued and unpaid interest on this
Note.
(p) "PERSON" shall mean all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures, governments,
agencies, political subdivisions and other entities.
(q) "PIGGYBACK REGISTRATION" shall mean a registration pursuant to
Section 5.1 hereof.
-2-
<PAGE>
(r) "PROSPECTUS" shall mean the prospectus included in any
Registration Statement, as supplemented by any and all prospectus supplements
and as amended by any and all post-effective amendments and including all
material incorporated by reference in such prospectus.
(s) "REGISTRABLE SECURITIES" means the shares of Restricted Stock but
any share of Restricted Stock shall cease to be a Registrable Security when (i)
a registration statement (other than with respect to an employee benefit plan)
covering such Registrable Security has been declared effective by the Commission
and it has been disposed of pursuant to such effective registration statement or
(ii) sold pursuant to Rule 144 (or any similar provision then in force) under
the Act.
(t) "REGISTRATION" shall mean a Demand Registration or a Piggyback
Registration.
(u) "REGISTRATION EXPENSES" shall mean all expenses incident to the
Company's performance of or compliance with the registration provisions of
Section 5 herein, including without limitation (i) all fees and expenses of
compliance with federal securities and state securities laws; (ii) all printing
expenses; (iii) all fees and disbursements of counsel for the Company; and (iv)
all fees and disbursements of accountants of the Company, but excluding (i)
underwriter's discounts relating to securities sold by the Selling Holder; (ii)
Commission and state securities laws filing fees relating to securities sold by
the Selling Holder; (iii) filings made with the NASD and counsel fees in
connection therewith; and (iv) fees and disbursements of counsel for the Selling
Holder.
(v) "REGISTRATION STATEMENT" shall mean any registration statement
which covers Common Stock pursuant to the provisions of this Note, including the
Prospectus included in such registration statement, amendments (including post-
effective amendments) and supplements to such registration statement, and all
exhibits to and all material incorporated by reference in such registration
statement.
(w) "RELATED PARTY" of any Person (other than an individual) shall be
any parent, subsidiary or affiliate of such Person or any shareholder of or
holder of partnership interests in such Person. With respect to any individual,
"Related Party" means members of such individual's immediate family and any
trust, all the beneficiaries of which are such individual or members of his
immediate family.
(x) "RESTRICTED STOCK" shall mean any Common Stock issued to the
Noteholder upon (i) the occurrence of a Conversion Event or (ii) the exercise of
the Warrant.
(y) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal law then in effect.
(z) "WARRANT" shall mean the Contingent Common Stock Purchase Warrant
of even date hereof issued by the Company to the Noteholder.
SECTION 2. Payments.
--------
2.1 Interest Payments. Interest shall accrue at a rate of 8% per
-----------------
annum on the unpaid principal amount of this Note outstanding, beginning on
December 17, 1997. The Company may pay all accrued and unpaid interest
quarterly in arrears on June 30, September 30, December 31 and March 31,
commencing on December 31, 1997; provided, that whenever any payment of interest
--------
shall be due on a day which is not a business day, the date for payment thereof
shall be extended to the next succeeding business day. Interest that is due
but, at the option of the Company, not paid at any payment date shall be added
to the principal amount of this Note, and thereafter interest shall
-3-
<PAGE>
accrue on a quarterly basis at the annual rate set forth above on such increased
principal amount until maturity or repayment.
2.2 Net Worth Contingency. Notwithstanding any other provision of
---------------------
this Note, payments of principal, or at the Company's election, payments of
interest in cash, on this Note shall be made (and Common Stock shall be issuable
upon conversion of this Note) only if, and to the extent that, a payment of cash
of equal amount (or of equal amount to the then fair market value of such Common
Stock) by the Company would not, as of the date of payment, cause the Net Worth
(as defined below) of the Company to be less than $15,000,000. For purposes of
this provision, the term "Net Worth" shall mean the excess of the fair market
value of the assets of the Company (on a going concern basis or a liquidation
basis, whichever is greater, as determined by a mutually acceptable nationally
recognized investment bank or valuation expert chosen by the Company) over the
principal amount of the liabilities (other than this Note and the 8% Contingent
Convertible Promissory Note of like tenor issued to ___________________) of the
Company as of the date of payment.
SECTION 3. Events of Default. The following events (if any occur prior to
-----------------
the date this Note is paid in full) are "EVENTS OF DEFAULT" under this Note:
(a) The Company shall default in the due and punctual payment of
principal of, or interest on, this Note as and when such principal or interest
shall become due and payable, and with respect to any such payment of interest,
such default shall have continued for a period of 5 business days;
(b) The Company shall fail to comply with any of its other agreements
or covenants in, or provisions of, this Note, and such default shall have
continued for a period of 5 business days following the giving of notice;
(c) The Company or any of its subsidiaries, pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is unable to pay its debts as the same become
due;
(d) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its
subsidiaries in an involuntary case,
(ii) appoints a Custodian of the Company or any of its
subsidiaries or for all or any material portion of its property, or
(iii) orders the liquidation of the Company or any of its
subsidiaries,
-4-
<PAGE>
and the order or decree remains unstayed and in effect for 60 days; and
(e) Any order, judgment or decree shall be entered against the
Company or any of its subsidiaries decreeing the dissolution or split up of the
Company or any such subsidiary and such order shall remain unstayed or
undischarged for a period in excess of 60 days.
The occurrence of any of the Events of Default set forth in Sections 3(c),
3(d) or 3(e) of this Note shall automatically make due and payable the
Contingent Payment Amount without notice, presentment, demand, protest or other
requirement of any kind, all of which are expressly hereby waived. Upon the
occurrence of any other Event of Default set forth above, the Noteholder may, by
written notice to the Company, declare that either the Contingent Acquisition
Payment Amount or the Contingent IPO Payment Amount, as applicable, is
immediately due and payable.
SECTION 4. Conversion.
----------
4.1 Conversion. Upon the earliest to occur of (i) an IPO, (ii) an
----------
Acquisition Transaction or (iii) the Maturity Date (each, a "Conversion Event"),
this Note, including all accrued and unpaid interest hereon, shall be converted
into the following: (w) in the case of an IPO, the Contingent IPO Payment
Amount, (x) in the case of an Acquisition Transaction, the Contingent
Acquisition Payment Amount, and (y) in the case of the Maturity Date, such
number of shares of Common Stock equal to seven and one-half percent (7.5%) of
the number of shares of Common Stock outstanding on the Maturity Date; provided,
--------
however, that at the option of the Company, in the case of an IPO or at the
- -------
Maturity Date, the Company may redeem this Note for cash in an amount equal to
the value of the Maximum Security Return. Upon the occurrence of a Conversion
Event:
(a) the Company will deliver to the Noteholder the appropriate
Contingent Payment Amount; and
(b) simultaneously with the delivery described in Section 4.1(a),
the Noteholder will deliver to the Company this Note which will he cancelled and
deemed paid in full upon delivery to the Noteholder of the Contingent Conversion
Payment.
Five business days prior to the anticipated pricing date of an IPO or the
anticipated closing date of an Acquisition Transaction, the Company shall give
the Noteholder written notice thereof.
4.2 Adjustments for Non-Stock Dividends and Distributions. In the
-----------------------------------------------------
event that, after the date of this Note and prior to a Conversion Event, the
Company shall at any time or from time to time make or issue to holders of
Common Stock, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable other than
in securities of the Company that would be considered as outstanding for
purposes of calculating the Contingent Payment Amount, then and in each such
event provision shall he made so that the Noteholder shall receive upon a
Conversion Event in which it does not otherwise receive the Maximum Security
Return, in addition to the amounts otherwise payable upon such Conversion Event,
7.5% of the aggregate amount of all such dividends and distributions so
distributed to holders of Common Stock, payable, at the option of the Company,
in the form of such dividends or distributions of Common Stock having an
equivalent value (or such lesser amounts as shall, together with the amounts
otherwise received upon such Conversion Event, equal the Maximum Security
Return).
SECTION 5. Registration Rights.
-------------------
5.1 Piggyback Registration
----------------------
-5-
<PAGE>
(a) Participation - IPO. If the Company elects to file a
-------------------
registration statement under the Securities Act covering the offer and sale by
any of its security holders of any Common Stock in connection with the IPO, the
Company shall give written notice thereof to the Noteholder at least ten
business days before filing. The Noteholder shall have the right (a "PIGGYBACK
REGISTRATION RIGHT") to participate in the IPO on a pro rata basis with any
other Holders entitled to participate in such offering upon the giving of notice
to the Company within ten business days of receipt by it of notice from the
Company. If the Noteholder notifies the Company of its intent to exercise such
Piggyback Registration Right, the Company shall include in such registration
statement such number of shares of Registrable Securities equal to the same
percentage of the total number of Registrable Securities issuable upon the
Conversion Event (with the calculation of the number of Registrable Securities
issuable upon conversion of this Note to be based on the mid-point of the
estimated public offering price set forth in the registration statement (or most
recent amendment thereto) for the IPO) as the number of shares of the other
Holders' Common Stock to be registered bears to such other Holders' aggregate
ownership of Common Stock. Such Registrable Securities shall be included in the
underwriting for the IPO on the same terms and conditions as the securities
otherwise being sold in such offering.
(b) Participation - Other Offerings. If the Company elects to
-------------------------------
file a registration statement under the Securities Act covering the offer and
sale of any Common Stock (or equity securities converted into Common Stock) in
connection with any public offering after the IPO (other than a registration
statement on Form S-8 or Form S-4, or their successors, or any other form for a
similar limited purpose, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation), the Company shall give written notice thereof to the Noteholder at
least ten business days before filing. The Noteholder shall have a Piggyback
Registration Right to participate in such offering on a pro rata basis with the
Company and any other Holders upon the giving of notice to the Company within
seven business days of receipt by it of notice from the Company. If the
Noteholder notifies the Company of its intent to exercise such Piggyback
Registration Right, subject to Section 5.1(c), the Company shall include in such
registration statement such number of shares of Restricted Stock equal to the
percentage of the total number of Restricted Shares held by the Noteholder
multiplied by the number of shares proposed to be registered in the offering.
Such Restricted Stock shall be included in the underwriting for the public
offering on the same terms and conditions as the securities otherwise being sold
in such offering.
(c) Underwriter's Cutback. If, in the opinion of the managing
---------------------
underwriter of such offering the inclusion of all of the shares of Registrable
Securities and other Common Stock requested to be registered would be
inappropriate, then the number of shares of Registrable Securities and other
Common Stock to be included in the offering shall be reduced, with the
participation in such offering to be in the following order of priority: (1)
first, securities to be issued by the Company shall be included, and (2) second,
any other Common Stock required to be included pursuant to any demand
registration right granted to such other Holder of Common Stock shall be
included, and (3) third Registrable Securities and any other Common Stock
requested to be included, on a pro rata basis, shall be included.
(d) Lockup Arrangements. With respect to an IPO, the Noteholder
-------------------
agrees that with respect to all shares of Common Stock received by it upon
conversion in connection with an IPO (other than any shares included as part of
the IPO pursuant to Section 5.1(a) hereof), it will agree to withhold such
shares from the market for a period (which shall in no event exceed 270 days)
that the managing underwriter reasonably determines is necessary in order to
effect the IPO (the "LOCKUP ARRANGEMENT"), provided that substantially all other
Holders of five percent (5%) or more of the Common Stock are subject to similar
Lockup Arrangements. The Noteholder agrees to enter into similar arrangements
on similar conditions with respect to registrations other than the IPO, provided
--------
that the lockup period with respect thereto shall not exceed 180 days.
-6-
<PAGE>
(e) Registrant Controls. The Company may decline to file a
-------------------
Registration Statement after giving notice to any Holder pursuant to Sections
5.1(a) or 5.1(b) above, or withdraw a Registration Statement after filing and
after such notice, but prior to the effectiveness thereof, provided that such
registrant shall promptly notify each Holder of Restricted Stock in writing of
any such action and provided further that such registrant shall hear all
reasonable expenses incurred by such Holder of Restricted Stock or otherwise in
connection with such withdrawn Registration Statement.
(f) Underwriting Agreement. In connection with any registration
----------------------
under this Section 5.1 involving an underwriting, the Company shall not be
required to include any Registrable Shares in such registration unless the
Noteholder accepts the terms of the underwriting as determined by the
underwriters selected by the Company after negotiations with the Noteholder
(provided that such terms must be consistent with this Agreement and provided,
further, that any inability of the Noteholder to agree with the underwriters
shall not restrict the ability of the Company to proceed with the registration).
5.2 Demand Registrations
--------------------
(a) Company's Right of First Offer. Prior to the Noteholder's
------------------------------
exercise of any Demand Registration right hereunder, the Noteholder shall offer
the Restricted Stock to be included in such Demand Registration for sale to the
Company, at a price equal to the average closing price of the Common Stock on
the principal exchange on which the Common Stock is traded during the ten
consecutive trading days immediately prior to the date of such offer. The
Company shall notify the Noteholder whether it accepts such offer with respect
to all (but not less than all) of such shares within fourteen (14) days of
receipt of notice thereof, and purchase such shares by delivery of immediately
available funds to the Noteholder against delivery of such shares within thirty
(30) days of acceptance thereof. In the event that the Company declines to
purchase all of the Restricted Stock that is the subject of such offer, the
Noteholder may commence a Demand Registration with respect to all such shares as
set forth below.
(b) In General. Following the occurrence of any Conversion
----------
Event and the expiration of any applicable lockup period, the Noteholder may
request by written notice to the Company that the Company file one or more
Registration Statements under the Securities Act covering the Registrable
Securities issued to the Noteholder as a result of such Conversion Event.
(c) Number of Demand Registrations. Subject to the following
------------------------------
sentences, the Company shall be obligated to prepare, file and use its best
efforts to cause a Registration Statement to become effective in connection with
each Demand Registration requested pursuant to Section 5.2(b), and to remain
effective for a period of ninety days or until the sale of all securities
registered thereunder. If (i) the Company withdraws a Registration Statement
filed pursuant to a Demand Registration prior to the effectiveness thereof, or
(ii) the sale of securities to which a Registration Statement filed pursuant to
a Demand Registration applies is not consummated other than by action of the
Selling Holder, such Registration Statement shall not be counted in determining
the number of registrations in which Noteholder's securities have been included
or otherwise adversely affect Noteholder's rights hereunder. Subject to the
preceding sentence, the Noteholder may request registration pursuant to Section
5.2(b) on two occasions.
(d) No Piggyback Registrations. The Company and other Holders
--------------------------
of Common Stock of the Company may include such securities in such Registration
if, but only if, the managing underwriter concludes that such inclusion will not
interfere with the successful marketing of all the Restricted Stock requested to
be included in such registration.
-7-
<PAGE>
(e) Managing Underwriter. The managing underwriter or
--------------------
underwriters of any underwritten public offering covered by a Demand
Registration shall be selected by the Holders of a majority of the shares of
Restricted Stock that participate in such registration, subject to the approval
of the Board of Directors of the Company (the "BOARD"), which shall not be
unreasonably withheld.
(f) Company's Right to Defer. If the Company is requested to
------------------------
effect a Demand Registration and the Company furnishes to the Holders of
Restricted Stock requesting such registration a copy of a resolution of the
Board certified by the Secretary of the Company stating that in the good faith
judgment of the Board it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed on or before the date
such filing would otherwise be required hereunder and stating the basis of such
good faith judgment, the Company shall have the right to defer such filing for a
period of not more than 90 days after receipt of the request for such
registration from the Holder or Holders of Restricted Stock requesting such
registration; provided that during such time the Company may not file a
registration statement (other than a registration statement on Form S-4 or Form
S-8 or a registration statement already approved by the Board) for securities to
be issued and sold for its own account or that of anyone other than the Holder
or Holders of Restricted Stock requesting such registration.
5.3 Indemnification
---------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless any Holder of Restricted Stock which has included
Registrable Securities in a registration statement, its officers, directors and
agents and each Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of, or are based upon, any such untrue statement or omission based upon
information furnished in writing to Company by the Holder of the Registrable
Securities or on such Holder's behalf expressly for use therein; provided, that
--------
with respect to any untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall not apply
to the extent that any such loss, claim, damage, liability or expense results
from the fact that a current copy of the prospectus was not sent or given to the
person asserting any such loss, claim, damage, liability or expense at or prior
to the written confirmation of the sale of the Registrable Securities concerned
if it is determined that it was the responsibility of the Holder of such
Registrable Securities to provide such person with a current copy of the
prospectus and such current copy of the prospectus would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The Company also
agrees to indemnify any underwriters of the Registrable Securities, their
officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Holder of
such Registrable Securities provided in this Section 5.3.
(b) Indemnification by the Holder of Restricted Stock. The
-------------------------------------------------
Holder of Restricted Stock, to the extent it is selling Registrable Securities
("SELLING HOLDER"), agrees to indemnify and hold harmless the Company, its
directors and officers and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
the Selling Holder, but only with respect to information furnished in writing by
the Selling Holder or on the Selling
-8-
<PAGE>
Holder's behalf expressly for use in any Registration Statement or Prospectus
relating to the Registrable Securities which contained a material misstatement
of fact or omission of material fact, or any amendment or supplement thereto, or
any preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its directors or officers, or any such controlling
Person, in respect of which indemnity may be sought against such Selling Holder,
such Selling Holder shall have the rights and duties given to the Company, and
the Company or its directors or officers or such controlling Person shall have
the rights and duties given to such Selling Holder, by the preceding subsection.
The Selling Holder also agrees to indemnify and hold harmless the
underwriters on substantially the same basis of that of the indemnification of
the Company provided in the preceding subsection.
5.4 Contribution. If the indemnification provided for in Section 5.3
------------
hereof is unavailable to the Company, the Selling Holder or the underwriters in
respect of any losses, claims, damages, liabilities, expenses or judgments
referred to herein, then each such indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses and judgments (i) as between the Company and the Selling Holder on the
one hand and the underwriters on the other, in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling Holder
on the one hand and the underwriters on the other from the offering of the
Registrable Securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling Holder on
the one hand and of the underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or judgments, as well as any other relevant equitable
considerations and (ii) as between the Company on the one hand and each Selling
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Holder on the one
hand and the underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
and the Selling Holder bear to the total underwriting discounts and commissions
received by the underwriters, in each case as set forth in the table on the
cover page of the prospectus. The relative fault of the Company on the one hand
and of each Selling Holder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the party's relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Noteholder agree that it would not be just and
equitable if contribution pursuant to this Section 5.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities, expenses or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.4, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
no Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the
-9-
<PAGE>
Registrable Securities of such Selling Holder were offered to the public exceeds
the amount of any damages which such Selling Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall he entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5.5 Termination. The Noteholder's registration rights under this
-----------
Section 5 shall terminate at such time as the Noteholder is permitted to sell
all shares of Restricted Stock held by it pursuant to the provisions of Rule 144
promulgated under the Securities Act during any three month period, provided
that at such time the restrictions set forth in Section 9.2 hereof are not
applicable or, if applicable, have been waived by the Company.
SECTION 6. Registration Expenses.
---------------------
(a) Demand Registrations. The Company shall bear all Registration
--------------------
Expenses incurred in connection with two Demand Registrations requested by the
Noteholder.
(b) Piggyback Registrations. The Company shall bear all Registration
-----------------------
Expenses incurred in connection with Piggyback Registrations.
(c) Expenses of Registrant. The Company will, in any event, pay its
----------------------
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with any
listing of the securities to be registered on a securities exchange, and the
fees and expenses of any Person, including special experts, retained by the
Company.
SECTION 7. Reorganization, Mergers, Consolidations or Sales of Assets or
-------------------------------------------------------------
Capital Stock. If at any time or from time to time there shall be a capital
- -------------
reorganization of the Common Stock or a merger or consolidation of the Company
with and into another corporation, or the sale of all or substantially all the
Company's properties and assets or capital stock to any other Person that does
not constitute an Acquisition Transaction, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Noteholder shall thereafter be entitled to receive, upon conversion of this
Note, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation or sale, to which it is entitled hereunder. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 7 with respect to the rights of the Noteholder after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 7 (including adjustment of the number of shares to be received by
the Noteholder upon any Conversion Event) shall be applicable after that event
as nearly equivalent as is possible.
SECTION 8. Voting Rights. Prior to any Conversion Event, this Note shall
-------------
not entitle any Holder hereof to any voting rights or other rights as a
stockholder of the Company. Subject to the conditions set forth in the last
sentence of this Section 8, upon any conversion of this Note into Common Stock,
the Holder of such Common Stock shall have all of the rights (including voting
rights) to which Holders of Common Stock are entitled. Notwithstanding the
foregoing, after the receipt by the Noteholder of Common Stock pursuant to a
Conversion Event, the Noteholder agrees to vote its shares of Common Stock in
accordance with the voting recommendations of the Board and such agreement,
subject to the proviso below, shall be binding upon any transferee of this Note
or the shares of Common Stock obtained on conversion hereof; provided, however,
-------- -------
that if the Noteholder transfers this Note or shares of Common Stock obtained
upon any conversion hereof to any person who, together with any Related Party,
owns less than five percent (5%) of the outstanding Common
-10-
<PAGE>
Stock of the Company after giving effect to such transfer, such transfer shall
not be subject to such voting restriction.
SECTION 9. Covenants.
---------
9.1 Related Party Transactions. The Company shall not, and shall not
--------------------------
permit any of its subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into, amend or make any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any Related Party involving the
payment or receipt of more than $10,000 in any such instance (each of the
foregoing, a "Related Party Transaction"), unless the Company's Board of
Directors has determined that such Related Party Transaction is on terms that
are no less favorable to the Company or the relevant subsidiary than those that
would be obtained in a comparable transaction with an unrelated Person.
9.2 Selling Restrictions. Other than sales pursuant to a
--------------------
registration statement filed under Section 5, the Noteholder agrees that it
shall not sell any Restricted Securities unless such sales would comply with the
volume limitations of paragraph (e)(1) of Rule 144 promulgated under the
Securities Act (as currently in effect), regardless of whether such limitations
would apply under the terms of such rule.
SECTION 10. Acquisition or IPO by Subsidiary.
--------------------------------
10.1 IPO by Subsidiary. If, prior to an IPO, the Company transfers
-----------------
all or substantially all of its assets to any direct or indirect wholly owned
subsidiary (a "Subsidiary") and the Subsidiary subsequently undertakes a
transaction which would constitute an IPO (a "Subsidiary IPO") if undertaken by
the Company, then, simultaneously with and as a condition to the Subsidiary IPO,
the Subsidiary shall assume this Note, provision shall be made so that the
Noteholder shall be entitled to receive, upon conversion of this Note, shares of
stock or other securities or property of the Subsidiary to which it is entitled
under this Note, and the Company shall be released from this Note.
10.2 Acquisition of Subsidiary. If, prior to an Acquisition
-------------------------
Transaction, the Company transfers all or substantially all of its assets to a
Subsidiary and the Subsidiary subsequently undertakes a transaction which would
constitute an Acquisition Transaction (a "Subsidiary Acquisition") if undertaken
by the Company, then, simultaneously with and as a condition to the Subsidiary
Acquisition, the Acquiror (as defined below) shall assume this Note, provision
shall be made so that the Noteholder shall be entitled to receive, upon
conversion of this Note, shares of stock or other securities or property of the
Acquiror to which it is entitled under this Note, and the Company shall be
released from this Note. "Acquiror" shall mean the Subsidiary or other entity,
as applicable, surviving the Subsidiary Acquisition.
SECTION 11. Miscellaneous.
-------------
11.1 Contingent Payments. The parties to this Note expressly agree
-------------------
that (a) Section 2.2 hereof shall render all payments under this Note
"contingent" for purposes of Sections 1272-1276 of the Internal Revenue Code of
1986, as amended, and the applicable Treasury Regulations thereunder, (b) the
contingencies applicable to all such payments are neither remote nor incidental
under Treas. Reg. (S) 1.1275-4(a)(5) and (c) all such contingent payments under
this Note shall be subject to recharacterization as principal and interest in
accordance with Treas. Reg. (S) 1.1275-4(c)(4) using the "test rate" specified
in Treas. Reg. (S) 1.1275-4(c)(4)(ii)(B).
11.2 Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of this Note. In lieu of any fractional shares to which
the Noteholder would otherwise be
-11-
<PAGE>
entitled, the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of Common Stock on the date of
conversion, as reasonably determined in good faith by the Board. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Common Stock issuable upon such
conversion.
11.3 Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the following purposes, (i) such number of
shares of Common Stock required to pay all dividends payable in Common Stock
which the Company by agreement is obligated, or may choose to pay, (ii) such
number of shares of Common Stock as may from time to time be required, at such
time, to be issued by the Company upon exercise of all then-exercisable warrants
and options to purchase Common Stock or the right to convert other convertible
securities into Common Stock, and (iii) such number of its shares of Common
Stock as the Board in good faith determines shall from time to time be
sufficient to effect the conversion of all outstanding convertible securities
(including this Note).
11.4 Securities Law Matters. THIS NOTE HAS NOT BEEN REGISTERED UNDER
----------------------
THE SECURITIES ACT OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, ASSIGNED OR
TRANSFERRED UNLESS SUCH SALE, ASSIGNMENT OR TRANSFER OF SUCH SHARES IS
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
11.5 Payments. Payments of any portion of the principal of this Note
--------
or interest thereon to be made in cash shall be made in lawful money of the
United States of America by check drawn on a United States commercial bank and
shall be mailed by registered mail, return receipt requested, on or prior to the
date on which such payment is due, to the Noteholder at the Noteholder's address
set forth below in Section 11.6 or, if requested by the Noteholder, by wire
transfer of immediately available funds to an account designated by the
Noteholder. The Noteholder shall be required to surrender this Note for
cancellation upon the maturity or conversion of this Note in order to receive
payment.
11.6 Notices Generally. Any notice, request, instruction or other
-----------------
document to be given hereunder by any party to the others shall be in writing
and delivered in person or by courier, delivered by facsimile transmission or
mailed by certified mail, postage prepaid, return receipt requested (such mailed
notice to be effective on the date of such receipt is acknowledged), as follows:
If to the Noteholder:
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504
Attention: Lee A. Dayton, General Manager
Real Estate and Business Development
with a copy to:
Gregory C. Bomberger, Esq.
Associate General Counsel
If to the Company:
Until December 31, 1997:
-12-
<PAGE>
445 Hamilton Avenue
White Plains, NY 10601
Attention: President
After December 31, 1997:
44 South Broadway
White Plains, NY 10601
Attention: President
with a copy to:
David A. Westenberg, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
11.7 GOVERNING LAW. THIS NOTE AND THE RESPECTIVE RIGHTS AND
-------------
OBLIGATIONS OF THE NOTEHOLDER AND THE COMPANY SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ANY
DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THE PARTIES HERETO IN CONNECTION WITH THIS
NOTE, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF
LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
PRODIGY SERVICES CORPORATION
By:___________________________
Name:
Title:
Acknowledged and Agreed:
____________________________________
By:_________________________________
Name:
Title:
-13-
<PAGE>
Exhibit 10.6
------------
PRODIGY SERVICES CORPORATION
CONTINGENT COMMON STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, PRODIGY SERVICES CORPORATION, a Delaware corporation
(the "Company"), hereby grants, subject to the terms set forth below,
____________________________ (the "Holder"), a warrant (this "Warrant") to
purchase the Warrant Shares at the Purchase Price (as such terms are defined
below):
1. Certain Definitions. This Warrant is granted pursuant to that certain
-------------------
Note Exchange Agreement dated October 20, 1997 among Prodigy, Inc., the Holder
and _________________ (the "Exchange Agreement"). Capitalized terms used but not
defined herein shall have the meanings given such terms in the 8% Contingent
Convertible Promissory Note (the "Note") of even date hereof issued by the
Company to Holder pursuant to the Exchange Agreement. In addition, the following
terms shall have the following meanings:
(a) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(b) "Warrant Shares" shall mean:
(i) if this Warrant becomes exercisable by reason of an IPO,
such number of shares of Common Stock as equals (A) seven and one-half percent
(7.5%) of the number of shares of Common Stock outstanding immediately after
such IPO (as shown in the final prospectus for such IPO) less (B) the number of
shares of Common Stock, if any, issued to the Holder upon conversion of the Note
in such IPO; or
(ii) if this Warrant becomes exercisable by reason of an
Acquisition Transaction, such number of shares of Common Stock as equals (A)
seven and one-half percent (7.5%) of the number of shares of Common Stock
outstanding immediately prior to such Acquisition Transaction less (B) the
number of shares of Common Stock, if any, issued to the Holder upon conversion
of the Note in such Acquisition Transaction.
(c) "Market Price" shall mean:
(i) if this Warrant becomes exercisable by reason of an IPO, the
price per share at which Common Stock is sold in such IPO; or
(ii) if this Warrant becomes exercisable by reason of an
Acquisition Transaction, a price per share of Common Stock equal to the fair
market value of the Common Stock immediately prior to the closing of the
Acquisition Transaction.
(d) "Purchase Price" shall mean 130% of the Market Price, as adjusted
pursuant to the terms of this Warrant.
2. Exercise and Expiration of Warrant.
----------------------------------
(a) This Warrant shall become exercisable upon the closing of the
earlier of an IPO or an Acquisition Transaction and shall remain exercisable for
a period of three years thereafter (the
<PAGE>
"Exercise Period"). If neither an IPO nor an Acquisition Transaction occurs
prior to the Maturity Date, this Warrant shall never become exercisable and
shall terminate automatically upon the Maturity Date.
(b) This Warrant may be exercised during the Exercise Period by the
Holder, in whole or in part, by surrendering this Warrant at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section 2(b)
above.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, the Company, at its expense, will cause to be issued in the name of,
and delivered to, the Holder:
(i) a certificate or certificates for the number of full Warrant
Shares to which the Holder shall be entitled upon such exercise plus, in lieu of
any fractional share to which the Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 6 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Holder
upon such exercise.
3. Adjustments.
-----------
(a) General. The Purchase Price shall be subject to adjustment from
-------
time to time pursuant to the terms of this Section 3.
(b) Diluting Issuances.
------------------
(i) Special Definitions. For purposes of this Section 3(b), the following
-------------------
definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe for,
------
purchase or otherwise acquire Common Stock or Convertible Securities, excluding
options described in Section 3(b)(i)(D) below.
(B) "Conversion Date" shall mean the first day of the Exercise
---------------
Period.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 3(b)(iii) below, deemed to be
issued) by the Company after the Conversion Date, other than shares of Common
Stock issued or issuable to employees or directors of, or consultants or
advisors to, the Company pursuant to a plan, agreement or other arrangement
approved by the Board of Directors of the Company.
-2-
<PAGE>
(ii) No Adjustment of Purchase Price. No adjustments to the Purchase
-------------------------------
Price shall be made unless the consideration per share (determined pursuant to
Section 3(b)(v)) for an Additional Share of Common Stock issued or deemed to be
issued by the Company is less than the Purchase Price in effect on the date of,
and immediately prior to, the issue of such Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock. If the Company at any time or from time to time after the Conversion
- -----
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares of Common Stock (as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 3(b)(v) hereof) of
such Additional Shares of Common Stock would be less than the Purchase Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Purchase Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, upon the exercise, conversion or exchange
thereof, the Purchase Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised Option,
the Purchase Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option shall not
be deemed issued for the purposes of any subsequent adjustment of the Purchase
Price;
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Purchase Price then in effect shall
forthwith be readjusted to such Purchase Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to Clause (B) or (D) above shall have
the effect of increasing the Purchase Price to an amount which exceeds the lower
of (i) the Purchase Price on the original adjustment date, or (ii) the Purchase
Price that would have resulted from any issuances of Additional Shares of Common
Stock between the original adjustment date and such readjustment date.
(iv) Adjustment of Purchase Price Upon Issuance of Additional Shares of
------------------------------------------------------------------
Common Stock. In the event the Company shall at any time after the Conversion
- ------------
Date issue Additional Shares of
-3-
<PAGE>
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 3(b)(iii), but excluding shares issued as a dividend or
distribution or upon a stock split or combination as provided in Section 3(c)),
without consideration or for a consideration per share less than the Purchase
Price in effect on the date of and immediately prior to such issue, then and in
such event, such Purchase Price shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) determined by multiplying such
Purchase Price by a fraction, (A) the numerator of which shall be (1) the number
of shares of Common Stock outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock which the aggregate consideration received
or to be received by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such Purchase Price; and (B) 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 that, (i) for the purpose of this Section
-------------
3(b)(iv), all shares of Common Stock issuable upon exercise or conversion of
Options or Convertible Securities outstanding immediately prior to such issue
shall be deemed to be outstanding (other than shares excluded from the
definition of "Additional Shares of Common Stock" by virtue of Section
3(b)(i)(D)), and (ii) the number of shares of Common Stock deemed issuable upon
conversion of such outstanding Options and Convertible Securities shall not give
effect to any adjustments to the conversion price or conversion rate of such
Options or Convertible Securities resulting from the issuance of Additional
Shares of Common Stock that is the subject of this calculation.
Notwithstanding the foregoing, the applicable Purchase Price shall not
be so reduced unless the amount of the reduction would reduce the Purchase Price
to less than the Market Price (for this purpose only, as proportionately
adjusted for any stock dividend, stock split, combination or other similar event
affecting the Common Stock after the Conversion Date), but any such amount shall
be carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall reduce the Purchase Price to
less than the Market Price (for this purpose only, as proportionately adjusted
for any stock dividend, stock split, combination or other similar event
affecting the Common Stock after the Conversion Date).
(v) Determination of Consideration. For purposes of this Section 3(b),
------------------------------
the consideration received by the Company for the issue of any Additional Shares
of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Company, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Company for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 3(b)(iii), relating to Options and Convertible
Securities, shall be determined by dividing
-4-
<PAGE>
(x) the total amount, if any, received or receivable
by the Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Company shall issue on more
----------------------
than one date Additional Shares of Common Stock which are comprised of shares of
the same series or class of capital stock, and such issuance dates occur within
a period of no more than 60 days, then the Purchase Price shall be adjusted only
once on account of such issuances, with such adjustment to occur upon the final
such issuance (but not later than ten days prior to the end of the Exercise
Period) and to give effect to all such issuances as if they occurred on the date
of the final such issuance.
(c) Recapitalizations. If outstanding shares of the Company's Common
-----------------
Stock shall be subdivided into a greater number of shares or a dividend in
Common Stock shall be paid in respect of Common Stock, the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(d) Mergers, etc. If there shall occur any capital reorganization or
------------
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in Section 3(c) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Registered Holder of
this Warrant shall have the right thereafter to receive upon the exercise hereof
the kind and amount of shares of stock or other securities or property which
such Registered Holder would have been entitled to receive if, immediately prior
to any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, such Registered Holder had held the number of shares of Common
Stock which were then purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the provisions set forth in
this Section 3 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(e) Adjustment in Number of Warrant Shares. When any adjustment is
--------------------------------------
required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
-5-
<PAGE>
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(f) Certificate of Adjustment. When any adjustment is required to be
-------------------------
made pursuant to this Section 3, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which this Warrant shall be exercisable
following such adjustment.
(g) Adustments for Non-Stock Dividends and Distributions. In the
----------------------------------------------------
event that the Company shall issue or pay to holders of Common Stock a dividend
or other distribution payable other than in securities of the Company, then and
in each such event provision shall he made so that Holder shall receive upon
exercise of this Warrant, in addition to the Warrant Shares issued upon
exercise, the dividend or other distribution which Holder would have received if
it had been the holder of such Warrant Shares at the time of such dividend or
other distribution.
4. Acquisition Transaction. If the Company undertakes an Acquisition
-----------------------
Transaction then, simultaneously with and as a condition to the Acquisition
Transaction, the Company shall, at its election, either (i) cause the Company
Acquiror (as defined below) to assume this Warrant and cause provision to be
made so that the Holder shall thereafter be entitled to receive, upon exercise
of this Warrant, the Warrant Shares, whereupon the Company shall be released
from this Warrant, or (ii) cause the Company Acquiror to pay the Warrant Value
(as defined below) to the Holder upon consummation of the Acquisition
Transaction. If this Warrant becomes exercisable by reason of an Acquisition
Transaction and the Company does not cause the Company Acquiror to pay the
Warrant Value to the Holder, this Warrant shall remain outstanding in accordance
with its terms and all references herein to the "Company" shall thereafter be
deemed to apply to the Company Acquiror and all references herein to the
"Warrant Shares" shall thereafter be deemed to apply to the common stock of the
Company Acquiror. "Company Acquiror" shall mean the Company or other entity, as
applicable, surviving the Acquisition Transaction. "Warrant Value" shall mean
the lesser of (i) the Maximum Security Return and (ii) the fair market value of
this Warrant immediately prior to the closing of the Acquisition Transaction
("Fair Market Value"), as determined by an investment banking firm of
established national reputation selected by the Holder and stated in a written
opinion delivered to the Company and the Holder. The fees and expenses of such
investment banking firm shall be shared equally by the Company and the Holder
and its determination of the Fair Market Value shall be conclusive and binding
on all parties in the absence of fraud or manifest error.
5. Acquisition or IPO by Subsidiary.
--------------------------------
(a) IPO by Subsidiary. If, prior to an IPO, the Company transfers
-----------------
all or substantially all of its assets to any direct or indirect wholly owned
subsidiary (a "Subsidiary") and the Subsidiary subsequently undertakes a
transaction which would constitute an IPO (a "Subsidiary IPO") if undertaken by
the Company, then, simultaneously with and as a condition to the Subsidiary IPO,
the Subsidiary shall assume this Warrant, provision shall be made so that the
Holder shall be entitled to receive, upon exercise of this Warrant, shares of
stock or other securities or property of the Subsidiary to which it is entitled
under this Warrant, and the Company shall be released from this Warrant.
(b) Acquisition of Subsidiary. If, prior to an Acquisition
-------------------------
Transaction, the Company transfers all or substantially all of its assets to a
Subsidiary and the Subsidiary subsequently undertakes a transaction which would
constitute an Acquisition Transaction (a "Subsidiary Acquisition") if undertaken
by the Company, then, simultaneously with and as a condition to the Subsidiary
Acquisition, the Company shall, at its election, either (i) cause the Subsidiary
Acquiror (as
-6-
<PAGE>
defined below) to assume this Warrant and cause provision to be made so that the
Holder shall thereafter be entitled to receive, upon exercise of this Warrant,
the Warrant Shares, whereupon the Company shall be released from this Warrant,
or (ii) cause the Subsidiary Acquiror to pay the Warrant Value (as defined
above, except that references to Acquisition Transaction shall mean Subsidiary
Acquisition) to the Holder upon consummation of the Subsidiary Acquisition. If
this Warrant becomes exercisable by reason of a Subsidiary Acquisition and the
Subsidiary does not cause the Subsidiary Acquiror to pay the Warrant Value to
the Holder, this Warrant shall remain outstanding in accordance with its terms
and all references herein to the "Company" shall thereafter be deemed to apply
to the Subsidiary Acquiror and all references herein to the "Warrant Shares"
shall thereafter be deemed to apply to the common stock of the Subsidiary
Acquiror. "Subsidiary Acquiror" shall mean the Subsidiary or other entity, as
applicable, surviving the Subsidiary Acquisition.
6. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value per share of
Common Stock, as determined in good faith by the Company's Board of Directors.
7. Registration Rights. The Warrant Shares shall be considered
-------------------
Restricted Stock for all purposes of the Note, including without limitation the
registration rights set forth in the Note.
8. Investment Representations; Legends.
-----------------------------------
(a) Representations. The Holder represents, warrants and covenants
---------------
that:
(i) Any shares purchased upon exercise of this Warrant shall be
acquired for the Holder's account for investment only and not with a view
to, or for sale in connection with, any distribution of the shares in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
or any rule or regulation under the Securities Act.
(ii) The Holder has had such opportunity as it has deemed adequate to
obtain from representatives of the Company such information as is necessary
to permit the Holder to evaluate the merits and risks of its investment in
the Company.
(iii) The Holder is able to bear the economic risk of holding shares
acquired pursuant to the exercise of this Warrant for an indefinite period.
(iv) The Holder understands that (A) the shares acquired pursuant to
the exercise of this Warrant will not be registered under the Securities
Act and are "restricted securities" within the meaning of Rule 144 under
the Securities Act, (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available and (C)
there is now no registration statement on file with the Securities and
Exchange Commission with respect to any stock of the Company and (except as
contemplated by Section 7 above) the Company has no obligation or current
intention to register any shares acquired pursuant to the exercise of this
Warrant under the Securities Act.
By making payment upon exercise of this Warrant, the Holder shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 8.
(b) Legends on Stock Certificates. Each certificate representing
-----------------------------
Warrant Shares shall bear a legend substantially in the following form:
-7-
<PAGE>
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred,
sold or otherwise disposed of in the absence of an effective registration
statement with respect to the shares evidenced by this certificate, filed
and made effective under the Securities Act of 1933, or an opinion of
counsel satisfactory to the Company to the effect that registration under
such Act is not required."
9. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
10. Voting Rights. Prior to exercise, this Warrant shall not entitle the
-------------
Holder to any voting rights or other rights as a stockholder of the Company.
Subject to the conditions set forth in the last sentence of this Section 10,
upon any exercise of this Warrant, the Holder of the Common Stock or other
securities acquired upon such exercise shall have all of the rights (including
voting rights) to which Holders of Common Stock or such other securities are
entitled. Notwithstanding the foregoing, after the receipt of Common Stock or
other securities pursuant to any exercise of this Warrant, the Holder agrees to
vote its shares of Common Stock or such other securities in accordance with the
voting recommendations of the Board of Directors of the Company and such
agreement, subject to the proviso below, shall be binding upon any transferee of
this Warrant or the shares of Common Stock or other securities obtained on
exercise hereof; provided, however, that if the Holder transfers this Warrant or
-------- -------
the shares of Common Stock or other securities obtained upon any exercise hereof
to any person who, together with any Related Party, owns less than five percent
(5%) of the outstanding Common Stock of the Company after giving effect to such
transfer, such transfer shall not be subject to such voting restriction.
11. Notices. All notices and other communications from the Company to the
-------
Holder shall be mailed by first-class certified or registered mail, postage
prepaid, to the address furnished to the Company in writing by the Holder. All
notices and other communications from the Holder or in connection herewith to
the Company shall be mailed by first-class certified or registered mail, postage
prepaid, to the Company at its principal office.
12. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
13. Change or Waiver. Any term of this Warrant may be changed or waived
----------------
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without reference to conflict
of laws principles.
Date of Grant: November 5, 1997
PRODIGY SERVICES CORPORATION
By:________________________________
Title:______________________________
-8-
<PAGE>
___________________________________
By:________________________________
Title:_____________________________
-9-
<PAGE>
Exhibit 10.7
------------
11 April, 1996
Mr. Greg Carr
Co-Chairman of the Board
International Wireless, Inc.
Dear Greg,
Please consider the following as the agreed upon structure reached between Grupo
Carso, S.A. de C.V. (GC), or any of its subsidiaries, and International
Wireless, Inc. (IW) for the purchase of IW stock by GC.
Phase 1: (February 20, 1996)
One million shares purchased directly from IW at $3.00 per share.
Phase 2: (March 11, 1996)
Two million shares purchased directly from IW at $3.00 per share.
Phase 3: (May 1, 1996)
One million shares purchased directly from IW at $3.00 per share.
Phase 4: (September 3, 1996)
Three million shares purchased directly from IW at $3.00 per
share.
In addition, GC and IW agree that GC shall be allowed to purchase an additional
three million shares from existing shareholders. In conjunction with this, GC
agrees, for a period beginning on the date hereof and ending on February 28,
2004, that it shall not, directly or indirectly, without the prior written
consent of the company, purchase, acquire or own, any securities of the Company
other than (i) any securities which may be issued with respect to the Purchaser
Shares as a result of any stock dividend, stock split, combination or other
similar recapitalization.
It is understood that at the completion of the aforementioned, GC will own ten
million IW shares representing approximately 21%-23% of the company to date, and
that these shares are full voting common shares equal in all respect to all
other common shares of the Company, and the Company has issued no other class of
stock. (I reference your letter dated 7 March, 1996.)
It is also understood that it is the intention of IW to issue an additional 3-4
million new shares of IW in the form of a "private placement" in the next six
months, and that IW will do so only after consulting with GC.
As agreed this 11th day of April, 1996.
/s/ Alejandro Escoto Cano /s/ Greg C. Carr
Attorney-in-fact Co-Chairman of the Board
Grupo Carso, S.A. de C.V. International Wireless, Inc.
<PAGE>
Exhibit 10.8
------------
FUNDING AGREEMENT
FUNDING AGREEMENT entered into as of the 12th day of May, 1996 between
International Wireless Incorporated, a Delaware corporation ("International
Wireless"), Grupo Carso, S.A. de C.V. ("Grupo Carso"), and Greg C. Carr
("Carr").
WHEREAS, International Wireless intends, directly or through a subsidiary
or parent corporation, to purchase Prodigy Services Company ("Prodigy") and to
close the acquisition of Prodigy (the "Prodigy Acquisition") on or before June
30, 1996 (the "Prodigy Closing");
WHEREAS, International Wireless desires, and is required as a condition to
entering into a definitive agreement for the Prodigy Acquisition with Prodigy's
owners, IBM and Sears, to have available to it commitments for at least U.S.
$155,000,000 to provide a portion of the necessary funds for the purchase and
operation of Prodigy;
WHEREAS, Grupo Carso and Carr are willing to provide commitments for U.S.
$155,000,000 on the terms set forth herein;
NOW, THEREFORE, for good and valuable consideration, International
Wireless, Grupo Carso and Carr hereby agree as follows:
1. Sale of Cellular Assets.
-----------------------
1.1 Option to Purchase. International Wireless hereby grants Grupo
------------------
Carso or any affiliate thereof an irrevocable right and option to purchase, on
or before July 26, 1996, its cellular telephone assets located in or associated
with the Ivory Coast and Guinea, including without limitation the definitive
communications licenses issued by the governments of the Ivory Coast and Guinea
to subsidiaries of International Wireless, and the name "International Wireless"
(collectively, the "Primary Cellular Assets"), for a purchase price of U.S.
$69,000,000. International Wireless shall use its best efforts to provide to
Grupo Carso all relevant information necessary for Grupo Carso to make a
purchase decision with respect to the Primary Cellular Assets. As soon as Grupo
Carso decides whether to purchase the Primary Cellular Assets, and in any event
prior to July 26, 1996, it shall notify International Wireless of its decision.
If Grupo Carso elects not to purchase the Primary Cellular Assets as provided
herein, International Wireless shall be free to offer or sell the Primary
Cellular Assets to any other party and at any price. Until such time as Grupo
Carso so elects not to purchase the Primary Cellular Assets, International
Wireless shall not (i) offer the Primary Cellular Assets to any other person or
(ii) engage in any negotiations with or solicit other proposals from any other
person with respect to the sale of the Primary Cellular Assets.
1.2 Additional Cellular Assets. The parties acknowledge that the
--------------------------
cellular telephone assets of International Wireless other than the Primary
Cellular Assets (the "Additional Cellular Assets") are in various stages of
business development. International Wireless intends to continue to develop the
Additional Cellular Assets at least through December 31, 1996. If Grupo Carso
(or an affiliate thereof) purchases the Primary Cellular Assets as provided
herein, Grupo Carso or any affiliate thereof shall have a right of first
refusal, from January 1, 1997 through March 31, 1997, to purchase the Additional
Cellular Assets. If Grupo Carso purchases the Primary Cellular Assets but does
not elect to exercise the foregoing right of first refusal, International
Wireless shall be free to offer or sell the Additional Cellular Assets to any
other party and at any price.
1.3 Structure of Sale. The definitive structure of the sale of the
-----------------
Primary Cellular Assets and, if applicable, the sale of Additional Cellular
Assets to Grupo Carso shall be established by
<PAGE>
mutual agreement of International Wireless and Grupo Carso, so as to minimize
adverse tax consequences to all parties and the need for governmental approvals.
2. Existing Carr Line of Credit.
----------------------------
2.1 Existing Terms. International Wireless and Carr are parties to a
--------------
Loan and Security Agreement dated November 15, 1995 (the "Existing Carr
Agreement") pursuant to which Carr agreed to provide International Wireless with
a revolving line of credit of $4,500,000, secured by all assets of International
Wireless, under which $3,000,000 is currently outstanding. Under the Existing
Carr Agreement, Carr has the right at any time prior to December 31, 1996 to
convert all advances and unpaid interest into Common Stock at $3.00 per share.
2.2 New Arrangements. International Wireless and Carr hereby agree
----------------
that, on or before the Prodigy Closing, International Wireless shall borrow the
remaining $1,500,000 available under the Existing Carr Agreement. International
Wireless and Carr also agree that, effective as of the Prodigy Closing, (i) the
$4,500,000 then outstanding under the Existing Carr Agreement, together with all
accrued and unpaid interest, shall be converted into shares of Common Stock at
$3.00 per share, and (ii) the Existing Carr Agreement (including without
limitation the security arrangements therein) shall be terminated.
3. Existing Grupo Carso Investment.
-------------------------------
3.1 Existing Terms. International Wireless and Grupo Carso are
--------------
parties to a letter agreement dated April 11, 1996 (the "Existing Grupo Carso
Agreement") pursuant to which Grupo Carso (or affiliates thereof) agreed, among
other things, to purchase 7,000,000 shares of Common Stock from International
Wireless for $3.00 per share. Under the Existing Grupo Carso Agreement, Grupo
Carso has purchased 4,000,000 shares from International Wireless to date and is
required to purchase the remaining 3,000,000 shares from International Wireless
prior to September 3, 1996.
3.2 New Arrangements. International Wireless and Grupo Carso hereby
----------------
agree that, effective as of the Prodigy Closing, (i) Grupo Carso shall purchase
the remaining 3,000,000 shares from International Wireless for $3.00 per share
under the Existing Grupo Carso Agreement and (ii) the "standstill" provisions of
the Existing Grupo Carso Agreement shall be amended to permit Grupo Carso to
purchase all shares it is entitled or obligated to purchase hereunder.
4. Private Placement. International Wireless intends to complete a
-----------------
private placement (the "Private Placement") of Common Stock simultaneously with
the Prodigy Closing. Prior to or simultaneously with the Prodigy Closing, Grupo
Carso hereby agrees to invest $5,000,000 in the Private Placement and Carr
hereby agrees to invest $2,000,000 in the Private Placement. All shares sold to
Grupo Carso and Carr in the Private Placement shall be sold on the same terms as
shares are sold to other purchasers in the Private Placement but in no event
shall the price exceed $9.00 per share.
5. Stock Put. International Wireless, Grupo Carso and Carr hereby agree
---------
to the following stock put ("Stock Put") arrangements:
5.1 Maximum Amount. The maximum amount of the Stock Put (the
--------------
"Maximum Amount") at any point in time shall be U.S. $144,500,000, reduced by
(i) the net amount realized by International Wireless, after payment of
transaction expenses, from the sale of the Primary Cellular Assets and the
Additional Cellular Assets, (ii) the net amount realized by International
Wireless, after payment of transaction expenses, from the sale of Common Stock
in the Private Placement (including the $5,000,000 and $2,000,000 to be invested
by Grupo Carso and Carr, respectively) and in all other
-2-
<PAGE>
private placements of Common Stock or other equity securities by International
Wireless, (iii) the net amount realized by International Wireless, after payment
of transaction expenses, in the initial public offering of International
Wireless (the "IPO") and (iv) the amount realized by International Wireless from
the exercise of the Warrants (as defined in Section 6 below).
5.2 Allocation of Maximum Amount. The Maximum Amount shall be
----------------------------
allocated 90% to Grupo Carso and 10% to Carr.
5.3 Stock Put. Commencing with the Prodigy Closing and at any time
---------
and from time to time thereafter until the Termination Date (as defined below),
International Wireless shall have the right to require Grupo Carso and Carr to
purchase fully-paid and nonassessable shares of Common Stock from International
Wireless, at a price of $6.00 per share, with an aggregate purchase price not to
exceed the Maximum Amount applicable to Grupo Carso and Carr, respectively. The
price of $6.00 per share shall be adjusted appropriately for any stock splits,
stock dividends or like events occurring after the date hereof. This Stock Put
may be exercised, and Grupo Carso and Carr shall purchase Common Stock from
International Wireless, as provided in the preceding sentence in one or more
transactions in the discretion of International Wireless so long as (i) the
aggregate purchase price for all sales of Common Stock pursuant to the Stock Put
does not exceed the Maximum Amount applicable to Grupo Carso and Carr,
respectively, and (ii) each exercise of the Stock Put is made in the ratio of
90% to Grupo Carso and 10% to Carr. The "Termination Date" shall be the earlier
of (i) November 12, 1997 or (ii) the closing of an underwritten public offering
of Common Stock or other equity securities in which the gross proceeds to
International Wireless exceed U.S. $25,000,000.
5.4 Exercise of Stock Put and Closings. International Wireless may
----------------------------------
exercise the Stock Put by providing written notice of each exercise to Grupo
Carso and Carr. Each exercise of the Stock Put must be authorized by a majority
of the disinterested members of the Board of Directors of International Wireless
(i.e., a majority of the members of the Board of Directors other than Carr and
the representative of Grupo Carso). Within five business days after each such
notice, Grupo Carso and Carr shall provide to International Wireless, in
immediately available funds, the purchase price for the shares subject to such
exercise of the Stock Put and shall receive in exchange therefor stock
certificates representing the shares so purchased by them respectively.
6. Warrants. In consideration of the commitments described herein,
--------
International Wireless hereby grants Grupo Carso and Carr the following warrants
(collectively, the "Warrants"): (i) Warrants to purchase 2,700,000 shares and
270,000 shares, respectively, of Common Stock for $3.00 per share at any time
after the initial closing of the Private Placement and on or before December 31,
1996 and (ii) Warrants to purchase 2,000,000 shares and 1,000,000 shares,
respectively, of Common Stock for $9.00 per share at any time after the initial
closing of the Private Placement and on or before the earlier of (a) the closing
of the IPO or (b) November 12, 1997. The respective exercise prices of the
Warrants shall be adjusted appropriately for any stock splits, stock dividends
or like events occurring after the date hereof.
7. GES Investment. In order to increase the strategic cooperation
--------------
between the parties, International Wireless shall use its best efforts to enable
Grupo Carso to invest on favorable terms in Global Enterprise Services, Inc., a
company in which International Wireless currently holds a 48% equity interest.
8. Board of Directors. Effective upon the Prodigy Closing, International
------------------
Wireless shall cause one representative of Grupo Carso (who shall be reasonably
acceptable to International Wireless) to be elected to the Board of Directors of
International Wireless.
-3-
<PAGE>
9. Representations of International Wireless. International Wireless
-----------------------------------------
represents and warrants to Grupo Carso and Carr as follows:
9.1 Authorization and Binding Nature. International Wireless has all
--------------------------------
necessary right, power and authority to enter into and perform this Agreement.
The execution, delivery and performance by International Wireless of this
Agreement has been duly authorized by all requisite corporate action and
constitutes the valid and legally binding obligation of International Wireless,
enforceable against International Wireless in accordance with its terms.
9.2 Non-Contravention. The execution, delivery and performance by
-----------------
International Wireless of this Agreement will not, with or without the giving of
notice or the passage of time or both, (a) violate the provisions of any law,
rule or regulation applicable to International Wireless, (b) violate the
provisions of the Certificate of Incorporation or By-laws, each as amended to
date, of International Wireless, or (c) violate any judgment, decree, order or
award of any court, governmental body or arbitrator applicable to International
Wireless.
10. Representations of Grupo Carso. Grupo Carso represents and warrants
------------------------------
to International Wireless and Carr as follows:
10.1 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Grupo Carso of this Agreement has been duly authorized by all
requisite corporate action and constitutes the valid and legally binding
obligation of Grupo Carso, enforceable against Grupo Carso in accordance with
its terms.
10.2 Non-Contravention. The execution, delivery and performance by
-----------------
Grupo Carso of this Agreement will not, with or without the giving of notice or
the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Grupo Carso, (b) violate the provisions of the charter
documents of Grupo Carso, or (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator applicable to Grupo Carso.
10.3 Financial Resources. Grupo Carso has sufficient liquid
-------------------
resources available to it to perform its obligations hereunder.
11. Representations of Carr. Carr represents and warrants to
-----------------------
International Wireless and Grupo Carso as follows:
11.1 Binding Nature. This Agreement constitutes the valid and
--------------
legally binding obligation of Carr, enforceable against Carr in accordance with
its terms.
11.2 Non-Contravention. The execution, delivery and performance by
-----------------
Carr of this Agreement will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Carr or (b) violate any judgment, decree, order or
award of any court, governmental body or arbitrator applicable to Carr.
11.3 Financial Resources. Carr has sufficient liquid resources
-------------------
available to him to perform his obligations hereunder.
12. Obligations Several. The obligations of Grupo Carso and Carr
-------------------
hereunder shall be several and not joint and the failure of Grupo Carso or Carr
to perform its or his obligations hereunder shall not relieve the other from its
or his obligations hereunder.
-4-
<PAGE>
13. Successors and Assigns. The parties may not assign their respective
----------------------
obligations hereunder without the prior written consent of the other parties,
except that (i) Grupo Carso may assign its funding obligations hereunder to
affiliates of Grupo Carso and (ii) International Wireless may assign its rights
and obligations hereunder to a new parent corporation of International Wireless;
provided, however, that no such assignments shall relieve Grupo Carso and
- -------- -------
International Wireless of their respective obligations hereunder. Any
assignment in contravention of this provision shall be void. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
14. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may amend or modify this Agreement by a written instrument executed by all
parties.
15. Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States and all
parties hereby consent to the jurisdiction of the courts thereof.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
INTERNATIONAL WIRELESS INCORPORATED
By: /s/
-------------------------------
Paul W. DeLacey, President/CEO
By: /s/
-------------------------------
Terrance P. Dillon, Co-Chairman
GRUPO CARSO, S.A. DE C.V.
By: /s/
------------------------------
Title:____________________________
-5-
<PAGE>
GREG C. CARR
/s/
---------------------------------
Greg C. Carr
-6-
<PAGE>
Exhibit 10.9
------------
AMENDMENT TO FUNDING AGREEMENT
AMENDMENT TO FUNDING AGREEMENT, entered into as of the 31st day of October,
1996, among Prodigy, Inc., a Delaware corporation ("Prodigy"), Carso Global
Telecom S.A. de C.V. ("Carso Global"), and Greg C. Carr ("Mr. Carr").
WHEREAS, International Wireless Incorporated ("International Wireless"),
Grupo Carso, S.A. de C.V. ("Grupo Carso"), and Mr. Carr entered into that
certain Funding Agreement dated as of May 12, 1996 (the "Funding Agreement");
WHEREAS, in June 1996, International Wireless became an indirect wholly-
owned subsidiary of Prodigy and Prodigy has assumed all of the rights and
obligations of International Wireless under the Funding Agreement;
WHEREAS, in June 1996, Carso Global was spun-off from Grupo Carso and Carso
Global has assumed all of the rights and obligations of Grupo Carso under the
Funding Agreement; and
WHEREAS, Prodigy, Carso Global and Mr. Carr wish to make certain
modifications to the Funding Agreement, as set forth herein;
NOW, THEREFORE, for good and valuable consideration, Prodigy, Carso Global
and Mr. Carr hereby agree as follows:
1. Stock Put.
---------
1.1 Reduction in Exercise Price. The exercise price of the Stock Put
---------------------------
established pursuant to Section 5 of the Funding Agreement is hereby reduced
from $6.00 per share to $3.00 per share (subject to appropriate adjustments for
any stock splits, stock dividends or like events occurring after the date
hereof). Prodigy, Carso Global and Mr. Carr hereby agree that the stock puts
exercisable for $6.00 per share are cancelled and replaced by the stock puts
exercisable for $3.00 per share as described in the preceding sentence.
1.2 Reduction in Amount. The reduction in the amount of the stock
-------------------
put pursuant to Section 5.1 of the Funding Agreement shall be applied only to
Carso Global until such time as its stock put is reduced from $125,000,000 to
$12,500,000, after which any reduction in the stock put is applied equally to
Carso Global and Mr. Carr.
2. Warrants. The Warrant granted to Mr. Carr pursuant to Section 6 of
--------
the Funding Agreement to purchase 1,000,000 shares of Common Stock for $9.00 per
share is hereby cancelled. The Warrant granted to Carso Global pursuant to
Section 6 of the Funding Agreement to purchase 2,000,000 shares of Common Stock
for $9.00 per share is hereby amended to (i) cancel 1,000,000 shares subject to
such Warrant and (ii) reduce the exercise price from $9.00 per share to $7.00
per share with respect to the remaining 1,000,000 shares.
3. Private Placement. Section 4 of the Funding Agreement is hereby
-----------------
deleted. Carso Global hereby agrees to invest $3,500,000, and Mr. Carr hereby
agrees to invest $3,500,000, in Prodigy's private placement of Common Stock at a
price of $7.00 per share (the "Private Placement"). All shares sold to Carso
Global and Mr. Carr in the Private Placement shall be sold on the same terms as
shares are sold to other purchasers in the Private Placement.
4. Stock Pledges to Secure Bank Debt.
---------------------------------
4.1 Existing Arrangements. In June 1996, Banco Inbursa ("Banco
---------------------
Inbursa") agreed to provide International Wireless with a $50,000,000 revolving
line of credit expiring on June 13, 1997
<PAGE>
(the "Banco Inbursa Revolver"). Pursuant to that certain Pledge and Escrow
Agreement (the "Pledge Agreement") dated as of June 14, 1996 among Mr. Carr,
Orient Star Holdings, a wholly-owned subsidiary of Carso Global ("Orient Star"),
Banco Inbursa and State Street Bank and Trust Company ("State Street"), Orient
Star and Mr. Carr have pledged 10,000,000 shares and 7,000,000 shares,
respectively, of Common Stock of Prodigy to secure the repayment of advances
under the Banco Inbursa Revolver.
4.2 Modifications. Carso Global and Mr. Carr hereby agree as
-------------
follows:
(a) Prodigy has the objective of obtaining a new line of credit
from a U.S. bank or other debt financing to replace the Banco Inbursa Revolver.
If Prodigy obtains a new line of credit from a U.S. bank or other debt financing
to replace the Banco Inbursa Revolver, Mr. Carr hereby agrees, until June 13,
1998, to make available for pledge 10,000,000 shares of Prodigy Common Stock to
secure such debt.
(b) Prodigy hereby assumes all of the rights and obligations of
International Wireless under the Banco Inbursa Revolver.
(c) Prodigy, Carso Global and Mr. Carr will take such actions,
and execute and deliver such documents, as may be necessary or appropriate to
implement this Section 4.2.
5. Ratification. Prodigy's assumption of all of the rights and
------------
obligations of International Wireless under the Funding Agreement is hereby
ratified and confirmed. Carso Global's assumption of all of the rights and
obligations of Grupo Carso under the Funding Agreement is hereby ratified and
confirmed. Except as modified hereby, the Funding Agreement is hereby ratified
and confirmed in all respects.
6. Obligations Several. The obligations of Carso Global and Mr. Carr
-------------------
hereunder shall be several and not joint and the failure of Carso Global or Mr.
Carr to perform its or his obligations hereunder shall not relieve the other
from its or his obligations hereunder.
7. Entire Agreement. This Amendment represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may further amend or modify the Funding Agreement by a written instrument
executed by all parties.
8. Severability. Any provision of this Amendment which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Amendment invalid,
illegal or unenforceable in any other jurisdiction.
9. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States and all
parties hereby consent to the jurisdiction of the courts thereof.
10. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
-2-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
By: /s/
---------------------------------
Paul W. DeLacey, President/CEO
CARSO GLOBAL TELECOM S.A. DE C.V.
By: /s/
--------------------------------
Title:______________________________
GREG C. CARR
/s/
------------------------------------
Greg C. Carr
-3-
<PAGE>
Exhibit 10.10
-------------
AMENDMENT NO. 2 TO FUNDING AGREEMENT
AMENDMENT No. 2 TO FUNDING AGREEMENT, entered into as of the 18th day of
March, 1997, among Prodigy, Inc., a Delaware corporation ("Prodigy"), Carso
Global Telecom, S.A. de C.V. ("Carso Global"), and Greg C. Carr ("Mr. Carr").
WHEREAS, Prodigy, Carso Global and Mr. Carr are parties to a certain
Funding Agreement dated as of May 12, 1996 and amended as of October 31, 1996
(as so amended, the "Funding Agreement"); and
WHEREAS, Prodigy, Carso Global and Mr. Carr wish to make certain
modifications to the Funding Agreement, as set forth herein;
NOW, THEREFORE, for good and valuable consideration, Prodigy, Carso Global
and Mr. Carr hereby agree as follows:
1. Stock Put.
---------
1.1 Exercise of Put. Prodigy hereby requests, and Mr. Carr and Carso
---------------
Global hereby agree to, the immediate exercise of $80 million of the stock put,
allocated $65 million to Carso Global and $15 million to Mr. Carr. Within two
business days after the date hereof, Mr. Carr and Carso Global shall provide
such respective amounts to Prodigy in immediately available funds or, in the
case of Mr. Carr, through the cancellation of indebtedness owed by Prodigy to
Mr. Carr. Of the $65 million to be provided by Carso Global, $40 million shall
be paid directly by Carso Global to Banco Inbursa, S.A. on Prodigy's behalf in
repayment of $40 million of the indebtedness owed by Prodigy to Banco Inbursa,
S.A., and the remaining $25 million shall be paid to Prodigy.
1.2 HSR Act.
-------
(a) Prodigy, Mr. Carr and Carso Global, as promptly as
practicable after the date hereof, shall prepare and file all Notification and
Report Forms and related material that they are required to file with the U.S.
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with respect to the exercise of the stock put described
in Section 1.1 above, and shall use their respective best efforts to obtain an
early termination of the applicable waiting period and shall make any further
filings or information submissions pursuant thereto that may be necessary,
proper or advisable. Prodigy shall pay all applicable filing fees under the HSR
Act.
(b) The proceeds of the stock put specified in Section 1.1 above
shall be treated as interest-free loans to Prodigy until the waiting period
pursuant to the HSR Act shall have been terminated or expired. Upon the
termination or expiration of the waiting period pursuant to the HSR Act, the
proceeds of the stock put specified in Section 1.1 above shall automatically
convert into Common Stock and Prodigy shall promptly issue and deliver to Mr.
Carr and Carso Global stock certificates representing such shares of Common
Stock.
(c) If the waiting period pursuant to the HSR Act has not
terminated or expired on or before the 60th day after Prodigy, Mr. Carr and
Carso Global have each filed all Notification and Report Forms and related
material required to be filed under the HSR Act, the proceeds of the stock put
specified in Section 1.1 above shall automatically convert into the following:
(i) with respect to Carso Global, a loan of $65 million from Carso Global to
Prodigy on terms that are identical to the terms of the existing loan of $50
million from Banco Inbursa, S.A. to Prodigy
<PAGE>
(originally made to International Wireless Incorporated), including without
limitation the stock pledges from Mr. Carr and Carso Global (originally from
Orient Star Holdings) to secure such loan, except that the amount of the loan
shall be $65 million and not $50 million and the lender shall be Carso Global
and not Banco Inbursa, S.A., and (ii) with respect to Mr. Carr, a loan of $15
million from Mr. Carr to Prodigy on terms that are identical to the terms of the
existing loans of $15 million from Mr. Carr to Prodigy.
1.3 Remaining Put. The parties agree that after the exercise of the
-------------
stock put specified in Section 1.1 above the remaining stock put shall be $45
million, allocated $39 million to Carso Global and $6 million to Mr. Carr. The
remaining stock put shall not be reduced by the proceeds of any exercise of the
Warrants described in Section 2.2 below but shall be subject to reduction as
provided in Section 5.1 of the Funding Agreement. All exercises and reductions
of the remaining put shall be allocated in the ratio of 13/15 to Carso Global
and 2/15 to Mr. Carr. The remaining stock put shall expire on the date (the
"Expiration Date") which is the earlier of (i) May 12, 1998 or (ii) the closing
of an underwritten public offering of Common Stock or other equity securities in
which the gross proceeds to Prodigy exceed U.S. $25,000,000.
2. Warrants.
--------
2.1 Cancellation of Warrant. The Warrant held by Carso Global to
-----------------------
purchase 1,000,000 shares of Common Stock for $7.00 per share is hereby
cancelled.
2.2 Grant of Warrants. Prodigy hereby grants Carso Global and Mr.
-----------------
Carr the right to purchase 13,000,000 shares and 2,000,000 shares, respectively,
of Common Stock for $3.00 per share ("Warrants") at any time and from time to
time, in whole or in part, after the date hereof and prior to or on the
Expiration Date. The exercise price of such Warrants shall be adjusted
appropriately for any stock splits, stock dividends or like events occurring
after the date hereof.
3. Board Arrangements. During the period specified below, unless
------------------
otherwise agreed in writing by Mr. Carr and Carso Global, (i) Carso Global shall
have the right to designate 60% of the directors of Prodigy (rounded to the
nearest whole number), (ii) Mr. Carr shall have the right to designate 40% of
the directors of Prodigy (rounded to the nearest whole number), (iii) Mr. Carr
agrees to vote all shares over which he (or any affiliate of Mr. Carr) exercises
voting control so as to vote for the election of the directors designated by
Carso Global, (iv) Carso Global agrees to vote all shares over which it (or any
affiliate of Carso Global) exercises voting control so as to vote for the
election of the directors designated by Mr. Carr and (v) the Board of Directors
of Prodigy (the "Board") shall consist only of the directors designated in
accordance with this Section 3. The size of the Board, which currently is five,
shall be increased as necessary to effectuate the Board arrangements described
in this Section 3. The Board arrangements described in this Section 3 shall
commence on the termination or expiration of the waiting period pursuant to the
HSR Act and shall expire on the earlier of (i) one year after Prodigy's initial
public offering with gross proceeds to Prodigy of at least U.S. $25,000,000 or
(ii) the tenth anniversary of the date hereof.
4. Effectiveness and Termination. This Amendment shall become effective
-----------------------------
upon execution by Prodigy, Mr. Carr and Carso Global. If the waiting period
pursuant to the HSR Act has not terminated or expired on or before the 60th day
after Prodigy, Mr. Carr and Carso Global have each filed all Notification and
Report Forms and related material required to be filed under the HSR Act, this
Amendment and all of the terms and provisions hereof (including without
limitation the Warrants) shall terminate, except that the provisions of Sections
1.2 and 4-10 shall remain in effect.
5. Ratification. Except as modified hereby, the Funding Agreement is
------------
hereby ratified and confirmed in all respects.
-2-
<PAGE>
6. Obligations Several. The obligations of Carso Global and Mr. Carr
-------------------
hereunder shall be several and not joint and the failure of Carso Global or Mr.
Carr to perform its or his obligations hereunder shall not relieve the other
from its or his obligations hereunder.
7. Entire Agreement. This Amendment represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may further amend or modify the Funding Agreement by a written instrument
executed by all parties.
8. Severability. Any provision of this Amendment which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Amendment invalid,
illegal or unenforceable in any other jurisdiction.
9. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States and all
parties hereby consent to the jurisdiction of the courts thereof.
10. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
By: /s/
----------------------------------
Title:________________________________
CARSO GLOBAL TELECOM, S.A. DE C.V.
By: /s/
----------------------------------
Title:________________________________
GREG C. CARR
/s/
--------------------------------------
Greg C. Carr
-3-
<PAGE>
Exhibit 10.11
-------------
PUT EXERCISE AGREEMENT
PUT EXERCISE AGREEMENT, entered into as of the 6th day of May, 1997, among
Prodigy, Inc., a Delaware corporation ("Prodigy"), Carso Global Telecom, S.A. de
C.V. ("Carso Global"), and Greg C. Carr ("Mr. Carr").
WHEREAS, Prodigy, Carso Global and Mr. Carr are parties to a certain
Funding Agreement dated as of May 12, 1996, as amended pursuant to the Amendment
to Funding Agreement dated as of October 31, 1996 and further amended pursuant
to the Amendment No. 2 to Funding Agreement dated as of March 18, 1997 (as so
amended, the "Funding Agreement"); and
WHEREAS, Prodigy, Carso Global and Mr. Carr wish to confirm certain aspects
of the put exercises, as set forth herein;
NOW, THEREFORE, for good and valuable consideration, Prodigy, Carso Global
and Mr. Carr hereby agree as follows:
1. Stock Put.
---------
1.1 Exercise of Put. The parties confirm that the stock put was
---------------
exercised, effective May 6, 1997, for $6,500,000 with respect to Carso Global
and for $1,000,000 with respect to Mr. Carr. Prodigy confirms that it has
received the amounts of $6,500,000 and $1,000,000 from Carso Global and Mr.
Carr, respectively.
1.2 HSR Act.
-------
(a) Prodigy, Mr. Carr and Carso Global, as promptly as
practicable after the date hereof, shall prepare and file all Notification and
Report Forms and related material that they are required to file with the U.S.
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), with respect to the exercise of the stock put effected
on or about March 18, 1997 and the stock put described in Section 1.1 above, and
shall use their respective best efforts to obtain an early termination of the
applicable waiting period and shall make any further filings or information
submissions pursuant thereto that may be necessary, proper or advisable. Prodigy
shall pay all applicable filing fees under the HSR Act.
(b) The proceeds of the exercise of the stock put effected on or
about March 18, 1997 and the stock put specified in Section 1.1 above, and the
proceeds of any other exercises of the stock put prior to the termination or
expiration of the applicable waiting period pursuant to the HSR Act, shall be
treated as interest-free loans to Prodigy until the applicable waiting period
pursuant to the HSR Act shall have been terminated or expired. Upon the
termination or expiration of the applicable waiting period pursuant to the HSR
Act, the proceeds of the exercise of the stock put effected on or about March
18, 1997 and the stock put specified in Section 1.1 above, and the proceeds of
any other exercises of the stock put prior to the termination or expiration of
the applicable waiting period pursuant to the HSR Act, shall automatically
convert into Common Stock, and Prodigy shall promptly issue and deliver to Mr.
Carr and Carso Global stock certificates representing such shares of Common
Stock.
(c) If the applicable waiting period pursuant to the HSR Act has
not terminated or expired on or before the 60th day after Prodigy, Mr. Carr and
Carso Global have each filed all Notification and Report Forms and related
material required to be filed under the HSR Act,
<PAGE>
the proceeds of the exercise of the stock put effected on or about March 18,
1997 and the stock put specified in Section 1.1 above, and the proceeds of any
other exercises of the stock put prior to the termination or expiration of the
applicable waiting period pursuant to the HSR Act, shall automatically convert
into the following: (i) with respect to Carso Global, a loan from Carso Global
to Prodigy on terms that are identical to the terms of the existing loan of
$50,000,000 from Banco Inbursa, S.A. to Prodigy (originally made to
International Wireless Incorporated), including without limitation the stock
pledges from Mr. Carr and Carso Global (originally from Orient Star Holdings) to
secure such loan, except that the amount of the loan shall equal the aggregate
amount of stock put exercises with respect to Carso Global which have not been
converted into Common Stock and the lender shall be Carso Global, and (ii) with
respect to Mr. Carr, a loan to Prodigy in an aggregate amount equal to the stock
put exercises with respect to Mr. Carr which have not been converted into Common
Stock, which loan shall due and payable on demand.
2. Ratification. Except as modified hereby, the Funding Agreement is
------------
hereby ratified and confirmed in all respects.
3. Obligations Several. The obligations of Carso Global and Mr. Carr
-------------------
hereunder shall be several and not joint and the failure of Carso Global or Mr.
Carr to perform its or his obligations hereunder shall not relieve the other
from its or his obligations hereunder.
4. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may further amend or modify the Funding Agreement by a written instrument
executed by all parties.
5. Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
6. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States and all
parties hereby consent to the jurisdiction of the courts thereof.
7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
By: /s/
------------------------------
Title:____________________________
-2-
<PAGE>
CARSO GLOBAL TELECOM, S.A. DE C.V.
By: /s/
------------------------------
Title:____________________________
GREG C. CARR
/s/
----------------------------------
Greg C. Carr
-3-
<PAGE>
Exhibit 10.12
-------------
INTERIM FINANCING AGREEMENT
AGREEMENT, entered into as of the 30th day of October, 1997, among Prodigy,
Inc., a Delaware corporation (the "Company"), Carso Global Telecom, S.A. de C.V.
("Carso Global"), and Greg C. Carr ("Mr. Carr").
WHEREAS, the Company plans to make a rights offering (the "Rights
Offering") to all stockholders of the Company entitling each stockholder to
purchase one share of Common Stock for each one share held;
WHEREAS, the Company requires funding in order to complete the
restructuring of the 8% Contingent Convertible Promissory Notes (the "Contingent
Notes") held by IBM and Sears as well as funding to finance its operations prior
to completion of the Rights Offering; and
WHEREAS, Carso Global and Mr. Carr hold warrants (the "$3.00 Warrants") to
purchase 13,000,000 shares and 2,000,000 shares, respectively, of Common Stock
for $3.00 per share, exercisable prior to the earlier of (i) May 12, 1998 or
(ii) the closing of an underwritten public offering of Common Stock or other
equity securities in which the gross proceeds to the Company exceed U.S.
$25,000,000;
NOW, THEREFORE, for good and valuable consideration, the Company, Carso
Global and Mr. Carr hereby agree as follows:
1. Commitments of Carso Global.
---------------------------
(a) Pursuant to a letter agreement dated October 20, 1997, Carso
Global agreed, in order to complete the restructuring of the Contingent Notes,
to (i) arrange for the issuance of a $4,000,000 letter of credit (the "Carso
LC") in favor of IBM and Sears and (ii) arrange for $7,964,578 to be advanced to
the Company.
(b) Carso Global arranged for Banco Inbursa, S.A. ("Banco Inbursa")
to advance $13,750,000 to the Company, of which (i) $7,964,578 was advanced
pursuant to the arrangements described in Section 1(a) above, and (ii)
$3,750,000 is secured by Mr. Carr's pledge of 7,500,000 shares of Common Stock.
(c) Carso Global intends to purchase its maximum allocation of
49,543,822 shares of Common Stock in the Rights Offering. Payment for the
shares purchased by Carso Global shall be made as follows: (i) Carso Global
shall be credited with $4,000,000 by reason of the issuance of the Carso LC,
(ii) Carso Global shall pay $13,750,000 directly to Banco Inbursa on the
Company's behalf in repayment of $13,750,000 of indebtedness owed by the Company
to Banco Inbursa and (iii) Carso Global shall pay the remainder to the Company.
(d) From and after the issuance of the Carso LC, Carso Global shall
pay the Company each quarter an amount equal to $333,333 less any draws on the
Carso LC during such quarter until the entire $4,000,000 has been paid to the
Company or drawn under the Carso LC.
2. Commitments of Mr. Carr. Mr. Carr agrees to (i) lend the Company up
-----------------------
to $2,250,000 (of which $250,000 has been loaned as of the date hereof) without
interest, (ii) pledge 7,500,000 shares of Common Stock to secure advances of
$3,750,000 from Banco Inbursa to the Company until the earlier of the initial
closing of the Rights Offering or December 15, 1997, and (iii) convert his
advances to the Company into Common Stock at $1.00 per share promptly after the
Rights Offering is commenced.
<PAGE>
3. Warrant Repricing. In consideration of the interim financing
-----------------
commitments made by Carso Global and Mr. Carr, the exercise price of the $3.00
Warrants is hereby reduced from $3.00 per share to $1.00 per share.
4. Obligations Several. The obligations of Carso Global and Mr. Carr
-------------------
hereunder shall be several and not joint and the failure of Carso Global or Mr.
Carr to perform its or his obligations hereunder shall not relieve the other
from its or his obligations hereunder.
5. Entire Agreement. This Amendment represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may further amend or modify the Funding Agreement by a written instrument
executed by all parties.
6. Severability. Any provision of this Amendment which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Amendment invalid,
illegal or unenforceable in any other jurisdiction.
7. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States and all
parties hereby consent to the jurisdiction of the courts thereof.
8. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
/s/
By:-------------------------------
Title:____________________________
CARSO GLOBAL TELECOM, S.A. DE C.V.
/s/
By:-------------------------------
Title:____________________________
-2-
<PAGE>
GREG C. CARR
/s/
------------------------------
Greg C. Carr
-3-
<PAGE>
Exhibit 10.13
-------------
STOCK PURCHASE AGREEMENT
AGREEMENT effective as of the 24th day of July, 1998 between Prodigy, Inc.,
a Delaware corporation ("Prodigy"), and Telefonos de Mexico, S.A. de C.V., a
Mexican corporation ("Telmex").
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Purchase and Sale of the Shares. Prodigy agrees to issue and sell to
-------------------------------
Telmex, and Telmex agrees to purchase from Prodigy, 24,500,000 shares (the
"Shares") of Common Stock, $.01 par value per share ("Common Stock"), of Prodigy
for a purchase price of U.S. $2.00 per Share for an aggregate purchase price of
U.S. $49,000,000.
2. Use of Proceeds. Prodigy will use the proceeds from the sale of the
---------------
Shares, together with the proceeds from the contemporaneous sale of 5,500,000
shares to Carso Global Telecom, S.A. de C.V., a Mexican corporation ("Carso
Global"), as follows: U.S. $26,400,000 to repay indebtedness owed to Banco
Inbursa, S.A. and the balance for general corporate purposes.
3. The Initial Closing. The closing (the "Initial Closing") of the
-------------------
transactions contemplated hereby shall take place as soon as practicable after
satisfaction or waiver of the conditions specified in Sections 7 and 8 below.
4. HSR Act.
-------
(a) Prodigy and Telmex, as promptly as practicable after the date
hereof, shall prepare and file all Notification and Report Forms and related
material that they are required to file with the U.S. Federal Trade Commission
and the Antitrust Division of the U.S. Department of Justice under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
with respect to the transactions contemplated hereby, and shall use their
respective best efforts to obtain an early termination of the applicable waiting
period and shall make any further filings or information submissions pursuant
thereto that may be necessary, proper or advisable. Prodigy shall pay all
applicable filing fees under the HSR Act.
(b) At the Initial Closing, the following events shall occur:
(i) Telmex shall pay Prodigy the amount of U.S. $49,000,000 by
wire transfer or other form of payment acceptable to Prodigy; and
(ii) Prodigy shall execute and deliver to Telmex a Promissory
Note substantially in the form attached hereto as Exhibit A (the "Note").
---------
(c) Subject to Section 4(d), the final closing shall occur upon the
termination or expiration of the applicable waiting period pursuant to the HSR
Act (the "Final Closing"). At the Final Closing, Prodigy shall issue and
deliver to Telmex an original stock certificate representing the Shares and
Telmex shall return to Prodigy the original Note marked "cancelled" in return
for the transfer of the Shares to Telmex.
(d) Notwithstanding the foregoing, in the event that the Note is not
repaid in full on or before the 60th day after Telmex has filed its Notification
and Report Form and any related material required to be filed by it under the
HSR Act in accordance with Section 4(a), the Note shall bear interest at an
annual rate of nine percent (9%), accruing from the Initial Closing. The Note
may be prepaid in
<PAGE>
whole or in part, at any time and from time to time at the election of Prodigy,
but in any event the principal amount of the Note, together with accrued
interest, shall be due in full on December 31, 1999.
5. Representations and Warranties of Prodigy. Prodigy represents and
-----------------------------------------
warrants as follows:
5.1 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Prodigy of this Agreement and the Note has been duly authorized
by all requisite corporate action and each of this Agreement and the Note
constitutes the valid and legally binding obligation of Prodigy, enforceable
against Prodigy in accordance with its terms.
5.2 Non-Contravention. The execution, delivery and performance by
-----------------
Prodigy of this Agreement and the Note will not, with or without the giving of
notice or the passage of time or both, (a) violate the provisions of any law,
rule or regulation applicable to Prodigy, (b) violate the provisions of the
charter documents of Prodigy, (c) violate any judgment, decree, order or award
of any court, governmental body or arbitrator applicable to Prodigy, or (d)
conflict with or violate any agreement to which Prodigy is a party or by which
it is bound.
5.3 Capitalization. The authorized capital stock of Prodigy consists
--------------
of 280,000,000 shares of Common Stock, of which 150,225,727 shares are issued
and outstanding (excluding the shares to be issued to Carso Global as
contemplated by Section 2 above), and 10,000,000 shares of Preferred Stock, $.01
par value per share, of which no shares are issued or outstanding. All of the
issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. When issued, sold and
delivered against payment therefor in accordance with the provisions of this
Agreement, the Shares will be duly and validly issued, fully paid and
nonassessable. There are not outstanding any warrants, options or other rights
granted by Prodigy to purchase or acquire any capital stock of Prodigy, except
for (a) options granted under Prodigy's 1996 Stock option Plan to purchase up to
12,500,000 shares of Common Stock, (b) warrants granted by Prodigy to purchase
an aggregate of 437,389 shares of Common Stock and (c) the rights of IBM and
Sears under the 8% Contingent Convertible Promissory Notes and the Contingent
Common Stock Purchase Warrants, each dated November 5, 1997.
5.4 Financial Statements. Prodigy has furnished to Telmex (i) the
--------------------
unaudited consolidated financial statements of Prodigy and its subsidiaries as
of and for periods ended December 31, 1997 (the "Prodigy Financial Statements")
and (ii) the unaudited financial statements of Prodigy Services Corporation, a
wholly-owned subsidiary of Prodigy ("PSC"), as of and for periods ended June 30,
1998 (the "PSC Financial Statements"). The Prodigy Financial Statements are
complete and correct in all material respects, present fairly the consolidated
financial condition and results of operations of Prodigy and its subsidiaries as
at the dates and for the periods indicated, and have been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied,
except that the Prodigy Financial Statements are subject to normal year-end
audit adjustments which in the aggregate will not be material. The PSC
Statements are complete and correct in all material respects, present fairly the
financial condition and results of operations of PSC as at the dates and for the
periods indicated, and have been prepared in accordance with GAAP consistently
applied, except that the PSC Financial Statements are subject to normal year-end
audit adjustments which in the aggregate will not be material and do not contain
footnotes normally contained in audited financial statements.
6. Representations and Warranties of Telmex. Telmex represents and
----------------------------------------
warrants as follows:
6.1 Investment. Telmex is acquiring the Shares for its own account
----------
for investment, not for resale to any other person and not with a view to or in
connection with any resale or distribution. Telmex understands that the Shares
have not been registered under the securities laws of the United States or any
other jurisdiction and cannot be transferred or resold except as permitted
pursuant to a valid
-2-
<PAGE>
registration statement or an applicable exemption from registration. Telmex
acknowledges that Prodigy has not made any representations with respect to
registration of the Shares under applicable securities laws, that there can be
no assurance that there will be any market for the Common Stock in the
foreseeable future and that, as a result, Telmex must be prepared to bear the
economic risk of its investment for an indefinite period of time. Telmex
understands that the certificate representing the Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the issuer is obtained to the effect
that such registration is not required."
6.2 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Telmex of this Agreement has been duly authorized by all
requisite corporate action and this Agreement constitutes the valid and legally
binding obligation of Telmex, enforceable against Telmex in accordance with its
terms.
6.3 Non-Contravention. The execution, delivery and performance by
-----------------
Telmex of this Agreement will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Telmex, (b) violate the provisions of the charter
documents of Telmex, (c) violate any judgment, decree, order or award of any
court, governmental body or arbitrator applicable to Telmex, or (d) conflict
with or violate any agreement to which Telmex is a party or by which it is
bound.
6.4 Control by Carso Global. Carso Global controls Telmex (within
-----------------------
the meaning of the Securities Act of 1933, as amended, and the rules and
regulations thereunder).
6.5 Access to Information. Telmex has substantial knowledge and
---------------------
experience in making investment decisions of this type and is capable of
evaluating the merits and risks of its investment in Prodigy. Carso Global has
made available to Telmex all documents and other information necessary for
Telmex to evaluate the merits and risks of its investment in Prodigy. Prodigy
has made available to Telmex all documents requested and has provided answers to
all of its questions relating to an investment in Prodigy. In evaluating the
suitability of an investment in Prodigy, Telmex has not relied upon any
representations (whether oral or written) other than as set forth herein.
Telmex has had an opportunity to discuss this investment with representatives of
Prodigy and to ask questions of them. Telmex understands that an investment in
Prodigy involves significant risks.
7. Telmex's Conditions to Closing. The obligation of Telmex to
------------------------------
consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Telmex:
7.1 Representations and Covenants. The representations and
-----------------------------
warranties of Prodigy contained in this Agreement shall be true as of the
Initial Closing and Prodigy shall have performed the covenants and agreements to
be performed by it under this Agreement at or prior to the Initial Closing and
at or prior to the Final Closing, as applicable.
7.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required (except for any approval required under the HSR Act, which
is addressed by Section 4 above).
7.3 Execution of Note. Prodigy shall have executed and delivered the
-----------------
Note.
-3-
<PAGE>
7.4 Closing of Carr/Telmex Agreement. The Initial Closing (as
--------------------------------
defined therein) under the Stock Purchase Agreement of even date hereof among
Telmex, Prodigy, Carso Global and Greg C. Carr shall have been consummated.
7.5 Closing of DeLacey/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Stock Purchase Agreement of even date hereof among
Telmex, Prodigy, Carso Global and Rolling Breeze, LLC (Paul W. DeLacey) shall
have been consummated.
8. Prodigy's Conditions to Closing. The obligation of Prodigy to
-------------------------------
consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Prodigy:
8.1 Representations and Covenants. The representations and
-----------------------------
warranties of Telmex contained in this Agreement shall be true as of the Initial
Closing and Telmex shall have performed the respective covenants and agreements
to be performed by them under this Agreement at or prior to the Initial Closing
and at or prior to the Final Closing, as applicable.
8.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required (except for any approval required under the HSR Act, which
is addressed by Section 4 above).
8.3 Fairness Opinion. Prodigy's Board of Directors shall have
----------------
received a written opinion, from an investment banking firm of its selection and
satisfactory to Prodigy's Board of Directors in form and substance, to the
effect that the terms of the purchase and sale of the Shares as contemplated
hereby are fair, from a financial point of view, to Prodigy.
9. Termination of Agreement.
------------------------
9.1 By Prodigy. Prodigy may terminate this Agreement, without
----------
liability to Telmex, if the Initial Closing has not occurred by July 24, 1998
due to the failure of any of the conditions specified in Section 8 hereof to be
satisfied.
9.2 By Telmex. Telmex may terminate this Agreement, without
---------
liability to Prodigy, if the Initial Closing has not occurred by July 24, 1998
due to the failure of any of the conditions specified in Section 7 hereof to be
satisfied.
10. Notices. Any notices or other communications required or permitted
-------
hereunder shall be in the English language and shall be sufficiently given if
delivered personally or sent by telecopy or via a reputable express courier,
with charges prepaid, to the address set forth below or to such other address of
which the parties may have given notice. Unless otherwise specified herein,
such notices or other communications shall be deemed received one business day
after personal delivery or delivery by telecopy, or three business days after
being sent, if sent by reputable express courier.
If to Prodigy:
44 South Broadway
White Plains, NY 10601
Attention: President
with a copy to:
David A. Westenberg, Esq.
-4-
<PAGE>
Hale and Dorr LLP
60 State Street
Boston, MA 02109
If to Telmex:
Parque Via 190
Officina 1016
Colonia Cuauhtemoc
Mexico City, Mexico 06599
with a copy to:
Nicolas Grabar, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
11. Successors and Assigns. No party may assign its obligations hereunder
----------------------
without the prior written consent of the other party, except that Telmex may
assign its rights and obligations hereunder to any affiliate of Telmex. Telmex
intends to cause its wholly-owned subsidiary, Sercotel, S.A. de C.V., to
purchase the Shares hereunder. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Any assignment in contravention of this
provision shall be void.
12. Entire Agreement. This Agreement, including Exhibit A attached
---------------- ---------
hereto, represents the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
and written and all contemporaneous oral negotiations, commitments and
understandings between such parties. The parties may amend or modify this
Agreement, in such manner as may be agreed upon, only by a written instrument
executed by the parties hereto.
13. Expenses. Each party shall pay its own expenses in connection with
--------
this Agreement and the transactions contemplated hereby; provided, however, that
-------- -------
Prodigy shall reimburse Telmex for any filing fees paid by Telmex in connection
with the filings to be made by Telmex under the HSR Act, pursuant to Section
4(a) above.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States, without
reference to conflict of laws principles, and the parties hereby consent to the
jurisdiction of the courts of the State of Delaware.
15. Section Headings. The section headings are for the convenience of the
----------------
parties and in no way alter, modify, amend, limit or restrict the contractual
obligations of the parties.
16. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
/s/
By:---------------------------------
Title:______________________________
TELEFONOS DE MEXICO, S.A. DE C.V.
/s/
By:---------------------------------
Title:______________________________
-6-
<PAGE>
Exhibit 10.14
-------------
STOCK PURCHASE AGREEMENT
AGREEMENT effective as of the 24th day of July, 1998 between Prodigy, Inc.,
a Delaware corporation ("Prodigy"), and Carso Global Telecom, S.A. de C.V., a
Mexican corporation ("Carso Global").
In consideration of the mutual promises hereinafter set forth and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereby agree as follows:
1. Purchase and Sale of the Shares.
-------------------------------
(a) At the Closing (as defined in Section 3 below), Prodigy shall
issue and sell to Carso Global, and Carso Global shall purchase from Prodigy,
5,500,000 shares (the "Shares") of Common Stock, $.01 par value per share
("Common Stock"), of Prodigy for a purchase price of U.S. $2.00 per Share for an
aggregate purchase price of U.S. $11,000,000.
(b) The purchase price for the Shares shall be paid to Prodigy at the
Closing by wire transfer or other form of payment acceptable to Prodigy.
2. Use of Proceeds. Prodigy will use the proceeds from the sale of the
---------------
Shares, together with the proceeds from the contemporaneous sale of 24,500,000
shares to Telefonos de Mexico, S.A. de C.V., a Mexican corporation ("Telmex"),
as follows: U.S. $26,400,000 to repay indebtedness owed to Banco Inbursa, S.A.
and the balance for general corporate purposes.
3. The Closing. The closing (the "Closing") of the transactions
-----------
contemplated hereby shall take place as soon as practicable after satisfaction
or waiver of the Closing conditions specified in Sections 6 and 7 below.
4. Representations and Warranties of Prodigy. Prodigy represents and
-----------------------------------------
warrants as follows:
4.1 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Prodigy of this Agreement has been duly authorized by all
requisite corporate action and this Agreement constitutes the valid and legally
binding obligation of Prodigy, enforceable against Prodigy in accordance with
its terms.
4.2 Non-Contravention. The execution, delivery and performance by
-----------------
Prodigy of this Agreement will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Prodigy, (b) violate the provisions of the charter
documents of Prodigy, (c) violate any judgment, decree, order or award of any
court, governmental body or arbitrator applicable to Prodigy, or (d) conflict
with or violate any agreement to which Prodigy is a party or by which it is
bound.
4.3 Capitalization. The authorized capital stock of Prodigy consists
--------------
of 280,000,000 shares of Common Stock, of which 150,225,727 shares are issued
and outstanding (excluding the shares to be issued to Telmex as contemplated by
Section 2 above), and 10,000,000 shares of Preferred Stock, $.01 par value per
share, of which no shares are issued or outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable. When issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement, the Shares
will be duly and validly issued, fully paid and nonassessable. There are not
outstanding any warrants, options or other rights granted by Prodigy to purchase
or acquire any capital stock of Prodigy, except for (a) options granted under
Prodigy's 1996 Stock option Plan to purchase up to 12,500,000 shares of Common
Stock, (b) warrants granted by Prodigy to purchase an
<PAGE>
aggregate of 437,389 shares of Common Stock and (c) the rights of IBM and Sears
under the 8% Contingent Convertible Promissory Notes and the Contingent Common
Stock Purchase Warrants, each dated November 5, 1997.
4.4 Financial Statements. Prodigy has furnished to Carso Global (i)
--------------------
the unaudited consolidated financial statements of Prodigy and its subsidiaries
as of and for periods ended December 31, 1997 (the "Prodigy Financial
Statements") and (ii) the unaudited financial statements of Prodigy Services
Corporation, a wholly-owned subsidiary of Prodigy ("PSC"), as of and for periods
ended June 30, 1998 (the "PSC Financial Statements"). The Prodigy Financial
Statements are complete and correct in all material respects, present fairly the
consolidated financial condition and results of operations of Prodigy and its
subsidiaries as at the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied, except that the Prodigy Financial Statements are subject
to normal year-end audit adjustments which in the aggregate will not be
material. The PSC Statements are complete and correct in all material respects,
present fairly the financial condition and results of operations of PSC as at
the dates and for the periods indicated, and have been prepared in accordance
with GAAP consistently applied, except that the PSC Financial Statements are
subject to normal year-end audit adjustments which in the aggregate will not be
material and do not contain footnotes normally contained in audited financial
statements.
5. Representations and Warranties of Carso Global. Carso Global
----------------------------------------------
represents and warrants as follows:
5.1 Investment. Carso Global is acquiring the Shares for its own
----------
account for investment, not for resale to any other person and not with a view
to or in connection with any resale or distribution. Carso Global understands
that the Shares have not been registered under the securities laws of the United
States or any other jurisdiction and cannot be transferred or resold except as
permitted pursuant to a valid registration statement or an applicable exemption
from registration. Carso Global acknowledges that Prodigy has not made any
representations with respect to registration of the Shares under applicable
securities laws, that there can be no assurance that there will be any market
for the Common Stock in the foreseeable future and that, as a result, Carso
Global must be prepared to bear the economic risk of its investment for an
indefinite period of time. Carso Global understands that the certificate
representing the Shares shall bear a legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the issuer is obtained to the effect
that such registration is not required."
5.2 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Carso Global of this Agreement has been duly authorized by all
requisite corporate action and this Agreement constitutes the valid and legally
binding obligation of Carso Global, enforceable against Carso Global in
accordance with its terms.
5.3 Non-Contravention. The execution, delivery and performance by
-----------------
Carso Global of this Agreement will not, with or without the giving of notice or
the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Carso Global, (b) violate the provisions of the charter
documents of Carso Global, (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator applicable to Carso Global, or (d)
conflict with or violate any agreement to which Carso Global is a party or by
which it is bound.
5.4 Control of Telmex. Carso Global controls Telmex (within the
-----------------
meaning of the Securities Act of 1933, as amended, and the rules and regulations
thereunder).
-2-
<PAGE>
5.5 Access to Information. Carso Global has substantial knowledge
---------------------
and experience in making investment decisions of this type and is capable of
evaluating the merits and risks of its investment in Prodigy. Prodigy has made
available to Carso Global all documents and other information necessary for
Carso Global to evaluate the merits and risks of its investment in Prodigy.
Prodigy has made available to Carso Global all documents requested and has
provided answers to all of its questions relating to an investment in Prodigy.
In evaluating the suitability of an investment in Prodigy, Carso Global has not
relied upon any representations (whether oral or written) other than as set
forth herein. Carso Global has had an opportunity to discuss this investment
with representatives of Prodigy and to ask questions of them. Carso Global
understands that an investment in Prodigy involves significant risks.
6. Carso Global's Conditions to Closing. The obligation of Carso Global
------------------------------------
to consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Carso
Global:
6.1 Representations and Covenants. The representations and
-----------------------------
warranties of Prodigy contained in this Agreement shall be true as of the
Closing and Prodigy shall have performed the covenants and agreements to be
performed by it under this Agreement at or prior to the Closing.
6.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required.
6.3 Closing of Carr/Telmex Agreement. The Initial Closing (as
--------------------------------
defined therein) under the Stock Purchase Agreement of even date hereof among
Prodigy, Carso Global, Greg C. Carr and Telmex, shall have been consummated.
6.4 Closing of DeLacey/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Stock Purchase Agreement of even date hereof among
Telmex, Prodigy, Carso Global and Rolling Breeze, LLC (Paul W. DeLacey) shall
have been consummated.
6.5 Closing of Prodigy/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Stock Purchase Agreement of even date hereof between
Telmex and Prodigy shall have been consummated.
7. Prodigy's Conditions to Closing. The obligation of Prodigy to
-------------------------------
consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Prodigy:
7.1 Representations and Covenants. The representations and
-----------------------------
warranties of Carso Global contained in this Agreement shall be true as of the
Closing and Carso Global shall have performed the respective covenants and
agreements to be performed by them under this Agreement at or prior to the
Closing.
7.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required.
7.3 Fairness Opinion. Prodigy's Board of Directors shall have
----------------
received a written opinion, from an investment banking firm of its selection and
satisfactory to Prodigy's Board of Directors in form and substance, to the
effect that the terms of the purchase and sale of the Shares as contemplated
hereby are fair, from a financial point of view, to Prodigy.
-3-
<PAGE>
8. Termination of Agreement.
------------------------
8.1 By Prodigy. Prodigy may terminate this Agreement, without
----------
liability to Carso Global, if the Closing has not occurred by July 24, 1998 due
to the failure of any of the conditions specified in Section 7 hereof to be
satisfied.
8.2 By Carso Global. Carso Global may terminate this Agreement,
---------------
without liability to Prodigy, if the Closing has not occurred by July 24, 1998
due to the failure of any of the conditions specified in Section 6 hereof to be
satisfied.
9. Notices. Any notices or other communications required or permitted
-------
hereunder shall be in the English language and shall be sufficiently given if
delivered personally or sent by telecopy or via a reputable express courier,
with charges prepaid, to the address set forth below or to such other address of
which the parties may have given notice. Unless otherwise specified herein,
such notices or other communications shall be deemed received one business day
after personal delivery or delivery by telecopy, or three business days after
being sent, if sent by reputable express courier.
If to Prodigy:
44 South Broadway
White Plains, NY 10601
Attention: President
with a copy to:
David A. Westenberg, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
If to Carso Global:
Paseo de las Palmas
#736, Col. Lomas de Chapultepec
Mexico City, Mexico 11000
with a copy to:
Rafael Robles Miaja
Franck, Galicia, Duclaud y Robles, S.C.
Paseo de las Palmas
#405, Col. Lomas de Chapultepec
Mexico City, Mexico 11000
10. Successors and Assigns. No party may assign its obligations hereunder
----------------------
without the prior written consent of the other party, except that Carso Global
may assign its rights and obligations hereunder to any affiliate of Carso
Global. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Any assignment in contravention of this provision shall be void.
11. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and
-4-
<PAGE>
written and all contemporaneous oral negotiations, commitments and
understandings between such parties. The parties may amend or modify this
Agreement, in such manner as may be agreed upon, only by a written instrument
executed by the parties hereto.
12. Expenses. Each party shall pay its own expenses in connection with
--------
this Agreement and the transactions contemplated hereby.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware in the United States, without
reference to conflict of laws principles, and the parties hereby consent to the
jurisdiction of the courts of the State of Delaware.
14. Section Headings. The section headings are for the convenience of the
----------------
parties and in no way alter, modify, amend, limit or restrict the contractual
obligations of the parties.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
PRODIGY, INC.
/s/
By:-----------------------------
Title:__________________________
CARSO GLOBAL TELECOM, S.A. DE C.V.
/s/
By:-----------------------------
Title:__________________________
-5-
<PAGE>
Exhibit 10.15
-------------
STOCK PURCHASE AGREEMENT
AGREEMENT effective as of the 24th day of July, 1998 among Greg C. Carr, an
individual residing in Cambridge, Massachusetts ("Carr"), Prodigy, Inc., a
Delaware corporation ("Prodigy"), Telefonos de Mexico, S.A. de C.V., a Mexican
corporation ("Telmex"), and Carso Global Telecom, S.A. de C.V., a Mexican
corporation ("Carso Global").
WHEREAS, concurrently with the execution of this Agreement, Telmex and
Prodigy are entering into a Stock Purchase Agreement (the "Prodigy/Telmex
Agreement") pursuant to which, among other things, Telmex has agreed to make an
equity investment in Prodigy; and
WHEREAS, it is a condition to the execution of the Prodigy/Telmex Agreement
that this Agreement be entered into and it is a condition to the execution of
this Agreement that the Prodigy/Telmex Agreement be entered into;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of the Shares.
-------------------------------
(a) Carr agrees to sell to Telmex, and Telmex agrees to purchase from
Carr, 13,000,000 shares (the "Shares") of Prodigy's Common Stock, $.01 par value
per share ("Common Stock"), owned by Carr. Telmex acknowledges that Carr
intends to acquire up to 3,000,000 shares of Common Stock from members of his
family and/or other persons at U.S. $2.00 per share in order to permit Carr to
sell 13,000,000 shares to Telmex. The purchase price for the Shares shall be
U.S. $2.00 per Share, the same price to be paid by Telmex for its equity
investment in Prodigy pursuant to the Prodigy/Telmex Agreement.
(b) If, at any time prior to the Initial Closing (as defined in
Section 2 below) or within 180 days after the Initial Closing, Telmex, Carso
Global, Prodigy or any of their respective affiliates shall purchase or sell, or
agree to purchase or sell, any shares of Common Stock to or with third parties
in a Qualifying Transaction (as defined below) at a price in excess of U.S.
$2.00 per Share (as proportionately adjusted for any stock splits, stock
dividends or similar events affecting the Common Stock, the "Base Price"),
Telmex shall (i) promptly give written notice thereof to Carr and (ii) within
three business days following the closing of the Qualifying Transaction, pay to
Carr the amount per Share by which the price in the Qualifying Transaction
exceeds the Base Price (the "Differential") multiplied by the number of Shares;
provided, however, that in no event shall the Differential required to be paid
- -------- -------
to Carr exceed U.S. $.40 per Share (as proportionately adjusted for any stock
splits, stock dividends or similar events affecting the Common Stock) regardless
of the price at which shares are sold in a Qualifying Transaction. For this
purpose, a "Qualifying Transaction" shall mean a sale or purchase, or a series
of related sales or purchases, of Common Stock involving an aggregate of at
least U.S. $500,000, but in no event shall include (i) transactions under
employee stock or option plans or (ii) transfers without consideration among or
between Telmex, Carso Global or Prodigy and any of their respective affiliates.
Any amounts due to Carr under this Section 1(b) which remain unpaid after three
business days following the closing of the Qualifying Transaction shall bear
interest at an annual rate of 9% until paid, and Telmex agrees to indemnify Carr
for any damages and expenses, including fees and disbursements of counsel,
suffered or incurred by Carr in enforcing Telmex's obligations under this
Section 1(b).
<PAGE>
2. The Initial Closing. The initial closing (the "Initial Closing") of
-------------------
the transactions contemplated hereby shall take place as soon as practicable
after satisfaction or waiver of the conditions specified in Sections 11, 12 and
13 below.
3. Prodigy Board and Indemnification Arrangements.
----------------------------------------------
(a) Effective as of the Initial Closing, the Prodigy Board voting
arrangements specified in Section 3 of that certain Amendment No. 2 to Funding
Agreement dated as of March 18, 1997 among Prodigy, Carso Global and Carr are
hereby terminated.
(b) Effective as of the Initial Closing, Carr hereby resigns as
Chairman of the Board of Prodigy and as a member of the Compensation Committee
of Prodigy's Board of Directors. As of the Initial Closing, Carr's annual
director fee of U.S. $135,000 shall terminate. From and after the Initial
Closing, Carr shall not be entitled to any further compensation for service as a
director (other than on the same basis, if any, as other non-employee directors
of Prodigy from time to time), and Prodigy shall not be required to provide Carr
with any health insurance or other employee benefits of any kind.
(c) Until the first anniversary of the Initial Closing or such earlier
date as Carr shall cease to own any Common Stock or resign (the "Board
Termination Date"), Carr shall be entitled to continue to serve as a member of
the Board of Directors of Prodigy and its subsidiaries. Each of Carso Global
and Telmex agrees to vote all shares over which they (or their respective
affiliates) exercise voting control, and otherwise to use their respective best
efforts, so as to effectuate the preceding sentence. Upon the Board Termination
Date, Carr shall resign as a member of the Board of Directors of Prodigy and its
subsidiaries.
(d) For a period of six years after the Initial Closing, Prodigy shall
not amend the indemnification provisions of its Certificate of Incorporation or
By-Laws as now existing in any manner which limits, restricts or otherwise
adversely affects the rights afforded to Carr under such provisions.
(e) Prodigy agrees, at Prodigy's expense, to continue to defend and
indemnify Carr in any threatened, pending or completed lawsuits filed by or on
behalf of any of Malcome Haynes, Lightwave, Ltd., Comstar Cellular Network, Inc.
(Nevada) or Comstar Cellular Network, Inc. (Texas) or their respective
affiliates, subsidiaries, successors, heirs or assigns, now or hereafter
existing (collectively, "Haynes Claimants"), and any appeals therefrom, with
counsel selected by Prodigy (currently Hale and Dorr LLP) and reasonably
acceptable to Carr.
(f) Prodigy shall not settle or compromise any claim, or default or
otherwise fail to oppose entry of judgment against it on any claim, asserted or
which may be asserted against it by or on behalf of any of the Haynes Claimants,
without the consent of Carr, which shall not be unreasonably withheld or
delayed. Carr shall not settle or compromise any claim, or default or otherwise
fail to oppose entry of judgment against him on any claim, asserted or which may
be asserted against him by or on behalf of any of the Haynes Claimants, without
the consent of Prodigy, which shall not be unreasonably withheld or delayed.
4. Termination of Prior Stock Pledge.
---------------------------------
(a) As of the Initial Closing (as defined in Section 2 above), Carso
Global shall cause to be terminated Carr's pledge of 10,000,000 shares of Common
Stock (the "Pledged Shares") to secure Prodigy's obligations to Banco Inbursa,
S.A. ("Banco Inbursa") pursuant to that certain Pledge and Escrow Agreement
dated as of June 14, 1996 among Carr, Orient Star Holdings, Banco Inbursa and
State Street Bank and Trust Company ("State Street"). On or before the Initial
Closing or as soon as practicable
-2-
<PAGE>
thereafter, Carso Global shall cause the original stock power relating to the
Pledged Shares previously executed by Carr and delivered to State Street to be
returned to Carr.
(b) On or before the Initial Closing or as soon as practicable
thereafter, Carso Global shall cause the original stock certificate representing
the Pledged Shares to be delivered to Telmex to be held pursuant to the Pledge
Agreement (as defined in Section 6(b)(iii) below).
(c) From and after the Initial Closing, Carr shall have no obligation
to guaranty, or to pledge any shares or provide any other collateral to secure,
Prodigy's obligations to Banco Inbursa or any other entity.
5. Funding Obligations.
-------------------
(a) Prodigy and Carso Global acknowledge and agree that Carr has fully
performed his funding obligations to Prodigy pursuant to (i) that certain
Funding Agreement dated as of May 12, 1996 among Prodigy (as successor to
International Wireless Incorporated), Carso Global (as successor to Grupo Carso,
S.A. de C.V.) and Carr, as amended by that certain Amendment to Funding
Agreement dated as of October 31, 1996 among Prodigy, Carso Global and Carr and
that certain Amendment No. 2 to Funding Agreement dated as of March 18, 1997
among Prodigy, Carso Global and Carr, and (ii) that certain Interim Financing
Agreement dated as of October 30, 1997 among Prodigy, Carso Global and Carr.
(b) From and after the Initial Closing, Carr shall have no obligation
to provide any funding, whether debt or equity, to Prodigy.
6. HSR Act.
-------
(a) Prodigy, Carr and Telmex, as promptly as practicable after the
date hereof, shall prepare and file all Notification and Report Forms and
related material that they are required to file with the U.S. Federal Trade
Commission and the Antitrust Division of the U.S. Department of Justice under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the transactions contemplated hereby, and shall use their
respective best efforts to obtain an early termination of the applicable waiting
period and shall make any further filings or information submissions pursuant
thereto that may be necessary, proper or advisable. Prodigy shall pay all
applicable filing fees under the HSR Act.
(b) At the Initial Closing, the following events shall occur:
(i) Telmex shall pay Carr the amount of U.S. $26,000,000 by wire
transfer to one or more bank accounts designated by Carr prior to the Initial
Closing;
(ii) Carr shall execute and deliver to Telmex a Promissory Note
substantially in the form attached hereto as Exhibit A (the "Note"); and
---------
(iii) Carr and Telmex shall execute and deliver a Pledge Agreement
substantially in the form attached hereto as Exhibit B (the "Pledge Agreement"),
---------
pursuant to which Carr pledges and delivers to Telmex 13,000,000 shares of
Common Stock, together with executed stock powers, and grants to Telmex a first
lien on, and security interest in, the Shares to secure payment of the Note. The
Shares subject to the Pledge Agreement shall include the Pledged Shares which
Carso Global shall cause to be delivered to Telmex to be held pursuant to the
terms of the Pledge Agreement.
-3-
<PAGE>
(c) Subject to Section 6(d), the final closing shall occur upon the
termination or expiration of the applicable waiting period pursuant to the HSR
Act (the "Final Closing"). At the Final Closing, the following events shall
occur:
(i) The Pledge Agreement shall terminate and the Shares shall be
transferred to Telmex in full satisfaction of Carr's obligations under the Note
(it being agreed that Carr shall have the right to deliver and transfer to
Telmex at the Final Closing any 13,000,000 shares of Common Stock then held by
him, and not necessarily the 13,000,000 shares of Common Stock held under the
Pledge Agreement, and the 13,000,000 shares of Common Stock so delivered by Carr
shall constitute the "Shares" for all purposes of this Agreement); and
(ii) Telmex shall return to Carr the original Note marked
"cancelled" in return for the transfer of the Shares to Telmex.
(d) Notwithstanding the foregoing, in the event that the Note is not
repaid in full on or before the 60th day after Telmex has filed its Notification
and Report Form and any related material required to be filed by it under the
HSR Act in accordance with Section 6(a), the Pledge Agreement shall continue in
effect and the Note shall bear interest at an annual rate of nine percent (9%),
accruing from the Initial Closing. The Note may be prepaid in whole or in part,
at any time and from time to time at the election of Carr, but in any event the
principal amount of the Note, together with accrued interest, shall be due in
full on December 31, 1999.
7. Co-Sale Right.
-------------
(a) If, at any time after the Initial Closing and on or before the
earlier of (i) the first anniversary of the Initial Closing or (ii) the
completion of Prodigy's initial public offering of Common Stock (the "IPO"),
Telmex or Carso Global (a "Seller") propose to sell (other than in connection
with the IPO) to third parties any Common Stock held by them, the Seller shall
notify Carr of the number of shares to be sold and the price and other terms of
such sale (the "Seller Notice"). By giving notice to the Seller within 20 days
after the Seller Notice, Carr shall have the right, but not the obligation, to
sell, at the price and on the other terms set forth in the Seller Notice, a
portion of the shares to be sold in such sale in the same proportion as the
number of shares of Common Stock then owned by Carr bears to the number of
shares of Common Stock then owned by the Seller. Carr covenants and agrees not
to exercise his co-sale right with respect to any shares of Common Stock which
are subject to warrants granted by Carr.
(b) Any sale of Common Stock by a Seller without compliance with this
Section 7 shall be void and shall transfer no right, title or interest in or to
any such shares to the purported transferee. The proceeds of any sale made by a
Seller without compliance with this Section 7 shall be deemed to be held in
constructive trust in such amount as would have been paid to Carr if the Seller
had complied with this Section 7. The contents of such constructive trust shall
be delivered to Carr upon surrender of the appropriate number of shares of
Common Stock.
8. Representations and Warranties of Carr. Carr represents and warrants
--------------------------------------
as follows:
8.1 Shares.
------
(a) At the date hereof, Carr owns 20,413,766 shares of Common
Stock, of which 187,500 shares are subject to outstanding warrants granted by
Carr. All such shares are owned by Carr beneficially and of record, except for
the pledge of the Pledged Shares to be released at the Final Closing. At the
date hereof, Carr holds no warrants or other rights to acquire any capital stock
from Prodigy.
-4-
<PAGE>
(b) Except for the pledge of the Pledged Shares, (i) Carr is the
legal record beneficial owner of the Shares and (ii) Carr has good and, subject
to compliance with applicable securities laws, marketable title to the Shares,
free and clear of any and all liens, encumbrances, pledges and other adverse
claims whatsoever. Following purchase of the Shares by Telmex, Telmex will have
good and marketable title to the Shares, free and clear of all liens,
encumbrances, pledges and other adverse claims whatsoever, other than
restrictions on transfer imposed by applicable securities laws.
8.2 Authorization and Binding Nature. Carr has all necessary right,
--------------------------------
power and authority to enter into and perform this Agreement and the Pledge
Agreement and to execute and deliver the Note and perform his obligations
thereunder. Each of this Agreement, the Pledge Agreement and the Note
constitutes the valid and legally binding obligation of Carr, enforceable
against Carr in accordance with its terms.
8.3 Non-Contravention. The execution, delivery and performance by
-----------------
Carr of this Agreement, the Pledge Agreement and the Note, and the purchase and
sale of the Shares contemplated hereby, will not, with or without the giving of
notice or the passage of time or both, (a) violate the provisions of any law,
rule or regulation applicable to Carr, (b) violate any judgment, decree, order
or award of any court, governmental body or arbitrator applicable to Carr, or
(c) conflict with or violate any agreement to which Carr is a party or by which
he is bound.
9. Representations and Warranties of Telmex. Telmex represents and
----------------------------------------
warrants as follows:
9.1 Investment. Telmex is acquiring the Shares for its own account
----------
for investment, not for resale to any other person and not with a view to or in
connection with any resale or distribution. Telmex understands that the Shares
have not been registered under the securities laws of the United States or any
other jurisdiction and cannot be transferred or resold except as permitted
pursuant to a valid registration statement or an applicable exemption from
registration. Telmex acknowledges that neither Prodigy nor Carr has made any
representations with respect to registration of the Shares under applicable
securities laws, that there can be no assurance that there will be any market
for the Common Stock in the foreseeable future and that, as a result, Telmex
must be prepared to bear the economic risk of its investment for an indefinite
period of time. Telmex understands that the certificate representing the Shares
shall bear a legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the issuer is obtained to the effect
that such registration is not required."
9.2 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Telmex of this Agreement and the Pledge Agreement has been duly
authorized by all requisite corporate action and this Agreement constitutes the
valid and legally binding obligation of Telmex, enforceable against Telmex in
accordance with its terms.
9.3 Non-Contravention. The execution, delivery and performance by
-----------------
Telmex of this Agreement and the Pledge Agreement will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to Telmex, (b) violate the provisions of
the charter documents of Telmex, (c) violate any judgment, decree, order or
award of any court, governmental body or arbitrator applicable to Telmex, or (d)
conflict with or violate any agreement to which Telmex is a party or by which it
is bound.
9.4 Control by Carso Global. Carso Global controls Telmex (within
-----------------------
the meaning of the Securities Act of 1933, as amended, and the rules and
regulations thereunder).
-5-
<PAGE>
9.5 Access to Information. Telmex has substantial knowledge and
---------------------
experience in making investment decisions of this type and is capable of
evaluating the merits and risks of its investment in Prodigy. Carso Global has
made available to Telmex all documents and other information necessary for
Telmex to evaluate the merits and risks of its investment in Prodigy. Prodigy
has made available to Telmex all documents requested and has provided answers to
all of its questions relating to an investment in Prodigy. In evaluating the
suitability of an investment in Prodigy, Telmex has not relied upon any
representations (whether oral or written) other than as set forth herein.
Telmex has had an opportunity to discuss this investment with representatives of
Prodigy and to ask questions of them. Telmex understands that an investment in
Prodigy involves significant risks.
10. Representations and Warranties of Carso Global. Carso Global
----------------------------------------------
represents and warrants as follows:
10.1 Authorization and Binding Nature. The execution, delivery and
--------------------------------
performance by Carso Global of this Agreement has been duly authorized by all
requisite corporate action and this Agreement constitutes the valid and legally
binding obligation of Carso Global, enforceable against Carso Global in
accordance with its terms.
10.2 Non-Contravention. The execution, delivery and performance by
-----------------
Carso Global of this Agreement will not, with or without the giving of notice or
the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to Carso Global, (b) violate the provisions of the charter
documents of Carso Global, (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator applicable to Carso Global, or (d)
conflict with or violate any agreement to which Carso Global is a party or by
which it is bound.
10.3 Representations of Telmex. All representations and warranties of
-------------------------
Telmex set forth herein are true and correct.
11. Carr's Conditions to Closing. The obligation of Carr to consummate
----------------------------
the transactions contemplated hereby is subject to the following conditions
only, each of which may be waived in the sole discretion of Carr:
11.1 Representations and Covenants. The representations and
-----------------------------
warranties of Telmex and Carso Global contained in this Agreement shall be true
as of the Initial Closing and Telmex and Carso Global shall have performed the
respective covenants and agreements to be performed by them under this Agreement
at or prior to the Initial Closing and at or prior to the Final Closing, as
applicable.
11.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required (except for any approval required under the HSR Act, which
is addressed by Section 6 above).
11.3 Closing of Prodigy/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Prodigy/Telmex Agreement shall have been consummated.
11.4 Registration Rights Agreement. Prodigy and Carr shall have
-----------------------------
executed and delivered the Registration Rights Agreement attached hereto as
Exhibit C.
- ---------
12. Telmex's Conditions to Closing. The obligation of Telmex to
------------------------------
consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Telmex:
-6-
<PAGE>
12.1 Representations and Covenants. The representations and
-----------------------------
warranties of Carr and Carso Global contained in this Agreement shall be true as
of the Initial Closing and Carr and Carso Global shall have performed the
respective covenants and agreements to be performed by them under this Agreement
at or prior to the Initial Closing and at or prior to the Final Closing, as
applicable.
12.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required (except for any approval required under the HSR Act, which
is addressed by Section 6 above).
12.3 Execution of Pledge Agreement and Note. Carr shall have executed
--------------------------------------
and delivered the Pledge Agreement and the Note.
12.4 Closing of Prodigy/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Prodigy/Telmex Agreement shall have been consummated.
13. Prodigy's Conditions to Closing. The obligation of Prodigy to
-------------------------------
consummate the transactions contemplated hereby is subject to the following
conditions only, each of which may be waived in the sole discretion of Prodigy:
13.1 Representations and Covenants. The representations and
-----------------------------
warranties of Carr, Telmex and Carso Global contained in this Agreement shall be
true as of the Initial Closing and each of Carr, Telmex and Carso Global shall
have performed the respective covenants and agreements to be performed by them
under this Agreement at or prior to the Initial Closing and at or prior to the
Final Closing, as applicable.
13.2 Government Approvals. The transactions contemplated hereby shall
--------------------
have been approved by all United States government agencies from whom such
approval is required (except for any approval required under the HSR Act, which
is addressed by Section 6 above).
13.3 Closing of Prodigy/Telmex Agreement. The Initial Closing (as
-----------------------------------
defined therein) under the Prodigy/Telmex Agreement shall have been consummated.
14. Termination of Agreement.
------------------------
14.1 By Carr. Carr may terminate this Agreement, without liability to
-------
any party hereto, if the Initial Closing has not occurred by July 24, 1998 due
to the failure of any of the conditions specified in Section 11 hereof to be
satisfied.
14.2 By Telmex. Telmex may terminate this Agreement, without
---------
liability to any party hereto, if the Initial Closing has not occurred by July
24, 1998 due to the failure of any of the conditions specified in Section 12
hereof to be satisfied.
15. Notices. Any notices or other communications required or permitted
-------
hereunder shall be in the English language and shall be sufficiently given if
delivered personally or sent by telecopy or via a reputable express courier,
with charges prepaid, to the address set forth below or to such other address of
which the parties may have given notice. Unless otherwise specified herein,
such notices or other communications shall be deemed received one business day
after personal delivery or delivery by telecopy, or three business days after
being sent, if sent by reputable express courier.
If to Carr:
The Residences at Charles Square
-7-
<PAGE>
975 Memorial Drive
Cambridge, MA 02138
with a copy to:
Cameron Read, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
If to Prodigy:
44 South Broadway
White Plains, NY 10601
Attention: President
with a copy to:
David A. Westenberg, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
If to Telmex:
Parque Via 190
Officina 1016
Colonia Cuauhtemoc
Mexico City, Mexico 06599
with a copy to:
Nicolas Grabar, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
If to Carso Global:
Paseo de las Palmas
#736, Col. Lomas de Chapultepec
Mexico City, Mexico 11000
with a copy to:
Rafael Robles Miaja
Franck, Galicia, Duclaud y Robles, S.C.
Paseo de las Palmas
#405, Col. Lomas de Chapultepec
Mexico City, Mexico 11000
-8-
<PAGE>
16. Successors and Assigns. No party may assign its obligations hereunder
----------------------
without the prior written consent of the other parties, except that Telmex may
assign its rights and obligations hereunder to any affiliate of Telmex or Carso
Global. Telmex intends to cause its wholly-owned subsidiary, Sercotel, S.A. de
C.V., to purchase the Shares hereunder. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Any assignment in contravention of
this provision shall be void.
17. Entire Agreement. This Agreement, including Exhibit A, Exhibit B and
---------------- --------- ---------
Exhibit C attached hereto, represents the entire understanding and agreement
- ---------
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written and all contemporaneous oral negotiations,
commitments and understandings between such parties. The parties may amend or
modify this Agreement, in such manner as may be agreed upon, only by a written
instrument executed by the parties hereto.
18. Expenses. Each party shall pay its own expenses in connection with
--------
this Agreement and the transactions contemplated hereby; provided, however, that
-------- -------
Prodigy shall reimburse Telmex for any filing fees paid by Telmex in connection
with the filings to be made by Telmex under the HSR Act, pursuant to Section
6(a) above.
19. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts in the United
States, without reference to conflict of laws principles, and the parties hereby
consent to the jurisdiction of the courts of the Commonwealth of Massachusetts.
20. Section Headings. The section headings are for the convenience of the
----------------
parties and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
21. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
22. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of and on the date first above written.
GREG C. CARR
/s/
-----------------------------------
Greg C. Carr
PRODIGY, INC.
/s/
By:--------------------------------
Title:_____________________________
-9-
<PAGE>
TELEFONOS DE MEXICO, S.A. DE C.V.
/s/
By:-------------------------------------
Title:__________________________________
CARSO GLOBAL TELECOM, S.A. DE C.V.
/s/
By:-------------------------------------
Title:__________________________________
-10-
<PAGE>
Exhibit 10.16
-------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is made as of the 24th day of July,
1998, by and between Prodigy, Inc., a Delaware corporation (the "Company"), and
Gregory C. Carr, an individual residing in Cambridge, Massachusetts ("Carr").
WHEREAS, the Company, Carr, Telefonos de Mexico, S.A de C.V., a Mexican
corporation ("Telmex"), and Carso Global Telecom, S.A. de C.V., a Mexican
corporation ("Carso Global"), have entered into a Stock Purchase Agreement of
even date hereof (the "Purchase Agreement") and pursuant thereto Carr has agreed
to sell to Telmex shares of the Company's Common Stock; and
WHEREAS, Telmex and Carso Global hold, after the transactions contemplated
by the Purchase Agreement, a majority of the issued and outstanding stock of the
Company, and Carr holds a minority of such stock; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement by Carr that the Company grant certain
rights to Carr to secure registration under the Securities Act of 1933, as
amended (the "1933 Act"), of certain sales to the public of shares of the
Company's Common Stock held by Carr;
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used herein, the following terms shall have
-------------------
the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Registration Expenses" means the expenses described in Section 5.
---------------------
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of Common Stock of
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registrable Shares" means (i) the Shares, (ii) any shares of Common
------------------
Stock of the Company acquired by the Shareholders after the date of this
Agreement, and (iii) any other shares of Common Stock of the Company issued in
respect of such shares (because of
<PAGE>
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement, Section 4(1) or Section 4(2) of the Securities Act or
Rule 144 under the Securities Act (or any combination thereof), or any sale in
any manner to a person or entity which, by virtue of Section 14 hereof, is not
entitled to the rights provided hereby.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Shares" shall mean the shares of Common Stock of the Company owned by
------
the Shareholders.
"Shareholders" means Carr and any persons or entities to whom the
------------
rights granted hereunder are transferred by Carr or his successors or assigns
pursuant to Section 13 hereof.
2. [This Section intentionally left blank]
3. Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration Statement at
any time and from time to time in which Telmex or Carso Global or any of their
affiliates propose to sell any shares of Common Stock of the Company, it will,
prior to such filing, give written notice to the Shareholders of its intention
to do so and, upon the written request of a Shareholder or Shareholders given
within 10 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Shareholders to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of such Shareholders; provided that the Company shall have the right to postpone
or withdraw any registration effected pursuant to this Section 3 without
obligation to any Shareholder.
(b) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such offering unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the
offering, then the Company shall be required to include in the offering only
that number of Registrable Shares, if any, which the managing underwriter
believes should be included therein; provided that (i) no persons or entities
other than the Company, the
-2-
<PAGE>
Shareholders, Telmex or Carso Global or any of their affiliates, and persons or
entities holding registration rights granted in accordance with Section 10
hereof, shall be permitted to include securities in the offering without the
consent of the holder of a majority of the Registrable Shares then outstanding
and (ii) the holders of Registrable Shares who have requested registration and
other holders of securities entitled to include them in such registration shall
participate in the underwriting pro rata based upon their total ownership of
--- ----
shares of Common Stock of the Company (giving effect to the conversion into
Common Stock of all securities convertible thereinto). If any holder would thus
be entitled to include more securities than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
---
rata in the manner described in the preceding sentence.
- ----
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions hereof to effect the registration of any of the Registrable
Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for 45 days from the effective date or
such lesser period until all such Registrable Shares are sold;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, (i) in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it, and (ii), in the case of any
other offering, until the earlier of the sale of all Registrable Shares covered
thereby or 45 days after the effective date thereof;
(c) as expeditiously as possible furnish to the selling Shareholders
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Shareholders may reasonable request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Shareholders; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Shareholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Shareholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Shareholders; provided, however, that the Company shall not be
-------- -------
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
-3-
<PAGE>
If the Company has delivered preliminary or final prospectuses to the
selling Shareholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Shareholders and, if requested, the selling Shareholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Shareholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Shareholders shall be free to resume making offers of
the Registrable Shares.
In the event that, in the judgment of the Company, it is advisable to
suspend use of a prospectus included in a Registration Statement due to pending
material developments or other events that have not yet been publicly disclosed
and as to which the Company believes public disclosure would be detrimental to
the Company, the Company shall notify all selling Shareholders to such effect,
and, upon receipt of such notice, each such Shareholder shall immediately
discontinue any sales of Registrable Shares pursuant to such Registration
Statement until such Shareholder has received copies of a supplemented or
amended prospectus or until such Shareholder is advised in writing by the
Company that the then current prospectus may be used and has received copies of
any additional or supplemental filings that are incorporated or deemed
incorporated by reference in such prospectus. Notwithstanding anything to the
contrary herein, the Company shall not exercise its rights under this paragraph
to suspend sales of Registrable Shares for a period in excess of 90 days in any
365-day period.
5. Allocation of Expenses. The Company will pay all Registration
----------------------
Expenses of all registrations hereunder. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state Blue Sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions and
the fees and expenses of counsel for the selling Shareholders.
6. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, each underwriter of
such Registrable Shares, and each other person, if any, who controls such
sellers or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the
-4-
<PAGE>
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of any seller, underwriter
or controlling person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; provided,
--------
however, that the obligations of such Shareholders hereunder shall be limited to
- -------
an amount equal to the proceeds to each Shareholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
-------- -------
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section
-5-
<PAGE>
6. The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
-------- -------
if representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding; provided further that in no event shall the
-------- -------
Indemnifying Party be required to pay the expenses of more than one law firm per
jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also
shall be responsible for the expenses of such defense if the Indemnifying Party
does not elect to assume such defense. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation, and no Indemnified Party shall consent to entry of
any judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights hereunder, or any controlling person of any
such holder, makes a claim for indemnification pursuant to this Section 6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 6 provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on
the part of any selling Shareholder or any such controlling person in
circumstances for which indemnification is provided under this Section 6; then,
in each such case, the Company and such Shareholder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions so that such holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Shares offered by the Registration Statement
bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
-------- -------
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 6, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve such party from any other
obligation it or they may have thereunder or otherwise under this Section. No
party shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its prior written consent.
-6-
<PAGE>
7. Indemnification with Respect to Underwritten Offering. In the event
-----------------------------------------------------
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 3, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
8. Information by Holder. Each Shareholder including Registrable Shares
---------------------
in any registration shall furnish to the Company such information regarding such
Shareholder and the distribution proposed by such Shareholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to herein.
9. "Stand-Off" Agreement. The Shareholders, if requested by the Company
---------------------
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell or otherwise transfer or dispose of any Registrable Shares or
other securities of the Company held by such Shareholders (except pursuant to
the Purchase Agreement) for a specified period of time (not to exceed one
hundred eighty (180) days) following the effective date of such Registration
Statement; provided, that all shareholders of the Company holding not less than
--------
the number of shares of Common Stock held by such Shareholder (including
convertible securities, or upon the exercise of options, warrants or rights) and
all executive officers and directors of the Company enter into similar
agreements.
l0. Limitations on Subsequent Registration Rights. The Company shall not,
---------------------------------------------
without the prior written consent of the Shareholders holding at least a
majority of the Registrable Shares, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder the right to register or cause the registration of,
any securities of the Company, except for registration rights which are pari
passu with those provided to the Shareholders under Section 3 hereof.
ll. Rule l44 Requirements. After the earliest of (i) the closing of the
---------------------
sale of securities of the Company pursuant to a Registration Statement, (ii) the
registration by the Company of a class of securities under Section l2 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) comply with the requirements of Rule l44(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
-7-
<PAGE>
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule l44(c), and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
12. Termination. All of the Company's obligations to register Registrable
-----------
Shares under this Agreement shall terminate on the earlier of (i) two years
after the closing of the Company's initial public offering or (ii) such time as
all Registrable Shares can be sold without registration within any three-month
period under Rule 144 promulgated under the Securities Act.
l3. Mergers, Etc. The Company shall not, directly or indirectly, enter
------------
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company hereunder, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which the Shareholders would be entitled to receive in exchange for
Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 13 shall not apply in the
- -------- -------
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if the Shareholders are entitled to receive in
exchange for its Registrable Shares consideration consisting solely of (i) cash,
(ii) securities of the acquiring corporation which may be immediately sold to
the public without registration under the Securities Act, or (iii) securities of
the acquiring corporation which the acquiring corporation has agreed to register
within 90 days of completion of the transaction for resale to the public
pursuant to the Securities Act.
l4. Transfers of Rights.
-------------------
(a) The rights granted to Carr hereunder may be transferred by Carr or
any other Shareholder to any person or entity acquiring at least 25% of the
Registrable Shares held by Carr (as of the date hereof), as adjusted only for
stock splits, stock dividends and other recapitalizations following the date
hereof.
(b) Any transferee to whom rights hereunder are transferred shall, as
a condition to such transfer, deliver to the Company a written instrument by
which such transferee identifies itself, gives the Company notice of the
transfer of such rights, indicates the Registrable Shares owned by it and agrees
to be bound by the obligations imposed upon Shareholder hereunder.
(c) A transferee to whom rights are transferred pursuant to this
Section l4
-8-
<PAGE>
may not again transfer such rights to any other person or entity, other than as
provided in paragraphs (a) and (b) above.
(d) Except as provided in this Section l4, no party hereto may
transfer or assign any of its rights hereunder; but the obligations of all
parties hereunder shall be binding upon the successors and assigns of all
parties hereto and all transferees of the Shares held by the parties hereto.
15. Miscellaneous.
-------------
(a) All notices under this Agreement shall be in writing. Any notice
shall be deemed to have been adequately given if delivered personally or mailed,
certified mail, return receipt requested, to the respective parties at the
following addresses:
If to the Company:
Prodigy, Inc.
44 South Broadway
White Plains, NY 10601
Attention: President
With a copy to:
David A. Westenberg, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
If to the Shareholder:
Gregory C. Carr
The Residences at Charles Square
975 Memorial Drive
Cambridge, MA 02138
With a copy to:
Cameron Read, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
(b) This Agreement shall be binding upon, and shall inure to the
benefit of, the Company and the Shareholders and their heirs, legal
representatives, successors and assigns.
-9-
<PAGE>
(c) No party shall be deemed to waive any rights hereunder, unless
such waiver be in writing and signed by it. A waiver in writing on one occasion
shall not be construed as a consent to or a waiver of any right or remedy on any
future occasion. This writing contains the full, final and exclusive statement
of the agreement of the parties hereto with respect to the matters contained
herein, and no promises, agreements or representations shall be binding upon any
of the parties unless set forth herein. This Agreement may be amended or
modified in whole or in part only by an instrument in writing signed by the
Company and by the Shareholders.
(d) This Agreement shall be governed by and construed and enforced in
accordance with the law of the Commonwealth of Massachusetts. Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision thereof
shall be prohibited by or invalid under any such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating or nullifying the remainder of such provision or any other
provisions of this Agreement.
Executed as a sealed instrument as of the date first above written.
(CORPORATE SEAL) PRODIGY, INC.
By: /s/
-----------------------------
Name:
Title:
/s/
--------------------------------
Gregory C. Carr
-10-
<PAGE>
EXHIBIT 10.17
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
[LOGO OF ORACLE APPEARS HERE] NETWORK LICENSE ORDER FORM
Enabling the Information Age
Customer Name: Prodigy Services Corporation
Customer Location: 445 Hamilton Avenue
White Plains, NY 10601
- --------------------------------------------------------------------------------
ORACLE CONTRACT INFORMATION
Agreement: Software License and Services Agreement
Agreement Name: SLSA-33007-25-AUG-94
This Network License Order Form and attachment(s) ("Order Form")
are placed in accordance with the agreement specified above
("Agreement"). Customer hereby orders the Program licenses
described herein for use in the Territory, unless otherwise
specified. The "Network" is defined as any number of Computers
of the Designated Systems listed in this Order Form, except for
Computer-based or Processor-based licenses or other similar
licenses as specified herein.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A. DESIGNATED SYSTEMS/PROGRAMS
<S> <C> <C>
Make/Model: IBM RS 6000 Make/Model: Sun Sparc Make/Model: PC Compatible
Operating System: AIX Operating System: Solaris 2 Operating System: Windows NT
Media: CD Media: CD Media: CD
Description License Type License Level
- -----------------------------------------------------------------------------------------------------------------------------------
Per User Fees:
- --------------
Oracle Server Enterprise Edition Subscriber n/a
Parallel Server Option Subscriber n/a
Oracle Enterprise Manager Performance Pack Subscriber n/a
*MVS Client Bundle (for installation on IBM 370 390/MVS) 1 Computer Full Use
</TABLE>
Technical Support Type: Silver
Total [**]: [**]
*Customer has previously acquired a license from Oracle to use the MVS Client
Bundle and is only obtaining 22 months of Silver Technical Support for this
Program under this Order Form. The fee for such Technical Support is included
in the Total License and Technical Support Fees Due above.
*Technical Support: [**] of the Total fees is for Technical Support.
<PAGE>
[LOGO OF ORACLE APPEARS HERE]
B. GENERAL TERMS
1. The "Territory" shall be defined as Customer facilities worldwide, subject
to U.S. export laws.
2. Customer. For purposes of this Order Form, Customer shall be defined as
--------
Prodigy Services Corporation ("PSC"), PSC's majority owned subsidiaries
("Subsidiaries"), and majority owned subsidiaries of PSC's parent
corporation Prodigy, Inc. ("Parent Subsidiaries") located in the Territory
as of the Effective Date. Subsidiaries and Parent Subsidiaries formed after
the Effective Date may be included as a Customer with Oracle's prior
written consent. For purposes of this Order Form only, the entity or
entities that provide the internet service(s) known as "ProdigyChina",
"SinoTelecom" and/or "ProdigyAsia", or its a successor entity, shall be
deemed to be a Parent Subsidiary regardless of whether such entities are
majority owned subsidiaries of Prodigy, Inc. Before accessing the Programs,
each Subsidiary, Parent Subsidiary and Future Subsidiaries must agree in
writing to be bound by the terms of the Agreement and this Order Form.
Whether each Subsidiary and Parent Subsidiary elects to use and access the
Programs shall be at the sole discretion of each Subsidiary and Parent
Subsidiary.
3. Technical Support. Annual Technical Support services ordered by Customer
-----------------
will be provided under Oracle's Technical Support policies and pricing in
effect on the date Technical Support is ordered and shall be effective upon
shipment (or upon Order Form Effective Date for products not requiring
shipment); first year Technical Support is quoted above, if ordered. A copy
of Oracle's current Technical Support policies is attached hereto.
4. Miscellaneous. Oracle shall deliver to the Customer Location, for use in
-------------
the Territory, 1 copy of the software media ("Master Copy") and 1 set of
Documentation (CD-ROM or bound, whichever is generally available) for each
Program currently available in production release as of the Effective Date
below for use on the Network; such delivery shall exclude products marked
with an asterisk (*). For Programs licensed herein, Customer may make
copies of the Programs, including Documentation up to the number of
Concurrent Full-Use licenses of Oracle7 licensed on the Order Form between
Oracle and Customer dated May 8, 1996 and the Customer shall be responsible
for installation of the software. All fees under this Order Form shall be
due and payable net 30 days from date of invoice, and shall be
noncancellable and the sums paid nonrefundable. Customer agrees to pay
applicable sales/use tax, and media charges. The following shipping terms
shall apply: FOB Destination, Prepaid and Add. These terms shall also apply
to any options exercised by Customer. Oracle may refer to Customer as a
"customer" in sales presentations, marketing vehicles and activities.
C. OTHER
1. Additional Designated System. Until 2 years from the Effective Date,
----------------------------
Customer shall have the option to add 2 additional Designated System types
("Additional Designated Systems") to this Order Form at no charge, if:
(i) the Programs licensed herein are available in production release status
on the Additional Designated System at the time Customer elects to add the
Additional Designated System; and (ii) Customer has continuously maintained
Technical Support for such Programs.
Oracle shall ship to the Customer Location a single Master Copy of the
Programs licensed herein for the Additional Designated System added. These
Programs may only be copied and installed in accordance with the terms of
the Order Form; Oracle has no further shipment obligation other than as
specified above. Programs licensed herein for use on Additional Designated
System(s) may not be currently available. Customer has not relied on
potential availability in entering into the payment obligations in this
Order Form. Oracle is under no obligation to change current availability.
Page 2
<PAGE>
2. Oracle warrants that its Programs contain the functionality, including the
time-and-date-related code and internal subroutines, needed for the
December 31, 1999 millennium date change. Any breach of this warranty is
subject to the exclusive remedies as set forth in Section 5.3 of the
Agreement.
D. SUBSCRIBER ACCESS
1. Oracle Programs. The Programs listed in Section A of this Order Form (i.e.
---------------
Oracle Server Enterprise Edition, Parallel Server Option, and Oracle
Enterprise Manager Performance Pack) herein shall be collectively known as
the "Oracle Programs." Customer shall receive an upgrade from Oracle7 to
Oracle8 at no charge provided Customer has continuously maintained Oracle
Technical Support Services.
2. Subscriber. A "Subscriber" shall be an individual or entity who has
entered into a written or on-line (e.g. electronic) subscription agreement
("Subscription Agreement") with Customer for use of Customer's Prodigy
Internet service or other Customer online service that provides access to
the Programs and is a billable account. A "billable account" shall mean an
account to whom Prodigy issues an invoice. The Subscription Arrangement
need not refer specifically to "Oracle Programs" but may refer to the
programs of Customer or its suppliers. Customer shall take reasonable steps
to ensure that Subscribers are not permitted direct access to the Programs.
Such Subscription Agreement must provide substantially equivalent terms
that:
a. The Subscriber shall not cause or permit the reverse engineering,
disassembly or decompilation of the Oracle Programs;
b. Title shall not pass to the Subscriber;
c. Oracle`s liability for any damages, whether indirect, incidental
or consequential arising from the use of the Oracle Programs,
shall be disclaimed to the extent permitted by law; and
d. Upon termination of the Subscriber Access Term or the Subscription
Agreement, whichever is earlier, the Subscriber shall cease using
the Oracle Programs;
3. Subscriber Access. A Subscriber may access the Oracle Programs, remotely
-----------------
through telecommunications or fiberoptics. Subscribers may use the Oracle
Programs solely for the purposes of:
a. Authentication
b. E-mail
c. Storing Subscriber preferences such as frequently visited
websites, and Subscriber web-pages. Customer may expand the
Content definition by two additional items with Oracle's
consent only.
Neither Customer or a Subscriber may modify the Oracle Programs or use the
Oracle Programs to create or run Customer's application programs or to
create tables or reports.
Page 3
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
4. In consideration for the payment to Oracle of license and Technical Support
fees of [**], Customer may allow Subscribers to use the Oracle Programs in
accordance with Section D.3 above during the Subscriber Access Term
provided, however, that:
a. All use of the Oracle Programs is subject to the terms and
conditions of the Agreement and this Order Form. If there is any
conflict between the terms and conditions of the Agreement and this
Order Form, then the terms and conditions of this Order Form shall
prevail.
b. Subscribers are not permitted to use the Oracle Programs for the
purposes of developing any application programs or for any other
purpose not specified in Section D.3.;
c. The Subscription Agreements shall include, at a minimum, terms
equivalent to those set forth in Section D.2 above. Upon Oracle's
request, Customer shall provide Oracle with a copy of the
Subscription Agreement used by Customer and
d. Customer agrees to indemnify Oracle and hold Oracle harmless from
all claims, losses, liabilities, and settlement costs, including
court costs and reasonable fees of attorneys, resulting from any
claims brought against or incurred by Oracle arising from any use
or access of the Oracle Programs by Customer's Subscribers.
5. Term. The Subscriber rights granted under this Section D of this Order Form
----
shall be effective commencing on the Effective Date and shall continue for
a period of 22 months from the Effective Date (the "Subscriber Access
Term"), unless terminated as provided in the Agreement. Such Subscriber
rights are not perpetual. Any renewal of this Section D shall be in
accordance with Section D.10 below and shall be subject to renegotiations
of terms and fees.
Upon expiration or termination of the Subscriber Access Term or any
extended term thereof, Customer shall block all Subscribers' access to the
Oracle Programs. In addition, Customer's license to the Programs shall be
terminated and Customer shall comply with the terms of Section 4.4 of the
Agreement. Regardless of the reason for termination or expiration Oracle
shall have no liability whatsoever to Customer for any damages, including
damages for loss of prospective profits, anticipated sales, or good will.
Termination of this Order Form shall not relieve Customer from its
liability to pay any fees which have accrued to Oracle as of the expiration
or termination, or which accrue after such expiration or termination.
6. Technical Support. Customer is responsible for providing all technical
-----------------
support, training and consultation to its Subscribers. Any questions from
Customer's Subscribers will be referred by Oracle to Customer.
7. Termination of Technical Support Services. Customer may terminate
-----------------------------------------
Technical Support at any time by notifying Oracle in writing at least
thirty (30) days before the desired date of termination. Technical Support
shall be terminated upon receipt of such notice. Upon termination, Oracle
shall refund the unused portion of Technical Support fees paid by the
Customer for the licenses for the allocable period for which Technical
Support is terminated.
Page 4
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
8. Additional License and Technical Support Fees. The license and Technical
---------------------------------------------
Support fees listed in Section D.4 above for the Subscriber Access Term,
are based on Customer retaining an estimated number of Subscribers per
month as listed on the chart below ("Estimated Subscriber Count"): For the
purposes of this Order Form, a Subscriber is "retained" by Customer if, at
the end of a particular month, the Subscriber is entitled to receive any
on-line services that provide access to the Programs from Customer.
Month from the Estimated Fee per each Total
Effective Date Subscriber Count Subscriber
========================================================================
[**] [**] [**] [**]
Page 5
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Month from the Estimated Fee per each Total
Effective Date Subscriber Count Subscriber
[**] [**] [**] [**]
During the Subscriber Access Term, Customer shall report to Oracle monthly,
the actual number of Subscribers retained by Customer for the preceding
month ("Actual Subscriber Count"). If during the Subscriber Access Term,
the Actual Subscriber Count for a month is greater than the Estimated
Subscriber Count for that month as listed in this Section D.8, such excess
occurs Customer shall pay to Oracle additional license and Technical
Support fees for the relevant month; such fees shall be equal to the
license and Technical Support fee per Subscriber for the relevant month
(i.e. [**]) multiplied by the difference between the Actual Subscriber Cost
minus the Estimated Subscriber Count for the relevant month. Customer shall
not be entitled to any credits or refund if the Actual Subscriber Count
during any month of the Subscriber Access Term is less than the Estimated
Subscriber Count listed for that month in the chart above.
9. Extended Subscriber Access Term. At the end of the Subscriber Access Term
-------------------------------
Customer shall have the option to extend the Subscriber Access Term for 1
additional year ("Extended Subscriber Access Term"). If Customer exercises
such option to extend, then Customer and Oracle shall negotiate in good
faith to determine a combined total license and Technical Support fee per
Subscriber for the Extended Subscriber Access Term that shall not be
greater than [**]. After the Extended Subscriber Access Term, if Customer
and Oracle wish to extend the Subscriber Access Term further, then the
license and Technical Support fees for such additional extended term shall
be negotiated at the time of such extension.
10. Additional License and Technical Support fees during the Extended
-----------------------------------------------------------------
Subscriber Access Term. During the Extended Subscriber Access Term, if
----------------------
any, Customer shall report to Oracle monthly the actual Subscriber count
for the preceding month. If during the Extended Subscriber Access Term the
actual Subscriber count for a month is greater than the estimated
Subscriber count agreed to by the parties for the relevant month, then for
each such month in which such excess occurs Customer shall pay to Oracle
additional license and Technical Support fees for the relevant month. Such
additional license and
Page 6
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Technical Support fees shall be equal to the license and Technical Support
fee per Subscriber (e.g. [**]) multiplied by the difference between the
actual Subscriber count minus the estimated Subscriber count for the
relevant month. Customer shall not be entitled to any credits or refund if
the actual Subscriber count during any month of the Extended Subscriber
Access Term is less than the estimated Subscriber count agreed to by the
parties for any such month.
11. Exclusive Remedies For Programs. For purposes of this Order Form only,
-------------------------------
Section 5.3.A. of the Agreement shall be amended to read as follows: "A.
For Programs: The correction of Program errors that cause breach of the
warranty, or if Oracle is unable to make the Program operate as warranted,
Customer shall be entitled to terminate the Program license and recover the
fees paid to Oracle for the Program license, and/or cease paying to Oracle
any fees due to Oracle for the Program license for the remainder of the
Subscriber Access Term.
- --------------------------------------------------------------------------------
Customer and Oracle agree that the terms and pricing of this Order Form shall
not be disclosed without the prior written consent of the other party. This
quote is valid through August 29, 1997 and shall become binding upon execution
by Customer and acceptance by Oracle.
PRODIGY SERVICES CORPORATION ORACLE CORPORATION
Signature: /s/ Carena Pooth Signature: Craig Guarente
-------------------- ---------------------
Name: Carena Pooth Name: CRAIG GUARENTE
------------------------ -------------------------
Title: Sr. VP, Operations Title: SUPERVISOR SALES SUPPORT
------------------------ -------------------------
Effective Date: 8/29/97
--------------------
- --------------------------------------------------------------------------------
[SEAL APPEARS HERE]
Page 7
<PAGE>
<TABLE>
<CAPTION>
SHIPMENT SUMMARY:
PROGRAMS DESIGNATED SYSTEMS MEDIA TYPE
- -------- ------------------ ----------
<S> <C> <C>
Oracle Server Enterprise Edition IBM RS6000/AIX CD ROM
Parallel Server Option
Oracle Enterprise Manager Performance Pack
Oracle Server Enterprise Edition SUN SPARC/SOLARIS 2 CD ROM
Parallel Server Option
Oracle Enterprise Manager Performance Pack
</TABLE>
Page 8
<PAGE>
Subject to Change
ORACLE TECHNICAL SUPPORT SERVICES
Technical Support Fees
Technical Support fees are due and payable in advance of the term of Support.
Reinstatement Fees
In the event Technical Support services lapse or were never originally procured,
a reinstatement fee shall be assessed upon commencement of Technical Support,
such fee shall be subject to Oracle's policies in effect when Technical Support
is ordered. Oracle currently calculates Reinstatement Fees from the date that
the Technical Support services lapse (or the license order date if the program
licenses were not previously supported) to the date that the technical support
services are renewed based on the list Bronze support fees in Oracle's US Price
List in effect at the time the Technical Support services are ordered.
Support Programs
Oracle Bronze Support
Oracle Bronze Support includes:
. Real Time Telephone Technical Assistance
. 5:00 a.m. to 6:00 p.m. (Pacific Time), Monday through Friday
. Problem solving, bug reporting, documentation clarification,
technical guidance
. Program updates
. Patches and fixes
. General maintenance releases
. Documentation updates
. Support System dial-in access
. Quarterly Support newsletter
. Mail server access
. Read/Write access to Electronic Mail over the Internet
. Technical Assistance Requests can be opened, closed or updated
. General Communication with Oracle Worldwide Support
. SupportNotes(TM) - Oracle Book based CD-ROM repository of technical
information
. Oracle Electronic Support -Read/Write access to Oracle's private
Support Forum on CompuServe**
** Customers will need to register with
CompuServe to obtain CompuServe access.
This service will be offered in the United
States only.
Oracle Silver Support
Oracle Silver Support includes Oracle Bronze Support plus the following:
. Real Time Telephone Technical Assistance
. Toll-free 800 number
. 24 hours a day/7 days a week
. SupportNotes(TM) - Oracle Book based CD-ROM repository of technical
information
. Management reports - Faxed upon request
. Proactive Alerts
. Contain known problem and problem resolution information
. Proactively faxed as applicable
Oracle Gold Support
Oracle Gold Support (for which a minimum fee applies) includes Oracle Silver
Support plus the following:
. Priority Reactive Support
. Accountant Management
. Communication channels between Oracle and customer
. Status reports to customer and management
. Regular account reviews with customer
. Conduct all proactive planning activities
. Some first-line support
. Foundation Proactive Services
. Patch Planning
. Version/Release Planning
. Alerts
The following Basic, Standard, and Extended Support packages are no longer
available for new support contracts.
Basic Annual Support
Basic Annual Support includes:
April 16, 1997 Page 1 of 4 Technical Support
tecsup.doc
<PAGE>
Subject to Change
. Telephone Technical Assistance
. 5:00 a.m. to 6:00 p.m. (Pacific Time), Monday through Friday
. Problem solving, bug reporting, documentation clarification,
technical guidance
. Program updates and associated documentation
. Support System dial-in access
. Log/Update/Review TARs
. Review Bugs
. Access the Support Bulletin Board
. Quarterly Support newsletter
Standard Support
Standard Support includes Basic Support plus the following:
. Telephone Technical Assistance - 24 hours a day/7 days a week
Extended Support
Extended Support includes Standard Support plus the following:
. Toll-free 800 number
Information Customers Need When Calling Support
Before Support can begin work on any problem, information about the nature and
location of the problem is required. Whenever a call is placed to the hotline,
the following information should be provided:
. The Customer Support Identification (CSI) number or PC registration number
. The area code and phone number listed under the CSI number
. Operating system (including version) on which Oracle Programs are installed
. The Oracle product component and its version number the call concerns.
Support questions involve product components -- that is, constituent parts
of an Oracle product. For example, with the ORACLE kernel, Customer
receives components such as RDBMS, IMP, EXP, SQL*Loader and SQL*Forms.
. The relevant Program version(s)
. Any Program error number that appeared
. Brief description of the problem
. Severity of the problem. Oracle Worldwide Support classifies problems
according to how they impact the Customer's business. See list below for
explanation of Technical Assistance Request (TAR) Severity Levels.
Technical Assistance Request (TAR) Severity Levels
The chart below lists standard Technical Assistance Request Severity Levels.
Oracle Worldwide Customer Support responds to TARs based on Severity Level.
Severity Level
- --------------
Severity 1
Critical Business Impact
Customer's work, regardless of the environment or product usage, is stopped or
so severely impacted that the customer cannot reasonably continue to work.
Severity 2
Severe Business Impact
Customer's work is continuing (not stopped) however there
is a serious impact on the customer's productivity and/or service levels.
Severity 3
Minor Business Impact
The customer's work regardless of the environment or product usage, has minor
loss of services or resources.
Severity 4
No Business Impact
Customer is in full working mode - there is no work being impeded at the time -
information is requested but has no impact on the operation of the products.
TARs are logged and tracked in Support's Support Systems. Response will be given
to the Customer by telephone and logged directly into the problem-tracking
system. The Customer may dial-in to track the progress of their TAR at any time.
April 16, 1997 Page 2 of 4
<PAGE>
Subject to Change
Support's response may include a written response, patch tape, supplementary
documentation, a temporary means of circumventing the problem pending a new
release, or other correctional aids.
Customer CPU Support Identification (CSI) Number
Customers shall receive a CSI Number upon purchasing Oracle Technical Support
services.
The CSI number identifies the Customer with respect to the following
information:
. Company Name and Address
. Product Set and Version
. Support Level and Duration
. Operating System
. Technical Contact Information
Worldwide Customer support uses the CSI number to identify the Customer's
Support contract when a Customer calls the Support Hotline or uses dials-in
access.
Technical Support Liaison
("Technical Contact")
Customers shall designate one (1) primary and two (2) backup Customer employees
("Technical Contacts") to serve as liaisons with Oracle Worldwide Customer
Support. The designated "Technical Contact" is the sole liaison between
technical support and Customers for all product support and shall be based on
the Customer site. Customer may elect to add Technical Contacts for an
additional fee.
To assure uninterrupted Technical Support service, customers must notify Client
Relations at (415) 506-1500, option 9, whenever Technical Contact
responsibilities are transferred to another individual.
Updates
"Update" means a subsequent release of the Program which Oracle generally makes
available for Program licenses at no additional license fee other than media and
handling charges, provided Customer has ordered Technical Support for such
licenses for the relevant time period. Update shall not include any release,
option or future product which Oracle licenses separately.
Terms of Support
Oracle Worldwide Customer Support's technical assistance is limited to licenses,
products, and platforms that are fully supported and to problems which are
demonstrable in the current release of the licensed program, running unaltered
on the proper hardware configuration. Current release information is posted
on-line.
Technical Support for older versions of Oracle products or for non-Oracle
products is subject to additional fees.
These Technical Support policies are Oracle's current policies and are subject
to change at Oracle's discretion.
Termination
Customer may terminate technical support at any time by notifying Oracle in
writing at least thirty (30) days before the desired date of termination.
Technical Support shall be terminated upon receipt of such notice. On
termination, Oracle shall refund the unused portion of technical support fees
paid by the Customer for the licenses for the allocable period for which
technical support is terminated.
Phone Numbers and Address
Information
Customer Support Hotline
(For Technical Support, Non-Technical Support, and Support Sales information)
415-506-1500
Technical Support Dial-in Number
RTSS Dial-in 415-598-9350
Technical Support Address
April 16, 1997 Page 3 of 4 Technical Support
tecsup.doc
<PAGE>
Subject to Change
Oracle Worldwide Technical Support
500 Oracle Parkway
Box 659313
Redwood Shores, CA 94065
April 16, 1997 Page 4 of 4 Technical Support
tecsup.doc
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
ORACLE CREDIT CORPORATION DUPLICATE Payment Schedule
(Oracle Product) No. 1
- --------------------------------------------------------------------------------
Customer: Prodigy Services Corp
-----------------------------------------------------------
-----------------------------------------------------------
Address: 445 Hamilton Avenue
-----------------------------------------------------------
White Plains, NY 10601
-----------------------------------------------------------
Contact:
-----------------------------------------------------------
Phone:
-----------------------------------------------------------
Order: Network License dated -Aug-97
-----------------------------------------------------------
Agreement: SLSA dated
-----------------------------------------------------------
PPA No.: dated -Aug-97
-----------------------------------------------------------
Payment Schedule Effective Date: Page 1 of 1
---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Executed by customer (authorized signature):
By: /s/ Carena Pooth
---------------------------------------------
Name: Carena Pooth
---------------------------------------------
Title: Sr. VP. Operations [SEAL APPEARS HERE]
---------------------------------------------
Executed by Oracle Credit Corporation:
By: /s/ Lowry Fenton
---------------------------------------------
Name: LOWRY FENTON
---------------------------------------------
Title: DIRECTOR, OFD OPERATIONS
---------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
System: Payment Schedule:
- ------ ----------------
Payment Amount Due Date
<S> <C> <C>
Subscriber Access Fees for
Software and Support: [**] Payment Amounts and Due Dates shall be in accordance
--------------------
Education: with Section 9 of the Order, with Payment Amounts,
--------------------
Consulting: including credits, totaling [**]. The Due Date for
--------------------
Other: Month 1 is 01-Sep-97, and each subsequent Due Date shall be
--------------------
System Price: [**] the first day of each subsequent month through
--------------------
Month 22 (01-Jun-99).
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Optional (if this box is checked):
--------
[_] The System was ordered from an alliance member/agent of Oracle Corporation, whose name and address is specified below. If
Customer provides invoices between Customer and alliance member/agent for the System to 0CC within ten (10) days of the
Payment Schedule Effective Date, 0CC shall add the amount of applicable Taxes due to each Payment Amount.
<S> <C>
Alliance Member/Agent:
---------------------------------------------------------------------------------------------
Address:
---------------------------------------------------------------------------------------------
Contact: Phone:
---------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This Oracle Payment Schedule incorporates by reference the terms and conditions
of the above Payment Plan Agreement ("PPA") between Oracle Credit Corporation
("OCC") and Customer, and adds the following additional terms:
PAYMENTS: 0CC shall pay, on Customer's behalf, the System Price when due to
Oracle and any alliance member/agent upon receipt of a fully executed Order,
Agreement, PPA, and any other documentation required by 0CC. Customer agrees
that 0CC may add the amount of applicable Taxes to each Payment Amount, and 0CC
may adjust subsequent Payment Amounts to reflect any change or correction in
Taxes due. If Support is included in the System Price, the applicable Support
Price together with the then relevant Taxes will be paid to Oracle and any
alliance member/agent in the applicable support period from the Payment Amounts
received. The balance of each Payment Amount, unless otherwise stated, includes
a proportional amount of the remaining components of the System Price. Software
shall be accepted pursuant to the terms of the Order, and the Services shall be
deemed ordered pursuant to the terms of the Order.
<PAGE>
ORACLE CREDIT CORPORATION DUPLICATE Payment Plan Agreement
- --------------------------------------------------------------------------------
Customer: Prodigy Services Corp
-------------------------------------------------------
-------------------------------------------------------
Address: 445 Hamilton Avenue
-------------------------------------------------------
White Plains, NY 10601
-------------------------------------------------------
Phone:
-------------------------------------------------------
PPA No.: Effective Date -Aug-97
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Executed by Customer (authorized signature):
By: /s/ Carena Pooth
-------------------------------------------------------
Name: Carena Pooth
-------------------------------------------------------
Title: Sr. VP, Operations
-------------------------------------------------------
Executed by Oracle Credit Corporation:
By: /s/ Lowry Fenton [SEAL APPEARS HERE]
-------------------------------------------------------
Name: LOWRY FENTON
-------------------------------------------------------
Title: DIRECTOR, OFD OPERATIONS
-------------------------------------------------------
- --------------------------------------------------------------------------------
This Payment Plan Agreement is entered into by Customer and Oracle Credit
Corporation ("OCC") to provide for the payment of the System Price specified in
a Payment Schedule on an installment basis. Each Payment Schedule shall specify
the Software and other incidental products and services (which items, together
with any upgrade, transfer or substitution of the foregoing, collectively are
the "System"), the System Price, and the Order and Agreement covered by the
Payment Schedule. Each Payment Schedule shall incorporate the terms and
conditions of this Payment Plan Agreement (together referred to as a "PPA"). The
System shall be licensed or provided by Oracle directly pursuant to the terms of
the Order and Agreement. Except as otherwise provided under this PPA, Customer's
right and remedies under the Order and Agreement, including Oracle's warranty
and refund provisions, shall not be affected.
1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in
accordance with this PPA, with each payment due and payable on the applicable
Due Date. If full payment of each Payment Amount and other amounts payable is
not received by OCC within 10 days of each Due Date, Customer agrees to pay to
OCC interest on the overdue amount at the rate equal to the lesser of one and
one-half percent (1.5%) per month, or the maximum amount allowed by law. Unless
stated otherwise, Payment Amounts exclude any applicable sales, use, property or
any other tax allocable to the System, Agreement or any PPA ("Taxes"). Any
amounts or any Taxes payable under the Agreement which are not added to the
Payment Amounts due under this PPA are due and payable by Customer, and Customer
shall remain liable for any filing obligations. Customer's obligation to remit
Payment Amounts to OCC or its assignee in accordance with this PPA is absolute,
unconditional, noncancellable, independent, and shall not be subject to any
abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for
any reason, including but not limited to, any termination of any Agreement, or
performance of the System.
2. ASSIGNMENT: Customer hereby consents to OCC's assignment of all or a portion
of its rights and interests in and to this PPA to third-parties ("Assignee").
OCC shall provide Customer notice thereof. Customer and OCC agree that Assignee
shall not, because of such assignment, assume any of OCC's or Oracle's
obligations to Customer. Customer shall not assert against Assignee any claim,
defense, counterclaim or setoff that Customer may have against OCC or Oracle.
Customer waives all rights to make any claim against Assignee for any loss or
damage of the System or breach of any warranty, express or implied, as to any
matter whatsoever, including but not limited to the System and service
performance, functionality, features, merchantability or fitness for a
particular purpose, or any indirect, incidental or consequential damages or loss
of business. Customer shall pay Assignee all amounts due and payable under this
PPA, but shall pursue any claims under any Agreement against Oracle. Except as
provided for a Customer default below, neither OCC nor its Assignees will
interfere with Customer's quiet enjoyment or use of the System in accordance
with the Agreement's terms and conditions.
3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under this
PPA: (i) Customer fails to pay when due any sums due under any PPA: (ii)
Customer breaches any representation or fails to perform any obligation in any
PPA; (iii) Customer materially breaches or terminates the license relating to
the Software; (iv) Customer defaults under a material agreement with Assignee;
or (v) Customer becomes insolvent or makes an assignment for the benefit of
creditors, or a trustee or receiver is appointed for Customer or for a
substantial part of its assets, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against Customer.
In the event of a Default that is not cured within thirty (30) days of its
occurrence, OCC may; (i) require all outstanding Payment Amounts and other sums
due and scheduled to become due (discounted as the lesser of the rate in this
PPA or five percent (5%) per annum simple interest) to become immediately due
and payable by Customer: (ii) pursue any rights provided under any Agreement,
including terminating all of Customer's rights to use the System and related
services; and (iii) pursue any other rights or remedies available by law or in
equity. In the event OCC institutes any action for the enforcement of the
collection of Payment Amounts, there shall be due from Customer, in addition to
the amounts due above, all costs and expenses of such action, including
reasonable attorneys' fees. No failure or delay on the part of OCC to exercise
any right or remedy hereunder shall operate as a waiver thereof, or as a waiver
of any subsequent breach. All remedies are cumulative and not exclusive Customer
acknowledges that upon a default under this PPA, no party shall be required to
license, lease, transfer or use any Software in mitigation of any damages
resulting from Customer's default.
4. CUSTOMER'S REPRESENTATIONS AND COVENANTS:
Customer represents that, throughout the term of this PPA, this PPA has been
duly authorized and constitutes a legal, valid, binding and enforceable
agreement of Customer. Any transfer or assignment of Customer's rights or
obligations in the System, or under the Agreements or this PPA shall require
Oracle's and Assignee's prior written consent. A transfer shall include a change
in majority ownership of Customer. Customer agrees to promptly execute any
ancillary documents and take further actions as OCC or Assignee may reasonably
request, including, but not limited to, assignment notifications, acceptance
certificates, certificates of authorization, registrations, and filings.
Customer agrees to provide OCC or Assignee copies of Customer's balance sheet,
income statement, and other financial reports as OCC or Assignee may reasonably
request.
5. MISCELLANEOUS: This PPA shall constitute the entire agreement between
Customer and OCC regarding the subject matter herein and shall supersede any
inconsistent terms set forth in the Order, Agreement or any related agreements,
Customer purchase orders and all prior oral and written understandings. If any
provision of this PPA is invalid, such invalidity shall not affect the
enforceability of the remaining terms of this PPA. Customer's obligations under
this PPA shall commence on the Effective Date specified therein. Except for
payment terms specified in this PPA, Customer remains responsible for all the
obligations under each Agreement. Each Payment Schedule, and any changes to a
PPA or any related document, shall take effect when executed by 0CC. This PPA
shall be governed by the laws of the State of California and shall be deemed
executed in Redwood Shores, CA as of the PPA Effective Date.
OCC 1.14.97
<PAGE>
Exhibit 10.18
-------------
Understanding Agreement between Carso Global Telecom (the "Lender") and
Prodigy Communications Corporation (the "Borrower")
- --------------------------------------------------------------------------------
Terms and conditions regarding the loans that Carso Global Telecom provide to
Prodigy Communications Corporation:
Maximum Amount: U.S. $35,600,000.00
Interest Rate: To be negotiated case by case between the Lender and
the Borrower in a range between Libor + 1 and Libor +
5; payable monthly, based in a 360 day year, in
arrears.
Maturity: December 31, 1999
Terms of Borrowing: Committed line of credit until Maturity.
All advances shall be due in ninety (90) days or such
lesser period as elected by borrower.
Borrower may roll over advances into new advances at
its election.
Borrower may borrow, repay and reborrow in increments
of U.S. 1,000,000.00.
Use of proceeds: General working capital needs of Borrower and
affiliates.
Reporting Requirements: (i) Audited financial statements within one hundred
twenty days after end of fiscal year.
(ii) Unaudited quarterly financial statements for
first three quarters of fiscal year within sixty days
after end of fiscal quarter.
(iii) December 31, 1997 annual financial statements.
PRODIGY COMMUNICATIONS CORPORATION
By: /s/ Samer Salameh
-------------------------------
Name: Samer Salameh
Title: Chairman and CEO
CARSO GLOBAL TELECOM
By: /s/ Eduardo Valdes Aora
-------------------------------
Name: Eduardo Valdes Aora
Title: Attorney in Fact
<PAGE>
EXHIBIT 10.19
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
SPLITROCK FULL SERVICE AGREEMENT
Preamble
This Agreement is entered into as of June 24, 1997 by and between
Prodigy Services Corporation, a Delaware corporation ("Prodigy"), and SplitRock
Services, Inc. ("SplitRock"), a Texas corporation (this "Agreement").
References throughout this Agreement to "you" and "your" mean Prodigy; and
references to "we", "us" and "our" mean SplitRock and its assignees. References
throughout this Agreement to "party" or "parties" mean either Prodigy or
SplitRock, as the context requires and unless otherwise defined except that
"third party" means anyone other than a "party". Reference is made to that
certain Definitive Agreement, dated as of June 24, 1997, and that certain
Transition Services Agreement between the parties dated June 24, 1997
("Transition Services Agreement") and that certain Sublease Agreement dated as
of June 24, 1997 ("Sublease Agreement") each by and between Prodigy and
SplitRock.
Agreement
The parties hereto agree that the following provisions of this Agreement shall
be effective at 12:01am (New York time) July 1, 1997: Part 1, Part 2, Part 5,
and Sections 6.5, 6.10, 6.11 and 6.12 and all other rights and obligations of
the Company and Provider herein shall only become effective as of the end of the
Transition Period (as hereinafter defined).
Part 1 - General
- --------------------------------------------------------------------------------
1.1 Definitions
"Equipment" is a machine, including its features, conversions,
upgrades, elements, or accessories, or any combination of them. The
term "Equipment" includes SplitRock Equipment and any non-SplitRock
Equipment we provide to you, but excludes Programs.
"Materials" are work products (such as programs, program listings,
programming tools, documentation, reports, and drawings) that we may
deliver to you during a project. The term "Materials" does not include
Programs.
"Product" is a Program or Equipment.
"Program" is the following, including features and any whole or partial
copies:
1. machine-readable instructions;
2. a collection of machine-readable data, such as a data base; and
3. related licensed materials, including documentation and
listings, in any form.
The term "Program" includes a SplitRock Program and any
non-SplitRock Program that we may provide to you. The term does not
include licensed internal code or Materials.
<PAGE>
"Services" as used herein describes the network services (not to
include satellite) we will provide, as more particularly described in
Section 6.1. In addition, any new service you request or additional
service you request, not already contemplated by this Agreement, and
that we agree to provide is not the subject of this Agreement until the
terms, conditions and prices of such service shall be confirmed in
Transaction Documents. In addition, Services provided to you hereunder
shall include reports, surveys and analysis reasonably required to
fulfill the purposes of this Agreement, and shall not be subject to any
additional charge.
"Subscriber" is any user authorized to access basic Prodigy Classic or
basic Prodigy Internet (as they currently exist), regardless of whether
such user actually uses your services in any month or regardless of
whether or not you receive payment from that user.
"Subscriber Comic" shall mean the total number of Subscribers, subject
to the limitations in this definitional paragraph. For Prodigy Classic,
multiple User Identifications associated with one Subscriber will count
as one Subscriber in the Subscriber Count. For Prodigy Internet,
multiple User Identifications associated with one Subscriber will count
as one Subscriber in the Subscriber Count, provided only one such User
Identification per Subscriber can access the Service at any one time. A
Subscriber to both Prodigy Classic and Prodigy Internet under the
"Prodigy Combo Plan" will count as one Subscriber in the Subscriber
Count. Any Subscriber who is not capable of accessing the Service shall
not be counted in the Subscriber Count.
"System" is the Services and Products we provide together under this
Agreement that we identify to you as a System, which identification is
in writing.
"Transition Period" is the period from July 1, 1997 until the earlier
of (i) December 31, 1997 or (ii) on the effective date of a notice from
Provider stating that it intends to terminate the Transition Services
Agreement which effective date may only be the last day of a calendar
month.
"User Identification" is a code or codes which enable authorization or
access to programs, data or equipment through a Service.
1.2 Agreement Structure
Attachments
Some Services and Products have terms in addition to those we specify
in this Agreement. We will provide the additional terms in documents
called "Attachments," which are also part of this Agreement.
Transaction Documents
For each business transaction, we will provide to you the appropriate
"Transaction Documents" before the transaction occurs that confirm the
details of the transaction, which Transaction Documents shall nor be
effective against or in favor of either party, unless and until each
party agrees to each appropriate set of Transition Documents in
writing.
Conflicting Terms
<PAGE>
If there is a conflict among the terms in the various documents, those
of an Attachment prevail over those of this Agreement. The terms of a
Transaction Document prevail over those of both the Attachments and
this Agreement.
Your Order
You may order a Service or Product in writing, including a request
written on paper and delivered to us and a request sent via facsimile
to us.
Our Acceptance of Your Order
A Service or Product becomes subject to this Agreement when we
accept your order by sending you a Transaction Document which accepts
expressly and precisely the terms of the order.
Your Acceptance of Additional Terms
You accept the additional terms in an Attachment or Transaction
Document by signing it.
1.3 Electronic Communications
You and we may communicate with the other by electronic means for
information purposes only, such as through electronic or Prodigy Mail.
Any electronic communication must be followed by written confirmation
or telecopied in order to be binding on either party. Documents which
include handwritten signatures may be transmitted by telecopier, and
shall be deemed binding without the need for original signatures.
Nevertheless, original signature copies are preferred.
1.4 Prices
The following are the bases on which we may require the amount payable
for a Service or Product to be paid, with an example of each:
1. one-time (Service installation charges);
2. recurring (a periodic charge for Services);
3. a combination of both (an initial charge and a monthly license
charge for a Program); or
4. usage (network traffic charges).
We will specify the amount and basis for the particular Service or
Product. If additional Products or Services are added, the prices will
be set forth in a Transaction Document. Except as herein provided
specifically, no additional charges shall be imposed or incurred for
Services which we are obligated to provide under this Agreement.
1.5 Payment and Taxes
You shall pay:
<PAGE>
1. usage and recurring charges according to Section 6.5.
2. all other charges when or after you incur them.
Amounts due are payable as we specify in the invoice which invoice
shall be consistent with the conflict hierarchy set forth in Section
1.2, Conflicting Terms, or, with respect to dial up network services,
as provided in Section 6.5. You agree to pay accordingly. You agree to
pay any tax on the Services we provide to you. You are responsible for
personal property taxes for each Product that you purchase and each
Program that you license from the date we ship it to you or otherwise
make it available to you. "Taxes" as used in this Agreement shall not
include any FCC charges or other charges payable to any government
organization other than a taxing authority, all of which we shall pay.
1.6 Patents and Copyrights
For purposes of this Section only, the term "Product" includes
Materials alone or in combination with Products we provide to you as a
System.
If a third party claims that a Product we provide to you infringes that
party's patent or copyright, we will defend you against that claim at
our expense and pay all costs, damages, and attorney's fees that a
court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and any
related settlement negotiations. At your option and at your cost,
you may retain counsel to advise you as you work with us.
If such a claim is made or appears likely to be made, we will take
reasonable steps, and you agree to permit us to do so, to enable you to
continue to use the Product, or to modify it, or replace it with one
that is at least functionally equivalent. If we determine that none of
these alternatives is reasonably available, you agree to return the
Product to us on our written request and we may terminate the affected
Service at no further charge to you, in which case we will refund to
you the unused prorata portion of any advance payments for the Service
and/or the Product.
YOU AGREE THAT YOUR RIGHTS, AS PROVIDED BY THIS SECTION 1.6, REGARDING
ANY CLAIM OF INFRINGEMENT ARE LIMITED AND THE REMEDIES IN THIS SECTION
WILL BE YOUR SOLE AND EXCLUSIVE REMEDY FOR ANY SUCH CLAIM.
Notice of Infringement
All notices of patent or copyright infringement permitted or required
by this Agreement will be in writing and will take effect upon receipt.
Claims for Which We are Not Responsible
<PAGE>
We have no obligation regarding any claim to the extent it is based on
any of the following:
1. your modification of a Product, or a Program's use with equipment
and programs other than the Equipment and Programs with which the
Program is designed to operate:
2. the combination, operation, or use of a Product with any product,
data, or apparatus that we did not provide unless we had written
notice and acknowledged in writing receipt of notice that the
intended use of the Product was for a use with a product, data, or
apparatus we did not provide; or
3. infringement by a non-SplitRock Product alone, as opposed to its
combination with Products we provide to you as a System.
1.7 LIMITATION OF LIABILITY
Circumstances may arise where, because of a default on our part or
other liability, you are entitled to recover damages from us. In each
such instance, regardless of the basis on which such party is entitled
to claim damages, we are liable only for:
1. payments referred to in our patent and copyright terms described
above;
2. bodily injury (including death), and damage to real property and
tangible personal property; and
3. the amount of any other actual loss or damage, in excess of
$100,000 or the charges (if recurring or usage, 12 months' charges
apply) for the Service or Product that is the subject of the
claim.
This limit also applies to any of our subcontractors, agents and
Program developers. It is the maximum for which we, our
subcontractors, agents and program developers are collectively
responsible.
Items for Which Neither Party is Liable
Under no circumstances are either party or its subcontractors, agents
or Program developers liable for any of the following:
1. third-party claims against the other party for losses or damages
(other than those under the first two items listed in 1.7 above)
except for willful acts or acts of gross negligence;
2. loss of, or damage to, records or data except for any actual loss
or damage willfully and intentionally caused by the other party or
caused by gross negligence, subject to the limitation contained in
Section 1.7(3) above; or
3. economic consequential damages (including lost profits or savings)
or incidental damages, even if either party is informed of their
possibility.
<PAGE>
EACH PARTY AGREES THAT ITS RIGHTS ARE LIMITED BY THIS SECTION 1.7. THAT
THE LIMITATIONS PROVIDED HEREIN ARE FAIR AND EQUITABLE, AND EACH PARTY
HEREBY WAIVES ANY RIGHT OR REMEDY IT MAY HAVE FOR THE RECOVERY OF ANY
OTHER DAMAGES.
1.8 Your Additional Rights
You may have additional rights under certain laws (such as consumer
laws) which do not allow the exclusion of implied warranties, or the
exclusion or limitation of certain damages. If these laws apply, our
exclusions or limitations may not apply to you.
1.9 Changes to and Termination of Services
If a third party claims that a Product we provide as part of a Service
infringes a patent or copyright, we reserve the right to first
substitute a different Product, or alternatively to terminate the
Service effective immediately.
1.10 Geographic Scope
All of your rights, all our obligations, and all licenses are valid
only in the United States, including Hawaii and Alaska.
1.11 Governing Law
This Agreement shall be governed by and interpreted under the laws of,
any action shall be brought in the state or federal courts located in,
and any arbitration proceeding shall be located in, the domicile of the
party who is an initial defendant or the party upon whom an initial
demand for arbitration is served.
1.12. Notice
All notices permitted or required by this Agreement will be sent to the
following address and will take effect upon receipt:
Prodigy
445 Hamilton Avenue
White Plains, New York 10601
Attention: President
SplitRock
2170 Buckthorne Place, Suite 350
The Woodlands, Texas 77380
Attention: President
<PAGE>
1.13 Term
The initial term of this Agreement shall be for a period of 48 months
("Initial Terms") commencing on July 1, 1997 and continuing through
June 30, 2001.
After the Initial Term, either party may terminate this Agreement
without cause by giving the other party not less than 12 months prior
written notice, otherwise this Agreement shall be considered as having
been automatically renewed for successive 12-month terms.
1.14 Financial Covenants.
From the date hereof until June 30, 1999, we covenant and agree that we
will:
1. Financial and Other Information
(a) Annual Financial Reports. Furnish you not later than 90 days
after the close of each 1997 and 1998 calendar year a balance sheet as
of December 31, 1997 and December 31, 1998, statements of operations
and statements of cash flows for the period from inception through each
applicable period, and such other comments and financial details as are
usually included in similar financial statements. Such financial
statements shall be prepared in accordance with generally accepted
accounting principles and shall be audited by independent certified
public accountants of recognized standing selected by us and shall
contain unqualified opinions as to the fairness of the statements
therein contained, shall be unqualified in all other respects, and
shall not contain any explanatory language which makes reference to
uncertainties such as: (i) going concern, (ii) litigation or (iii) any
other potential liabilities or impairment of our assets.
(b) Quarterly Financial Statements. Furnish you not later than 45
days after the close of each calendar quarter through June 30, 1999,
beginning with the quarter commencing July 1, 1997, financial
statements containing our balance sheet as of the end of such period
and statements of operations and cash flows up to the end of such
period. These statements shall be prepared on a basis consistent with
our normal accounting practices and the accuracy of the statements
shall be certified as true by our chief executive or financial officer.
(c) Payables. Furnish you not later than 45 days after the close
of each calendar quarter through June 30. 1999, beginning with the
quarter commencing July 1, 1997, a total of amounts which are due and
payable and have not been paid by their contractual due dare, and a
list of each creditor to which payments over $25,000 are due.
(d) Taxes, Pay promptly and within the time that they can be paid
without interest or penalty, all taxes, assessments and similar imposts
and charges of every kind and nature lawfully levied, assessed or
imposed upon us, except to the extent being contested in good faith and
furnish you evidence of such payment on a quarterly basis within 45
days after the close of each calendar quarter through June 30, 1999.
(e) Liens and Litigation. Through June 30, 1999, furnish you
within ten days of receipt of notice of any lien or lawsuit which is
threatened or pending against us and which involves a claim in excess
of $100,000.
<PAGE>
(f) Projections. Thirty days after we have received your forecasts
referenced in Section 6.6 hereof for each applicable quarter, we will
provide you with plans and projections for income, expenses, capital
receipt and expenditure, for the immediately succeeding fifteen (15)
month period. Included with the statements to be provided quarterly
pursuant to Section 1.14 (a)-(e) hereof, we shall also provide you with
evidence of our results as compared to past projections, which shall
also be certified as true by our chief executive or financial officer.
2. Insurance. Maintain valid and effective insurance policies that
cover our properties and risks of the business in such types and
amounts as are consistent with customary practices and standards of
companies engaged in businesses and operations similar to ours and
furnish you not later than 45 days after the close of each calendar
quarter through June 30, 1999, beginning with the quarter commencing
July 1, 1997, certificates evidencing such insurance. After you receive
such certificate, you may request that we obtain additional coverage,
consistent with reasonable business practices, which we shall obtain,.
3. Maintain Tangible Net Worth. Maintain a tangible net worth of not
less than $5,000,000, which excludes organizational costs and
intangible assets such as patents, trademarks, goodwill and going
concern value.
4. Continuing Annual and Quarterly Reporting. The financial reporting
requirements of subsection 1.(a) and (b) hereof shall continue after
June 30, 1999 if, at that time, our cash plus past due accounts
receivable from you less past due accounts payable less debt other than
capital leases is an amount less than $5,000,000.
1.15 Headings. The headings contained herein are inserted for convenience of
reference only and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
Part 2 - Responsibilities of the Parties
-------------------------------------------------------------------------------
2.1 Mutual Responsibilities
You and we agree that under this Agreement:
1. neither party grants the other the right to use its trademarks,
trade names, or other designation in any promotion or publication;
2. all information exchanged by both parties is nonconfidential
unless such information is conspicuously marked as confidential.
Part 5 of this Agreement describes confidentiality and our
responsibilities for handling data and information you transmit
using the Services;
3. each party grants the other only the licenses specified. No other
licenses (including licenses under patents) are granted;
4. each party will promptly notify the other if it becomes aware of
any unsafe conditions or hazardous materials to which the other's
personnel would be exposed at any of its facilities;
5. NEITHER PARTY WILL BRING A LEGAL ACTION MORE THAN TWO YEARS
<PAGE>
AFTER THE CAUSE OF ACTION AROSE UNLESS SUCH CLAIM IS AS A RESULT
OF A THIRD PARTY CLAIM, IN WHICH EVENT THE TWO YEAR PROVISION
SHALL NOT APPLY; and
6. neither party is responsible for failure to fulfill its
obligations (other than payment obligations) due to causes beyond
its reasonable control, including without limitation, acts of God,
war, riots, blockades, insurrections, labor disputes, lockouts,
earthquakes, fires, storms, lightning, power failures, floods,
natural disasters, accidents, new or changed governmental
regulations or laws, or other similar events beyond the reasonable
control of the party relying on this provision of the Agreement
("Force Majeure").
2.2 Our Other Responsibilities
We will:
1. comply with all applicable laws regulations or conventions
including those related to data privacy, international
communications, and exportation of technical or personal data. You
are responsible for obtaining all necessary governmental
regulatory or statutory approvals for the offering of your
services;
2. not assign, or otherwise transfer, this Agreement, or our rights
or obligations under it, or delegate our rights or your
obligations, other than to an affiliate, without your prior
written consent which consent will not be unreasonably withheld.
Any attempt to do so is void;
3. obtain install and maintain suitable equipment as necessary to
provide the Services to you;
4. fulfill all regular activity and performance reporting and
analysis, including service disruption analysis, periodic audits,
and attend and participate actively in monthly status meetings
which shall be held no less frequently than monthly between the
parties; and
5. be responsible for data, programs or other material that we
provide for use with the Service.
2.3 Your Other Responsibilities
You agree:
1. not to resell any Service, without our prior written consent, and
any attempt to do so is void. We expressly consent to your selling
other versions of your service at the retail level, but you may
not wholesale or resell our Service.
2. not to assign, or otherwise transfer, this Agreement or your
rights under it, or delegate your rights without our prior written
consent, which consent will not be unreasonably withheld. Any
attempt to do so is void.
3. to allow us to install mandatory engineering changes (such as
those required for safety) on Equipment.
<PAGE>
4. that you are responsible for the results obtained from the use of
the Services and Products.
5. to provide us with sufficient, and safe access to your facilities
for us to fulfill our obligations during reasonable hours and
under such conditions as you may reasonably impose.
6. to control and be responsible for issuance of User Identifications
and their distribution to Subscribers.
7. to comply with all applicable laws, regulations or conventions
including those related to data privacy, international
communications, and exportation of technical or personal data. You
are responsible for obtaining all necessary governmental,
regulatory, or statutory approvals for your use of the Services.
8. to provide us terminal access to your network management system so
that we can determine the operating status of each modem and
component.
9. to be responsible for data, programs, or other material that you
provide for use with a Service.
10. that we have no liability to those whom you authorize to access a
Service.
11. that we are not responsible for any data, or text, including the
content, and including its accuracy, which is received, routed or
sent as a result of the Services we provide hereunder.
12. that we are free to enter into any agreements with third parties
that are similar or dissimilar to this Agreement without your
consent or approval.
13. to take reasonably necessary actions to reduce network demand,
including without limitation, ensuring that all timed-out features
are fully effective and operating, performing routine and
aggressive audits of network services to eliminate "fraud", and
encouraging Subscribers to read and compose e-mail off-line.
14. to terminate all Services related to Prodigy Classic no later than
December 31, 1998. Upon the termination of all such Services, any
and all provisions contained herein relating specifically to
Prodigy Classic, including but not limited to the definition of a
Prodigy Classic Subscriber and the operation and maintenance of
Prodigy Classic related equipment, shall terminate.
Part 3 - Warranties
-------------------------------------------------------------------------------
3.1 Warranty for Services
For each Service, we warrant that we will perform it;
<PAGE>
1. in a workmanlike manner consistent with industry standards,
2. according to its current description contained in this Agreement,
an Attachment, or a Transaction Document, and
3. in a manner so that the Service and the network shall be
compatible with your equipment.
OTHER THAN AS EXPRESSLY PROVIDED HEREIN, WE DISCLAIM ALL WARRANTIES.
INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
3.2 Items Not Covered by Warranty
We do not warrant uninterrupted or error-free operation of a Service or
Product.
We will specifically identify our Services and Products that have a
warranty, other than as described in this Part 3, and the terms of that
warranty.
Unless we specify otherwise, as set forth Agreement, including Section
3.1, we provide Materials, non-SplitRock Services and non-SplitRock
Products on an "AS IS" basis without any warranty from us. However,
non-SplitRock manufacturers, suppliers, or publishers may provide their
own warranties to you.
Part 4 - Equipment Provided by SplitRock
- --------------------------------------------------------------------------------
We may provide Equipment to be installed on your premises for the
purpose of providing a Service. The Equipment is and will remain our
asset or that of our lessor, and will not become a fixture or realty.
Certain Equipment may contain licensed internal code. We will identify
this Equipment to you.
No right, title, or interest in or to the Equipment, or licensed
internal code associated with it, or any related planning information,
is conveyed to you. However, we will use such Equipment to provide
Services to you.
Part 5 Confidentiality
- --------------------------------------------------------------------------------
We agree not to disclose your confidential information, including
programs and data transmitted using the Services and usage forecasts as
described in section 6.6, nor shall we disclose your customer's private
information, such as name, address, credit card or other information
which may be transmitted using the Service. However, we have no
obligation of confidentiality relating to your information which is not
confidential or which you do not conspicuously mark as confidential.
We acknowledge that all of your customer information, and information
about your individual customers is confidential. Information that is
not confidential includes information which is:
1. either currently publicly available or becomes publicly available
in the future without
<PAGE>
our breach of any obligation or responsibility described in this Agreement;
2. rightfully received by either you or us from a third party, where the
information was received without any obligation of confidentiality
associated with it;
3. already in our possession without an obligation of confidentiality;
4. independently developed by us;
5. approved for disclosure by you; or
6. treated by you as nonconfidential.
We also have no liability for any disclosure of information that occurs as the
result of our delivery of your information, at your direction and to a recipient
you designate, when the delivery is made in the normal course of Service
provision (for example, to an incorrect delivery address provided by you to us).
We may disclose information to the extent required by law, but will give you as
much advance notice of such potential disclosure as reasonably possible.
Handling of your information
We will handle your information marked confidential in a confidential manner,
and you will not permit our confidentially marked information to be disclosed.
You are responsible to develop and maintain procedures (apart from the Services)
to protect your information.
We will allow you to audit our security procedures to insure that they are
reasonable and customary, and will notify you of any material security breach
that affects the Services. You agree than any information regarding our security
systems will be our confidential information.
For the purposes of operation and maintenance, we may use, copy, store, and
distribute internally your information but only to the extent necessary for such
operation and maintenance. We shall have no such rights with respect to your
customer information, or with respect to information about your customers. We
agree not to reverse assemble or reverse compile your information. We will use
reasonable procedures, but we do not guarantee that these procedures will
prevent the loss of, alteration of, or improper access to, your information. You
agree that access to your information will not prohibit or prevent us from
developing or marketing any Service or Product.
For transmission carried over interexchange carriers' and local exchange
carriers' facilities, we are not responsible for transmission errors, or
corruption or security of data.
<PAGE>
Part 6 - SplitRock Services
- --------------------------------------------------------------------------------
6.1 Description
We will provide you network services consisting of the following
components:
. Dial access network as described in Section 6.1.1
. ATM backbone network as described in Section 6.1.2
. Regional Servers connectivity as described in 6.1.3
. Network Management and Proxy Servers as described in Section 6.1.4
6.1.1 Dial Access Network
We will provide to you dial access for data transport for your
Subscribers as described in this Agreement as a "Service". We will
provide this Service to you in all locations in which, on the effective
date of this Agreement, such dial access service already exists. You
agree to provide to us a list of current dial access locations, which
list shall be Appendix "A" to this Agreement. We may substitute a new
site for an existing location upon 30 days prior notice of change, with
60 days simultaneous usage. You may request new sites to exceed an 80%
coverage, by population, for local dial access; but we will not be
obligated to provide dial access Service in any new dial access
location with usage in any month of less than 5,000 dial hours unless
we review the location for the new site and approve the creation of a
new site at such location, in our sole discretion. We can modify the
site coverage only with your permission, unless the modification is for
a substitution of existing coverage, in which case we do not need your
permission. Any new sites added by us for Services will be available to
you if you choose to use them.
The data traffic dial access Service shall include the receipt of
inbound data dial traffic from your Subscribers and the routing of such
traffic to another Subscriber, to a proxy server, to a regional server,
to your data center at Yorktown or to the selected Internet Network
Access Points ("NAP"). We will not support initiating a call to another
Subscriber's telephone.
We shall, in our sole discretion, decide the number of dial ports we
provide to serve each site, as well as the method we use to provide
Service to each site provided the grades and standards of service as
set forth in this Agreement are met. Examples of methods we may use to
provide this Service include:
. a physical site presence with modem ports; or
. a virtual presence using call forwarding or a foreign exchange.
All new access equipment provided by us will have speed capacity with
respect to backbone access, and with respect to Subscriber access,
consistent with the service that can and will be provided from that
site. For example, we will not install equipment with a speed higher
than the existing line infrastructure can support, except we
acknowledge that we shall install 56K capable bps modems, although
current FCC regulations prohibit transmission at speeds in excess of
53K bps, and, other conditions beyond our control may decrease the
actual connection speed.
Specifically identified protocols to be supported: include Serial Line
Internet protocol (SLIP), Prodigy Link Level Protocol (PLLP), and
Point-to-Point Protocol (PPP).
<PAGE>
We shall be responsible for:
. inbound communication facilities (such as hunt groups, measured business
lines or DID trunks);
. modem hardware including ports and chassis; and
. network equipment and communications facilities to transport traffic from
our dial site to other sites, to your data center at Yorktown and the seven
NAPs.
We shall transport the dial data traffic to you via TCP/IP over ATM. We will not
change the terms or conditions of a Service without your approval, which you
agree will not be unreasonably withheld.
6.1.2 ATM Backbone Network
The SplitRock ATM backbone network will be operational on or before December 31,
1997 and will be based on the Yurie LDR200/50 ATM switches or similar ATM
switches. This network is based on ATM switches, supporting TCP/IP protocol for
Prodigy Classic and Prodigy Internet services. Prodigy Classic transmission
which requires SNA will be encapsulated as TCP/IP. Each dial access site will be
upgraded with a LDR200, LDR50 or similar ATM switch. A backbone transmission
facility based on ATM protocol will interconnect the dial access sites to
Yorktown, New York. Since the Yurie ATM switches use standard ATM protocol, the
interconnections can be a mixture of FT1 TI, T3 and OC-3 or publicly available
switched ATM services.
Effective July 1, 1997 but subject to the Transition Services Agreement, we
shall also provide, maintain and manage sufficient bandwidth connections to
Yorktown, New York to support the Service Level Objectives in Section 6.2. The
transmission facilities may be DS-3, OC-3 or other appropriate transmission
services available at the time. The transmission facilities will be terminated
by a LDR2OO and Centillion C100 combination or equivalent provided by us at your
Yorktown facility. The transmission facilities will be diversely routed and
fully separated and connect to you via selected routers. The two SplitRock C100s
will connect to existing Prodigy 6611 or equivalent routers, which support the
Prodigy internal LAN at Yorktown.
The Equipment we provide at Yorktown will be installed on your premises solely
for our use in providing our Services. This Equipment is provided under the
terms specified in the Section "Equipment We Provide."
In addition, at locations selected by us agreed, we will provide interconnection
of the network to the Internet via DS3 to suitable NAPs. This will provide
bandwidth between the NAP and Yorktown as well as between the NAP and the dial
up user. We will have the sole right to select the choice of the NAP provider at
each location. You will be responsible for complying with all protocol
requirements for layer 3 and above as set forth by the NAP providers that we
select.
6.1.3 Regional Servers
You may provide, maintain and manage regional servers at sites determined by you
which are to be geographically dispersed and co-located at our network hub
sites; such equipment is limited to
<PAGE>
that which may only be installed in one standard 19" rack per site ("Regional
Servers"). You shall provide, maintain and manage diagnostic equipment,
connection equipment that you may use to connect to us and associated analog
phone lines which you may use to manage your Regional Servers. In addition, you
shall provide the electric power cables and the equipment connection cables for
the equipment you provide, including those cables, required to connect your
equipment to our network equipment. You also agree to comply with all safety
requirements at each site. Each Regional Server will be EtherNet connected to
our network. Neither we nor any other customer of ours shall use your Regional
Servers for any purpose except to support Prodigy Classic and Prodigy Internet.
We shall provide you with access to our sites for purposes of maintaining,
upgrading and servicing these Regional Servers at no additional cost to you.
You are responsible for separately procuring from us the upstream connection
from the Regional Server. The upstream connection is defined as the network
facilities used to transport traffic from the Regional Server to locations other
than the source dial node (such as Yorktown or the Internet). Cost for such
services will be as provided in Section 6.5.2 section 2 of this Agreement
The Regional Servers will not be included in the service level objectives, as
provided in Section 6.2.
6.1.4 Network Management and Proxy Servers
Network Management
We will maintain TINA until we replace it with a new network
management system which encompasses all TINA functions. You will make
available to us the mainframe computer resources necessary to run TINA
for the purpose of managing the network at no cost to us. We will
provide you read only terminal access to TINA and any other network
management system used by us so that you can determine the operational
status of any modem or network component.
Proxy Servers
We will assume your existing Unix servers and all hardware and
software maintenance costs as they directly relate to proxy functions.
These servers will be placed at our hub and peering sites. We will
also provide for a fee additional new Unix based servers at hub sites
when needed and requested by you. Unix based servers will not be
supported at all POP sites.
We intend to use Windows NT based servers for the POP sites and for
future hub sites for the proxy server functions.
Service Level Objectives
We will have four service level objectives for both Prodigy Internet and Prodigy
Classic:
1. Site Dial Grade of Service (SDGS) objective of P.01 during the peak or
busiest hours of the day (We will use your algorithms in effect as of
June 23, 1997 for purposes of measuring the SDGS and Grade of
Service);
<PAGE>
2. Site System Availability (SSA) objective of 99.5%;
3. Overall System Availability (OSA) objective of 99.5%; and
4. Transit Delay (TD) objective average of 100 milliseconds or less
95% of the time and 150 milliseconds or less 99% of the time,
however, TD objective average for Alaska and Hawaii is 300
milliseconds. (We will use your algorithms in effect as of June
23, 1997 for purposes of measuring the TD and Grade of Service)
NOTE: A P.01 Grade of Service means that no more than 1% of calls are denied
- ----- access during the peak busy hour of the weekly measured period. A P.03
Grade of Service means that no more than 3% of calls are denied access
during the peak busy hour of the weekly measured period.
We shall measure each of the objectives, other than SDGS, on a monthly
basis and shall provide you with a report of such measured objectives by
the 10th business day of the following month, unless otherwise agreed
between the parties.
6.2.1 Site Dial Grade of Service (SDGS) Objective
We shall measure and report the weekly Site Dial Grade of Service
for each site. If the SDGS, measured weekly, falls below P.03 for
a site in two consecutive weeks, we shall have four additional
weeks to improve the performance. If, during this four week
period, the measured SDGS is not improved above P.03 with the
intent to meet the P.01 objective, then we shall provide you a
credit of $1,500.00 for each four week period thereafter for that
site until such time as the measured SDGS is improved above P.03.
Except for your right of termination as provided for in Section
6.7.1, this is your sole remedy for our failure to meet the SDGS
objective.
Grade of Service reductions which are caused by, related to or
extended as a result of your actions, or Force Majeure shall not
be considered in the estimation of the monthly SDGS.
Should you supply an invalid forecast (see Section "Forecasts"),
then the SDGS objective will not be applicable for that period.
6.2.2 Availability Objectives
The components of the availability objective calculations shall
include the components provided by us. The OSA rate and the SSA
rate shall be represented as a percentage of the time the
components are actually available, as compared to the scheduled
time of availability.
The SSA shall be defined as the monthly availability of the
Service components for a single site including the modem and
server components at the site, and network connections from the
site to Yorktown. We shall measure and report the monthly site
availability, and deliver such report to you no later than the
10th business day after the month of resting.
<PAGE>
We will measure and report site availability by sending a 56 byte
message, called a sample ping, to the modem chassis and to the
servers from a SplitRock network monitor in Yorktown on a
periodic basis, but no less than every 10 minutes. The ping
sampling interval is subject to change over time but in no event
shall it be more than 30 minute intervals. If a positive response
is received to the ping, then the site is considered available
for that ping period. We will issue one retry (or effectively do
the retry using another function) if an initial negative response
is received. If a positive response is received on the retry then
the site is considered available for that ping period. If a
negative response is received from the initial ping and the
retry, then the site is considered unavailable for that ping
period.
The SSA rate calculation shall be;
. the Total Scheduled Minutes of Availability for the site;
. minus the Total Unscheduled Outage Minutes for the site;
. divided by the Total Scheduled Minutes of Availability for
the site.
<TABLE>
<S> <C>
(Total Scheduled Minutes of Availability) - (Total Unscheduled Outage Minutes)
------------------------------------------------------------------------------
(Total Scheduled Minutes of Availability)
</TABLE>
The Total Scheduled Minutes of Availability for a site is defined
as the total minutes in the measurement time period minus the total
minutes of outages which are not due to unscheduled outages during the
measurement time period.
Total Unscheduled Outage Minutes include outages due to
telecommunication facilities (carrier outages), loss of electrical
power, hardware, operations, software and design problems except for;
1. scheduled network maintenance and scheduled outages;
2. outages caused by, related to, or extended as a result of
your actions; and
3. outages due a Force Majeure event.
If the SSA rate for a specific site, measured monthly, falls
below 98.5% we shall take immediate and necessary action to improve the
performance. If the measured SSA rate for the site is not improved above 98.5%
with the intent to meet the 99.5% objective within the next two months, we shall
provide you a credit of $1,500.00 for each month thereafter for that site until
such time as the measured SSA rate is improved above 99.5%. Except for your
right of termination provided for in Section 6.7.1, this is your sole remedy for
our failure to meet the SSA objective.
The OSA objective is defined as the combined availability of the
Service components, including the modem and server components, and network
connections to Yorktown. The OSA rate shall be an average of all the SSA rates.
We shall measure and report the monthly OSA,
If the OSA rate, measured monthly, falls below 98.7% we shall
take immediate and necessary action to improve the performance. If the measured
OSA rate is not improved above 98.7% with the intent to meet the 99.5% objective
within the next two months, we shall provide you a credit of $25,000.00 for each
month thereafter until such time as the measured OSA rate is improved above
<PAGE>
98.7%. Except for your right of termination provided for in Section 6.7.1, this
is your sole remedy for our failure to meet the OSA objective.
We shall be allowed a system-wide weekly maintenance window. The
weekly maintenance window shall occur initially Sunday mornings from 3:15 to
4:45 Eastern time. This initial period may be changed upon your prior written
consent. Additionally, there shall be an allowance for scheduled outages at each
site for us to perform maintenance/upgrade work: allowing each site two outages
annually each up to three hours in duration. We shall provide you with advance
notice of sites scheduled for upgrade/maintenance activity, and we shall use
reasonable efforts to schedule such upgrade/maintenance activity for a time
other than 5 pm to midnight, local site time.
We shall review anticipated changes in the network maintenance
window with you. You and we shall cooperate to accommodate a necessary change in
the network maintenance window and the business impact on you.
We shall not be precluded from performing unscheduled maintenance as
we may deem necessary. In such instances we will use reasonable efforts to
notify you at least 48 hours in advance. For purposes of the SSA and OSA rate
calculations, these will be considered unscheduled outages.
6.2.3 Transit Delay
The TD is represented as the actual time for a 56 byte
message, called a sample ping, to travel round trip between two specific routers
in the network under normal prime time conditions.
Using the sample ping referred to in Section 6.2.2, we will
measure the TD on a periodic basis, but no less than every 10 minutes. The ping
sampling interval is subject to change over time but in no event shall exceed 30
minutes. We will average all the samples in a given month to determine the
overall average TD, and will report that to you.
If we fail to meet the monthly TD objectives, you will notify
us in writing. If we continue to fail to meet the TD objectives for two months,
then we shall provide you a credit of $25,000.00 for each month thereafter until
such time as the measured TD meets the objectives. Except for your right of
termination provided for in Section 6.7.1, this is your sole remedy for our
failure to meet the TD objectives.
In an instance where the monthly forecast for 20% of the
sites is invalid, then the TD objective shall not be applicable for that period.
6.3 Our Other Responsibilities
We will:
1. provide you with a number for your operations group or
customer service group to contact our help desk support, which shall be
available 24 hours a day, 7 days a week, and staffed adequately to handle all
inquiries within 60 seconds of receipt;
2. provide you with standard monthly, or in the case of SDGS
weekly, reports that we produce that are related to the Services provided under
this Agreement, including reports describing the results of the tests for each
of SDGS, SSA, OSA and TD, and reports relative to availability and traffic
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
statistics within ten days of the end of the immediately preceding month, which
reports will show by site, the total connect hours, time of peak busy hour per
site, average peak busy hour percentage and distribution of traffic by hour of
day;
3. provide you with a monthly report detailing the status of network
upgrades and expansions within ten day of the end of the immediately preceding
month;
4. maintain the components, programs, equipment and materials we
provide under this Agreement; and
5. provide you with read only terminal access to our network
management system so you can verify operational status of all network modems and
components.
6.4 Your Other Responsibilities
You agree:
1. to be responsible for supporting your Subscribers directly
through your help desk. Your operations group or customer service group will
contact our help desk in regard to any reported problems with the Service being
provided by us;
2. to be responsible for ensuring that your software can and will
log-off each Subscriber after no activity by each Subscriber for 30 minutes
("Time Out Function");
3. to be responsible for ensuring that for Prodigy Internet Services
your software will not allow multiple User Identifications associated with any
Prodigy Internet Subscriber to gain simultaneous access to the Services
("Simultaneous Prohibition Function"); and
4. upon written request by us audit each of the Time Out Function
and Simultaneous Prohibition Function up to five audits per each 12 month
period. Within 15 days of receiving a written audit request you will delivery a
written audit report to us. If the audit shows noncompliance with the Time Out
Function or Simultaneous Prohibition Function, as the case may be, the Maximum
Monthly Usage Charge (as provided in Section 6.5.1) shall not be applicable to
any time period from the date of the last audit showing compliance until the
date you cure such noncompliance.
6.5 Charges
6.5.1 Monthly Usage Charges
With respect to usage, you agree to pay us for the Services based on
the total number of monthly connect hours of your Subscribers times the
applicable rate per hour in the following schedule (the "Hourly Usage Charge"),
subject to the Maximum Monthly Usage Charge (upper limit) and Minimum Monthly
Usage Charge (lower limit) described below:
Hourly Usage Charge Rate Schedule:
July 1, 1997 through December 31, 1997 [**] per hour
January 1, 1998 though December 31, 1998 [**] per hour
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
All subsequent years [**] per hour
Maximum Monthly Usage Charge: You agree to provide to us each month
the Subscriber Count for such month (by price plan) as of the last day of each
month, by the fifth day of the next month. We will use the Subscriber Count as
the basis for calculating the Maximum Monthly Usage Charge for such month. For
any month in which the average monthly connect hours per Subscriber (total
connect hours divided by the Subscriber Count) does not exceed 30 hours, the
Maximum Monthly Usage Charge you will pay is equal to [**] times the Subscriber
Count for such month. If the average monthly connect hours per Subscriber in
any month exceeds 30 hours, then, in addition to the Maximum Monthly Usage
Charge, we shall invoice you, and you agree to pay us an additional amount equal
to (a) [**] per hour times (b) the number of average hours (or any portion
thereof) in excess of 30 hours times (c) the Subscriber Count for such month. In
the event that the Maximum Monthly Usage Charge does not apply, as described in
Section 6.4 or in the previous sentence, you will pay us the greater of the
applicable Hourly Usage Charge or the Minimum Monthly Usage Charge for such time
period of noncompliance.
Minimum Monthly Usage Charge:
$3,000,000 per calendar month for the period from July 1, 1997 through
June 30, 1998;
$3,500,000 per calendar month for the period from July 1, 1998 through
June 30, 1999;
$4,000,000 per calendar month for the period from July 1, 1999 through
June 30, 2000;
$4,500,000 per calendar month for the period from July 1, 2000 through
June 30, 2001.
In any month, if the Hourly Usage Charge is not equal to or greater
than the applicable Minimum Monthly Usage Charge, you agree to pay us the
applicable Minimum Monthly Usage Charge as set forth above.
For example (assumption: average monthly connect hours per Subscriber
is not in excess of 30 hours and no other amounts were due)
Minimum Monthly Usage Charge:
The Minimum Monthly Usage Charge you will be
required to pay for Subscriber connect services is
set forth in the paragraph above. July 1997: =
$3,000,000.
For purposes of determining connect hours, the sequence of a call is as follows:
The dial port
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
goes off hook, modem synchronization, protocol management, call routed, Prodigy
authentication, session live while user performing tasks, user initiates end of
session or the session otherwise ends, eventually resulting in modem off-line
and session termination (carrier dropped). We will aggregate the total time of
all calls, rounded up by city to the nearest hour. The length of each individual
call will be calculated from the time the port goes off hook to session end
(modem off-line), rounded up to the nearest second.
6.5.2 Other Monthly Charges
In addition to the charges provided in Section 6.5.1 above, you agree to
pay us each month for the following, which is dedicated for your exclusive use
and provided you approve of such use in writing:
1. for each NAP connection at a rate of [**] per month for each
DS3 connection, at our choice of location, as are necessary for
supporting your Subscribers,
2. for all remote and proxy server connections at a rate of [**]
per month for each EtherNet connection at each remote and proxy
server location,
3. for servers which you require in addition to those installed as of
the date hereof, an amount for the acquisition, installation,
operation and maintenance of hardware and software for such server,
at our total cost plus 10% (including applicable sales tax).
4. If you ask us or no later than August 31,1997 to assume or provide
any network related service obligations, not specifically disclosed
in this Agreement, including its Exhibit and Schedules
("Supplemental Obligations"), we will assume such Supplemental
Obligations in consideration for payment to us of our total cost
plus 10% (including applicable sale tax); provided that, such cost
plus 10% pricing shall not be applicable to any increase or
variations in Supplemental Obligations, and the parties shall
mutually agree on pricing for any such increase or variation.
6.5.3 Payment Terms
Except as provided in the Transition Services Agreement while it is in
effect, you agree to pay us the applicable Minimum Monthly Usage Charge (plus
any other fixed charges) by the end of the calendar month that we provide the
Service, whether or not you receive an invoice for such charges, and to make
payments to us by wire funds transfer or other mutually agreed to electronic
means to an account specified by us. For all other charges, we shall make
reasonable efforts to provide invoices on or before the tenth day of the month
following the monthly period being invoiced and you agree to pay such invoices
within 30 days of the invoice date. If you do not make payments to us by their
applicable due dates, you agree to pay us a service charge equal to the lesser
of 1.5% per month or the maximum allowable rate under applicable law on each
unpaid amount. You agree to pay charges for all Service usage you or Subscribers
incur by any means, including providing a User Identification to access a
Service. You are responsible for charges and damages resulting from misuse of
User Identifications.
Applicable taxes, such as sales, use or excise taxes are not included in
the above charges, and you will be invoiced for taxes payable by you but
required by law to be collected by us, but taxes shall not include line access
or similar telecommunications based charges.
<PAGE>
We shall be responsible for payment of sales, use, property and other taxes
on machines, software, or goods and services used or furnished by us for our own
use in providing the Services to you. All taxes incurred in connection with our
upgrading of the network to ATM switching, or any other upgrade, whether
mandatory or voluntary, shall be our sole responsibility.
You shall be responsible for sales, use, property and other taxes on
machines, software, or goods and services provided by you.
All pricing for dial access covers speeds up to 56K bps. All pricing of
higher speed Service is subject to negotiation and agreement between the
parties.
6.6 Forecasts
At the beginning of each quarter, you shall supply us with a rolling 15-
month forecast consistent with your business model:
1. hours of traffic for each site for each month of the forecast,
2. time of peak busy hour for each site,
3. average peak busy hour percentage for each site for each month of the
forecast,
4. distribution of traffic by hour of day across all sites, and
5. average session length across all sites.
We shall use this information to perform capacity planning for the Services
provided under this Agreement.
For purposes of determining if a forecast is valid or invalid, the fourth,
fifth and sixth month of a forecast shall be recorded and saved and then
compared against the actual. The forecast for the specified month compared
against the actual is valid if the actual peak hours are no more than 15%
greater than the forecasted peak hours. If the actual peak hours are more than
15% greater than the forecasted peak hours, then the forecast for the month is
invalid and the SDGS objective does not apply for that month. For any month in
which a forecast is invalid, we shall not be responsible for SDGS or TD
objectives for the subject forecast period.
6.7 Changes and Default
6.7.1 Undesirable Conditions.
If any of the following undesirable events occurs for two
consecutive months or four months out of a twelve-month period, you may
terminate this Agreement upon 45 days written notice to us ("Notice of
Termination"):
SDGS below P.05 for 30% or more of the sites
SSA below 95% for 30% or more of the sites
OSA below 95%
TD above 250 millisecond monthly average, and 500 milliseconds
monthly average for
<PAGE>
Alaska and Hawaii.
For SDGS and SSA undesirable condition calculations, a site is deemed
to be meeting its service level objective during any period of time when the
corresponding service level objective is not applicable. For OSA and TD, an
undesirable condition shall not apply during any period of time when the
corresponding service level objective is not applicable.
If you desire to terminate this Agreement because of any of the
foregoing undesirable conditions, you must give us a Notice of Termination
within 30 days of receiving the monthly report that gives rise to your right of
termination. If you do not exercise your right of termination within such 30 day
period and in the next month the applicable undesirable condition no longer
exists, then you waive any right of termination for the applicable time period
and this Agreement shall remain in full force and effect.
Upon Notification of Termination, we shall provide reasonable
transition assistance to you, for a period of up to six months, and no
termination adjustment charge or service level credits shall apply, nor shall
any Minimum Monthly Usage Charges apply after the effective date of termination.
6.7.2 System Wide Failure.
If 50% of the point of presence sites are failing to provide access or
Services for forty eight consecutive hours, then you have the right to
enter our premises to operate our network assets and direct our employees,
as is necessary to cure such failure, and we shall reimburse you for any
reasonable expense you incur in doing so. We will cooperate with your
efforts in restoring service to the network. You shall also have the right
to terminate in accordance with the termination provisions within Section
6.7.1.
6.7.3 Financial Related Defaults.
The occurrence of any of the following events shall constitute an Event of
Default (herein so called) hereunder:
1. If we shall fail to perform any of our obligations and covenants under
Section 1.14; or
2. If you, in good faith, after reviewing any document or report required to
be delivered under Section 1.14, believe that there has been a material and
adverse change in our business operations and conditions, financial or
otherwise, which in your reasonable opinion will have a materially adverse
effect upon the operations, business, property, assets, financial condition or
credit of us or you.
Remedies
- --------
Upon the occurrence of an Event of Default in this Section 6.7.3, you shall have
the right, at your option, to initiate an alternative dispute resolution by the
procedures set forth in Section 6.12. If the dispute is not resolved by
mediation, the arbitrators will be instructed to determine whether or not we, in
their judgment, are capable of performing our obligations under this Agreement.
A decision shall be rendered within three days of the conclusion of mediation or
arbitration, as appropriate.
We will respond within three business days to any reasonable request for
information made by the arbitrators.
<PAGE>
If the arbitrators' judgment is that we are not capable of performing our
obligations under this Agreement for the twelve month period after the
arbitrators render their decision, then you shall have the right, in your sole
discretion, to elect either (i) to terminate this Agreement, without penalty,
and be relieved of the Minimum Monthly Usage Charges, or (ii) to enter our
premises to operate our network assets and direct our employees to the extent
necessary to operate the network until the end of the Initial Term of this
Agreement, and we shall reimburse you for any reasonable expenses you incur in
doing so.
6.7.4 Default (other than for Sections 6.7.1, 6.7.2 or 6.7.3)
This Section 6.7.4 applies to defaults, other than for the events
described in Sections 6.7.1, 6.7.2 or 6.7.3.
In the event that either party materially defaults in the
performance of any of its duties or obligations under this Agreement (other than
your failure to make timely payments due to us) and does not substantially cure
such default within 60 days after being given written notice specifying the
default, then the party not in default may, by giving written notice to the
defaulting party, terminate this Agreement (herein termination "for cause").
In the event you do not make any payment of the Minimum Monthly
Usage Charge or Hourly Usage Charge due to us on the due date, then we may
terminate this Agreement 45 days after we give you written notice of such
default and provided that we did not receive good funds for such overdue payment
within the 45 day time period. In the event that you do not make any other
payment due to us within 30 days of your receipt of an invoice, and such failure
is not remedied within 60 days after we give you written notice of nonpayment
(the "Cure Period") then we may terminate this Agreement upon the expiration of
the Cure Period.
In the event that you are in default (for reasons other than failure
to make timely payments due to us) and we elect to terminate this Agreement,
then you may request an extension of this Agreement of up to six months as a
transition period, provided that we, in our discretion, agree to provide such an
extension.
In the event that you terminate this Agreement because we are in
material default for reasons other than as described in Section 6.7.1 then we
will provide reasonable transition assistance to you, for a period of up to six
months and no termination adjustment charges or service level credits shall
apply.
You may terminate this Agreement during the Initial Term without
cause by providing 12 months' prior written notice to us. If you terminate this
Agreement without cause, or if we terminate this Agreement for cause, you shall
pay us a termination adjustment charge as follows: $7,000,000 if terminated in
the first year of the Agreement; $5,000,000 if terminated in the second year of
the Agreement; and $3,000,000 if terminated in the third year of the Agreement
Payment is due and payable upon the date termination notice is given and all
other terms and conditions of this Agreement shall remain in place.
6.8 Other Terms
You will not be allowed to test or repair our dial network, except as
provided in Section 6.7.2., and except to send your own sample pings similar to
that described in section 6.2.3.
<PAGE>
6.9 Auditing Procedures
We shall maintain true and accurate accounting records, in accordance with
sound accounting practices, to support the dial connect charges payable to us by
you. We shall, upon 30 days' prior written request, during normal business
hours, but not more frequently than once each calendar quarter, provide access
to the connect hour accounting records associated only with the provision of the
Service for the immediately preceding one-year period to an independent
accounting firm chosen and compensated by you for the purposes of auditing the
accuracy of the calculation of the dial connect charges. The accounting firm
selected shall: be required to sign an agreement with us protecting our
confidential information, perform such audit on our premises, and such other
locations reasonably necessary to conduct a proper audit, comply with our
security procedures, and be authorized by us to report only the results of such
audit and provide us with a copy of the report.
In the event that the audit shows you owe an amount to us, we will invoice
you for such amount within the next two monthly billing cycles.
In the event that the audit shows a credit due to you, we will process such
credit including the cost of the audit (but such costs shall not exceed the
credit), excluding travel and per diem charges, plus interest at the prime rate
on the entire amount until paid in full within the next two monthly billing
cycles, provided that we do not disagree with the audit report. If we disagree
with the audit report, we may select an independent accounting firm, compensated
by us, to perform an audit on the same information provided to the firm selected
by you. We shall provide you a copy of the report commissioned by us. In the
event that the audit reports disagree on the credit due to you, the credit due
to you will be determined by averaging the results of the two audit reports.
6.10 Primary Provider
We shall be your Primary Provider of Services. You shall be free to make
agreements with third parties for Services, provided you shall not seek or
accept any bids for Services to replace our Services in their totality or to any
substantial extent. In addition, you shall not seek to bundle our Services with
other features which will have the effect of diverting traffic away from our
network in an amount which causes our traffic from you not to follow generally
the overall amount of your dial up access service needs; measured quarterly.
You shall negotiate with us in good faith for any new service which we have
the ability, capacity and interest to provide. You shall be free to offer new,
experimental and other access including without limitation, ADSL, cable access,
modified cable access including dial up, satellite access, roaming (e.g.
Aimquest). Web TV, access bundled with content of other applications, agreements
with regional bell operating companies or long distance companies as marketing
partners ("Other Business"); provided that, at least thirty days prior to your
-------------
entering into any agreement or arrangement for Other Business, you will deliver
to us on a confidential basis any business plan changes, projections, draft
agreements and other documents describing such Other Business and meet with us
to discuss such Other Business.
You shall not offer Other Business that would result in a material increase
in our costs unless we both agree on the amount of increased revenues which will
bear a reasonable relationship to such increase in our costs; provided that, if
we cannot agree on the amount of such increased revenues, we shall have no
obligation to provide our Services required for such Other Business.
<PAGE>
6.11 Additional Services and Products
You may request us to provide you services, products or enhancements which
are not the subject of this Agreement, which include services, products or
enhancements which we provide to other customers. If we provide such services,
products or enhancements, we agree that we will offer you a price for such
services or products which is no higher than the price we charge any other party
for the same services, products or enhancements; provided, however, that you
will not be entitled to receive this price treatment with respect to any
product, service or enhancement which we have developed for another party, or
which we consider to be proprietary.
If you request us to develop a new product, service or enhancement for
your use and we agree to develop such product or service, then we will charge
you a price which will include a profit to us.
6.12 Alternative Dispute Resolution
In the event of a dispute between you and us arising out of or relating to
this Agreement, or the breach thereof, you and we shall submit the dispute to
nonbinding mediation and shall make a good-faith effort to resolve the dispute
through the mediation process. In the event the dispute is not resolved through
mediation within 30 days following written notice by one party that it desires
to enter into mediation, then such dispute shall be resolved exclusively and
finally by binding arbitration by three arbitrators who will be appointed and
will act as follows:
The party requesting arbitration shall, simultaneously with such request,
appoint one arbitrator and shall notify the other of such appointment together
with such arbitrator's acceptance. Within 30 days from the receipt of such
notice, the other party shall appoint another arbitrator and shall notify the
requesting party of such appointment together with the second arbitrator's
acceptance. The third arbitrator, who shall act as chairman of the arbitration
panel, shall be appointed by the other two arbitrators within the following 30
days. In the event either party fails to appoint an arbitrator or in the event
no agreement is reached between the two arbitrators as to the appointment of the
chairman of the arbitration panel in accordance with the foregoing provisions,
such arbitrator or arbitrators shall be appointed, upon application by the
interested party, by the American Arbitration Association (AAA).
The arbitrators shall apply the arbitration rules of the AAA.
The award of the arbitrators shall be final and shall not be subject to any
appeal or challenge whatsoever. The arbitrators will not be required to file
their award with any body or authority whatsoever. In the event arbitration
proceedings are initiated under this section, pending such proceedings and until
a final award is rendered pursuant thereto, any subsequent controversy arising
between the parties shall be exclusively submitted for final decision by the
arbitrators in the arbitration
<PAGE>
proceedings already pending. The arbitrators shall be instructed by the parties
to include an award for reasonable attorneys' fees, arbitrators' fees, expert
witnesses, travel and other costs incurred.
If a dispute arises out of an alleged breach of this Agreement (other than
your failure to make timely payments due to us), then you and we agree to
continue to perform our respective obligations under this Agreement until an
agreement is reached through mediation or the arbitrators render a decision,
whichever is applicable.
PRODIGY SERVICES CORPORATION SPLITROCK SERVICES, INC.
By: /s/ Paul W. DeLacey By: /s/ William R. Wilson
-------------------------- -----------------------
Name: PAUL W. DELACY Name: WILLIAM R. WILSON
Title: PRESIDENT Title: PRESIDENT
<PAGE>
EXHIBIT 10.20
AGREEMENT OF SUBLEASE
---------------------
AGREEMENT OF SUBLEASE, made as of the 24th day of June, 1997 by and between
----
Prodigy Services Corporation, with an office at 445 Hamilton Avenue, White
Plains, New York, 10601 (hereinafter referred to as "Sublessor") and SplitRock
Services, Inc., a corporation having an office at 2170 Buckthorne Place,
Woodlands, Texas 77380 (hereinafter referred to as "Sublessee").
WHEREAS, Sublessor is presently the tenant under that certain lease dated
June 6, 1988 between Crow Kelly #1, as landlord, and Sublessor, as tenant,
covering the entire building known as 1565 Front Street, Yorktown Heights, New
York (the "Building") , which lease was modified by a Letter Agreement dated
January 20, 1989, and an Amendment to Lease dated the ____ day April, 1995,
between Federal Deposit Insurance Corporation as Receiver of New Bank of New
England, N.A., as successor in interest to Crow Kelly #1, with an address c/o
RECOLL Management Corporation at 245 Summer Street, Boston, Massachusetts
02210, and Sublessor (which lease, as modified and amended, is hereinafter
referred to collectively as the "Prime Lease"); and
WHEREAS, Sublessee desires to lease from Sublessor and Sublessor is willing
to lease to Sublessee a portion of the premises leased under the Prime Lease,
consisting of approximately 12,500 rentable square feet as denoted on Schedule A
annexed hereto, (which space is hereinafter called the "Subleased Premises").
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto, for themselves, their successors and assigns, hereby
covenant and agree as follows:
1. Term. Sublessor does hereby lease to Sublessee and Sublessee does
----
hereby hire and take from Sublessor the Subleased Premises for a term commencing
as of July 1, 1997 and ending February 28, 2001 or until such term shall sooner
end as may be provided in this Sublease. Sublessee may terminate this Sublease
effective upon December 31 of 1999 or 2000 year upon three months prior written
notice to Sublessor. In the event Sublessor terminates for any reason the Full
Service Agreement between Sublessor and Sublessee of even date herewith, this
Sublease shall terminate upon the termination date of the Full Service
Agreement.
2. Fixed Rent. (a) The obligation of Sublessee to pay fixed annual rent
----------
hereunder shall commence on July 1,1997 and continue throughout the term hereof.
(b) Sublessee shall pay to Sublessor, commencing as of the rent
commencement date hereinbefore described, a fixed annual rent equal to $20.83
per square foot, in equal monthly installments in advance on the first day of
each month during the term of this Sublease. All amounts payable pursuant to
this Sublease shall be deemed rent, and shall be payable without set-off or
deduction whatsoever, at the offices of Sublessor or such other place as
Sublessor may designate in writing. The first month's rent payable hereunder
shall be paid to Sublessor at the time the assets are delivered pursuant to the
Definitive Agreement between the parties.
1
<PAGE>
(c) All costs, charges and expenses which Sublessee assumes or agrees
to pay to Sublessor, pursuant to this Sublease, shall be deemed additional rent
and, in the event of nonpayment, Sublessor shall have the rights and remedies
herein provided for in the case of nonpayment of rent.
3. Additional Rent. Sublessee shall also pay to Sublessor as additional
---------------
rent hereunder, commencing as of the rent commencement date hereinbefore
described, a sum on account of additional rent, as calculated in accordance with
the attached Schedule B. Additional rent payable under this Paragraph 3
represents payment for (i) Sublessee's share of any increase of costs to
Sublessor with respect to insurance, taxes, and assessment on the Building for
any calendar year after 1997 and (ii) the following services which shall be made
available by Sublessor to Sublessee: the use of common areas of the Building;
the use of furniture, fixtures, desktop and laptop personal computers, and
leasehold improvements in the Subleased Premises which will be used by
Sublessee's employees and independent contractors; maintenance and cleaning of
and trash removal from the Subleased Premises; security for the Building;
maintenance and repair of heating, ventilation and air conditioning systems in
the Building; maintenance and repair of elevators in the Building, and other
base building type services. Sublessee's share of costs under this Paragraph
3.(B)(i) shall be 20.49% of the total costs. Sublessee shall purchase telephone
services from Sublessor at Sublessor's cost. Sublessor will establish its own
accounts for mail, courier, outside printing and similar services.
4. Use. Sublessee shall use and occupy the Subleased Premises solely for
---
any use permitted by the Prime Lease, and for no other purpose. The Subleased
Premises are only a portion of the Building, and therefore, the parties
acknowledge that each party's employees shall have access to the common areas,
and unless security measures are installed and enforced, the employees, agents,
invitees, and licensees of each party ("Persons") may have access to each
other's premises within the Building. Notwithstanding installation of
appropriate security measures, such Persons shall have access to the common
areas. Sublessee and Sublessor will cause each of their employees having access
to the Subleased Premises to execute confidentiality agreements relating to each
other's confidential information.
5. Prime Landlord Consent. This Sublease is made pursuant to paragraph 20
----------------------
of the Prime Lease, and no consent is needed.
6. Subleased Premises "As Is". Sublessee acknowledges and agrees that it
--------------------------
has examined the Subleased Premises, is fully familiar with the physical
condition thereof, and accepts possession of the Subleased Premises in their "as
is" condition
7. Prime Lease. (a) Sublessee acknowledges that it has read and examined
-----------
the Prime Lease, and the modification and amendment thereof, and is fully
familiar with all the terms, covenants and conditions on the Sublessor's part to
be performed thereunder, and that, subject to the express provisions of this
Sublease, all of the terms, covenants and conditions of the Prime Lease are
incorporated hereinthis Sublease, all of the terms, covenants and conditions of
the Prime Lease
2
<PAGE>
are incorporated herein as if set forth at length, and those applying to the
Tenant therein shall apply to Sublessee.
(b) Sublessee does hereby assume and agree to be bound by and perform
all of the terms, covenants and conditions on Sublessor's part to be performed
thereunder as the same affect the Subleased Premises. In the event Sublessee
shall default in the full performance of any of the terms, covenants and
conditions on its part to be performed under this Sublease, then Sublessor shall
have the same rights and remedies with respect to such default as are given to
Landlord under the Prime Lease with respect to defaults by Sublessor, as tenant,
under the Prime Lease. Notwithstanding the foregoing, this Sublease is separate
from and subordinate to the Prime Lease.
8. Alterations. Sublessee shall not make or permit the making of any
-----------
alterations, decorations, installments, additions or improvements, in or to the
Subleased Premises without Sublessor's prior written consent, which shall not be
unreasonably withheld or delayed, and, additionally, any necessary prior written
consent of Landlord in accordance with the Prime Lease. Any work by Sublessee
shall comply with the governing provisions of the Prime Lease. Sublessee agrees
to pay all costs and expenses in connection with obtaining any consent required
by Landlord and in making such alterations, decorations, installments, additions
or improvements.
9. Assignment/Subleasing/Mortgages. (a) Sublessee may assign to an
-------------------------------
affiliate of Sublessee this Sublease or further sublease the Subleased Premises
to an affiliate of Sublessee in whole or in part without the prior written
consent of Sublessor; provided however, that any such assignment shall not
release Sublessee from its obligations hereunder. Except as set forth in this
Paragraph 9(a), Sublessee may not mortgage, pledge or otherwise encumber,
whether voluntarily, by operation of law, or otherwise, this Sublease or further
sublease the Subleased Premises in whole or in part without the prior written
consent of Sublessor, which may be withheld by Sublessor in its sole discretion.
(b) If the Subleased Premises or any part thereof be sublet or
occupied by any person or persons other than Sublessee, whether or not in
violation of the provisions of this Sublease, Sublessor may, after default by
Sublessee, collect rent from the subtenant or occupant and apply the net amount
collected to the curing of any default hereunder in any order or priority
Sublessor may elect, any unexpended balance to be applied by Sublessor against
any rental or other obligations subsequently becoming due, but no such
subletting, occupancy or collection of rent shall be deemed a waiver of the
covenants in this Article, nor shall it be deemed acceptance of the subtenant or
occupant as a tenant or a release of Sublessee from the full performance by
Sublessee of all of the terms, conditions and covenants of this Sublease.
(c) Each and every assignee or transferee, whether as assignee or as
successor in interest of Sublessee or as assignee or successor in interest of
any assignees, shall immediately be and remain liable jointly and severally,
with Sublessee and with each other for the payment of the rent, additional rent
and other charges payable under this Sublease and for the due performance of all
covenants, agreements, terms and provisions of this Sublease on the part of
Sublessee to be paid
3
<PAGE>
and performed to the full end of the term of this Sublease.
(d) Any consent by Sublessor or the landlord under the Prime Lease
that may hereafter be given to any act of assignment, mortgage, pledge,
encumbrance or subletting shall be held to apply only to the specific
transaction thereby approved. Such consent shall not be construed as a waiver of
the duty of Sublessee or its successors or assigns to obtain from Sublessor and
the landlord under the Prime Lease consents to any other subsequent assignment,
mortgage, pledge, encumbrance or subletting, or as a modification or limitation
or the rights of Sublessor with respect to the foregoing covenants by Sublessee.
10. Services. (a) Sublessee shall be entitled to receive all services to
--------
be rendered to the Sublessor under the Prime Lease for the Subleased Premises.
(b) Subject to the provisions of Paragraph 11 hereof, Sublessee shall
also be entitled to receive all services which Sublessor secures for the
Subleased Premises. Sublessor shall continue to provide services to Sublessee as
such are existing on the date of this Sublease for the term of this Sublease, at
the same level as they exist on the date hereof. If Sublessor seeks to modify in
any material respect the services delivered to the Subleased Premises, Sublessor
shall consult in good faith with Sublessee in determining the scope, if any, of
such modification. Upon conclusion of any such agreement to modify such
services, Sublessee shall pay its pro-rata cost of any additional cost incurred
as a result of such modification, and will receive the benefit of any reduction
in cost as a result of such modification. If Sublessee does not agree to the
modification of services, then Sublessee shall not be required to pay any cost
of such modification.
11. Electrical Service. (a) Sublessee agrees not to connect any
------------------
electrical equipment of any type to the Building electric distribution systems
not permitted under the Prime Lease or which would adversely affect the
electrical system without the prior written consent of Sublessor and Sublessor's
landlord under the Prime Lease.
(b) Sublessee agrees that in the event Sublessor is required to
provide electric service through an emergency power system Sublessor may
terminate the ancillary services to be provided by Sublessor under Paragraph 3.B
hereof during such period the emergency power system is used.
12. Prime Landlord Default. If the landlord under the Prime Lease shall
----------------------
default in the performance or observance of any of its agreements or obligations
under the Prime Lease (including any obligation for the payment of money),
Sublessor shall have no liability therefor to Sublessee and shall be excused
from performance of the corresponding obligation which may be owed to Sublessee
under this Sublease. In this connection, Sublessor shall fully cooperate with
Sublessee in the assertion of any claims hereunder, in the name of Sublessee or
otherwise, against Sublessor's landlord. No such default shall excuse Sublessee
from the performance of any of its obligations to be performed under this
Sublease, or entitle Sublessee to terminate this Sublease or to any reduction
4
<PAGE>
in or abatement of any of the rents provided for in this Sublease, unless, and
only to the extent that, Sublessor shall be excused from the performance of a
corresponding obligation as the tenant under the Prime Lease, or shall be
entitled to a reduction in or abatement of any of the rents provided for in the
Prime Lease with respect to these Subleased Premises, by reason of such default
by the Sublessor's landlord.
13. Sublessee's Obligation to Cure Defaults. Anything contained in any
---------------------------------------
provision of this Sublease to the contrary notwithstanding, Sublessee agrees,
with respect to the Subleased Premises, to comply with and remedy any default in
this Sublease or the Prime Lease which is the Sublessee's obligation to cure,
within the period allowed to Sublessor as tenant under the Prime Lease even if
such time period is shorter than the period otherwise allowed therein due to the
fact that notice of default from Sublessor to Sublessee is given after the
corresponding notice of default from Sublessor's landlord to Sublessor.
Sublessor agrees to forward to Sublessee, promptly upon receipt thereof by
Sublessor, a copy of each notice of default received by Sublessor in its
capacity as tenant under the Prime Lease. Sublessee agrees to forward to
Sublessor, promptly upon receipt thereof, copies of any notices received by
Sublessee from the Sublessor's landlord or from any governmental authorities
affecting the Subleased Premises.
14. Indemnification. Sublessee does hereby indemnify Sublessor and
---------------
agrees to defend and to hold Sublessor harmless of and from any claim,
liability, damage or loss whether under the Prime Lease or otherwise, by reason
of any negligent act or negligent omission on the part of Sublessee hereunder
including, without limitation, all cost and expense of Sublessor associated with
enforcing this indemnification.
15. Insurance. Sublessee shall obtain and maintain throughout the term
---------
hereof the insurance Sublessor is obligated to maintain as tenant under the
Prime Lease and Sublessee shall cause both the landlord under the Prime Lease
and Sublessor to be named as additional insureds on all such policies. Sublessee
shall deliver evidence of such insurance, in accordance with the terms of the
Prime Lease, to Sublessor on or before July 1, of each year of the term.
16. Security Deposit. Sublessee shall not be required to deposit any sums
----------------
as security for its performance under this Sublease.
17. Sublessee's Representations. Sublessee represents that it is a duly
---------------------------
organized Texas corporation, in good standing, and shall be qualified to do
business in New York effective July 1, 1997, that it has taken all necessary
corporate action to approve and authorize the execution and delivery of this
Sublease, and that this Sublease is enforceable in accordance with its terms.
18. Entire Agreement/Modifications. This Sublease contains the entire
------------------------------
agreement and undertaking between the parties. There are no oral understandings,
terms or other conditions and neither party has relied upon any representation,
express or implied, not contained in this Sublease. All prior undertakings,
terms, representations, conditions or agreements, oral or written, are deemed
merged in this Sublease. This Sublease cannot be changed or supplemented orally
but only by an agreement in writing and signed by both parties hereto.
5
<PAGE>
19. Sublessor's Obligations. Sublessor covenants that so long as Sublessee
-----------------------
is not in default under this Sublease, and subject to Sublessee's obligations
hereunder, Sublessor will not default in any of its material obligations under
the Prime Lease during the term hereof. If Sublessor shall default on any of its
material obligations under the Prime Lease, Sublessee may terminate this
Sublease with no further obligation hereunder. Sublessor further covenants that
subject to the provisions of the Amendment to Lease, if Sublessor seeks to
exercise its rights to early termination of the Prime Lease, pursuant to the
Amendment to Lease, it shall do so at its sole cost and expense and only with
Sublessee's consent, which consent shall not be unreasonably withheld. Sublessor
will not voluntarily enter into any agreement with the landlord under the Prime
Lease which would result in the termination of the Prime Lease prior to the
expiration or sooner termination of this Sublease, without Sublessee's express
prior written consent, which consent shall not be unreasonably withheld.
20. Successors. The covenants, terms, conditions, provisions and
----------
undertakings in this Sublease shall extend to and be binding upon the successors
and permitted assigns of the respective parties hereto.
21. Notices. Any notice or communication which either party hereto may
-------
desire or be required to give to the other, shall be deemed sufficiently given
or rendered if, in writing, it is sent by registered or certified mail or by
private, independent, same-day or overnight courier, addressed to the party at
the address set forth at the start of this Sublease or at such other address as
either party shall by written notice to the other from time to time designate.
The time of the giving of such notice shall be deemed to be five (5) days after
the time when same is mailed or one (1) day after delivery to a private courier,
as hereinabove provided. Attorneys to a party may deliver notices on behalf of
that party. Invoices, bills, statements and the like, may be sent by ordinary
first class mail.
22. Brokers. Sublessee represents and warrants that it neither consulted
-------
nor negotiated with any broker or finder with regard to the Subleased Premises
or this Sublease, Sublessee agrees to indemnity, defend and save Sublessor
harmless from and against any claims for fees or commissions from anyone who
claims to have dealt with Sublessee in connection with the Subleased Premises or
this Sublease.
23. Governing Law. The laws of the State of New York govern this Sublease,
-------------
without regard to conflict of law rules.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed as of the day and year first above written.
Sublessor:
PRODIGY SERVICES CORPORATION
By: /s/ Paul W. Delacey
---------------------------------------
Name: Paul W. Delacey
Title: President
Sublessee:
SPLITROCK SERVICES, INC.
By: /s/ William R. Wilson
---------------------------------------
Name: William R. Wilson
Title: President
7
<PAGE>
EXHIBIT 10.30
AMENDED AND RESTATED
LEASE
BY
WESTCHESTER ONE LLC
TO
PRODIGY SERVICES CORPORATION
44 SOUTH BROADWAY
WHITE PLAINS, NEW YORK
AMENDED AND RESTATED LEASE DATED SEPTEMBER 19, 1997
<PAGE>
PRODIGY SERVICES CORPORATION
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE 1 PREMISES......................................................... 1
ARTICLE 2 USE.............................................................. 2
ARTICLE 3 TERM............................................................. 2
ARTICLE 4 RENT............................................................. 5
ARTICLE 5 PREPARATION FOR OCCUPANCY, ENVIRONMENTAL
MATTERS.......................................................... 6
ARTICLE 6 REPAIRS AND MAINTENANCE.......................................... 8
ARTICLE 7 SERVICES......................................................... 8
ARTICLE 8 IMPROVEMENTS AND ALTERATIONS..................................... 11
ARTICLE 9 SURRENDER........................................................ 16
ARTICLE 10 INSPECTION...................................................... 16
ARTICLE 11 CASUALTY........................................................ 17
ARTICLE 12 FIRE INSURANCE.................................................. 18
ARTICLE 13 CONDEMNATION.................................................... 19
ARTICLE 14 TAXES........................................................... 21
ARTICLE 15 DEFAULTS........................................................ 21
ARTICLE 16 HOLDOVER........................................................ 23
ARTICLE 17 NOTICE.......................................................... 23
ARTICLE 18 ASSIGNMENT; SUBLETTING.......................................... 23
ARTICLE 19 QUIET ENJOYMENT................................................. 26
ARTICLE 20 ARBITRATION..................................................... 26
-i-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
ARTICLE 21 SUBORDINATION AND NON-DISTURBANCE................................ 27
ARTICLE 22 RULES AND REGULATIONS............................................ 27
ARTICLE 23 FLOOR LOAD, NOISE AND FURNISHINGS................................ 27
ARTICLE 24 LAWS AND ORDINANCES.............................................. 28
ARTICLE 25 CHANGE OF PUBLIC PORTIONS OF THE BUILDING........................ 28
ARTICLE 26 RIGHT TO SHOW PREMISES........................................... 29
ARTICLE 27 MAINTENANCE OF BUILDING.......................................... 29
ARTICLE 28 PARKING.......................................................... 29
ARTICLE 29 WAIVERS.......................................................... 30
ARTICLE 30 BINDING AGREEMENT................................................ 30
ARTICLE 31 BROKER........................................................... 31
ARTICLE 32 LIABILITY INSURANCE.............................................. 31
ARTICLE 33 STORAGE AREA..................................................... 31
ARTICLE 34 SIGNAGE.......................................................... 32
ARTICLE 35 SATELLITE DISH................................................... 32
ARTICLE 36 SECURITY DEPOSIT................................................. 32
ARTICLE 37 LOADING DOCKS.................................................... 34
ARTICLE 38 PREVAILING PARTY................................................. 35
ARTICLE 39 FORCE MAJEURE.................................................... 36
ARTICLE 40 MISCELLANEOUS.................................................... 36
EXHIBIT A. ................................................................. 38
EXHIBIT B. LEGAL DESCRIPTION................................................ 39
-ii-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT C. OPERATING EXPENSE ESCALATION...................................... 40
EXHIBIT D. REAL ESTATE TAX ESCALATION........................................ 43
EXHIBIT E. TITLE EXCEPTIONS.................................................. 45
EXHIBIT F. CERTIFICATE OF OCCUPANCY.......................................... 46
EXHIBIT G. LIST OF PRODIGY COMPETITORS....................................... 47
EXHIBIT H. JANITORIAL SPECIFICATIONS......................................... 48
EXHIBIT I. SECURITY AND FIRE ALARM SYSTEMS:.................................. 51
Security............................................................ 51
Automatic Fire, Smoke and Communication System...................... 51
Fire Alarm System Operation......................................... 51
EXHIBIT J. SECURITY DEPOSIT SCHEDULE......................................... 53
EXHIBIT K. HEATING, VENTILATING AND AIR CONDITIONING......................... 54
-iii-
<PAGE>
AMENDED AND RESTATED LEASE, made the 19th day of September, 1997 between
WESTCHESTER ONE LLC, a New York limited liability company, having its principal
office at 700 White Plains Road, Scarsdale, New York 10583 (hereinafter referred
to as "Landlord"), and PRODIGY SERVICES CORPORATION, a Delaware corporation
having an address at 445 Hamilton Avenue, White Plains, NY 10601 (hereinafter
referred to as "Tenant").
WHEREAS Landlord and Tenant entered into a Lease dated August 14, 1997 relating
to space at the building known as Westchester ONE located at 44 South Broadway,
White Plains, NY; and
WHEREAS Landlord and Tenant desire to amend and restate such Lease as herein-
after set forth.
NOW, THEREFORE, Landlord and Tenant agree as follows:
ARTICLE 1 PREMISES
Landlord hereby leases to Tenant, and Tenant hereby hires and takes
from Landlord (i) approximately 82,356 square feet of rentable space consisting
of the entire 8th and 9th floors, (herein referred to as the "Office Space") and
(ii) up to 7,000 square feet of rentable storage area on Lower Level 3 as
provided in Article 33 hereof (the "Storage Area"), together with the parking
spaces as provided in Article 28 (collectively the "Premises"), in the building
known as Westchester ONE, consisting of approximately 851,769 square feet of
rentable office area and parking structure (collectively the "Building"), which
is situated on real property (the land), located at 44 South Broadway, in the
City of White Plains, County of Westchester, State of New York 10601, a legal
description of which is attached hereto as Exhibit B, together with the right of
access to Tenant, its employees, agents, invitees and servants, in common with
all others lawfully entitled thereto, on, over and through the common areas of
said Building.
Landlord represents and warrants as a further condition of this Lease
that it has good marketable fee title to the Building and the land (subject only
to the exceptions set forth on Exhibit E attached hereto) and has the right to
enter into this Lease upon the terms hereof; that the provisions of this Lease
do not conflict with or violate the terms of existing mortgages, security deeds,
deeds of trust, easements, licenses, permits, leases, contracts or other such
agreements, that the Premises and the common areas of the Building, including,
without limitation the parking structure, and the uses thereof for the purposes
specified in this Lease are in conformity with all applicable legal
requirements, including, without limitation, zoning and planning ordinances, and
do not violate applicable restrictions.
ARTICLE 2 USE
The Premises may be used and occupied by Tenant for general offices,
sales, display, storage and use of Tenant's products and equipment, engineering,
education and training, parking of cars, kitchen, and all other uses incidental
and related thereto. The Premises may not be used for purposes of a retail
store.
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
If any governmental license or permit, other than a certificate of
occupancy, shall be required for the proper and lawful conduct of Tenant's
business in the Premises or any part thereof, Tenant, at its expense, shall duly
procure and thereafter maintain such license or permit and submit the same to
Landlord for inspection. Tenant shall at all times comply with the terms and
conditions of each such license or permit. Landlord shall cooperate with Tenant
(at Tenant's expense) and shall join with Tenant, if necessary, in any
application with respect to obtaining or renewing any permit necessary in
connection with any use permitted herein.
Tenant shall not at any time use or occupy the Premises in violation
of the certificate of occupancy at such time issued for the Premises or for the
Building (the "Certificate of Occupancy"), a copy of which is attached hereto as
Exhibit F, and in the event that any department of the City of White Plains, the
County of Westchester or the State of New York shall hereafter contend or
declare by notice, violation, order or in any other manner whatsoever that the
Premises are used for a purpose which is a violation of such certificate of
occupancy, Tenant shall, upon written notice from Landlord or any governmental
authority, immediately discontinue such use of the Premises, subject to Tenant's
right to contest such contention or declaration or right to require that
Landlord do so. Landlord represents and warrants that the uses specified in this
Article 2 will not violate the Certificate of Occupancy in effect on the date of
this Lease. Landlord covenants not to do (or give its permission to do) any act
which would cause the Certificate of Occupancy to be amended in such a way that
the uses specified in this Article 2 would, as a result thereof, be in violation
of such amended Certificate of Occupancy.
So long as Prodigy Services Corporation is the Tenant under this Lease
and actually occupies at least fifty percent (50%) of the Office Space of the
Premises, Landlord shall not lease other space in the Building to those
entities listed in Exhibit G.
ARTICLE 3 TERM
Initial Term: The initial term of this Lease shall commence upon
execution of this Lease (the "Commencement Date") and shall expire on December
31, 2004, or on such earlier date upon which the term of this Lease shall expire
or be canceled or terminated pursuant to any of the conditions or covenants of
this Lease or pursuant to law (the "Initial Term").
Extension: Provided Tenant is not then in default under the terms of
this Lease beyond any applicable notice and grace period, and further provided
that this Lease has not heretofore been terminated pursuant to the provisions
hereof, Tenant shall have the option to renew this Lease for two additional
terms of five years each (the "Renewal Terms"), commencing upon the expiration
of the Initial Term, and the first Renewal Term, respectively. The options to
renew shall be of no force and effect unless exercised by Tenant giving written
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
notice to Landlord not later than eighteen (18) months prior to the expiration
of the Initial Term and the first Renewal Term, respectively.
The Base Rent payable during a Renewal Term shall be at 100% of the fair
market rental value of the Premises determined as of the date of agreement
between Landlord and Tenant or the decision of the arbitrators as provided
below. The Base Rent shall be determined by agreement in writing between Tenant
and Landlord within forty-five (45) days after the giving of Tenant's notice of
exercise of its right to a Renewal Term. In the event Tenant and Landlord fail
to agree within such 45-day period, the Base Rent shall be determined by
arbitration, in accordance with the procedures set forth below, on the basis of
the then fair market rental value of the Premises. In determining fair market
rental value the arbitrators shall take into consideration the following items:
(A) all costs payable by Landlord in respect of the Renewal Term to Tenant
whether in the form of commission or rent abatement; (B) all costs Landlord will
avoid paying that would be incurred by Landlord (similar to costs incurred by
other landlords of similar buildings in the White Plains Central Business
District at the time of such determination) in the event that Landlord leased
the Premises to a third party, including, without limitation, (i) rent
concessions granted to a third party tenant, and (ii) costs to alter space for
third party tenants; and (C) the length of the Renewal Term. The base tax year
(i) during the first Renewal Term shall be the calendar year 2005 and (ii)
during the second Renewal Term shall be the calendar year 2010. The base year
with respect to operating expenses (i) during the first Renewal Term shall be
the calendar year 2005 and (ii) during the second Renewal Term shall be the
calendar year 2010. Pending determination of the Base Rent for a Renewal Term,
Tenant shall pay on a monthly basis the Base Rent and additional rent payable by
Tenant immediately prior to the commencement of the Renewal Term in question.
The sums paid as Base Rent by Tenant during the Renewal Term prior to
determination of the renewal rent as provided in this Article shall be subject
to adjustment at such time as the renewal rent is determined pursuant to this
Article and any amount owed to Tenant shall be applied to the next installments
of Base Rent or additional rent hereunder and any amount owed to Landlord shall
be paid by Tenant to Landlord within fifteen (15) days after such determination.
In the event of arbitration as set forth above, each party shall select a
real estate appraiser in Westchester County to act as arbitrator and shall
notify the other party of its selection within ten (10) days next following the
expiration of the 45-day period described above. If either party shall fail to
make a selection within the 10-day period, the other party shall have the right
to select an appraiser of its choice to act as the second arbitrator. Following
the selection of the first two arbitrators, the two arbitrators so chosen shall
have an additional period of fifteen (15) days to reach an agreement as to the
matter in question. In the event the two arbitrators fail to agree within such
15-day period, they shall select a third arbitrator. The selection of the third
arbitrator shall be made and notice given to the parties within ten (10) days of
the expiration of the 15-day period described in the preceding sentence. If the
two arbitrators fail to agree on the selection of a third arbitrator, the
arbitrator shall be selected by The American Arbitration Association or its
successor organization (the "AAA") and application to the AAA shall be made
immediately. Each arbitrator selected or designated under this paragraph
-3-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
shall be unaffiliated with either Landlord or Tenant, and shall be a person who
is a member of the American Society of Real Estate Appraisers (or successor
thereto) with at least fifteen (15) years experience in the valuation of fair
market rentals in office buildings in Westchester County. Following the
selection of the panel, the panel shall fix a date, time and place in the City
of White Plains and the State of New York, for a hearing to determine the matter
in question. The hearing shall commence within fifteen (15) days of the
selection of the panel, and the panel shall give notice to each party of the
hearing within five (5) days of the selection of the panel.
The conduct of the arbitration hearing shall be governed by the
following provisions:
(i) The decision of a majority of the arbitration panel shall be binding
on the parties;
(ii) The introduction of evidence at the hearing shall be governed by
informal rules of evidence, subject to the discretion of the panel of
arbitrators, and the arbitrators shall have the right to thoroughly
inspect the Building and the Premises and to obtain and require the
introduction into evidence of any other information normally required
for the appraisal of comparable leasehold interests;
(iii) Neither party shall have the right to appeal from the decision of the
panel, except on a showing of fraud, misrepresentation or lack of due
process;
(iv) The expenses and fees for each of the first two arbitrators shall be
paid by the party required to choose the a arbitrator. The fees and
expenses of the third arbitrator shall be divided equally between the
parties;
(v) The panel shall determine the then fair market rental value of the
Premises. The panel's determination shall be limited to a
determination of the Base Rent, and the panel shall not have the right
to change or alter the payment or amount of additional rent required
to be paid by the Tenant pursuant to this Lease.
(vi) The panel shall conduct and conclude the hearing within a period of
thirty (30) days, and shall render its decision within fifteen (15)
days of the last day of the hearing.
If this Lease shall be renewed in accordance with the provisions hereof, it
shall be so renewed upon all the covenants, agreements, terms, provisions and
conditions set forth in this Lease (and all of Landlord's representations and
warranties shall be true and correct on the commencement date of each Renewal
Term as if made thereon), except that following the
-4-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
expiration of the first Renewal Term there shall be only one further renewal
period and following the expiration of the second Renewal Term, there shall be
no further renewal periods. In addition, the phrases "the term of this Lease",
"the expiration date" and "the term hereof", as used in this Lease shall be
construed to include, when the context so requires, the Renewal Terms.
Unless otherwise expressed, the word term, when used herein,
shall be deemed to include the Renewal Terms.
ARTICLE 4 RENT
During the Initial Term, Tenant shall pay to Landlord an annual
base rent (the "Base Rent") as follows:
Office Space: One Million Nine Hundred Ninety Seven Thousand
------------
One Hundred Thirty Three Dollars ($1,997,133.00) a year, to be paid in
advance in monthly installments of One Hundred Sixty Six Thousand Four
Hundred Twenty Seven Dollars and Seventy Five Cents ($166,427.75) for
the period from the Commencement Date of Lease through December 31,
1999; and
Two Million One Hundred Sixty One Thousand Eight Hundred Forty
Five Dollars ($2,161,845.00) a year, to be paid in advance in monthly
installments of One Hundred Eighty Thousand One Hundred Fifty Three
Dollars and Seventy Five Cents ($180,153.75), for the period from
January 1, 2000 through December 31, 2001; and
Two Million Three Hundred Twenty Six Thousand Five Hundred
Fifty Seven Dollars ($2,326,557.00) a year, to be paid in advance in
monthly installments of Two Hundred Seventeen Thousand Four Hundred
Fourteen Dollars and Sixty Cents ($193,879.75), for the period from
January 1, 2002 through December 31, 2004.
Storage Area: Annual rent equal to the number of rentable
------------
square feet in the Storage Area multiplied by Twelve Dollars ($12) per
rentable square foot, to be paid in advance in monthly installments.
All Base Rent and additional rent shall be paid by Tenant to
Landlord without set off, deduction or abatement of any kind except as
specifically provided in this Lease.
Tenant shall be entitled to abatements of the entire monthly
Base Rent for the Premises during the period from the Commencement Date through
December 31, 1997 (the "Abatement Period"), provided that Tenant shall not be in
default beyond any applicable notice and grace period under any term or
condition of this Lease at any time during such period; Tenant shall not be
entitled to an abatement of, or credit against, (i) any additional rent due
-5-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
pursuant to the terms of this Lease, including any additional rent due pursuant
to Exhibits C and D of this Lease, and (ii) for electric energy pursuant to
Article 7(E) of this Lease. Tenant shall also pay for all janitorial services
provided to the portion of the Premises for which janitorial services are
necessary during an abatement period commencing on the date Tenant takes
occupancy of the Premises in accordance with Landlord's normal charges therefor
which are currently $1 per rentable square foot a year plus the cost of
expendable supplies and paper products for the Premises.
If Tenant shall be in default under any term or condition of
this Lease beyond any applicable notice and grace period, at any time during the
Abatement Period, the abatement of Base Rent during such Abatement Period, as
the case may be, shall be suspended as of the date of expiration of any
applicable notice and grace period for such default. If Tenant cures the default
which resulted in the suspension of the abatement of Base Rent during an
Abatement Period, then the abatement of Base Rent during such Abatement Period,
as the case may be, shall resume as of the date such default is cured and shall
continue until Tenant realizes the full amount of the abatement of Base Rent or
the rent credit, as the case may be, unless and until the provisions of this
paragraph would again apply.
Base Rent and additional rent for any period of less than one
month shall be apportioned based on the number of days in that month.
ARTICLE 5 PREPARATION FOR OCCUPANCY; ENVIRONMENTAL MATTERS
Except as provided in the next paragraph, Tenant is leasing the
Premises "as is" on the date hereof.
Prior to December 15, 199?. Landlord shall, at its expense,
install solar control window film on those windows of the Office Space which do
not already have such window film in good condition.
Landlord represents and warrants to Tenant that:
(i) To the best of Landlord's knowledge, no Hazardous
Materials exist in the Premises, the Building or on, under or about the land
and/or the improvements thereon.
(ii) Landlord and, to the best of Landlord's
knowledge, no other owner, tenant or occupant of the Premises, the Building
and/or the land, has used, treated, generated, stored, produced, disposed,
spilled, leaked or released Hazardous Materials in the Premises, the Building or
on, under, or about the land and/or the improvements thereon.
(iii) Landlord and, to the best of Landlord's
knowledge, no other owner, tenant or occupant of the Premises and/or the land,
has transported or caused, permitted or
-6-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
arranged for the transportation of, Hazardous Materials to or from the land
and/or the improvements thereon.
(iv) No proceeding has been instituted and, to the
best of Landlord's knowledge, no proceeding is threatened, by any party or
governmental body in any way relating to the existence of Hazardous Materials in
the Premises, the Building or on, under or about the land and/or the
improvements thereon.
(v) To the best of Landlord's knowledge, neither the
land nor the improvements ever erected thereon have been used as a dry cleaner
and/or laundry, gas station, landfill, garbage dump or the like.
(vi) No Laws governing the use, disposal, storage,
generation or treatment of Hazardous Materials have been violated by Landlord
and, to the best of Landlord's knowledge, any previous owner and/or occupant of
Premises, the Building, the land and/or improvements thereon.
(vii) To the best of Landlord's knowledge, there are no
underground storage tanks on, under or about the Building other than heating
fuel oil tanks, which comply with Laws.
For purposes of this Article 5 the term (a) Hazardous Materials
-------------------
means any and all hazardous or toxic substances or wastes (so categorized by any
Law), petroleum or crude oil or any constituent, fraction or product thereof,
other than heating fuel oil (which is maintained in compliance with Laws);
asbestos, any polychlorinated biphenyls, and (b) Laws means any and all Federal,
----
state or local laws, rules, ordinances and regulations (including, without
limitation, judicial and administrative interpretations of any thereof) enacted
or promulgated and applicable to (i) Landlord, (ii) any prior owner or occupant
of the Building or land, or (iii) the land and/or the improvements thereon
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liabilities Act, as amended, and the Resource Conservation and
Recovery Act. Landlord agrees to indemnify, defend and hold Tenant harmless from
and against any and all claims, losses, costs or expenses Tenant may incur,
directly or indirectly, by virtue of (i) a breach of the foregoing
representations and warranties or (ii) the existence of any Hazardous Materials
in the Premises, the Building or the land except if such existence results from
any acts of Tenant.
ARTICLE 6 REPAIRS AND MAINTENANCE
a. Throughout the term of this Lease, Tenant shall, at its own
cost and expense, take good care of the Premises and the Landlord's fixtures and
appurtenances therein, and shall maintain all equipment that it installs,
including, but not limited to, all Landlord supplied fixtures, equipment and
furnishings therein; make all repairs to the interior of the
-7-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
Premises as are used exclusively by Tenant and which lie wholly within the
Premises, excepting (I) those matters described in Article 6 (B) below which
shall be made by Landlord at Landlord's expense; (II) structural repairs which
shall be made by Landlord, at Landlord's expense, unless caused by Tenant in
which case such repairs shall be made by Landlord at Tenant's reasonable
expense, and (III) exterior repairs such as repairs to foundations, supporting
walls, roof, uprights, beams and other structural members which shall be made by
Landlord. Landlord, upon written request from Tenant, shall perform the
foregoing obligations of Tenant and Tenant shall pay to Landlord the reasonable
expense incurred by Landlord for performing such obligations.
b. Landlord, at its own cost and expense, shall keep in good
working order the base Building systems, including the heating, ventilating and
air conditioning system, sprinkler system and plumbing systems, the common
areas, elevators, roofs, parking garage equipment, parking structure and
driveway, fire alarm systems, Building security, landscaping and electrical
systems (including the electric meters installed in the Premises as provided in
Article 7(E)), so as to adequately provide service, as provided for in this
Lease.
c. Landlord shall comply with the Americans With Disabilities
Act, as amended, (the "ADA") in all material respects with regard to the common
areas of the Building. The costs of construction relating to such compliance
shall be borne by Landlord and shall not be included in operating expenses for
purposes of the Lease. However the costs of maintaining any facilities
constructed to comply with ADA shall be included in operating expenses for
purposes of this Lease, subject to the terms of Exhibit C. Tenant shall, at its
expense, comply with ADA in all material respects with regard to the Premises,
including any bathrooms.
ARTICLE 7 SERVICES
Landlord shall, at its own cost and expense, furnish to Tenant
the following services utilities, supplies and facilities.
a. Controlled access to the Building twenty-four (24) hours a
day, seven (7) days a week.
b. Non-attendant passenger elevator service and, subject to the
provisions of clause (H) below, freight elevator service, twenty four (24) hours
a day, seven (7) days a week in common with other tenants of the Building.
c. Heat, ventilation and air conditioning in accordance with
Exhibit K, attached hereto and made a part hereof, on the Building's business
days from 8:00 A.M. to 6:00 P.M. and when requested by Tenant on Saturdays from
8:00 A.M. to 1:00 P.M. and, at the Tenant's request, at all other times as
hereinafter provided in this Article.
-8-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
Building holidays shall include the following:
(1) New Years Day
(2) President's Day
(3) Memorial Day
(4) Independence Day
(5) Labor Day
(6) Thanksgiving Day
(7) Christmas Day
(8) Any other day recognized as a National Holiday
on a non-recurring basis.
Landlord agrees to furnish heat, ventilation, and air
conditioning beyond the above-stated hours at a reasonable rate determined by
Landlord which rate shall be calculated by Landlord in the same manner for all
tenants in the Building and which will reflect Landlord's cost for fuel,
electric and labor, plus an additional fee of ten percent (10%), provided that
notice requesting such service is delivered to Landlord in writing before noon
on a business day when such service is required for that evening, and by noon of
the preceding business day when such service is required on a Saturday, Sunday
or Building holiday.
Notwithstanding the foregoing, Landlord shall, at its own cost and expense,
furnish heat, ventilation and air conditioning on President's Day from 8:00 A.
M. To 6:00 P.M.
Landlord's rate of supplying such additional services shall be
paid by Tenant or, Alternatively, shall be shared proportionately between Tenant
and other tenants, if any, located in the same HVAC zone who have also requested
the benefit of such service at the same time as Tenant. Landlord shall bill
Tenant on or before the last day of the month following the month in which such
charges are incurred, and shall submit with its invoice a tabulation of the
hours and the dates on which the overtime HVAC was furnished. Tenant shall
reimburse Landlord therefor within thirty (30) days after receipt of the invoice
and such other data supporting the charges as Tenant may reasonably request.
d. Cleaning and janitor service, including removal of normal
office paper refuse and rubbish, as defined in Exhibit H, except that Landlord
shall have responsibility to provide only normal office cleaning services as set
forth in Exhibit H for any portion of the Premises used as a health club,
kitchen or cafeteria as permitted by this Lease. When requested by Tenant,
Landlord shall provide supplemental cleaning service, porter service, light
maintenance and other similar services for Tenant, at competitive rates and at a
cost to be agreed upon by the parties. Landlord shall separately invoice Tenant
on a monthly basis for such additional services. Tenant shall also pay
Landlord's cost (at competitive rates) for all expendable cleaning supplies and
paper products used for the Premises.
-9-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
e. Landlord shall furnish electric energy to Tenant, up to the
capacity currently allocated to the Premises, for Tenant's use of such lighting
and other electrical fixtures, appliances and equipment as Tenant may use in the
Premises and shall furnish the Building with sufficient electric energy to
operate a first class office building. In the event any additional electrical
service is necessary beyond the capacity currently allocated to the Premises,
Landlord shall provide the same at Tenant's reasonable expense. Tenant shall
reimburse Landlord for the actual cost to Landlord (without mark-up) of
electrical current consumed within the Premises. Landlord has installed separate
electric meters on the 8th and 9th floors to measure Tenant's actual KWH
consumption of electricity and any repair or replacement of such meters shall be
at Landlord's expense. Any additional electric meters required by Tenant shall
be installed by Landlord at Tenant's expense. In the event the meters installed
on a floor measure consumption of space in addition to the Premises, then
Landlord shall make a reasonable allocation of the measured electricity
allocable to the Premises. Landlord shall invoice Tenant on a monthly basis for
such electricity less amounts previously paid pursuant to the next sentence and
Tenant shall pay such invoice within thirty (30) days. Tenant shall pay to
Landlord each month in advance an amount equal to $.0625 per rentable square
foot of space in the Premises as an estimate of the actual cost of such electric
current with appropriate adjustment made following the determination of the
actual cost of such electric current for such month. In the event of any
scheduled disruption of electric service by Landlord, Landlord shall give Tenant
at least 24 hours notice of such scheduled disruption.
In the event Tenant receives any benefit or concession from the State
of New York, the City of White Plains or any utility company for electric energy
by reason of its occupancy of the Premises, Landlord and Tenant shall cooperate
to assure that Tenant receives such benefit or concession.
f. Landlord shall furnish water to Tenant for bathrooms,
pantries, sprinkler systems and drinking fountains at no expense to Tenant.
g. Removal of ice, snow and other debris from the sidewalks,
driveways, and parking area, curbs and other common areas.
h. Access to adequate facilities, including common areas and
elevators during tenancy, for Tenant's loading, unloading, delivery and pickup
activity, twenty-four (24) hours a day, seven (7) days a week, except that
Tenant shall pay Landlord's actual cost for any personnel needed to operate the
freight elevator outside of normal business hours (which shall be the times and
days specified in paragraph (C) of this Article 7).
i. Fire detection and fire protection and security for the
Premises and the Building area twenty-four (24) hours a day, seven (7) days a
week, in accordance with Exhibit I.
j. Parking facilities as provided in this Lease.
-10-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
All rekeying of locks to the entrances to the Premises on each
floor after the initial rekeying shall be performed by Landlord, at Tenant's
reasonable expense, consistent with the existing master key system.
ARTICLE 8 IMPROVEMENTS AND ALTERATIONS
a. Tenant may from time to time, at its expense, make such
alterations (herein called "Alterations") in and to the Premises, excluding
structural changes, as Tenant may reasonably consider necessary for the conduct
of its business in the Premises, provided and upon condition that: (a) the
outside appearance of the Building shall not be affected; (b) the Alterations
are non-structural; (c) the Alterations are to the interior of the Premises and
no part of the Building outside of the Premises shall be affected; (d) the
proper functioning of the mechanical, electrical, sanitary and other service
systems of the Building shall not be adversely affected and the usage of such
systems by Tenant shall not be increased beyond the capacity of such systems
allocated to the Premises; (e) before proceeding with any Alteration which will
cost more than $250,000 (exclusive of the costs of decorating work and items
constituting Tenant's Property), as estimated by a reputable contractor, Tenant
shall submit to Landlord for Landlord's approval plans and specifications for
the work to be done, and Tenant shall not proceed with such work until it
obtains Landlord's approval; (f) for any Alteration which requires Landlord's
approval hereunder, Tenant shall pay to Landlord upon demand the reasonable cost
and expense of Landlord in (i) reviewing said plans and specifications and (ii)
inspecting the Alterations to determine whether the same are being performed in
accordance with the approved plans and specifications and all laws and
requirements of public authorities, including, without limitation, the
reasonable fees of any architect or engineer employed by Landlord for such
purpose; (g) before proceeding with any Alteration which will cost more than
$250,000 (exclusive of the costs of decorating work and items constituting
Tenant's Property), as estimated by a reputable contractor designated by
Landlord, Tenant shall obtain and deliver to Landlord either (i) a performance
bond and a labor and materials payment bond (issued by a corporate surety
licensed to do business in New York), each in an amount equal to one hundred
twenty-five percent (125%) of such estimate cost and in form reasonably
satisfactory to Landlord, or (ii) such other security as shall be reasonably
satisfactory to Landlord, it being understood that no such bond or other
security shall be required in the event the cost of the Alteration is covered by
Landlord's Contribution (as described below) or Tenant's net worth at such time
is more than one hundred (100) times the cost of the Alteration; and (h) Tenant
shall fully and promptly comply with and observe the rules and regulations of
Landlord then in force with respect to construction at the Building. The
provisions of clauses (e), (f) and (g) above shall not apply to the performance
by Tenant of any decorative or cosmetic work such as painting, wallpapering or
carpeting. The Alterations shall not, in the reasonable opinion of Landlord,
weaken or impair (temporarily or permanently) the structure or materially lessen
the value of the Premises or the Building either during the performance of the
Alterations or upon its completion. Within ten (10) business days of receipt of
the plans and specifications, Landlord shall notify Tenant, in writing, of
either Landlord's approval thereof or the reasons why Landlord's approval will
not
-11-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
be given. If Landlord does not, within such ten (10) day period, give its
approval or notify Tenant of the reasons why Landlord's approval will not be
given, then such approval shall be deemed to have been given. Performance of the
Alterations requiring approval of plans and specifications may commence upon
Tenant's receipt of Landlord's written approval of the plans and specifications
and the delivery by Tenant to Landlord of all then required permits and
certificates of insurance from Tenant and all parties performing the
Alterations.
No approval of plans or specifications by Landlord, or consent by
Landlord allowing Tenant to perform Alterations, or any inspection of
Alterations made by or for Landlord shall in any way be deemed to be an
agreement by Landlord that the contemplated Alterations comply with any legal
requirements or requirements of the New York Board of Fire Underwriters, or the
requirements of any carrier of insurance maintained by Tenant or with the
certificate of occupancy for the Building nor shall it be deemed to relieve
Tenant from complying with any provision of this Lease. However, approval of
such plans or specifications by Landlord shall constitute Landlord's
acknowledgment that the Alterations shown on such plans and specifications will
not affect Landlord's obligations under this Lease provided the Alterations are
performed in accordance with the plans and specifications. Notice is hereby
given that neither Landlord nor Landlord's agents shall be liable for any labor
or materials furnished or to be furnished to Tenant upon credit.
b. Tenant, at its expense, shall obtain all necessary
governmental permits, licenses, approvals and certificates, including
underwriter certificates, for the commencement and prosecution of Alterations
and shall promptly deliver duplicates of these to Landlord and shall cause
Alterations to be performed in compliance therewith and with all applicable law
and requirements of public authorities and with all applicable requirements of
insurance ?????? Landlord shall cooperate with Tenant (at Tenant's expense) with
respect to Tenant's obtaining the necessary permits, licenses, approvals and
certificates. Upon completion of the Alterations, Tenant shall obtain any
necessary certificates of completion (including, but not limited to approvals by
the City of White Plains Department of Buildings) and shall promptly deliver
original copies of these to Landlord. Landlord agrees to cooperate with Tenant
to obtain such certificates. Alterations shall be diligently performed in a good
and workmanlike manner, in accordance with the plans and specifications approved
by Landlord, using new materials and equipment substantially equal in quality
and class to the then standards for the Building established by Landlord.
Alterations shall be performed in such manner as not to unreasonably interfere
with or delay and as not to impose any additional expense upon Landlord in the
construction, maintenance, repair, operation cleaning, security or management of
the Building or the Building's equipment; and if any such additional expense
shall be incurred by Landlord, including without limitation, the expense of
providing additional electricity or electrical hook-ups or freight elevator
service, as a result of Tenant's performance of any Alterations, Tenant shall
pay such additional expense upon demand. Landlord shall furnish to Tenant in
writing a reasonably detailed explanation for any such additional expense. Any
dispute between Landlord and Tenant regarding such additional expenses shall be
resolved by arbitration in accordance
-12-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
with Article 20 of this Lease. Tenant shall not make unreasonably loud noise
during Business Hours on Business Days in or about the Premises in performing
the Alterations.
c. Tenant agrees that it will employ, or cause to be employed,
only unionized contractors and sub-contractors in connection with the
performance of the Alterations. All contractors and subcontractors must be
approved of, in advance, by Landlord and will be subject to the provisions of
this Lease and the Rules and Regulations of the Building. Landlord hereby agrees
not to unreasonably withhold its approval of such contractors. Tenant's failure
to comply with this requirement shall constitute a default under this Lease.
Tenant agrees that it will not at any time prior to or during the Term, either
directly or indirectly, employ or permit the employment of any contractor,
mechanic or laborer, or permit any materials in the Premises, if the use of such
contractor, mechanic or laborer or such materials would, in Landlord's
reasonable opinion, create any difficulty, strike or jurisdictional dispute with
other contractors, mechanics or laborers engaged by Tenant or Landlord or
others, or would in any way disturb the construction, maintenance, cleaning,
repair, management, security or operation of the Building or any part thereof.
In the event of any interference or conflict, Tenant, upon demand of Landlord,
shall cause all contractors, mechanics or laborers, or all materials causing
such interference, difficulty or conflict, to leave or be removed from the
Building immediately.
d. Throughout the performance of any Alterations, Tenant, at
its expense, shall carry, or shall cause its contractors to carry, workmen's
compensation insurance in statutory limits and general liability insurance, with
completed operation endorsement, for any occurrence in or about the Building,
under which Landlord and its agent shall be named as parties insured, in such
amounts as Landlord may reasonably require, and excess liability in an amount
not less than a $5,000,000 single limit per occurrence, with insurers reasonably
satisfactory to Landlord. Landlord's insurance requirements shall not be in
excess of those generally required in the City of White Plains by owners of
buildings similar to the Building in connection with alterations of a nature
similar to those to be performed by Tenant. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect at or before
the commencement of Alterations and, on request, at reasonable intervals there
after during the continuance of Alterations.
e. If any Alterations shall involve the removal of any
fixtures, equipment or other property in the Premises which are not Tenant's
Property, such fixtures, equipment or other property shall be promptly replaced
at Tenant's expense with new fixtures, equipment or other property of like
utility and at least comparable value unless Landlord shall otherwise expressly
consent.
f. Tenant, at its expense, and with diligence and dispatch,
shall procure the cancellation or discharge of all notices of violation arising
from or otherwise connected with Alterations, or any other work, labor, services
or materials done for or supplied to Tenant, or any person claiming through or
under Tenant, which shall be issued by the Department of Buildings of the City
of White Plains or any other public authority having or asserting
-13-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
jurisdiction. However, nothing herein contained shall prevent Tenant from
contesting, in good faith and at its own expense, any notice of violation.
g. In no event shall Tenant cause or allow a lien for labor or
materials to be filed against the Premises or the Building. If Tenant shall
allow such lien to be filed, then, within twenty (20) days after notice to
Tenant of the filing of such lien, Tenant shall discharge the same either by
paying the amount claimed to be due or by deposit or bonding proceedings, and,
if Tenant fails to do so, then, in addition to any other right or remedy,
Landlord may, but shall not be obligated to, upon ten (10) days prior written
notice to Tenant, discharge the same either by paying the amount claimed to be
due or by deposit or bonding proceedings, and in any such event Landlord shall
be entitled, if it elects, to compel the prosecution of an action for the
foreclosure of such lien and to pay the amount of the judgment in favor of the
lienor with interest, costs and allowances. Any amount so paid by Landlord, and
all costs and expenses incurred by Landlord in connection therewith, shall
constitute Additional Rent and shall be paid on demand.
h. During the performance of Alterations, as long as the
freight elevator(s) is in operating condition, Tenant shall not use the
passenger elevators (and if the passenger elevators may be so used, Tenant shall
take all necessary measures to protect the same from damage, and shall repair
any damage, caused by any such use). Tenant may notify Landlord that it desires
to use the freight elevator after Business Hours on Business Days or on
non-Business Days; such notice must be given twenty four (24) hours in advance
in the case of such use after Business Hours on Business Days and by 9:00 a.m.
of the immediately preceding Business Day in the case of such use on non-
Business Days. Except in the case of an emergency; Landlord shall make all
reasonable efforts to make the freight elevator available to Tenant at the
requested times. If Landlord provides a person to operate the freight elevator
for Tenant's dedicated use of the freight elevator in accordance with the
applicable policy of the Building, then Tenant shall pay Landlord's normal
charges for use of the freight elevator after Business Hours on Business Days
and on non-Business Days.
i. Upon completion of Alterations, Tenant shall furnish to
Landlord a detailed set of "as-built" drawings for Alterations, all final lien
waivers from all general contractors and subcontractors and, in the case of any
Alteration affecting the HVAC, an air balancing report by Tenant's engineer
acceptable to Landlord together with all other documents reasonably requested by
Landlord.
j. All such trade and other fixtures heretofore or hereafter
made or installed by Tenant shall remain the property of Tenant and in case of
damage or destruction thereto by fire or other causes, Tenant shall have the
right to recover the value thereof as its own loss from any insurance company
with which it has insured the same, or to claim an award in the event of
condemnation, notwithstanding that any of such things might be considered a part
of the Premises. Tenant may remove all or any of such fixtures at any time
during the term provided Tenant repairs, at its expense, any damage caused by
such removal. In the event Tenant does
-14-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
not remove such fixtures after the expiration or earlier termination of this
Lease, such fixtures shall be deemed to be abandoned and Landlord may do as it
desires with respect thereto, at Landlord's cost. However, at Landlord's
request, Tenant shall remove, at Tenant's expense, any stairways, vaults,
kitchen equipment (and related plumbing and ventilation), any equipment which
penetrates any floor or any other above Building standard fixtures (collectively
the "Equipment") which Equipment was installed by, or at the direction of,
Tenant or a subtenant and which Landlord notified Tenant, at the time of
Landlord's approval of plans and specifications, shall be removed by Tenant upon
the termination or expiration of this Lease. Tenant shall restore any
penetration of a floor created by or at the direction of Tenant or by a
subtenant. Tenant shall not be required to restore any other portion of the
Premises on which any such equipment was located and Tenant shall have no other
restoration obligation not expressly set forth above.
K. Landlord shall, at Tenant's expense, perform the demolition
work in the Premises necessary to prepare the Premises for Tenant to do the
Tenant Fit-Up of the Premises. Such expense to be paid by Tenant shall not
exceed One Hundred Eighty One Thousand One Hundred Eighty Three Dollars and
Twenty Cents ($181,183.20), plus the actual cost of trash disposal. If Tenant
becomes entitled to a Landlord's Contribution referred to below, such expense
shall be deducted therefrom, otherwise such expense shall be paid by Tenant to
Landlord.
Tenant has agreed to retain Landlord to perform the initial Tenant Fit-
Up in accordance with a separate agreement which agreement shall reflect
competitive prices for the performance of the Initial Tenant Fit-Up.
Landlord shall contribute up to Thirty Eight Dollars ($38.00) per
rentable square foot of the Office Space of the cost of the initial Tenant
Fit-Up of the Premises ("Landlord's Contribution"). The costs of the Tenant
Fit-Up for which Landlord's Contribution may be used shall include the
construction shown on the plans and specifications approved by Landlord and up
to Five Dollars ($5.00 of Landlord's Contribution may be used by Tenant for soft
costs. If the cost of the Tenant Fit-Ups exceeds Thirty Eight Dollars ($38.00)
per rentable square foot, Tenant shall pay such excess costs. At any time Tenant
requests reimbursement from Landlord, whether for expenses incurred in, without
limitation, preparing plans and specifications, obtaining necessary governmental
permits or approvals, or performing the actual Tenant Fit-Up, Tenant shall
present Landlord with a receipt of the amount Tenant disbursed in connection
with said request and with a signed statement stating that the amount requested,
plus all sums previously requested, does not exceed the amount of Landlord's
Contribution, and certifying that the cost to complete the Tenant Fit-Up does
not exceed the remaining amount of Landlord's Contribution. Tenant shall not
submit requests for reimbursements more often than twice per calendar month and
Landlord shall pay any proper request for reimbursement within ten (10) days
after receipt of such request. Tenant may incur costs and expenses greater than
Landlord's Contribution but all such costs and expenses shall be borne solely by
Tenant.
-15-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
ARTICLE 9 SURRENDER
At the expiration of this Lease, Tenant shall surrender the
Premises in good order and condition, reasonable wear and tear, damage by fire,
other casualty and the elements and repairs which Landlord is required to make
herein excepted. Subject to Article 8 hereof, all alterations, additions, and
improvements in or upon the Premises or the Building made by either party shall
become the property of Landlord and shall remain upon and be surrendered with
the Premises as a part thereof at the termination or other expiration of the
term hereby granted. All furniture and furnishings, including, without
limitation, unattached carpets, rugs, business machines and equipment, apparatus
and any other movable property installed by Tenant, or at the expense of Tenant,
shall remain the property of Tenant, and Tenant shall remove all or any part
thereof at any time prior to the expiration of the term of this Lease, in which
case Tenant shall repair any damage caused by such removal (normal wear and tear
excepted). Any property of Tenant which remains in the Premises after the
expiration of the term of this Lease shall be deemed to have been abandoned by
Tenant and may be retained by Landlord as its property or may be disposed of in
such manner as Landlord may see fit. Tenant shall pay Landlord for the cost of
removing any such property, except as otherwise provided in Article 8 hereof.
Subject to Article 8 hereof, Tenant will repair all damage or
injury to the Premises or the fixtures, appurtenances and equipment therein, or
to the Building, caused by Tenant's installation or removal of furniture or
other personal property or resulting from the negligence or willful act of the
Tenant, its contractors, licensees, agents or visitors, or vandalism that has
been directed at Tenant; provided, however, that any damage caused by Landlord
or its contractors, employees or agents shall be restored by Landlord at its
expense.
ARTICLE 10 INSPECTION
Landlord shall, upon advance oral notice to Tenant, (except
in an emergency), have the right upon prior reasonable notice (i) at all
reasonable times during business hours, to enter the Premises to inspect the
same, and (ii) at all times, to make repairs or replacements therein as required
by this Lease, or as may be necessary, provided, however, that Landlord shall
use all reasonable effort not to disturb Tenant's use and occupancy of the
Premises and Landlord shall not store equipment or materials on the Premises
except in connection with any on-going repairs.
-16-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
ARTICLE 11 CASUALTY
If the Building is damaged by fire or any other cause, the
following provisions shall apply:
a. If (i) the damage is to such extent that the cost of
restoration, as estimated by Landlord, will equal or exceed thirty
percent (30%) of the replacement value of the office area of the
Building (exclusive of foundations) in its condition just prior to the
occurrence of the damage and Tenant's access or use of the Premises is
materially affected, or (ii) fifty percent (50%) or more of the Premises
is rendered untenantable and, in either case such damage is estimated by
Landlord to take longer than 180 days to repair (such estimation to be
in writing and given to Tenant by no later than fifteen (15) days after
such damage), Landlord or Tenant may, not later than the sixtieth (60th)
day following the later of (a) the date such estimation notice is given,
and (b) the date of the damage, give the other a notice stating that it
elects to terminate this Lease. If neither party timely elects to
cancel, Landlord shall immediately commence to repair and restore the
damage and perform such work in a good and workmanlike manner using
materials of equal or better quality than those that existed immediately
prior to such damage. If, at the end of 180 days after the date of such
damage, Landlord determines that it will take longer than a further
ninety (90) days to repair (which Landlord shall advise Tenant of, in
writing, within five (5) days after the completion of the first 180
day-period), or the damage is not actually repaired within two hundred
seventy (270) days after such damage, Tenant may give Landlord a notice
stating that it expects to terminate this Lease. If the restoration
would not be completed at the time when there is at least fifteen months
remaining in the then term (including any Renewal Term with respect to
which Tenant has properly and validly exercised its option therefor),
Landlord may give Tenant a notice to terminate this Lease, except that
Tenant may nullify Landlord's notice to terminate by exercising, within
thirty (30) days after Landlord's notice, the right to elect, if
available, a Renewal Term under Article 2 hereof. If the restoration
would not be completed at the time when there is at least two years
remaining in the then term (including any Renewal Term with respect to
which Tenant has properly and validly exercised its option therefor),
Tenant may give Landlord a notice to terminate this Lease. If any such
notice of termination shall be given: (i) this Lease shall terminate on
the third day after the giving of said notice; (ii) Tenant shall
surrender possession of the Premises within a reasonable time
thereafter; and (iii) the Base Rent and additional rent shall be
apportioned as of the date of such damage based on the portion of the
Premises rendered untenantable and any rent paid for any period beyond
said date shall be repaid to Tenant.
-17-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
b. If the cost of restoration, as estimated by Landlord, shall
amount to less than thirty percent (30%) of said replacement value of
the office area of the Building or if less than fifty percent (50%) of
the Premises is rendered untenantable, or if, regardless of the amount
of damage, the damage can be repaired within one hundred eighty (180)
days, or if despite the time or cost Landlord and Tenant do not elect to
terminate this Lease, Landlord shall restore the Building and the
Premises as provided in the second sentence of Subparagraph A above,
provided, however, if such restoration is not completed within two
-------- -------
hundred seventy (270) days of the damage Tenant shall be entitled to
terminate this Lease upon notice to Landlord and the terms set forth in
the final sentence of Subparagraph A above shall apply
Landlord need not restore fixtures, improvements or other
property of Tenant including the Tenant Fit-Up (as defined in Article 8).
In any case in which the use of or access to the Premises is
affected by any damage to the Building, there shall be either an abatement or an
equitable reduction in rent, depending on the period for which and the extent to
which the Premises are not reasonably accessible or usable for the purposes for
which they are leased hereunder. The words "restoration" and "restore" as used
in this Article shall include repairs.
ARTICLE 12 FIRE INSURANCE
Landlord shall, from and after the date of the execution of
this Lease, maintain insurance (from insurance companies licensed to do business
in the State of New York with a rating which is typically required by an
institutional lender for properties similar to the Building and located in the
White Plains Central Business district) covering the Building and Premises on an
all-risk basis against loss or damage by boiler explosion, fire, and against
damage from sprinkler leakage, in amount sufficient to meet the co-insurance
requirements of the policies, but not less than the full insurable value of the
Building, exclusive of the architectural and engineering fees, excavation,
footings and foundations. The term "full insurable value" shall mean herein the
cost of replacement.
Tenant and Landlord hereby mutually waive their respective
rights of recovery against each other for any loss to the extent insured by
fire, extended coverage and other property insurance policies existing for the
benefit of the respective party. Each party shall obtain any special
endorsements, if required by its insurer, to evidence compliance with the
aforementioned waiver and shall bear the cost of any additional premium charges
resulting therefrom.
Tenant shall have the obligation to comply with the rules and
regulations of the Board of Fire Underwriters and with applicable legal
requirements only as the same pertain to
-18-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
the specific manner in which the Tenant shall use and occupy the Premises; and
Landlord covenants to comply with the same in all other circumstances. Landlord
represents and warrants that as of the date hereof neither the Board of Fire
Underwriters nor its insurer has made any demand or recommendations in
connection with the Building with which Landlord has not complied in all
material respects.
ARTICLE 13 CONDEMNATION
a. If, at any time during the term, the whole of the Premises
shall be taken for any public or quasi-public use under any statute, or by right
of eminent domain, or if any part of the Premises shall be so taken and the
remaining part shall be insufficient for the conduct of Tenant's business as
contemplated by this Lease in substantially the same manner as immediately prior
to the taking, or any part of the Building shall be taken so that access to the
Premises is materially impaired, or if more than thirty percent (30%) of the
parking structure shall be taken, then, in such event, the term hereby granted
and all rights of Tenant, except as hereinafter reserved, shall immediately
cease and terminate as of the date of such taking, and the Base Rent and
additional rents shall be apportioned and paid to the time of such termination.
In case of any such taking, whether involving the whole or any part of the
Premises, the entire award shall be paid to Landlord, except for the value of
the improvements to the Premises installed at Tenant's own expense (regardless
of whether the improvements shall be or become the property of Landlord under
the terms of this Lease), plus the value of its fixtures and for moving and
relocation expenses. If allowed by law, Landlord and Tenant may each file
separate claims and the award, if a joint one, shall be apportioned between
Landlord and Tenant in the same proportion as the claim established by each in
said proceeding bears to the entire award for the land, the Building and the
property and interest of Tenant covered by Tenant's claim, subject nevertheless
to the claim or claims, if any, of the holder of any mortgage to which this
Lease shall be subject and subordinate, on Landlord's portion of the award; but
if the public or governmental authority exercising such right of eminent domain
or otherwise shall refuse to permit separate claims to be proved and established
by Landlord and Tenant and/or to distribute said award as above provided,
Landlord shall prosecute all claims for damages on behalf of Landlord and
Tenant, and, after deducting all reasonable legal and other expenses incurred
incident thereto, Landlord shall apportion the balance of said award in
accordance with this Article. In the event this Lease is not canceled as
provided above, Landlord shall restore the Building as promptly as practicable.
b. In the event that only a part of the Premises shall be so
taken and if the part not so taken shall be reasonably sufficient to enable
Tenant to continue the conduct of its business in substantially the same manner
as prior to the taking on and in the remaining Premises, this Lease shall remain
unaffected, except:
(1) Tenant shall be entitled to a pro rata reduction of Base
Rent and additional rents payable hereunder, based on the proportion
which the area
-19-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
of the Premises prior to such taking, provided that consideration shall be given
to the respective values of the area so taken, and the area not so taken, and
any dispute with respect to the amount of the reduction shall be resolved by
arbitration in the manner provided in this Lease;
(2) The entire award for a partial taking shall be paid to
Landlord which, at its own expense, shall restore the affected part of the
Building to substantially the same condition and tenantability as existed prior
to the taking, including all of Tenant's alterations. Tenant shall have no claim
against Landlord for any part thereof, except such as shall relate to Tenant's
special installations and Tenant's improvements of the Premises installed at
Tenant's expense (regardless of whether such improvement shall be the Landlord's
property under the terms of this Lease), the value of its fixtures and moving or
relocation expenses to the extent that the same are not restored by Landlord as
provided in the preceding sentence. If such partial taking shall occur in the
last year of the term of this Lease (including any Renewal Term with respect to
which Tenant has properly and validly exercised its option therefor), either
party, irrespective of the area of the space remaining may elect to terminate
this Lease and the term hereby granted, provided such party shall, within thirty
(30) days after having received notice of such taking, give notice to that
effect, and upon the giving of such notice, this Lease and the term hereby
granted shall expire and come to an end (except that Tenant may nullify
Landlord's notice to terminate by exercising, within thirty (30) days after
Landlord's notice, the right to elect, if available, a Renewal Term under
Article 2 hereof) upon the earlier of (i) the actual date of vesting of ?? and
(ii) the expiration of thirty-five (35) days following the date of said notice
of taking. The Base Rent and additional rents shall be apportioned and paid to
such earlier date. If either party shall so elect to end this Lease and the term
hereby granted, the entire award for partial condemnation shall be paid to
Landlord, and Tenant shall have no claim against Landlord for any part thereof,
except such as shall relate to Tenant's special installations and Tenant's
improvements of the Premises installed at Tenant's expense (regardless of
whether such improvement shall be the Landlord's property under the terms of
this Lease), the value of its fixtures and moving or relocation expenses.
(3) In the event the part so taken is, in Landlord's reasonable
opinion, not disruptive to Tenant's continuance of its business (in the manner
and for the purpose previously conducted) in the remainder of the Premises, the
question shall be submitted to arbitration.
-20-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
ARTICLE 14 TAXES
Landlord shall bear the cost of, and pay when due and
otherwise, before any of the same shall be in default or carry interest or
penalties for late payment, all real estate taxes, assessments and other
governmental charges which shall be levied or assessed or which become liens
upon the Premises, land or Building during the term. Landlord reserves the sole
right to contest or review any real estate tax levied by legal proceedings
against the taxing authorities in such manner as Landlord may deem suitable and
appropriate. In the event the taxes are reduced, Tenant shall receive its
proportionate share of such reduction or refund (after reasonable expenses of
obtaining such reduction or refund) by reason of any reduction in the assessed
valuation. The obligations contained in this provision shall survive the
expiration or earlier termination of this Lease.
In the event Tenant receives any benefit or concession from the
State of New York or the City of White Plains for real estate taxes by reason of
its occupancy of the Premises, Landlord and Tenant shall cooperate to assure
that Tenant receives such benefit or concession.
ARTICLE 15 DEFAULTS
a. If Tenant shall default in the payment of the rent reserved
herein and said default shall continue for ten (10) days after written notice of
non-payment from Landlord to Tenant, this Lease shall fully and completely
expire on the tenth day from the date said notice is given, as though the Lease
and ????? herein had ended on said date, it being ???????? understood and agreed
that the payment of rent shall be of the essence of this agreement. If Tenant
shall default in the performance of any other term or condition of this Lease
and such default shall continue for a period of thirty (30) days after written
notice thereof from Landlord specifying such default, and thereafter shall
continue beyond such period as may be reasonably necessary to correct such
default and the Tenant is not diligently occupied in correcting the same, or, if
the Premises shall be vacant or abandoned and Tenant shall cease paying rent,
then, and in any such event, Landlord may give ten (10) days' notice of
intention, to end the term of this Lease and then upon the expiration of said
ten (10) days the term of this Lease shall, unless Tenant has cured such
default, expire as fully and completely as if that day were the day herein
definitely fixed for the expiration of said term, and Tenant shall then quit the
Premises and surrender the same, but shall remain liable as hereinafter
provided.
b. If the notices provided in the above paragraph shall have
been given and the term hereof shall expire as aforesaid, then Landlord may, in
accordance with applicable law, re-enter the Premises and dispossess Tenant and
the legal representatives of Tenant, or other occupants of the Premises, by
summary proceedings or other actions permitted by law, and remove their effects
and hold the Premises as if this Lease had not been made; and Tenant
-21-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end.
c. In case of such re-entry, expiration and/or dispossess by summary
proceedings or other actions permitted by law, (i) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, together with such reasonable expenses as Landlord may incur for
legal expenses, attorneys' fees, brokerage and/or putting the Premises in good
order for re-rental; (ii) Landlord may relet the Premises or any part or parts
thereof, either in its own name or otherwise, for a term or terms which may, at
its option, be shorter or longer than the period which would otherwise have
constituted the remainder of the term of this Lease to such extent as Landlord,
in Landlord's reasonable judgment, considers advisable and necessary to relet
the same; and (iii) Tenant, or its successors, shall also pay Landlord as
liquidated damages for the failure of Tenant to observe and perform its
covenants contained herein, any deficiency between the rent hereby reserved, and
the net amount, if any, of the rents collected on account of the lease or leases
of the Premises for each month of the period which would otherwise have
constituted the remainder of the term hereof provided, however, if such
expiration occurs at a time when Tenant still has a right to cancel this Lease
under Article 34 hereof, Tenant's liability shall be limited to the Base Rent
and additional rent which would have been paid by Tenant had Tenant exercised
such cancellation right. In computing such liquidated damages there shall be
added to said deficiency such reasonable expenses as Landlord may incur in
connection with reletting such as legal expenses, attorneys' fees, brokerage and
for keeping the Premises in good order for reletting. Any such liquidated
damages shall be paid in monthly installments on the rent day specified in this
Lease, and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month by a similar proceeding. Landlord, at its
option, may make such alterations, repairs, replacements and decorations to the
Premises as Landlord, in its reasonable judgment, considers advisable and
necessary for the purpose of reletting the Premises, and the making of such
alterations and decoration shall not operate or be construed to release Tenant
from liability thereunder. in the event of a breach beyond any applicable notice
and grace periods or threatened breach by tenant of any of the covenants or
provisions hereof, Landlord shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
Lease of any particular remedy shall not preclude Landlord from any other remedy
in law or equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed, for any cause, or in the event of Landlord
obtaining possession of the Premises by reason of the violation by Tenant of any
of the covenants and conditions of this Lease or otherwise.
-22-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
ARTICLE 16 HOLDOVER
If Tenant remains in the Premises for more than thirty (30) days
beyond the expiration of the term of this Lease, or as it may have been
extended, such holding over in itself shall not constitute a renewal or
extension of this Lease, but in such event, a tenancy from month to month shall
arise at a monthly rent equal to the greater of (i) 150% of the Base Rent and
additional rent payable by Tenant during the last month of the term of this
Lease, and (ii) the fair market rental value of the Premises.
ARTICLE 17 NOTICE
Any notice or demand by Tenant to Landlord shall be in writing and
shall be served personally or by registered or certified mail, or Federal
Express or other reputable overnight delivery service which provides evidence of
receipt addressed to Landlord at the above address, until otherwise directed in
writing by Landlord, and any notice or demand by Landlord to Tenant shall be
served personally or by registered or certified mail, or Federal Express or
other reputable overnight delivery service addressed to Tenant, if before
occupancy of the Premises, at 445 Hamilton Avenue, White Plains, NY 10601 Attn:
General Counsel, and, if after occupancy, at the Premises, or to such other
persons or at such other addresses as Tenant shall advise Landlord in writing.
Notices given by registered or certified mail or hand delivery shall be deemed
given when received or refused. Notices given by overnight mail shall be deemed
given on the next business day after such notice is sent.
ARTICLE 18 ASSIGNMENT; SUBLETTING
Tenant may assign this Lease in whole or in part or sublet all or any
part of the Premises at any time during the term hereof, without the consent of
Landlord but with notice to Landlord, to its parent or any of its subsidiaries,
divisions or affiliates, or to any partnership, corporation or other entity with
which it may become merged or affiliated, or to which its business may be
transferred, or which may be in replacement or succession of itself (the
"Permitted Transferees") except that an assignee must have a net worth computed
in accordance with generally accepted accounting principles at least equal to
the greater of the net worth of Tenant on the date of the assignment and the net
worth of Tenant on the date of this Lease and no such assignment or sublet shall
release Tenant from its obligations under this Lease. Otherwise, Tenant may
assign this Lease in whole or in part or sublet all or any part of the Premises
at any time during the term hereof, with the consent of Landlord, which consent
shall not be unreasonably withheld or delayed, subject to the right of the
Landlord to cancel this Lease in the event of an assignment or subletting other
than to a Permitted Transferee, subject to and as hereinafter provided. Except
where no consent is required, Tenant shall give Landlord twenty (20) days'
notice of its intent to assign or sublet and shall give the name of the tenant
who shall occupy the space and use proposed by said tenant. Landlord shall have
twenty (20) days after
-23-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
receipt of said notification to notify Tenant, in writing, of its election to
permit the assignment or subletting or to cancel this Lease as it relates to the
space proposed to be sublet (in which case Base Rent and additional rent shall
be correspondingly reduced), or to cancel this Lease in the extent of a proposed
assignment. Failure of Landlord to give notice to Tenant of its election,
approval or disapproval, within said twenty (20) day period shall constitute
consent to Tenant's proposed assignment or sublet, as the case may be. If
Landlord permits Tenant, by written consent or by operation of this Article, to
make such assignment or subletting, Tenant shall remain responsible for the
faithful performance of all of the covenants, terms and conditions hereof on the
Tenant's part to be performed.
If Tenant shall receive any consideration from an assignee for or in
connection with the assignment of this Lease (including, but not limited to,
sums paid for the sale or rental of Tenant's fixtures, leasehold improvements,
equipment, furniture, or other personal property, less, in the case of a sale
thereof, the then net unamortized or undepreciated cost thereof determined on
the basis of Tenant's federal income tax returns) Tenant shall account to
Landlord therefor and shall pay over to Landlord fifty percent (50%) of such
consideration as shall be paid to Tenant by the assignee after deduction of the
reasonable costs of brokerage commissions, attorneys, advertising, promotion and
marketing costs, the costs of fitting out the Premises for an assignee, fees and
other reasonable and customary costs incurred by Tenant in connection with such
assignment.
If Tenant shall sublet the Premises, or any part thereof, to anyone
for a rent which for any period shall exceed the Base Rent and additional rent
payable under this Lease for the same period, Tenant shall pay Landlord, in
equal monthly installments as additional rent hereunder, fifty percent (50%) of
any rents, additional charges or other considerations paid under the sublease to
Tenant by the sublessee which is in excess of such rent accruing under this
Lease during the term of the sublease (hereinafter referred to an "Excess
Sublease Rent"). For purposes of determining the Excess Sublease Rent (i) there
shall be included any consideration from a sublessee for or in connection
with the sublease (including, but not limited to sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment, furniture, or
other personal property, less, in the case of a sale thereof, the then net
unamortized or undepreciated cost thereof determined on the basis of Tenant's
federal income tax returns), and (ii) there shall be deducted from the excess of
the rent payable under the sublease over the Base Rent and additional rent
payable under this Lease, the reasonable costs of brokerage commissions,
attorneys' fees, advertising, promotion and marketing costs, costs of
subdividing the sublet space the costs of fitting out the sublet space for a
sublessee, and other reasonable and customary costs incurred by Tenant in
connection with such subletting, until such costs have been recovered by Tenant.
In computing Excess Sublease Rent, an appropriate proration of the Base Rent and
additional rent accruing under this Lease shall be made with respect to a
subletting of less than all of the Premises. If a demising wall needs to be
constructed between the subleased premises and the remainder of the Premises,
Landlord shall perform such construction at Tenant's expense.
-24-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
Tenant covenants and agrees that in any case where Tenant claims
Landlord is unreasonably withholding its consent, Tenant shall not make any
claim against Landlord for damages but shall be restricted to seeking equitable
relief in any arbitration proceeding, pursuant to the provisions of this Lease
except that Tenant may seek equitable relief from the Supreme Court of the State
of New York (or other court of competent jurisdiction) in the event equitable
relief would not be available in an arbitration proceeding or as needed on an
emergency basis.
No subleasing permitted hereunder shall release or relieve Tenant from
its obligations fully to perform all of the terms, covenants and conditions of
this Lease on its part to be performed. The affiliates to whom Tenant subleases
all or a portion of the Premises may not sub-sublease or assign any of their
rights under such subleases except in compliance with this Article.
With respect to each and every sublease or subletting authorized by
Landlord under the provisions of this Lease, it is further agreed:
i. No subletting shall be for a term ending later than one day
prior to the expiration date of this Lease.
ii. Each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be subordinate,
and that in the event of termination, re-entry or dispossess by Landlord under
this Lease, Landlord may, at its option, take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord pursuant to the then executory
provisions of such sublease, except that Landlord shall not (i) be liable for
any previous act or omission of Tenant under such sublease, (ii) be subject to
any offset, not expressly provided in such sublease, which theretofore accrued
to such subtenant against Tenant or (iii) be bound by any previous modification
of such sublease or by any previous prepayment of more than one month's rent.
iii. There shall be no more than three (3) subtenants in the ninth
(9th) floor of the Premises and no more than three (3) subtenants in the eighth
floor of the Premises.
iv. So long as there is other space available in the Building, no
subletting shall be permitted to other tenants in the Building or to prospective
tenants with whom Landlord has negotiated regarding the rental of space in the
Building within the prior six (6) months.
5. Tenant shall not advertise in material distributed to the public
at rental rates below Landlord's then current or asking rate for comparable
space in the Building.
The provisions of this Article shall not apply to an assignment of
this Lease to an entity to which substantially all of Tenant's assets are
transferred, provided that in such event
-25-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
such assignee has a net worth computed in accordance with generally accepted
accounting principles at least equal to the greater of the net worth of Tenant
on the date of the assignment and the net worth of Tenant on the date of this
Lease.
If this Lease be assigned, whether or not in violation of the
provisions of this Lease, Landlord may collect rent from the assignee. If the
Premises or any part thereof are sublet or used or occupied by anybody other
than Tenant or its affiliates or subsidiaries, whether or not in violation of
this Lease, Landlord may, after default by Tenant, the giving of any required
notice, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant. In either event, Landlord shall apply the net amount
collected to the Base Rent and additional rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of any
of the provisions of this Article 18, or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Tenant from the performance by
Tenant of Tenant's obligations under this Lease. The consent by Landlord to
assignment, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment or subletting or use or occupancy by
others not expressly permitted by this Article. References in this Lease to use
or occupancy by others (that is, anyone other than Tenant) shall not be
construed as limited to subtenants and those claiming under or through
subtenants, but as including also licensees and others claiming under or through
Tenant, immediately or remotely.
ARTICLE 19 QUIET ENJOYMENT
Tenant, on paying the rent and performing the covenants of this Lease
on its part to be performed, may peaceably and quietly have, hold and enjoy the
Premises for the term of this Lease and any extension hereof.
ARTICLE 20 ARBITRATION
All disputes with respect to this Lease, or any determination by
Landlord regarding the time necessary to restore damage under Article 11 hereof
or the percentage of the Building damaged or the percentage of the Premises
rendered untenantable, or any claims by Tenant against Landlord under this Lease
(including without limitation any claim that Landlord is unreasonably
withholding, delaying or conditioning its consent), or any claims by Landlord by
reason of Tenant's default under this Lease other than any proceeding commenced
by Landlord to obtain possession of the Premises or any claim by Tenant for
actual or constructive eviction from the Premises, shall be settled by
arbitration in the City of White Plains, State of New York, in accordance with
the then governing procedural rules of the American Arbitration Association or
any successor thereto (the "AAA"). The decision of the arbitrator or arbitrators
shall be final, conclusive and binding upon the parties, and a judgment may be
obtained thereon
-26-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
in any court having jurisdiction. Landlord and Tenant each shall pay one-half of
the cost and expense of such arbitration.
ARTICLE 21 SUBORDINATION AND NON-DISTURBANCE
Tenant agrees that this Lease is subordinate to any mortgage or
mortgages and to any ground or superior leases, that now are or hereafter may be
placed upon the Building and to any and all advances to be made thereunder and
to the interest thereon and all renewals, replacements, consolidations and
extensions thereof, and Tenant shall execute such further instrument or
instruments as shall be reasonably requested by Landlord to evidence such
subordination, all provided that the mortgagee or mortgagees named in any such
mortgage or mortgages, or other holder or holders thereof, and all ground and
superior leases shall first agree, in writing, in form and substance reasonably
acceptable to Tenant, that so long as Tenant is not in default hereunder after
the expiration of all applicable notice and grace periods, and this Lease has
not been terminated by reason of such default, Tenant's leasehold estate, use,
possession tenancy and occupancy hereunder and that of its successors, assigns
and subtenants shall remain undisturbed and shall survive any and all such
steps, motions, proceedings or judgments. Landlord shall, within thirty (30)
days of the date hereof, obtain and deliver to Tenant from any mortgagee, ground
or superior lessor a subordination and non-disturbance agreement in form and
substance reasonably acceptable to Tenant and, if Landlord is a party thereto,
Landlord.
ARTICLE 22 RULES AND REGULATIONS
Tenant shall abide by and observe such reasonable rules or regulations
as may be promulgated from time to time by Landlord for the operation, safety,
security and maintenance of the Building, provided that the same are in
conformity with common practice and usage in similar Buildings, are not
inconsistent with the provisions of this Lease, apply to, and will be applied
uniformly against, all tenants and occupants of the Building, and a copy thereof
is sent to Tenant.
ARTICLE 23 FLOOR LOAD, NOISE AND FURNISHINGS
a. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord warrants and represents each office floor of
the Premises has a live load capacity of 80 lbs. per square foot.
b. Business machines and mechanical equipment belonging to Tenant
which cause noise or vibration that may be transmitted to the structure of the
Building or to the
-27-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
Premises to such a degree as to be objectionable to Landlord in Landlord's
reasonable judgment, shall be placed and maintained by Tenant, at Tenant's
expense, in setting of cork, rubber or spring-type vibration eliminators
sufficient to eliminate and/or reduce such noise or vibration to a level
reasonably acceptable to Landlord.
c. To the extent reasonably possible, Tenant's improvements,
alterations, equipment, furnishings and fixtures, shall be of non-combustible
and non-toxic material.
ARTICLE 24 LAWS AND ORDINANCES
Tenant shall, at its expense, comply with all laws, orders, ordinances
and regulations of federal, state, county and municipal authorities and with any
direction made pursuant to law of any public officer or officers which shall,
with respect to the occupancy, use or manner of use of the Premises, or to any
abatement of nuisance, impose any violation, order or duty upon Landlord or
Tenant arising specifically from Tenant's occupancy, use or manner of use of the
Premises or any installations made therein. Except to the extent caused by
Tenant, nothing contained herein shall obligate Tenant to make any structural
repairs or alterations to the Premises as a result of a change in laws or a
change in the interpretation of a current law and any such repairs or
alterations so necessitated shall be performed by Landlord at its expense.
Landlord shall comply with all laws, orders, ordinances and regulations of
federal, state, county and municipal authorities having jurisdiction, with
respect to the Building and land.
Except to the extent the Tenant Fit-Up will remedy any noncompliance
for the restrooms located in the Premises, Landlord represents and warrants that
are on the date of this Lease, the Premises comply in all material respects with
all laws, orders, ordinances and regulations of federal, state, county and
municipal authorities having jurisdiction.
ARTICLE 25 CHANGE OF PUBLIC PORTIONS OF THE BUILDING
Landlord shall have the right at any time without thereby creating an
actual or constructive eviction or incurring any liability to Tenant therefore,
to change the arrangement or location of such of the following as are not
contained within the Premises or any part thereof: entrances, passageways, doors
and doorways, corridors, stairs, toilets and other like public service portions
of the Building, provided such changes do not derogate Tenant's rights under the
terms of this Lease, adversely affect the first class nature of the Building or
materially reduce Tenant's access to the Building, the Premises or the parking
structure.
-28-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
ARTICLE 26 RIGHT TO SHOW PREMISES
During the eighteen (18) months prior to the expiration of the term of
this Lease, Landlord may exhibit (when accompanied by a representative of
Tenant, who shall be made available during normal business hours) the Premises
to prospective tenants, subject to giving adequate advance notice to Tenant.
ARTICLE 27 MAINTENANCE OF BUILDING
Landlord covenants that during the term of this Lease it shall
maintain, repair and operate the Building to the standards of a modern, first
class office building in the White Plains, N.Y. Central Business District, but
in no event less than the maintenance, repair and operation standards of the
Building on the date of this Lease.
ARTICLE 28 PARKING
Landlord shall provide and maintain for the use of the Tenant's
employees, customers, agents and invitees, striped, paved and non-reserved
parking spaces sufficient to accommodate up to one hundred sixty five (165) cars
in the parking structure. Tenant shall have access to the parking structure
twenty-four (24) hours a day, seven (7) days a week. Landlord shall provide
Tenant with one hundred sixty five (165) passes for Tenant's employees which
will permit Tenant's employees entry to and from the parking structure. Any
replacement passes will be furnished by Landlord at Tenant's reasonable expense.
There will be no charge for parking for the one hundred sixty five (165) passes.
Landlord shall provide, throughout the term of this Lease, lighting in
the parking structure in accordance with standards for a structured parking
structure for a Class A office building.
Tenant may obtain additional spaces for parking in the parking
structure from Landlord, if available, upon the following terms and conditions:
(i) The fee for each space shall be at Sixty Dollars ($60) per space
per month;
(ii) Tenant shall give Landlord ten (10) days' advance written notice
whenever it desires to obtain any of such additional parking spaces;
and
(iii) Landlord shall have the right from time to time, upon sixty (60)
days' written notice to Tenant, to recapture any or all of the
additional parking spaces from Tenant.
-29-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
acknowledges that such additional parking spaces are allocated by Landlord for
use by in other portions of the Building and that Landlord makes no
representation to Tenant, any of such additional parking spaces will be
available to Tenant, or (b) if any of such XXXXXX parking spaces are made
available to Tenant, that Tenant will be able to continue to each spaces during
the term of this Lease without Landlord exercising its right of recapture
divided in clause (iii) above.
In the event Tenant needs more parking than provided for above, Tenant
demands that there are municipal parking lots located near the Building and
Tenant's use of would be subject to a separate agreement between Tenant and the
City of White Plains.
Landlord may, but is not obligated to, build additional parking
facilities in the of the Building. In such event, then (a) if Landlord
recaptures the additional parking as provided in clause (iii) above, Tenant may
make arrangements with Landlord for using additional parking facilities, and (b)
if Tenant is using municipal parking garage as provided preceding paragraph,
Tenant may make arrangements with Landlord for using the XXXXXXX parking
facilities. Tenant may obtain additional parking spaces in such additional
facilities from Landlord upon the following terms and conditions:
(i) Tenant may obtain up to one hundred sixty five (165) additional parking
spaces; and
(ii) The fee for each such additional parking space shall be Landlord's normal
charge therefor, but not in excess of eighty Dollars ($80) per space per month.
ARTICLE 29 WAIVERS
Tenant waives the right to trial by jury in any summary proceeding
that may be instituted against it or in any action that may be brought
hereunder.
ARTICLE 30 BINDING AGREEMENT
This Lease shall bind and inure to the benefit of the parties hereto
and their heirs, representatives, successors and assigns. This Lease contains
the entire XXXXXXXXX of the parties and may not be modified except by instrument
in writing, signed by all parties.
-30-
<PAGE>
PRODIGY SERVICES CORPORATION
================================================================================
ARTICLE 31 BROKER
Landlord and Tenant each warrant and represent that Cushman &
Wakefield of Connecticut, Inc. and Edward S. Gordon Company, Incorporated are
the sole brokers they have dealt with in the negotiation of this Lease, whose
commissions shall be paid by Landlord pursuant to a separate agreement. Tenant
agrees to indemnify and hold Landlord harmless from and against any and all
claims for brokerage commissions arising out of any communications or
negotiations had by Tenant with any other broker regarding the Premises.
Landlord agrees to indemnify and hold Tenant harmless from and against any and
all claims for brokerage commissions arising out of any communications or
negotiations had by Landlord with any other broker regarding the Premises.
ARTICLE 32 LIABILITY INSURANCE
Tenant agrees during the term of this Lease to procure and maintain a
standard policy of general comprehensive public liability and property damage
insurance, naming Landlord as additional insured, insuring against liability
thereunder in a single combined limit amount of not less than Three Million
Dollars ($3,000,000.00) covering bodily injury, property damage and
personal/advertising injury, including contractual coverage against the
liability assumed under this Lease, with companies authorized to do business in
New York. In no event shall the limits of said insurance be considered as
limiting the liability of Tenant under this Lease. Said insurance policy shall
also provide that at least ten (10) days prior written notice shall be given to
Landlord prior to any cancellation, amendment or nonrenewal thereof. The policy
or policies, or duly executed certificates for the same, together with
satisfactory evidence of payment of premiums thereon, shall be deposited with
Landlord prior to the date Tenant enters the Premises and evidence of renewals
thereof shall be deposited with Landlord not less than thirty (30) days prior to
the expiration of the term of such policy. If Tenant fails to comply with such
requirement, Landlord may, after ten (10) days notice to Tenant during which
period Tenant may cure, obtain such insurance and keep the same in effect and
Tenant shall pay Landlord as additional rent, the cost thereof upon demand.
Nothing contained herein shall prohibit Tenant from providing such insurance
through a blanket policy covering other properties in addition to the Premises
provided the amount of insurance for the Premises is separately stated in such
policy and cannot be reduced by reason of a loss on another property.
ARTICLE 33 STORAGE AREA
Landlord shall designate up to 7,000 square feet of contiguous
rentable storage space located on Lower Level 3 of the Building for use by
Tenant for storage. Tenant shall notify Landlord no later than November 1, 1997
of the amount of storage space needed by Tenant. Landlord shall have the tight
from time to time, upon thirty (30) days written notice to Tenant, to relocate
Tenant to other storage space in the Building. In the event of such relocation,
-31-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Landlord shall pay all reasonable costs of such relocation. Within sixty (60)
days after Tenant's notice to Landlord as provided above, Landlord shall, at its
expense, install (i) any demising walls necessary to separate Tenant's Storage
Area from other space; and (ii) any necessary lighting. As provided in Article
7E of this Lease, Tenant shall pay the cost of electric energy for the Storage
Area.
ARTICLE 34 SIGNAGE
Tenant may, at Tenant's expense, install (i) appropriate signage on the
walls of elevator lobbies of the Premises on floors occupied exclusively by
Tenant and on all doors to the Premises, and (ii) signage identifying Tenant in
the main lobby of the Building of a type, and in a location, approved by
Landlord. Tenant shall, at Tenant's expense, maintain all such signage in good
order and repair. At the expiration or earlier termination or cancellation of
this Lease, Tenant shall, at its expense, remove such, repair any damage caused
by its removal and restore the affected areas to their condition prior to the
installation of such signage.
Tenant shall be allowed its proportionate share of all lineage on the
Building directory board or directory monitor.
ARTICLE 35 SATELLITE DISH
Tenant shall have the right to install, at Tenant's expense, and in a
location reasonably approved by Landlord, one satellite dish not in excess of 36
inches in diameter on the roof of the Building in connection with the use of
Premises as set forth in Article 2. Landlord shall install such equipment, at
Tenant's expense, and Tenant shall maintain such equipment at its expense and in
compliance with all applicable laws and shall not interfere with the use of the
equipment of others located on the roof. At the expiration or earlier
termination or cancellation of this Lease, Tenant shall, at its expense, remove
such equipment, repair any damage caused by its removal and restore the roof to
its condition prior to the installation of such equipment. The rights of Tenant
under this Article are subject to the availability of shaft space in the
Building to service any equipment on the roof.
ARTICLE 36 SECURITY DEPOSIT
As security for the performance of its obligations under this Lease,
Tenant shall, within one (1) week after the execution of this Lease, deliver to
Landlord an irrevocable, unconditional, transferable and renewable letter of
credit in an amount equal to Three Million Nine Hundred Thirty Thousand Dollars
($3,930,000) which amount represents the cost of Landlord's Contribution (as
such term is defined in Article 8), brokerage commissions and legal fees,
incurred by Landlord in connection with the execution of this Lease and the
preparation and delivery of the Premises to Tenant (the "Letter of Credit"). If
Tenant does not deliver the
-32-
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Letter of Credit within such one (1) week, then Landlord may elect to terminate
this Lease by written notice to Tenant. The Letter of Credit must be drawn upon
a bank acceptable to Landlord and upon terms acceptable to Landlord and shall be
for a term of not less than one (1) year. Not later than thirty (30) days prior
to the expiration of the term of the Letter of Credit, Tenant shall renew such
Letter of Credit for an additional term of at least one (1) year. In the event
Tenant fails to so renew the Letter of Credit, Landlord may draw down the Letter
of Credit and thereafter hold and dispose of the proceeds of the Letter of
Credit in accordance with the terms of this Article 36. Commencing on January 1,
1999 and on January 1 of each year thereafter, Tenant may reduce the amount of
the Letter of Credit in accordance with Exhibit J of this Lease. The Letter of
Credit shall be held by Landlord as collateral security, and not prepaid rent,
for the payment of Annual Base Rent, Additional Rent and any other sums payable
by Tenant under this Lease, and for the faithful performance by Tenant of all
other covenants, conditions and agreements of this Lease. If any installment of
Annual Base Rent or Additional Rent herein reserved or any other sum payable by
Tenant to Landlord shall be overdue and unpaid beyond any applicable notice and
cure period, or should Landlord make payments on behalf of Tenant, or should
Tenant fail to perform any of the terms of this Lease beyond any applicable
notice and cure period, then Landlord, at its option and without prejudice to
any other remedy which Landlord may have on account thereof, may appropriate and
apply the entire Letter of Credit or so much thereof as may be necessary to
compensate Landlord toward the payment of Annual Base Rent, Additional Rent or
any other sums due Landlord pursuant to this Lease, or loss or damage sustained
by Landlord due to such breach on the part of Tenant including, without
limitation, any cost or deficiency arising in connection with reletting the
Demised Premises or any portion thereof, and Tenant upon demand shall forthwith
restore the Letter of Credit, as applicable, to the original sum delivered. In
the event of the termination of this Lease by reason of the default of Tenant,
Landlord may draw down the entire amount of the Letter of Credit and retain such
amount as liquidated damages and the amount drawn down shall be credited against
the amount of damages payable by Tenant to Landlord by reason of such
termination. In the event of bankruptcy or other creditor-debtor proceedings
against Tenant, the Letter of Credit shall be deemed to be applied first to the
payment of Annual Base Rent and other charges due Landlord under the terms and
conditions contained in this Lease. Provided Tenant shall have made all payments
and performed all covenants and agreements of this Lease, the Letter of Credit
shall be returned to Tenant after the expiration of the Term.
ARTICLE 37 LOADING DOCKS
Tenant and its suppliers, agents, contractors and employees may (for no
additional consideration) use the loading docks at the Building in common with
other tenants of the Building for the purposes intended during the normal hours
the loading docks are available and in compliance with reasonable rules and
regulations of Landlord relating to the use of the loading docks.
-34-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
ARTICLE 38 PREVAILING PARTY
Notwithstanding anything to the contrary contained in this Lease, the
prevailing party in any action or arbitration proceeding brought under this
Lease shall be entitled to reasonable attorneys fees and costs.
-35a-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
ARTICLE 39 FORCE MAJEURE
This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on the part of
Tenant to be performed shall in no way be affected, impaired or excused because
Landlord is unable to fulfill any of its obligations under this Lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Landlord is prevented or delayed from so doing by
reason of strike, lockout or labor troubles or any cause whatsoever beyond the
reasonable control of Landlord including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency in this or any foreign country.
ARTICLE 40 MISCELLANEOUS
(a) This Lease will be governed by, construed and enforced in
accordance with the laws of the State of New York without reference to
principles of conflicts of law.
(b) The headings contained herein are for convenience of reference
only and are not part of the substance hereof.
(c) If the consent or approval of Landlord or Tenant is required
under this Lease Landlord or Tenant, as the case may be, shall act reasonably
in granting such consent or approval.
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto as of the day and year first above-written.
Witness: WESTCHESTER ONE LLC
/s/ Salvatore Pepe By: /s/ Nicholas J. Pepe
- ----------------------------- --------------------------------
Salvatore Pepe Nicholas J. Pep, Managing Member
Witness: PRODIGY SERVICES CORPORATION
[ILLEGIBLE SIGNATURE APPEARS HERE] By: [ILLEGIBLE SIGNATURE APPEARS HERE]
- ----------------------------- --------------------------------
VP General Counsel
-36-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
STATE OF NEW YORK )
) SS.:
COUNTY OF WESTCHESTER )
On this 19th day of September, 1997, before me personally appeared
NICHOLAS J. PEPE, to me known and known to me to be the individual described in
and who executed the foregoing instrument, and acknowledge that he executed the
same as the Managing Member of Westchester One LLC.
LISA DITRIO
Notary Public, State of New York
/s/ Lisa Ditrio No 4895432
----------------------------------------------------
Notary Public Qualified in Westchester County,
Commission Expires May 11, 1999
STATE OF NEW YORK )
) SS:
COUNTY OF WESTCHESTER )
On this 19th day of September, 1997 before me personally came Marc
Jacobson, to me known, who, being by me duly sworn, did depose and say that he
resides at 12 Colgate Lane, Woodbury, NY, that he is the Vice President &
General Counsel of the Corporation described in and which executed the above
instrument; that he knows the seal of said Corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said Corporation and that he signed his name thereto by
like editor.
/s/ Howard L. Uffer
-------------------------------------
Notary Public
Howard L. Uffer
Notary Public, State of New York
No. 01UF5046348
Qualified in Westchester County
Commission Expires July 10, 1999
-37-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT A.
[INTENTIONALLY LEFT BLANK]
-38-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT B. LEGAL DESCRIPTION:
-39-
<PAGE>
EXHIBIT B
Policy No. 6142513
SCHEDULE A
PARCEL I
- --------
ALL that certain lot, piece or parcel of land, situate, lying and being in
the City of White Plains, County of Westchester and State of New York, bounded
and described as follows:
BEGINNING at a point on the westerly side of Hale Avenue, distant 379.63
feet northerly, as measured along the said westerly side of Hale Avenue, from
the northerly end of the curve having a radius of 20.00 feet and a length of
35.13 feet connecting the northerly side of Maple Avenue, formerly Greene Place,
as now laid out and widened, and the said westerly side of Hale Avenue, said
point also being on the division line of lands now or formerly of Salvatore Pepe
and lands now or formerly of Hale-Maple Development Corp.;
running thence along said division line,
North 70 (degrees) 16' 50" West, a distance of 264.00 feet to the easterly
side of South Broadway as now laid out;
running thence along the said easterly side of south broad-way, the
following courses and distances:
north 32 (degrees) 07' 10" east, a distance of 185.88 feet
south 72 (degrees) 52' 50" east, a distance of 0.65 feet
north 27 (degrees) 01' 10" east, a distance of 38.23 feet
north 20 (degrees) 08' 20" east, a distance of 21.4k feet
north 14 (degrees) 02' 20" east, a distance of 1.53 feet and
north 24 (degrees) 53' 10" east, a distance of 80.54 feet to a
point on the division line between lands now or formerly of Salvatore Pepe and
lands now or formerly of Broadsouth Realty Co.;
running thence along said division line,
South 72 (degrees) 42' 30" east, a distance of 165.32 feet to a point on the
aforesaid westerly side of Hale Avenue at a point distant 352.45 feet southerly,
as measured along the said westerly side of Hale Avenue from the corner formed
by the intersection of the southerly side of Armory Place, formerly Wallace
Place, and the said westerly side of Hale Avenue;
running thence along the said westerly side of Hale Avenue, the following
courses and distances:
south 15 (degrees) 01' 40" west, a distance of 141.07 feet
south 70 (degrees) 56' 50" east, a distance of 0.30 feet
south 15 (degrees) 00' 10" west, a distance of 159.99 feet and
south 9 (degrees) 50' 50" east, a distance of 44.38 feet to the
point or place of beginning.
"Also known on the official tax map as Ward 5 block 24, lot
5 and Ward 5, Block 25, Lots 15 and 16 in the City of White Plains".
- over -
<PAGE>
- 2 - No. 6142513
PARCEL II
- ---------
ALL that certain lot, piece or parcel of land, situate, lying and being in
the City of White Plains, County of Westchester and State of New York, bounded
and described as follows:
BEGINNING at a point on the easterly side of Hale Avenue at the southerly
end of a curve having a radius of 12.00 feet and a distance of 18.85 feet
connecting the easterly side of Hale Avenue with the southerly side of Hiram
Street as it appears on a map filed in the Westchester County Clerk's Office,
Division of Land Records as R.O. Map No. 12049;
running thence along the said easterly side of Hale Avenue, the following
three courses and distances:
South 15 (degrees) 00' 10" West, a distance of 172.09 feet
Southerly on a curve to the left having a radius of 200.00 feet, a distance
of 86.74 feet and
South 9 (degrees) 50' 50" East, a distance of 14.96 feet to a point on the
division line between lands now or formerly of Salvatore Pepe and lands now or
formerly of South Broadway Parking Realty Corp.;
running thence along said division line
North 80 (degrees) 22' 15" East, a distance of l89.67 feet to a point on the
westerly side of Paulding Street;
running thence along the westerly side of Paulding Street, the following two
courses and distances:
North 9 (degrees) 53' 50" West (copy illegible) 95 feet and (copy
illegible);
North 15 (degrees) 01' 40" East 174.36 feet to a point;
thence northwesterly. on a curve to the left having a radius of 12 feet
connecting the westerly side of Paulding Street with the southerly side of Hiram
Street, a distance of 18.85 feet to a point on the southerly side of Hiram
Street;
running thence along the southerly side of Hiram Street,
North, 74 (degrees) 59' 10" West, a distance of 165.74 feet to the easterly
end of the aforesaid curve having a radius of 12.00 feet and a distance of 18.85
feet connecting the easterly side of Hale Avenue with the southerly side of
Hiram Street;
running thence southwesterly along said curve to the left, a distance of
18.85 feet to the point and place of beginning.
"Also known on the official tax map as Ward 5, Block 23, Lot 5B-50 and Ward
5, Block:26, Lots 1 through 8 in the City of White Plains."
- over -
<PAGE>
- 3 - No. 6142513
TOGETHER with an easement to construct and maintain a multistoried office
building over that portion of Hale Avenue, bounded and described as follows:
ALL that certain plot, piece or parcel situate, lying and being in the City
of White Plains, County of Westchester and State of New York which lies above
(but not below) a horizontal plane measured 16.00 feet vertically above the
highest point of Hale Avenue fronting Parcel I and Parcel II described herein,
the elevation of said plane being 196.15 feet as measured vertically above the
datum level known as "Sea Level Datum of 1932" which datum level is designated
as zero and is mean sea level at Sandy Hook, New York as established by the
United States Coast and Geodetic Survey, and which is bounded by and lies within
the vertical planes which are respectively formed by the projection vertically
upwards from said horizontal plane of the boundaries of that certain plot or
parcel which is more particularly bounded and described as follows:
BEGINNING at a point on the westerly side of Hale Avenue, distant 379.63
feet northerly, as measured along the said westerly side of Hale Avenue, from
the northerly end of the curve having a radius of 20.00 feet and a length of
35.13 feet connecting the northerly side of Maple Avenue, formerly Greene Place,
as now laid out and widened, and the said westerly side of Hale Avenue, said
point also being on the division line of lands now or formerly of Salvatore Pepe
and lands now or formerly of Hale-Maple Development Corp.;
running thence through the Hale Avenue Right-of-Way,
South 74 (degrees) 56' 08" East, a distance of 12.l3 feet to a point;
thence continuing through said Right-of-Way the following courses and
distances:
North 9 (degrees) 50' 50" West, a distance of 47.06 feet
North 15 (degrees) 00' 10" East, a distance of 148.56 feet
North 70 (degrees) 56' 50" West, a distance of 0.30 feet
North 15 (degrees) 01' 40" East, a distance of 90.375 feet to a
point on the westerly prolongation of the southerly side of Hiram Street, and
along the said westerly prolongation of the southerly side of Hiram Street,
North 74 (degrees) 59' 10" West, a distance of 11.00 feet to a point on the
westerly side of Hale Avenue;
running thence along the westerly side of Hale Avenue, the following
courses and distances:
South 15 (degrees) 01' 40" West, a distance of 90.38 feet
South 70 (degrees) 56' 50" East, a distance of 0.30 feet
South 15 (degrees) 00' 10" West, a distance of 150.99 feet and
South 9 (degrees) 50' 50" East, a distance of 44.38 feet to the point or
place of beginning.
- over -
<PAGE>
- 4 - No. 6142513
TOGETHER with the right and easement to construct and maintain, beneath the
above described premises, a row of columns for subjacent support to the building
constructed or to be constructed in the above described premises, each of said
columns not to be closer than two (2) feet westerly of the present westerly curb
line of Hale Avenue.
TOGETHER with the right and easement to construct and maintain, beneath the
above described premises and with the additional right to extend further into
the Right-of-Way of Hale Avenue as may be necessary, footings and foundations to
support the above mentioned columns, said footings and foundations to be a
minimum of eight (8) feet below the street grade of Hale Avenue.
TOGETHER with an easement to construct and maintain two (2) pedestrian and
vehicular bridges crossing over Hale Avenue connecting the office building to be
constructed on the premises located on the westerly side of Hale Avenue
described in Parcel I herein with the parking structure to be constructed on the
premises located on the easterly side of Hale Avenue described in Parcel II
herein which easement shall be over those portions of Hale Avenue bounded and
described as follows:
PARCEL A
- --------
ALL that certain plot, piece or parcel of land, situate, lying and being in
the City of White Plains, County of Westchester and State of New York which lies
above (but not below) a horizontal plane measured 16.00 feet vertically above
the highest point of Hale Avenue fronting Parcel I and Parcel II described
herein the elevation of such plane being 196.15 feet as measured vertically
above the datum level known as "SEA LEVEL DATUM OF 1932" which datum level is
designated as zero and is mean sea level at Sandy Hook, New York as established
by the United States Coast and Geodetic Survey, and which is bounded by and lies
within the vertical planes which are respectively formed by the projection
vertically upwards from said horizontal plane of the boundaries of that certain
plot or parcel which is more particularly bounded and described as follows:
BEGINNING at a point on the easterly side of Hale Avenue, distant 95.54
feet southerly as measured along the said easterly side of Hale Avenue, from the
southerly end of the curve having a radius of 12.00 feet and a length of 18.85
feet connecting the southerly aide of Hiram Street and the said easterly side of
Hale Avenue;
running thence through the Hale Avenue Right-of-Way, North 74 (degrees) 59'
50" West, a distance of 49.00 feet to a point on the easterly line of the
eleven (11) foot easement described above;
- over -
<PAGE>
-5 - No. 6142513
thence continuing through said Right-of-Way and along said easterly line of
the said easement, South 15 (degrees) 00' 10" West, a distance of 30.00 feet to
a point;
running thence through said Right-of-Way of Hale Avenue, South 74 (degrees)
59',50" East, a distance of 49.00 feet to a point on the easterly side of Hale
Avenue;
running thence along the said easterly side of Hale Avenue, North 15
(degrees) 00' 10" East, a distance of 30.00 feet to the point or place of
beginning.
PARCEL B
- --------
ALL that certain plot, piece or parcel situate, lying and being in the City
of White Plains, County of Westchester and State of New York, which lies above
(but not below) a horizontal plane measured 16.00 feet vertically above the
highest point of Hale Avenue fronting Parcel I and Parcel II described herein
the elevation of said plane being 196.15 feet as measured vertically above the
datum level known as "Sea Level Datum off 1932" which datum level is designated
as zero and is mean sea level at Sandy Hook, New York as established by the
United States Coast and Geodetic Survey, and which is bounded by and lies within
the vertical planes which are respectively fanned by the projection vertically
upwards from said horizontal plane of the boundaries of that certain plot or
parcel which is more particularly bounded and described as follows:
BEGINNING at a point on the easterly side of Hale Avenue, distant 192.09
feet - Northerly as measured along the said easterly side of Hale Avenue, from
the southerly end of the curve having a radius of 12.00 feet and a length of
18.85 feet connecting the southerly side of Hiram Street and the said easterly
side of Hale Avenue;
running thence through the Hale Avenue Right-of-Way, North 80 (degrees) 43'
39" West, a distance of 50.25 feet to a point on the easterly line of the eleven
(ll) foot easement described above;
thence continuing through said Right-of-Way and along said easterly line of
the said easement, the following courses and distances:
South 15 (degrees) 00' 10" West, a distance of 29.87 feet and
South 9 (degrees) 50' 50" East, a distance of 47.06 feet to the
southeast corner of said eleven (11) foot easement;
- over -
<PAGE>
- 6 - No. 6142513
thence through said Right-of-Way of Hale Avenue,
South 74 (degrees) 56' 08" East, a distance of 54.02 feet to a point on
the easterly side of Hale Avenue, which point is also the division line between
lands now or formerly of Salvatore Pepe and lands now or formerly of South
Broadway Parking Realty Corp.;
running thence along the said easterly side of Hale Avenue, the following
courses and distances:
North 9 (degrees) 50' 50" West, a distance of 14.96 feet and on a curve to
the right having a radius of 200.00 feet, a distance of 66.74 feet to the point
or place of beginning.
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT C. OPERATING EXPENSE ESCALATION:
Commencing with calendar year 1999 and every calendar year thereafter
during the term, Tenant shall pay, as additional rent, its proportionate share
of any increase in the amount of operating expenses, as hereinafter defined,
over base operating expenses incurred by Landlord (as hereinafter defined).
The "base operating expenses" shall mean the operating expenses incurred in
the calendar year 1998.
"Operating expenses" are defined as those direct expenses necessary to
operate and maintain the Building in a manner deemed reasonable and appropriate
as a "First Class" office Building and for the best interest of the tenants in
the Building, including, but not limited to, the following (except as excluded
below):
(a) All costs and expenses directly related to the Building for operating
and cleaning the tenant and common areas, and for removing snow, ice and debris,
and costs of fire and liability insurance, or any other insurance reasonably
necessary to operate the Building.
(b) All costs and expense of maintaining, repairing or replacing paving,
curbs, walkways, landscaping (including replanting and replacing flowers and
other planting), common and public lighting facilities in the Building and the
area immediately adjacent thereto.
(c) Electricity for lighting common and public areas, and fuel used in
heating, ventilating and air conditioning the Building.
(d) Maintenance of mechanical and electrical equipment, including heating,
ventilating and air conditioning equipment in the Building.
(e) Window cleaning and janitor service, including janitor equipment and
supplies for the common and public areas.
(f) Maintenance of elevators, rest rooms, lobbies, hallways and other
common and public areas of the Building.
(7) Any expenditure (excluding a capital expenditure, except as provided in
clause (8) below) intended to reduce operating expenses.
(8) Any capital expenditure required by law or the Building's insurance
carrier, or for an item intended to reduce operating expenses which costs
$250,000 or less; and for any item which costs in excess of $250,000, such cost
shall be amortized over the useful life of such item on a straight line basis
with interest at the prime rate of Citibank, N.A. (or its successor) plus 2%.
-40-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
(9) Legal expenses, excluding litigation against another tenant in the
Building, intended to improve the operation of the Building and/or reduce
operating expenses.
Operating expenses shall not include expenses for any capital repairs,
replacements or improvements, except as provided above; expenses for which the
Landlord is reimbursed or indemnified (either by an insurer, a tenant or
otherwise or which results from fire, casualty, accident or condemnation,
whether or not reimbursed or indemnified); expenses incurred in leasing or
procuring new tenants or reviewing leases (including, without limitation,
leasing commissions, advertising expenses, legal fees and expenses of renovating
space for new tenants); interest or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases; wages
salaries or other compensation paid to any executive employees above the grade
of Building manager; legal fees and disbursements in connection therewith other
than as provided above; wages, salaries or other compensation paid for clerks or
attendants in concessions or newsstands operated by Landlord; the cost of any
work or service performed for the facilities furnished to Tenant or other
tenants at the tenant's cost; the cost of correcting defects (latent or
otherwise) in the construction of the Building or in the Building equipment,
except that conditions (not occasioned by construction defects) resulting from
ordinary wear and tear shall not be deemed defects; depreciation or other
non-cash items; any cost relating to a refinancing of any debt secured by the
Building; management fees; the cost of installing, operating and maintaining a
specialty improvement, including, without limitation, an observatory,
broadcasting, cafeteria or dining facility, or athletic, luncheon or
recreational club, and any cost or expense representing an amount paid to a
related entity or person which is in excess of the amount which would be paid in
the absence of such relationship.
Not later than April 30 following the end of calendar year 1999 and each
calendar year thereafter during the term of this Lease, Landlord shall cause its
operating expenses for the Building and land to be audited by an independent
certified public accounting firm and shall prepare a detailed statement of
comparative operating expenses, together with a computation of the additional
rent due, if any. Tenant shall be furnished a copy of such statement and
computation, and within thirty (30) days after its receipt, except as provided
below, shall pay Landlord the additional rent so calculated.
Prior to determination of the actual amount of Tenant's share of the
increase in Operating Expenses for any year during the term of this Lease,
Tenant shall make monthly installment payments toward such share on an estimated
basis, based on Landlord's reasonable good faith estimate of Operating Expenses
for such year. Landlord may, at any time during such year, but not more than two
(2) times during such year, revise, in good faith, Landlord's estimate of
Operating Expenses for such year and provide Tenant in writing with the basis
therefor. Tenant shall pay Landlord, as additional rent commencing on the first
day of January, 1999 and on the first day of each month thereafter
simultaneously with payments of annual Base Rent for each month during the term
of this Lease, one-twelfth (1/12th) of Landlord's good faith estimate of
Tenant's share of Operating Expenses for such upcoming year.
-41-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Landlord shall, at Tenant's request, make available to Tenant for its
inspection and examination, all the books and records that relate to such
statement. However, if the books and records are not made promptly available
upon request by Tenant, the additional rent for that year shall, in no event, be
deemed due and payable by Tenant. Any dispute shall be subject to arbitration as
provided in Article 20 of the Lease.
Any amount to be refunded to Tenant under this Exhibit C shall be applied
to the next installments of Base Rent or additional rent hereunder (or paid to
Tenant if there are no such further installments payable by Tenant under this
Lease) and such obligation shall survive the termination, cancellation or
expiration of this Lease.
Tenant's proportionate share shall be the percentage obtained from a
fraction the numerator of which is the total rentable square feet foot area
leased by Tenant (82,356 rentable square feet for the Office Space and the
rentable square feet for the Storage Area) and the denominator of which is the
total net rentable square foot area of the Building (851,769). In the event
Tenant leases additional space in the Building which are added to the Premises,
Tenant's proportionate share shall be appropriately adjusted.
If, during any calendar year during the term of this Lease (including the
base year), less than ninety-five percent (95%) of the total net rentable
square footage of the Building is occupied by tenants, the amount of Operating
Expenses for such calendar year shall be deemed to be the amount of Operating
Expenses that, in the reasonable opinion of Landlord's accountant, would have
been incurred if the percentage of occupancy of the Building during such
calendar year were ninety-five percent (95%). For purposes of this paragraph,
the occupancy rate at the Building will be determined on a quarterly basis and
an average occupancy rate computed for each calendar year during the Term, which
average rate will be used for the analysis described herein.
-42-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT D. REAL ESTATE TAX ESCALATION:
Tenant agrees to annually reimburse Landlord Tenant's proportionate share
of the amount by which the annual real estate taxes that are levied against the
Building, improvements and the land, in each calendar year beginning with the
calendar year 1999 tax year, exceed the real estate taxes levied in the base tax
year. For the purposes hereof, the "base tax year" sum is the real estate taxes
levied on the Building, improvements and the land for the calendar 1998.
Any amount due to Landlord under the provisions of this Exhibit D shall be
paid within thirty (30) days after rendition of a bill therefor, together with
submission to Tenant of a receipted tax bill received from the taxing authority
or a copy thereof.
The tax for any fiscal year in respect to which Tenant is obligated to pay
its proportionate share of an increase in taxes shall be the amount of such
taxes as are finally determined to be legally payable by legal proceedings or
otherwise. In no event shall Tenant be obligated to pay any interest or
penalties imposed upon the Landlord for late payment or otherwise. In no event
shall any reduction in the amount of taxes result in a decrease in the amount of
Base Rent payable under this Lease. Any real estate tax increase or decrease for
any fiscal year during the term of this Lease shall be apportioned so that the
Tenant shall pay or receive its proportionate share of only that portion of the
tax increase or decrease for such year as falls within the term. This provision
shall survive the expiration or earlier termination or cancellation of this
Lease.
Tenant's proportionate share shall be the percentage obtained from a
fraction the numerator of which is the total rentable square feet leased by
Tenant (82,356 rentable square feet for the Office Space plus the rentable
square feet for the Storage Area) and the denominator of which is the total net
rentable square foot area of the Building (851,769). In the event Tenant leases
additional space in the Building which are added to the Premises, Tenant's
proportionate share shall be appropriately adjusted.
Tenant agrees to reimburse Landlord its proportionate share as defined
above for any future tax imposed by any municipal, state or federal government
or taxing agency which reduces the rent agreed upon and payable herein. Such
future tax shall only mean a tax upon the real estate such as the land and
Building in which the Premises forms a part. Tenant shall also pay Landlord any
increase in taxes resulting from any alterations or improvements made to the
Premises by Tenant after the initial preparation of the Premises for Tenant's
occupancy.
If Landlord shall receive any tax refund for any year as the result of any
proceedings undertaken by Landlord for a reduction in the amount of the tax
assessment on the Building or the land, Landlord shall reimburse Tenant, its
proportionate share as described above, to the extent of any such refund, after
deducting any reasonable expenses incurred by Landlord in obtaining such tax
refunds, including, without limitation, reasonable attorney's fees.
-43-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Landlord's obligation to so refund to Tenant any such taxes shall survive the
termination of this Lease.
-44-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT E. TITLE EXCEPTIONS:
-45-
<PAGE>
EXHIBIT E
Insured SALVATORE PEPE AND CATHERINE PEPE, Policy No. 6142513
NICHOLAS J. PEPE AND WILLIAM S. PEPE,
ALL AS TENANTS IN COMMON, d/b/a Amount of Insurance $8,000,000.00
BROADWAY PLAZA Date of Issue 6/27/74
SCHEDULE ??
[ILLEGIBLE]
A. Reservations and Easements contained in conveyance and agreement
between The City of White Plains and Waterhouse Realty Corp. dated
April 4, 1974 and recorded on April 15, 1974 in Liber 7190 cp 505.
B. Survey made by Gabriel E. Senor dated October 2, 1973 and last brought
to date April 15, 1974 shows vacant land and:
1. Easement for street or highway purposes and other purposes
incidental thereto running along the westerly and northerly sides of
Parcel I herein and along easterly side of Parcel II herein.
2. Two easements for pedestrian and vehicular bridge, crossing Hale
Avenue in front of Parcels I and II in Schedule A herein.
3. Proposed parcel to be conveyed to The City of White Plains in the
bed of Hale Avenue.
Any state of facts since said date.
C. Possible public easements in and over Hale Avenue that may affect a
portion of the improvements constructed within the premises described
in Schedule A herein; but policy insures that the part of the building
and the overhead pedestrian and vehicular bridges within that portion
of Hale Avenue set forth in Schedule A herein, may remain as erected so
long as the same shall stand.
(over)
SCHEDULE "?" OF THIS POLICY CONSISTS OF [ ] SHEET(S).
<PAGE>
Policy No. 6142513
SCHEDULE B (continued)
F. continued
---------
A. Sartorius, deceased, undivided one sixth interest, Brenda S. Engel, undivided
one sixth interest by assignment dated 1/20/66, recorded 1/24/66 in Liber 6936
mp 434. Assigned by Archibald Davidow, Judith S. Seixas, The First National City
Bank of New York with Judith Sartorius Siexas and Brenda Satorius Engel, as
successor trustees under the Will of Edithe A. Sartorius, deceased and Brenda S.
Engel to B.P. Ownership Incorporated, Edgar J. Nathan, III, as nominee by
Assignment dated 1/20/66, recorded 2/21/66 in Liber 6948 mp 106. Assignee by
Edgar J. Nathan, 3rd to chemical Bank New York Trust Company by assignment dated
7/20/67, recorded 7/26/67 in Liber 7094 mp 112.
Motgage in the principal sum of $200,000.00 made by Salvatore Pepe to Nineteen
Hundred Forty Post Road Corporation dated 1/20/66, recorded 1/24/66 in Liber
6936 mp 448. Assigned by Nineteen Hundred Forty Post Road Corporation to
Archibald Davidow by assignment dated 1/20/66, recorded 1/24/66 in Liber 6936 mp
440. Assigned by Archibald Davidow to Chemical Bank New York Trust Company by
assignment dated 7/20/67, recorded 7/26/67 in Liber 7094 mp 85.
Mortgage in the principle sum of $448,742.80 made by Salvatore Pepe to Chemical
Bank New York Trust Company dated 9/5/67, recorded 9/19/67 in Liber 7108 mp 579.
Modification and Extension Agreement between Waterhouse Realty Corp. and
Chemical Bank New York Trust Company dated 9/1/70, recorded 11/9/70 in Liber
7322 mp 353, (as to mortgages in Liber 6936 mp 442, Liber 6936 mp 448 & Liber
7108 mp 579). Consolidation and Extension Agreement between Waterhouse Realty
Corp. and Chemical Bank dated 8/30/71, recorded 9/21/71 in Liber 7498 mp 464.
Assigned by Chemical Bank to National Bank of Westchester by assignment dated
2/15/73, recorded 3/1/73 in Liber 7498 mp 467.
Mortgage in the principal sum of $392,564.98 made by Waterhouse Realty Corp. to
National Bank of Westchester dated 2/15/73, recorded 3/1/73 in Liber 7498 mp
494. Spreader, Consolidation and Extension Agreement between National Bank of
Westchester and Waterhouse Realty Corp. dated 2/15/73, recorded 3/1/73 in Liber
7498 mp 486. Above seven mortgages are spread to form a first lien in the
principle sum of $1,600,000. Assigned by National Bank of Westchester to Lincoln
First Real Estate Credit Corporation by assignment dated 9/18/73, recorded
9/20/73 in Liber 7550 mp 565.
Mortgage in the principle sum of $800,000.00 made by Waterhouse Realty Corp.to
Lincoln First Real Estate Credit Corporation dated 9/18/73, recorded 9/20/73
in Liber 7550 mp 569. Consolidation and Extension Agreement between Lincoln
First Real Estate Credit Corporation and Waterhouse Realty
(over)
<PAGE>
Policy No. 6142513
SCHEDULE 8 (continued)
F. continued
---------
Corp. dated 9/18/73, recorded 9/20/73 in Liber 7550 mp 547. Above eight
mortgages have been consolidated and extended in the principal sum of
$2,400,000. Mortgage in the principal sum of $37,600,000. made by Waterhouse
Realty Corp. to Lincoln First Real Estate Credit Corporation dated 6/27/74.
Consolidation and Spreader Agreement between Waterhouse Realty Corp. and Lincoln
First Real Estate Credit Corporation dated 6/27/74, which said Agreement
consolidates all of the above mortgages into a single lien in the principal sum
of $40,000,000, and spreads them to cover premises described in Schedule A.
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT F. CERTIFICATE OF OCCUPANCY:
-46-
<PAGE>
CERTIFICATE OF OCCUPANCY
EXHIBIT F
No. 7276
RE: Appl. No. 73BA560 DEPARTMENT OF BUILDING
............
Permit No. B-5551 THE CITY OF WHITE PLAINS, NEW YORK
.......
Date December 30, 1997
.................
THIS CERTIFIES THAT the building located at 44 South Broadway
...................................
City of White Plains, N.Y., in Ward 5 Block 24 Lots 5, etc.
..... ............. .............
conforms to the requirements of the Building Code, Zoning Ordinance, and all
other laws, ordinances and rules applicable to the building of its class and
kind at the time the permit was issued and may be used and occupied as an office
building and parking garage subject to all
...............................
privileges, requirements, limitations and conditions prescribed by law and in
accordance with the following data:
1. ZONE DISTRICT B-4 (Central Retail and Office District)
...................................................
2. USE GROUP E (Business)
......................................................
3. FIRE GRADING (Class and hours) Type 2A (Office Building); 2C
(Garage)
....................................................
4. NO. OF DWELLING UNITS None
..........................................
5. LOT AREA *65,617 + ** 46,416 = 112,033 Sq. Ft.
........................................................
6. BUILDING AREA (Coverage) *37,560 + **40,143
..................................................
7. PERCENTAGE OF LOT OCCUPIED *35.4%; ** 35.8%
.....................................
8. HEIGHT OF BUILDING (stories & feet) 19 Stories & 247.5 Feet
..............................................
9. CUBICAL CONTENTS *11,720,573 + **3,719,425 = 15,439,998 Cu.Ft.
.................................................
10. NO. OF PROFESSIONAL OFFICES IN AREA None
............................
11. NO. OF PARKING SPACES 1370
..........................................
12. NO. OF LOADING SPACES 4
..........................................
13. GROSS FLOOR AREA 713,340 above grade + 142,380 below +424,630
garage
................................................
14. FLOOR AREA RATIO 6.36
................................................
15. FINAL COST (affidavit)
...........................................
16. SPECIAL CONDITIONS
a. Common Council See resolution adopted 7/7/69, 9/11/72,
.....................
6/25/73,10/17/73,
...........................................................
b. 12/3/73,2/19/??,?/24/74,7/24/74,7/6/76
..............................................
17. REMARKS *Office Building **Garage...............................
---------------------------------------------------------------------
Live load
STORY lbs./sq. ft. USE
=====================================================================
.....................................................................
OFFICE BUILDING:
.....................................................................
L.L.-1,2,3 100 Offices, Loading dock
.....................................................................
First 100 Lobby and Rentals
.....................................................................
2 thru 18 60 + 20 Offices
.....................................................................
19, Mezz 150,125 Mechanical Equipment
.....................................................................
Roof 40 Elev. Mach.
.....................................................................
Garage:
.....................................................................
L.L. 1 & 2 50 Parking
.....................................................................
1 Thru 8 50 Parking
.....................................................................
---------------------------------------------------------------------
This cetificate does not in any way relieve the owners, or any other person in
possession or control of the building or any part thereof, from obtaining such
other permits or licenses as may be prescribed by law for the uses or purposes
for which the building is designed or intended; nor from complying with any
lawful order issued with the intent of maintaining the building in a safe or
lawful condition.
This certificate is issued to Mr. Salvatore Pepe
.............................
Address 700 White Plains Road
...............................
[ILLEGIBLE SIGNATURE APPEARS HERE]
.......................................
DEPUTY COMMISIONER OF BUILDING Scarsdale, New York 10583
..............................
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT G. LIST OF PRODIGY COMPETITORS:
1. America On Line
2. CompuServ
3. PSI Net
4. Netcom
5. The Internet divisions or affiliates of MCI AT&T or British Telecom.
-47-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT H. JANITORIAL SPECIFICATIONS:
NIGHTLY (Five nights per week, Monday through Friday, excluding Building
holidays as set forth in Article 7C hereof, except that, if Landlord
provides Building wide janitorial services on President's Day, Landlord
shall perform janitorial services on President's Day for the Premises in
accordance with these specifications.)
. Dust sweep flooring with specially treated cloths to insure dust free
floors.
. Vacuum carpeted areas and rugs, moving light furniture other than
desks, file cabinets, etc.
. Police all stairways.
. Empty wastepaper baskets, receptacles, etc.; damp dust as necessary.
. Remove wastepaper and waste materials to a designated area in the
Premises, using special janitor carriages.
. Dust and wipe clean furniture, fixtures, desk equipment, telephones
and window sills with specially treated cloths. Dust baseboards, chair
rails, trim, louvers, pictures, charts, etc., within reach.
. Wash drinking fountains and coolers.
. Keep service closet rooms in clean and orderly condition.
Lavatories:
. Sweep and wash flooring with approved germicidal detergent solution.
. Wash and polish mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges.
. Wash both sides of toilet seats, wash basins, bowls and urinals with
approved germicidal detergent solution.
. Dust partitions, tile walls, dispensers and receptacles. Remove
wastepaper and refuse to a designated area in the premises, using
special janitor carriages.
. Furnish toilet paper products, soap and other supplies requested by
Tenant, at Tenant's expense.
-48-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Building Entrance Lobbies:
. Vacuum carpet.
. Floors in elevator cabs will be properly maintained.
. Dust and rub down elevator doors, walls, metal work and saddles in
elevator cabs.
. Dust walls up to twelve feet and keep free from finger marks, smudges,
etc.
PERIODIC CLEANING:
Office Areas (monthly):
. Elevators, stairways, office and utility doors on each floor will be
checked for general cleanliness, removing finger marks.
. On multiple tenancy floors, elevators, stairways, office and utility
doors will be washed with clear water or approved cleanser.
. On multiple tenancy floors, dust and clean electric fixtures and any
other fittings in public corridors.
Lavatories (monthly):
. Machine scrub flooring with approved germicidal detergent solution.
Quarterly:
. Office Areas-High Dusting;
. Dust pictures, frames, charts, graphs and similar wall hangings not
reached in nightly cleaning.
. Dust exterior of lighting fixtures.
. Dust window frames.
. Dust vertical surfaces, such as partitions, ventilating louvers, etc.,
not reached in nightly cleaning.
-49-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
Annually:
. Dust all venetian blinds.
. Clean windows inside and outside.
The above janitorial specifications assume that the Premises will be
occupied by no more than one person per 175 rentable square feet. In the event
the Premises are occupied by more than 1 person per 175 rentable square feet,
then Landlord and Tenant shall mutually agree on any additional cost arising
from the higher density of occupancy.
Tenant shall furnish, at its expense, separate wastepaper baskets for
recyclable and non-recyclable materials and shall cause its employees and
visitors to properly sort all waste materials.
-50-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT I. SECURITY AND FIRE ALARM SYSTEMS:
Security:
Building security systems will be manned 24 hours a day, 7 days a week
by authorized Building personnel.
Landlord will maintain and operate a TV camera surveillance security
system 24 hours a day, 7 days a week.
Landlord will provide and maintain a computerized security card system
for the Building.
Automatic Fire, Smoke and Communication System:
Each floor will have the following equipment, which will activate
annunciators in main console in lobby:
a. One (1) warden station;
b. Three (3) smoke detectors (2) duct and (1) area type;
c. Three (3) manual pull stations;
d. Four (4) sound speakers;
e. One (1) water flow device (fire sprinkler system);
f. One (1) tamper device;
g. Sound system in each stairway;
h. All main Electrical and Mechanical rooms and areas have similar
protection.
Fire Alarm System Operation:
Each floor will have one pair of wires for alarm initiating circuit
and will be one zone on the Fire Alarm Control Panel in Telephone Room
and Lobby Panel.
Each initiating device, such as manual station, smoke detector, duct
detector, tamper switch, water flow switch, shall have one common wire
and one point wire, wired to the Fire Alarm Annunciator.
-51-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
The annunciator indicates:
i. The floor or zone which has been activated;
ii. The type of device which has been activated, such as station,
smoke detector, tamper switch or water flow switch.
iii. System trouble will indicate on Annunciation.
All fans will shut down on alarm except fans EF10, S6 and S7 will start on
alarm.
The annunciator contains four Key switches with lights for restarting 4 return
air fans.
Alarm speakers will operate on floor of alarm and floor above for evacuation.
Elevators are programmed to return to main level in event of alarm, key operated
by firemen.
-52-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT J. SECURITY DEPOSIT SCHEDULE
The Letter of Credit under Article 36 of this Lease may be reduced to the
following amounts as of the following dates:
Date Amount
---- ------
January 1, 1999 $3,420,000
January 1, 2000 $2,909,000
January 1, 2001 $2,354,000
January 1, 2002 $1,800,000
January 1, 2003 $1,200,000
January 1, 2004 $600,000
January 1, 2005 (if Lease renewed) 0
-53-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
EXHIBIT K. HEATING, VENTILATING AND AIR CONDITIONING:
Landlord shall provide air conditioning on a year-round basis throughout
the Premises. The equipment shall maintain an indoor temperature of 75 (degrees)
F.D.B. at 50% R.H. in Summer based on local 1% outdoor design condition as
specified in the latest edition of the "ASHRAE HANDBOOK OF FUNDAMENTALS" and 72
(degrees) F.D.B. in the Winter based on local 99% design as specified in the
latest edition of the "ASHRAE HANDBOOK OF FUNDAMENTALS".
All systems shall conform to local and national codes.
Ventilation and Exhaust
- -----------------------
Ventilation and exhaust shall be based on the following operating criteria,
except where local codes and ordinances are more stringent.
1. Offices
Minimum circulation .75 CFM/sq. ft.
Minimum outside air .15 CFM/sq. ft.
2. Meeting Rooms and Conference Rooms
Minimum circulation 2.0 CFM/sqCFM/sq. ft.
Minimum outside air 10.0 CFM/person
based on 25 square feet/person
3. Corridors
Minimum circulation 27 CFM/sq. ft.
4. Toilets
Provide a minimum of 2 CFM/sq. ft. of exhaust and 1 CFM/sq. ft. of
conditioned air from the house system.
Design Process Loads
- --------------------
The following process loads shall be used in calculating the internal heat
gains. The loads shown are exclusive of lighting and people and no diversity
factor shall be applied.
a. Office and drafting areas -- 3 watt/sq. ft.
b. Meeting Rooms and Conference Rooms -- 2 watt/sq. ft.
-54-
<PAGE>
PRODIGY SERVICES CORPORATION
- --------------------------------------------------------------------------------
c. Computer areas -- (this load is generally handled by supplemental
A/C units at Tenant's expense)
System Criteria
- ---------------
a. Air handling: The air handling systems shall be selected to
provide both optimum flexibility and operating costs. The systems
shall be arranged for automatic modulation of up to 100% outside
air (economizer cycle) and shall include means for relieving air
from the Building. Equipment shall be selected for minimum
vibration and low noise level.
b. Air distribution: All duct systems shall be designed and
installed in accordance with recommendations of the latest
edition of the ASHRAE GUIDE AND SMACNA MANUAL. Duct and outlet
velocities shall be selected for minimum noise levels. The air
distribution system shall be equipped with balancing devices.
Diffusers shall be adjustable with tight closing dampers.
c. Perimeter Heating: Under-the-window heating is required when the
heat loss is greater than 380 BTU/HR per linear foot of
wall-glass combination, to prevent down draft. Perimeter heating
shall be zoned based on exposure and provided with indoor-outdoor
temperature controls. For values lower than 380 BTU/HR of linear
feet of wall-glass combination it is permissible to use overhead
heating, provided there is proper air distribution.
Definitions
- -----------
FDB Fahrenheit Dry Bulb
RH Relative Humidity
ASHRAE American Society of Heating, Refrigeration and Air
Conditioning
SMACNA Sheet Metal and Air Conditioning Contractors National
Association
CFM Cubic Fee Per Minute
FPM Feet Per Minute
AABC Associated Air Balance Council
-55-
<PAGE>
FIRST AMENDMENT OF LEASE
THIS FIRST AMENDMENT OF LEASE, made as of the November 17, 1997 between
Westchester ONE LLC, a New York limited liability company, having its principal
office at 700 White Plains Road, Scarsdale, New York 10583 (hereinafter referred
to as "Landlord"), and PRODIGY SERVICES CORPORATION, a Delaware corporation
having an address at 445 Hamilton Avenue, White Plains, NY 10601 (hereinafter
referred to as "Tenant").
WHEREAS Landlord and Tenant entered into an Amended and Restated Lease dated
September 19, 1997 (the "Lease") for space in the building known as Westchester
ONE located at 44 South Broadway, in the City of White Plains, County of
Westchester, State of New York 10601 (the "Building"); and
WHEREAS Landlord and Tenant desire to specify the lease to Tenant pursuant to
Article 33 of storage area on Lower Level 3 of the Building.
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. Storage Area. Landlord hereby leases to Tenant, and Tenant hires and takes
------------
from Landlord, approximately 8,407 square feet of rentable storage area on Lower
Level 3 of the Building which is shown on Exhibit A attached hereto. Such space
shall be considered the Storage Area as defined in the Lease, shall be part of
the "Premises" as defined in the Lease, and shall be treated as if leased to
Tenant on the date of the Lease, subject to all the terms and conditions of the
Lease:
The Base Rent for the Storage Area as set forth in Article 4 of
the Lease shall be deleted in its entirety and replaced with the following:
"Storage Area: One Hundred Twelve Thousand Four Hundred and
------------
Four Dollars and Eighty Cents ($112,404.00) a year, to be paid in advance in
monthly installments of Nine Thousand Three Hundred Eighty Seven Dollars and
Eighty Two Cents ($9,367.00) for the period from the Commencement Date of the
Lease through December 31, 2004; and
2. Parking. The 165 parking spaces available to Tenant pursuant to the first
-------
paragraph of Article 28 of the Lease is hereby increased to 181 parking spaces.
3. Operating Expense Escalation. In the next to last paragraph of Exhibit C of
----------------------------
the Lease, Tenant's proportionate share shall be deemed to be 10.656% which is
the proportion that the total rentable square foot area leased by Tenant
(90,763) bears to the total net rentable square foot area of the Building
(851,769).
4. Real Estate Tax Escalation. In the fourth paragraph of Exhibit D of the
--------------------------
Lease, Tenant's proportionate share shall be deemed to be 10.656% which is the
proportion that the
<PAGE>
total rentable square foot area leased by Tenant (90,763) bears to the total net
rentable square foot area of the Building (851,769).
5. Broker. Landlord and Tenant each warrant and represent that Cushman &
------
Wakefield of Connecticut ("Cushman") is the broker involved in the negotiation
of this First Amendment of Lease whose commission shall be paid by Landlord
pursuant to a separate agreement. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims for brokerage commission arising
out of any communications or negotiations had by Tenant with any broker
regarding this First Amendment other than Cushman. Landlord agrees to indemnify
and hold Tenant harmless from and against any and all claims for brokerage
commissions arising out of any communications or negotiations had by Landlord
with any broker regarding this First Amendment other than Cushman.
6. Ratification. Except as modified by this First Amendment, Landlord and Tenant
------------
hereby ratify and confirm the Lease in all respects.
IN WITNESS WHEREOF, this First Amendment of Lease has been duly
executed as of the day and year first above written.
WESTCHESTER ONE LLC
By: /s/ Nicholas J. Pepe
--------------------------
Nicholas J. Pepe
Managing Member
PRODIGY SERVICES CORPORATION
By: /s/ E. Godshalk Acting CFO
---------------------------
Ernest Godshalk
[SEAL APPEARS HERE]
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF WESTCHESTER )
On this 17th day of November, 1997, before me personally
appeared NICHOLAS J. PEPE, to me known and known to me to be the individual
described in and who executed the foregoing instrument, and acknowledged that he
executed the same as the Managing Member of Westchester One LLC.
/s/ Lisa Ditrio [STAMP APPEARS HERE]
------------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF WESTCHESTER )
On this 10th day of November, 1997 before me personally came
Ernie Godshalk, to me known, who, being by me duly sworn, did depose and say
that he resides, at 445 Hamilton Ave._________, that he is the CFO of Prodigy
Services Corporation described in and which executed the above instrument; that
he knows the seal of said Corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the Board of
Directors of said Corporation and that he signed his name thereto by like order.
/s/ Howard L. Uffer
---------------------------
Notary Public
[STAMP APPEARS HERE]
<PAGE>
EXHIBIT A
---------
Insert floor plan for space on Lower Level 3
[MAP APPEARS HERE]
<PAGE>
EXHIBIT 10.31
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
PROMOTION & DISTRIBUTION AGREEMENT
This Promotion & Distribution Agreement (the "Agreement") is entered into and
effective as of September ___, 1996 (the "Effective Date") by and between
MICROSOFT CORPORATION, a Washington corporation located at One Microsoft Way,
Redmond, WA 98052 ("Microsoft") and PRODIGY SERVICES CORPORATION, a Delaware
corporation located at 445 Hamilton Avenue, White Plains, NY 10601 ("Prodigy").
RECITALS
Microsoft is the owner and/or authorized licensor of the Windows 95 operating
system, as well as of certain Internet-related technology, including "browsing"
software known as the "Internet Explorer" for Windows 95, Windows NT, Windows
3.xx and Apple Macintosh operating systems.
Prodigy is the owner of Prodigy Internet Service, a World Wide Web ("WWW") based
on-line service, which provides WWW and Internet online access for its
subscribers (the "Service").
Microsoft and Prodigy wish to promote access to the Service by including,
integrated into the user interface and as part of Microsoft's distribution of
Windows 95, a software client icon representing the Service.
Prodigy wishes to market, promote and distribute Internet Explorer as its
primary and preferred browser platform for Service.
The parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Apple Macintosh" means Apple's Macintosh operating system version 7.1, or
later.
1.2 "Changes" means modifications, extensions, translations or other Derivative
Technology of source code created through Modification of software.
1.3 "Client Software" means the operating system platform-specific client
access software used by a subscriber to an Online Service to access such
service.
1.4 "Confidential Information" means: (i) any trade secrets relating to either
party's product plans, designs, costs, prices and names, finances,
marketing plans, business opportunities, personnel, research development or
know-how; and (ii) the specific terms and conditions of this Agreement.
"Confidential Information" shall not include information that: (i) is or
becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is known and has
been reduced to tangible form by the receiving party at the time of
disclosure and is not subject to restriction; (iii) is independently
developed or learned by the receiving party; (iv) is lawfully obtained from
a third party that has the right to make such disclosure; or (v) is made
generally available by the disclosing party without restriction on
disclosure.
1.5 "Desktop Folder" means a folder, shortcut, link or other similar iconic
representation entitled "Online Services" and which is accessible to
Windows 95 users on the Windows 95 desktop, as more fully described in
Exhibit A.
Page 1 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
1.6 "Derivative Technology" shall mean: (i) for copyrightable or copyrighted
material, any translation (including localization into foreign languages or
translation into other computer languages), portation, modification,
correction, addition, extension, upgrade, improvement, compilation,
abridgment or other form in which an existing work may be recast,
transformed or adapted; (ii) for patentable or patented material, any
improvement thereon; and (iii) for material which is protected by trade
secret, any new material derived from such existing trade secret material,
including new material which may be protected by copyright, patent and/or
trade secret.
1.7 "End-User" means a third-party customer or potential customer to whom a
copy of a product or service is licensed, sublicensed or otherwise
distributed or transmitted primarily for such customer's or potential
customer's use and not for further sublicense or distribution.
1.8 "Error(s)" means defect(s) in software which prevent it from performing in
accordance with the specifications and/or a Severity Level 1, 2 or 3 error,
as such errors are defined in Exhibit D.
1.9 "Internet Access Service" means a service which primarily provides
electronic access to "open" services such as the Internet and the WWW.
1.10 "Internet Explorer" means current and future versions of (i) Microsoft's
Internet Explorer browser software for each of the Platforms, as released
by Microsoft during the Term and (ii) the Microsoft software clients known
as NetMeeting, Comic Chat, Mail and NewsGroups, all as fully described in
Exhibit B.
1.11 "Online Service" means an electronic information service: providing access
for computer users to "proprietary" content, services, entertainment and/or
other information; providing access to "open" services such as the
Internet, the WWW; and/or providing a combination of the foregoing,
including organization-specific LANs, WANs and Intranets.
1.12 "Modify" means to, edit, format, modify, translate and otherwise create
Derivative Technology of software.
1.13 "Platforms" means Windows 95, Windows NT, Windows 3.xx and Apple Macintosh.
1.14 "Prodigy Sites" means WWW sites developed, managed or controlled by Prodigy
associated with Service.
1.15 "Program Folder" means a folder, shortcut, link or other similar iconic
representation entitled "Online Services" and which is accessible to
Windows 95 users from the "Start/Programs" option on the Windows 95 "Start"
menu, as more fully described in Exhibit A.
1.16 "Service Client Icon" means an icon or menu item, as appropriate, for
installation of and/or access to the Service Client Software, the visual
aspects of which are described in Exhibit A.
1.17 "Service Client Software" means the Client Software for the Service on the
Windows 95 Platform, including setup and installation features, modified to
include the Internet Explorer.
1.18 "Service" means Prodigy's current On-line Service, named "Prodigy Internet
Service," and including any successor versions of the foregoing during the
Term.
1.19 "Term" means the term of the Agreement, the period commencing upon the
Effective Date and continuing until one year after the date that Microsoft
first distributes the Service Client Icon included in the Desktop Folder.
Confidential & Proprietary Page 2 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
1.20 "Third Party Browser" means software, for any Platform, designed to view,
render, browse or otherwise interact with the Internet, the WWW and/or
other public networks now existing or hereafter created.
1.21 "Windows 3.xx" means Microsoft's 16-bit operating system version 3.1 or
later, including Windows for Workgroups.
1.22 " Windows 95" means the English language version of Microsoft's Windows 95
operating system, including upgrades and direct successor versions thereof
released by Microsoft during the Term, but not including any version of
Windows NT. "Windows 95" can include both a retail upgrade version which is
upgrade of current operating system technology, as well as an original
equipment manufacturer ("OEM") version which constitutes a full operating
system installation, inclusive of upgrade/replacement code.
1.23 "Windows NT" means Microsoft's 32-bit operating system.
2. LICENSE GRANTS
2.1 License Grant - Service Client Software. During the Term, Prodigy hereby
---------------------------------------
grants to Microsoft a nonexclusive, royalty-free, fully paid up, worldwide
right and license:
(a) Object Code. To use, reproduce, license, rent, lease, display, perform
or otherwise distribute, and have reproduced, licensed, rented,
leased, displayed, performed or otherwise distributed, to and by third
parties, object code versions of the Service Client Software solely as
part of or for distribution in conjunction with Windows 95; and to
grant the foregoing rights in the Service Client Software to third
parties, including the right to license such rights to further third
parties; and
(b) Source Code. Solely to the extent expressly permitted by Prodigy in
writing and subject to the restrictions of this Section 2.1, to use,
Modify, reproduce, evaluate and make Changes to the source code of the
Service Client Software solely for purposes of assisting Prodigy with
the testing and integration of Internet Explorer into the Service
Client Software.
The source code of the Service Client Software shall be disclosed only to
those Microsoft employees and independent contractors working on Internet
Explorer or Windows 95 development and having a need to access such source
code for the purposes set forth in Section 2.1(b). In no event shall
Microsoft permit access to such source code by employees or independent
contractors working on the Microsoft Network or by any other employees or
independent contractors at Microsoft. Microsoft will ensure that employees
and independent contractors permitted access to the Service Client Software
source code are under written agreement imposing obligations of
confidentiality with respect to such source code consistent with the terms
and conditions of this Agreement. Access to the Service Client Software
source code shall only be at secure Microsoft facilities where Microsoft
takes steps to protect the security and the confidentiality of such source
code as extensive as it takes to protect its own Confidential Information
of like importance.
2.2 Internet Explorer. Microsoft hereby grants to Prodigy a royalty-free,
-----------------
non-exclusive, limited worldwide right and license to (i) use, reproduce,
license, sublicense, display, perform or otherwise distribute (including
electronic distribution via download from the Service or Prodigy Sites),
and have used, reproduced, licensed, sublicensed, displayed, performed or
otherwise distributed, to and by third parties object code versions of
Internet Explorer solely as part of the Service Client Software or for
distribution in conjunction with the Service, and (ii) to grant the
foregoing rights to third parties, including the right to license such
rights to further third parties.
Confidential & Proprietary Page 3 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
2.3 Ownership. Except as expressly licensed to Microsoft in Section 2.1,
---------
Prodigy retains all right, title and interest in and to the Service
Client Software and any Changes to the Service Client Software created by
or for Microsoft. Except as expressly licensed to Prodigy in Section 2.2,
Microsoft retains all right, title and interest in and to Internet
Explorer.
2.4 No Other Rights. Except as expressly granted in this Agreement, Microsoft
---------------
shall have no other rights in the Service Client Software. Except as
expressly granted in this Agreement, Prodigy shall have no other rights
in Internet Explorer. Under no circumstances will anything in this
Agreement be construed as granting to either party, by implication,
estoppel or otherwise, a license to any technology other than that
expressly licensed under this Agreement.
3. PROMOTION OF INTERNET EXPLORER
3.1 Promotion. During the Term and subject to the exceptions set forth in
---------
Section 3.3, Prodigy shall, with respect to Third Party Browsers, use,
distribute and promote Internet Explorer as its default and primary
browser technology for the Service.
3.2 Further Obligations.
-------------------
(a) Download. At Microsoft's option, Prodigy shall provide locations on
the Service and other Prodigy Sites for End Users and Customers to
download (either directly or indirectly via URL link) Internet
Explorer for all Platforms.
(b) Promotion On Prodigy Sites. Prodigy shall design its Prodigy Sites as
premier Internet Explorer sites, including, but not limited to,
taking advantage of Microsoft's ActiveX technology and using new
extensions and improvements available in Internet Explorer on sixty
percent (60%) or more of such sites. Prodigy will choose up to
fifteen (15) separate features from a list (which is provided by
Microsoft and which affords Prodigy reasonable choice) and shall
implement and incorporate such features on the Prodigy Sites, such
features to be placed within the Prodigy Sites at Prodigy's
discretion.
(c) Internet Explorer Logo. Prodigy shall execute a "Designed For
Internet Explorer Logo" license and prominently feature the Internet
Explorer logo on the home page of the Service.
3.3 Exceptions.
----------
(a) End User Choice. Prodigy is not in any way obligated to prevent the
access to, use or downloading of Third Party Browsers on third party
services and Internet sites, even if accessible through use of
Service. Prodigy may provide links to use and to download Third Party
Browsers on or for use with the Service solely at a single Service
location or Prodigy Site, provided that such locations shall be
substantially minimized (for example, in a list box) and shall not be
presented in a manner which would be contradictory to the spirit of
Section 3.1.
(b) Customer Choice. Where expressly required by a third party
provider, distributor or corporate/organizational account
("Customer") to distribute a Third Party Browser to such Customer,
Prodigy may distribute Third Party Browsers (bundled or not) to and
by the Customer with the Service; provided, however, that Prodigy
shall use all reasonable efforts to minimize the association of
"Prodigy" or any Service brand name in connection with such Third
Party Browser(s). The parties will use all reasonable efforts to
jointly promote Internet Explorer to any such Customer, including
joint meetings of the parties and such Customer.
3.4 Overall Limitation. Notwithstanding any exception under Section 3.3,
------------------
for any Semi-Annual Period, the total Shipment Percentage shall not exceed
fifteen percent (15%). "Semi-Annual Period" means
Confidential & Proprietary Page 4 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
each six (6) month period ending June 30 or December 31, during the
Agreement Term. The initial Semi-Annual Period shall commence upon
January 1, 1997. "Shipment Percentage" means a fraction with (i) a
numerator equaling the total number of Third Party Browsers shipped by
Prodigy under Section 3.3(b), and (ii) the denominator equaling the total
number of copies of Service Client Software distributed by or for Prodigy
for the Service.
4. DISTRIBUTION OF SERVICE CLIENT SOFTWARE
4.1 Distribution Obligation. During the Term, Microsoft shall include the
-----------------------
Service Client Software as part of each retail package and OEM version of
Windows 95, including placement of the Desktop and Folder Icons as
described in Section 4.3, expressly subject to all of the following
conditions:
(a) Latest Version of Internet Explorer. Beginning with version 3.0, for
each new version of Internet Explorer released by Microsoft during
the Term as part of a Windows 95 release, Prodigy must integrate and
incorporate such latest version into the Service Client Software,
provided that Microsoft has supplied such latest version to Prodigy
pursuant to this Agreement.
(b) Pre- and Final Release Code. Microsoft and Prodigy will use all
reasonable efforts to provide to the other alpha and quality beta
versions of Internet Explorer and Service Client Software,
respectively. Such releases will, where possible, be provided within
ninety (90) days of an expected release to manufacture ("RTM") of the
recipient's incorporating code. Such ninety (90) day period is not an
absolute but a guideline, and the parties will use all reasonable
efforts to accommodate and work with the other on their respective
deliveries of code, including frequent and timely code drops in the
latter stages of development before RTM.
(c) International Distribution. To the extent Microsoft distributes
Windows 95 in countries where Prodigy does not offer the Service,
Prodigy must develop a customer referral or notice plan for users
that access the Service Client Software in such countries, and such
plan must be approved by Microsoft.
(d) Support of Service Client Software. Prodigy understands that each new
version of Windows 95 requires extensive testing of the entire base
of code shipped with the product. Consequently, new versions of the
Service Client Software to be distributed with corresponding new
versions of Windows 95 must be delivered and supported by Prodigy in
a timely manner, including: (i) regular alpha and beta code drops
shall be given to Microsoft periodically during development with
Errors corrected in accordance with the severity schedule and
procedures set forth in Exhibit D; (ii) final code shall be delivered
by Prodigy to Microsoft as described in Section 4.1(b); and (iii)
following RTM, Prodigy must correct any Errors in accordance with the
severity schedule in Exhibit D and deliver such corrections to
Microsoft. Prodigy shall use reasonable best efforts to ensure that
the Service Client Software meets Microsoft's performance, quality
and size criteria for applications and components shipped with
Windows 95. In no event shall Microsoft be obligated to include
Service Client Software as part of Windows 95 if the Service Client
Software has any Severity 1 or 2 level Error.
(e) Support. Prodigy shall handle all Service Client Software support
issues including, but not limited to, telephone and e-mail support
for existing and prospective End Users and Customers.
(f) Client Size. The Service Client Software shall not exceed one (1)
megabyte of space, whether on floppy, hard disk or CD-ROM.
(f) Setup and Installation Specifications. The Service Client Software
must meet the setup and installation specifications set forth in
Exhibit C.
Confidential & Proprietary Page 5 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
4.2 Localized Versions. Microsoft shall have no obligations under this
------------------
Section 4 with respect to non-English language versions of Windows 95.
Microsoft shall negotiate with Prodigy in good faith regarding inclusion
of the Service Client Software in non-English language versions of
Windows 95.
4.3 Folders.
-------
(a) Program Folder. For each version of Windows 95 distributed with the
Service Client Software as set forth in this Section 4, Microsoft
shall include the Service Client Icon in the Program Folder. The
Service Client Icon will be clearly visible whenever the Program
Folder menu item is opened to its default setting.
(b) Desktop Folder. For each version of Windows 95 distributed with the
Service Client Software as set forth in this Section 4, Microsoft
shall include the Prodigy Client Icon in the Desktop Folder. The
Prodigy Client Icon will be clearly visible whenever the Desktop
Folder is opened to its default setting. Prodigy understands and
acknowledges that, separate from the Desktop Folder: (i) Microsoft
may have an icon on the Windows 95 desktop that represents a general
Internet sign-up application or wizard; and (ii) Microsoft may
continue to place the icon for the Microsoft Network ("MSN") on the
Windows 95 desktop or otherwise in Microsoft's sole discretion.
4.4 Setup & Placement. Upon setup or installation of Windows 95 with which a
-----------------
copy of Service Client Software is distributed:
(a) OEM Version. For the OEM version of Windows 95, the default
installation will place the Desktop Folder containing the Prodigy
Client Icon on the Windows 95 desktop and install the Service Client
Software; and
(b) Retail Version. For a retail full package or upgrade version of
Windows 95: (i) for the default installation, the Service Client
Software and Icon will be installed; (ii) for the portable and
compact installation, the Service Client Software will not be
installed, but the Service Client Icon and a small program provided
by Prodigy for remote installation will be installed in the Desktop
and Program Folders and, if the End User clicks on such icons, the
Service Client Software can be installed by the End User from the
physical media; and (iii) for the custom installation, the Service
Client Software will, by default, be checked to be installed and will
not be installed where an End User affirmatively chooses not to so
install it, in which case the Service Client Icon and accompanying
small program will be installed as set forth in part (ii), above.
4.5 Windows 95 Support. Microsoft shall handle all Windows 95 support issues
------------------
including, but not limited to, telephone and e-mail support for existing
and prospective End Users and Customers.
4.6 EULA. For versions of Internet Explorer distributed by Prodigy, Prodigy
----
may attach Microsoft's End User License Agreement for Internet Explorer to
Prodigy's Service member agreement. Prodigy shall obtain Microsoft's
permission, which permission shall not be unreasonably withheld or
delayed, for any changes to the installation process of Internet Explorer
with Prodigy's installation of the Service Client Software distributed
directly by Prodigy, such as the "suppression" of Microsoft's End User
License Agreement during installation.
5. PUBLICITY
Subject to applicable law, the parties will cooperate with each other on press
releases and similar communications regarding the non-confidential subject
matter of this Agreement, and the content, timing and necessity of all such
communications will be agreed upon in writing by both parties.
Confidential & Proprietary Page 6 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
6. THIS SECTION INTENTIONALLY OMITTED.
7. COSTS; CO-MARKETING
7.1 Referral Fees. For each Quarterly Period, Prodigy shall pay to Microsoft
-------------
a referral fee, as set forth in this Section 7.1, for each subscriber
which signs up for the Service via the Desktop Folder or Program Folder
on Windows 95 during the Term.
(a) Calculation. The referral fee in a particular Quarterly Period shall
be calculated as set forth in the chart below.
Referral fee [**]
ActiveX discount/1/ [**]
NT/IIS discount/2/ [**]
FrontPage Extn/3/ [**]
----
Discounted fee [**]
1. The referral fee shall be reduced by [**] if Prodigy
implements "ActiveX" control(s) in the Prodigy's home page
for the Service. Prodigy shall notify Microsoft of the
ActiveX controls implemented by the Prodigy.
2. The referral fee shall be reduced by an additional [**] if:
(a) Prodigy uses Microsoft Windows NT and Internet
Information Server as the platform for Prodigy's web site
that hosts the home page, or (b) Prodigy offers Microsoft
Internet Information Server as one of its platforms for Web
Hosting services.
3. The referral fee shall be reduced by an additional [**] if
Prodigy uses Microsoft FrontPage server extensions on
Prodigy's web hosting service.
Prodigy shall pay Microsoft the applicable Referral Fee one-time for
each "Converted Service Member." For purposes of this Section 7.1, a
"Converted Service Member" means a new subscriber to the Service
which subscribed using the Desktop Folder or Program Folder on
Windows 95 that remains a subscriber with the Service for three (3)
consecutive months. Microsoft shall be paid only once for each
Converted Service Member under this Section 7.1(a) regardless of the
duration of his membership in the Service.
(b) Payment. Within thirty (30) days following the end of any Quarterly
Period, Prodigy shall remit to Microsoft the total referral fees due
for the immediately preceding Quarterly Period together with a report
showing the calculation for such fees.
(c) Continuing Referral Fees. Unless this Agreement has been terminated
by Prodigy due to a failure by Microsoft to perform or comply with
this Agreement, Prodigy shall continue to track and pay referral fees
to Microsoft as provided above for subscribers who register for the
Service via the Desktop Folder or Program Folder on Windows 95 for a
period of one (1) year after the end of the Term.
(d) Other Referral Fees. Microsoft acknowledges that Prodigy may pay fees
similar to the above-mentioned Referral Fees to OEMs. This Agreement
shall not be construed as limiting in any way whatsoever Prodigy's
right to make such payments, and such payments shall not be construed
in any way as abridging Prodigy's obligations under this Agreement.
Prodigy will
Confidential & Proprietary Page 7 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
not owe Microsoft Referral Fees for subscribers to the Service which
Prodigy obtains other than through the Desktop Folder or the Program
Folder in Windows 95.
7.2 Cost Reimbursement. In the event that the parties mutually agree to have
------------------
the Service Client Software included in the floppy diskette versions of
Windows 95, Prodigy shall reimburse Microsoft for the incremental
out-of-pocket expense, associated with the inclusion of the Service
Client Software in such version of Windows 95, including but not limited
to costs of media, labeling and manufacture and labor costs associated
with package insertion. Such costs shall be reimbursed by Prodigy on a
quarterly basis, after receipt of Microsoft's invoice for such costs,
together with referral fees under Section 7.1.
7.3 Payment Terms. Any fee or reimbursement due under this Agreement shall be
-------------
paid in U.S. dollars.
7.4 Audit.
-----
(a) Records. During the period during which referral fees continue to be
payable under this Agreement pursuant to Section 7.1(c), and for one
(1) year thereafter, Prodigy agrees to keep all usual and proper
records and books of account and all usual and proper entries
relating to the Shipment Percentage, referral fees, the number of
subscribers calculated under this Agreement and other requirements of
this Section 7.
(b) Audit. In order to verify statements issued by Prodigy and Prodigy's
compliance with the terms of this Agreement, Microsoft may cause an
audit to be made of Prodigy's books and records. Any audit and/or
inspection shall be conducted during regular business hours at
Prodigy's facilities upon reasonable advance notice. Any audit shall
be conducted by an independent certified public accountant of
national stature selected by Microsoft (other than on a contingent
fee basis), subject to the approval of Prodigy, which approval will
not be unreasonably withheld or delayed.
(c) Access. Prodigy agrees to provide Microsoft designated audit team
access to the relevant Prodigy records and facilities.
(d) Adjustment. Prompt adjustment shall be made to compensate for any
errors or omissions disclosed by such audit. Any such audit shall be
paid for by Microsoft unless material discrepancies are disclosed.
"Material" shall mean the under reporting of three percent (3%) or
more of the amount due. If material discrepancies are disclosed,
Prodigy agrees to pay Microsoft for the costs associated with the
audit in addition to the amount of any discrepancy.
(e) Frequency. Microsoft may exercise its right to audit under this
Agreement no more than once in any twelve-month period.
8. MICROSOFT NONEXCLUSIVE
Nothing in this Agreement will be construed as restricting Microsoft's ability
to license, develop, sub-license, manufacture or distribute Internet Explorer
or any other technology, for itself or for any third party, or to include third
party Client Software with Windows 95 generally, or specifically in the Desktop
Folder and/or the Program Folder, or with any other Microsoft product.
9. TRADEMARKS
9.1 Grant by Microsoft. Prodigy is hereby granted a non-exclusive license to
------------------
use the Microsoft trademarks relating to Internet Explorer in the Service
Client Software and Service (to the extent relating to the
Confidential & Proprietary Page 8 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
incorporation of Internet Explorer into the Service Client Software and
Service) in any advertising, marketing, technical or other materials
related to Internet Explorer which are distributed, transmitted or
promoted by Prodigy or its distributors in connection with this Agreement.
Such use shall be in accordance with Microsoft's then current trademark
guidelines to be provided and reasonably updated by Microsoft from time to
time. If the trademark guidelines are amended or any Microsoft trademarks
are modified or added, Prodigy shall have the right to deplete or have
depleted existing and contractually committed for inventories of products
and materials which may not be in compliance with the amended guidelines
or modified or added Microsoft trademarks and shall have a reasonable
transition period to implement compliance. When Prodigy uses a Microsoft
trademark, Prodigy shall clearly indicate Microsoft's ownership of the
Microsoft trademark. Prodigy agrees not to register any Microsoft
trademarks without Microsoft's express prior written consent. Microsoft
shall promptly notify Prodigy of any claim of infringement or invalidity
of any Microsoft trademarks or any action or inquiry by any trademark
office or authority questioning the validity, enforceability or
registrability of any such Microsoft trademark in any jurisdiction.
Notwithstanding the foregoing, any fair use by Prodigy of "Microsoft
Internet Explorer" in a truthful context shall not require Microsoft's
advance approval unless such use suggests or implies endorsement by
Microsoft of Prodigy's or any other parties' products or services.
9.2 Grant by Prodigy. Microsoft is hereby granted a non-exclusive license to
----------------
use those Prodigy trademarks relating to the Service in Windows 95 (to the
extent incorporated into the Prodigy Icon or Service Client Software) and
any advertising, marketing, technical or other materials related to the
Service which are distributed, transmitted or promoted by Microsoft or its
distributors in connection with this Agreement. Such use shall be in
accordance with Prodigy's then current trademark guidelines to be provided
and reasonably updated by Prodigy from time to time. If the trademark
guidelines are amended or any Prodigy trademarks are modified or added,
Microsoft and its distributors shall have the right to deplete or have
depleted existing and contractually committed for inventories of products
and materials which may not be in compliance with the amended guidelines
or modified/added Prodigy trademarks and shall have a reasonable
transition period in which to implement compliance. Microsoft shall
clearly indicate Prodigy's ownership of the Prodigy trademarks. Microsoft
agrees not to register any Prodigy trademarks without Prodigy's express
prior written consent. Prodigy shall promptly notify Microsoft of any
claim of infringement or invalidity of any Prodigy trademarks or any
action or inquiry by any trademark office or authority questioning the
validity, enforceability or registrability of any such Prodigy trademark
in any jurisdiction. Nothing herein shall require Microsoft to use any
Prodigy trademark in any manner, except as expressly provided in Section
4.
Notwithstanding the foregoing, any fair use by Microsoft of Prodigy's
trademarks in a truthful context shall not require Prodigy's advance
approval unless such use suggests or implies endorsement by Prodigy of
Microsoft's or any other parties' products or services.
10. CONFIDENTIALITY
10.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those necessary
to directly further the purposes of this Agreement. Each party will use
its best efforts not to disclose to third parties the other's Confidential
Information without the prior written consent of the other party. Except
as expressly provided in this Agreement, no ownership or license rights is
granted in any Confidential Information.
10.2 The parties' obligations of confidentiality under this Agreement shall not
be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential
Information. Further, either party shall be free to use for any purpose
the residuals
Confidential & Proprietary Page 9 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
resulting from access to or work with such Confidential Information,
provided that such party shall maintain the confidentiality of the
Confidential Information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by persons who
have had rightful and good faith access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein.
Neither party shall have any obligation to limit or restrict the
assignment of such persons or to pay royalties for any work resulting
from the use of residuals. However, the foregoing shall not be deemed to
grant to either party a license under the other party's copyrights or
patents.
11. WARRANTIES
11.1 Prodigy. Prodigy warrants and represents that:
-------
(a) It has the full power to enter into this Agreement and make the
license rights set forth herein; and
(b) The Service Client Software, to the best of its knowledge, does not
infringe any copyright, patent, trade secret, or other proprietary
right held by any third party.
11.2 Microsoft. Microsoft warrants and represents that:
---------
(a) It has the full power to enter into this Agreement and make the
license rights set forth herein; and
(b) The Internet Explorer, to the best of its knowledge, does not
infringe any copyright, patent, trade secret, or other proprietary
right held by any third party.
12. DISCLAIMER OF FURTHER WARRANTIES
12.1 EXCEPT AS EXPRESSLY WARRANTED IN SECTION 11.1, THE SERVICE CLIENT
SOFTWARE AND ICON, PRODIGY TRADEMARKS LICENSED UNDER SECTION 9.2 AND
PRODIGY CONFIDENTIAL INFORMATION ARE PROVIDED TO MICROSOFT "AS IS"
WITHOUT FURTHER WARRANTY OF ANY KIND. PRODIGY DISCLAIMS ALL FURTHER
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
TITLE AND NONINFRINGEMENT, WITH RESPECT TO THE SERVICE CLIENT SOFTWARE
AND ICON, PRODIGY TRADEMARKS LICENSED UNDER SECTION 9.2 AND PRODIGY
CONFIDENTIAL INFORMATION.
12.2 EXCEPT AS EXPRESSLY WARRANTED IN SECTION 11.2, INTERNET EXPLORER, THE
MICROSOFT CONFIDENTIAL INFORMATION AND MICROSOFT TRADEMARKS LICENSED
UNDER SECTION 9.1 ARE PROVIDED TO PRODIGY "AS IS" WITHOUT FURTHER
WARRANTY OF ANY KIND. MICROSOFT DISCLAIMS ALL FURTHER WARRANTIES, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND
NONINFRINGEMENT, WITH RESPECT TO INTERNET EXPLORER, THE MICROSOFT
CONFIDENTIAL INFORMATION AND MICROSOFT TRADEMARKS LICENSED UNDER SECTION
9.1.
Confidential & Proprietary Page 10 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
13. INDEMNITY
13.1 Indemnity by Prodigy.
(a) Prodigy shall, at its expense and Microsoft's request, defend any
claim or action brought against Microsoft, and Microsoft's
subsidiaries, affiliates, directors, officers, employees, agents and
independent contractors, to the extent it is based upon a claim that
the Service Client Software, Service Client Icon, and/or Prodigy
trademarks licensed under Section 9.2 infringe or violate any patent,
copyright, trademark, trade secret or other proprietary right of a
third party ("Prodigy Claims"), and Prodigy will indemnify and hold
Microsoft harmless from and against any costs, damages and fees
reasonably incurred by Microsoft, including but not limited to fees of
attorneys and other professionals, that are attributable to such
Prodigy Claims. Microsoft shall: (i) provide Prodigy reasonably
prompt notice in writing of any such Prodigy Claims and permit
Prodigy, through counsel mutually acceptable to Microsoft and Prodigy,
to answer and defend such Prodigy Claims; and (ii) provide Prodigy
information, assistance and authority, at Prodigy's expense, to help
Prodigy to defend such Prodigy Claims. Prodigy will not be responsible
for any settlement made by Microsoft without Prodigy's written
permission, which permission will not be unreasonably withheld.
(b) Prodigy may not settle any Prodigy Claim under this Section 13.1 on
Microsoft's behalf without first obtaining Microsoft's written
permission, which permission will not be unreasonably withheld. In
the event Microsoft and Prodigy agree to settle a Prodigy Claim,
Prodigy agrees not to publicize the settlement without first
obtaining Microsoft's written permission, which permission will not
be unreasonably withheld.
(c) Prodigy's obligations under this Section 13.1 shall be Microsoft's
exclusive remedy for any breach of the warranty made by Prodigy
under Section 11.1(b).
13.2 Indemnity by Microsoft.
(a) Microsoft shall, at its expense and Prodigy's request, defend any
claim or action brought against Prodigy, and Prodigy's subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, to the extent it is based upon a claim that Internet
Explorer and/or the Microsoft trademarks licensed under Section 9.1
infringe or violate any patent, copyright, trademark, trade secret or
other proprietary right of a third party ("Microsoft Claims"), and
Microsoft will indemnify and hold Prodigy harmless from and against
any costs, damages and fees reasonably incurred by Prodigy, including
but not limited to fees of attorneys and other professionals, that are
attributable to such Microsoft Claims. Prodigy shall: (i) provide
Microsoft reasonably prompt notice in writing of any such Microsoft
Claims and permit Microsoft, through counsel mutually acceptable to
Prodigy and Microsoft, to answer and defend such Microsoft Claims; and
(ii) provide Microsoft information, assistance and authority, at
Microsoft's expense, to help Microsoft to defend such Microsoft
Claims. Microsoft will not be responsible for any settlement made by
Prodigy without Microsoft's written permission, which permission will
not be unreasonably withheld.
(b) Microsoft may not settle any Microsoft Claim under this Section 13.2
on Prodigy's behalf without first obtaining Prodigy's written
permission, which permission will not be unreasonably withheld. In
the event Prodigy and Microsoft agree to settle a Microsoft Claim,
Microsoft agrees not to publicize the settlement without first
obtaining Prodigy's written permission, which permission will not be
unreasonably withheld.
(c) Microsoft's obligations under this Section 13.2 shall be Prodigy's
exclusive remedy for any breach of the warranty made by Microsoft
under Section 11.2(b).
Confidential & Proprietary Page 11 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
14. TERMINATION
14.1 Term. This Agreement shall commence upon the Effective Date and continue
----
in full force and effect until the earlier of (i) termination for cause as
set forth in Section 14.2, or (ii) expiration of the Term.
14.2 Termination By Either Party For Cause. Either party may suspend
-------------------------------------
performance and/or terminate this Agreement immediately upon written
notice at any time if:
(a) The other party is in material breach of any material warranty,
term, condition or covenant of this Agreement, other than those
contained in Section 10, and fails to cure that breach within sixty
(60) days after written notice thereof; or
(b) The other party is in material breach of Section 10.
14.3 Effect of Termination.
---------------------
(a) Neither party shall be liable to the other for damages of any sort
resulting solely from terminating this Agreement in accordance with
its terms.
(b) Prior to the expiration of the Term, should this Agreement be
terminated by Microsoft for any reason, Microsoft's license grant
under Section 2.1 shall survive the effective date of such
termination until the later of (i) six (6) months and (ii) the next
full release of Windows 95.
(c) In the event of termination or expiration of this Agreement for any
reason other than Prodigy's material breach of Section 2.2, Prodigy's
license rights under Section 2.2 shall, with respect to the then
current version of Internet Explorer as of the effective date of
termination, survive for a period of six (6) months following the
effective date of termination. In the event of termination of this
Agreement for Prodigy's material breach of Section 2.2, Prodigy's
license rights under Section 2.2 shall survive for a period of sixty
(60) days from the effective date of termination. Any validly granted
licenses to End Users shall survive any termination or expiration of
the Agreement.
14.4 Survival. In the event of termination or expiration of this Agreement for
--------
any reason, Sections 2.3, 2.4, 7.1, 7.4, 10, 11, 12, 13, 15 and 16 shall
survive termination.
15. LIMITATION OF LIABILITIES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, PUNITIVE, SPECIAL OR OTHER DAMAGES WHATSOEVER, INCLUDING WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF
BUSINESS INFORMATION, AND THE LIKE, ARISING OUT OF THIS AGREEMENT OR THE USE OF
OR INABILITY TO USE INTERNET EXPLORER, THE SERVICE CLIENT SOFTWARE OR EITHER
PARTY'S CONFIDENTIAL INFORMATION, EVEN IF A PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THIS SECTION SHALL HAVE NO APPLICATION TO SECTION
10.
16. GENERAL PROVISIONS
16.1 Notices. All notices and requests in connection with this Agreement shall
-------
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed
as follows:
Confidential & Proprietary Page 12 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
To Prodigy: To Microsoft:
Prodigy Services Corporation Microsoft Corporation
---------------------------- ---------------------
445 Hamilton Avenue One Microsoft Way
White Plains, NY 10601 Redmond, WA 98052-6399
Attention: General Counsel Attention: General Counsel
Phone: (914)448-8713 Phone: (206)936-6460
Fax: (914)448-8223 Fax: (206)703-1360
Copy to: Contract Administration Copy to: Law & Corporate Affairs
Fax: (914)448-8571 Fax: (206)936-7409
or to such other address as a party may designate pursuant to this notice
provision.
16.2 Independent Parties. Nothing in this Agreement shall be construed as
-------------------
creating an employer-employee relationship, a partnership, or a joint
venture between the parties.
16.3 Governing Law. This Agreement shall be governed by the laws of the State
-------------
of Washington as though entered into between Washington residents and to
be performed entirely within the State of Washington, and Prodigy consents
to jurisdiction and venue in the state and federal courts sitting in the
State of Washington.
16.4 Attorneys' Fees. 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.
16.5 Assignment. This Agreement shall be binding upon and inure to the benefit
----------
of each party's respective successors and lawful assigns; provided,
however, that neither party may assign this Agreement, in whole or in
part, without the prior written approval of the other party, which
approval shall not be unreasonably withheld or delayed.
16.6 Construction. If for any reason a court of competent jurisdiction finds
------------
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder
of this Agreement will continue in full force and effect. Failure by
either party to enforce any provision of this Agreement will not be deemed
a waiver of future enforcement of that or any other provision 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.
16.7 Entire Agreement. This Agreement does not constitute an offer by Microsoft
----------------
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and merges all prior and contemporaneous
communications. It shall not be modified except by a written agreement
dated subsequent to the date of this Agreement and signed on behalf of
Prodigy and Microsoft by their respective duly authorized representatives.
Confidential & Proprietary Page 13 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION PRODIGY SERVICES CORPORATION
[SIGNATURE UNKNOWN] /s/ Paul W. DeLacey
- ------------------------------ ------------------------------
By (Sign) By (Sign)
Cameron [UNKNOWN] Paul W. DeLacey
- ------------------------------ ------------------------------
Name (Print) Name (Print)
VP Public Network Sales President & CEO
- ------------------------------ ------------------------------
Title Title
10/7/96 9/18/96
- ------------------------------ ------------------------------
Date Date
[STAMP OF PRODIGY LEGAL APPEARS HERE]
Confidential & Proprietary Page 14 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
EXHIBIT A
FLAGSHIP CLIENT ICON DESCRIPTION;
DESKTOP FOLDER; PROGRAM FOLDER
Service Client Icon:
[picture-to be provided by Prodigy]
Desktop Folder:
1. The Desktop Folder will be inserted on the Windows 95 Desktop at the
following location:
[picture-to be provided by Microsoft]
2. Should Microsoft move the MSN Client Icon from the desktop, Microsoft may
remove the Desktop Folder to the same location.
3. Within the Desktop Folder, the Service Client Icon will be presented in icon
view upon setup.
4. Microsoft shall ensure that all client icons in the Desktop Folder are
presented in the standard manner that icons are presented in a Windows 95
folder. No third party online service icon will be in a better position
than the Prodigy Client Icon in the Desktop Folder.
Program Folder:
[picture-to be provided by Microsoft]
Confidential & Proprietary Page 15 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
EXHIBIT B
DESCRIPTION OF
INTERNET EXPLORER VERSION 3.0
I. Internet Explorer version 3.0 Features
- --------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Win95 Win16 Macintosh Feature
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Yes Yes Yes All Internet Explorer 2.0 Features
- --------------------------------------------------------------------------------------------------------------------
Yes Yes Yes HTML Frames
- --------------------------------------------------------------------------------------------------------------------
Yes Yes 10/96 beta HTML CSS Stylesheets
- --------------------------------------------------------------------------------------------------------------------
Yes Yes 10/96 beta Visual Basic Script
- --------------------------------------------------------------------------------------------------------------------
Yes Yes 10/96 beta JavaScript
- --------------------------------------------------------------------------------------------------------------------
Yes 12/96 12/96 Java
- --------------------------------------------------------------------------------------------------------------------
Yes Yes Yes Netscape Plug-Ins
- --------------------------------------------------------------------------------------------------------------------
Yes Yes Yes Server Push
- --------------------------------------------------------------------------------------------------------------------
Yes Yes Yes GIF Animations
- --------------------------------------------------------------------------------------------------------------------
Yes Yes beta HTTP extensions (read-range, file upload, PCT)
- --------------------------------------------------------------------------------------------------------------------
Yes Yes 10/96 beta "Intrinsic" Controls -- top "Active X Controls" requested by
ISV's: video, audio, 3-state buttons, tooltips, pop-up menus,
and scrolling text.
- --------------------------------------------------------------------------------------------------------------------
Yes Maybe Maybe Active X(TM) Control hosting in HTML
- --------------------------------------------------------------------------------------------------------------------
Yes Maybe Maybe Automatic Code Download & Signing
- --------------------------------------------------------------------------------------------------------------------
Yes No No Document Object hosting (not available on Win16/Mac platforms)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Confidential & Proprietary Page 16 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
EXHIBIT C
SETUP AND INSTALLATION SPECIFICATIONS
-------------------------------------
Integrating Online Services Clients into Windows 95 Setup
Contact: John Gray
Windows 95 Program Manager
[email protected]
206-936-2565
Revised: 7/16/96
In order to integrate third party online service client software into Windows 95
setup for preinstalled machines, the Client vendor will should provide setup
files that meet the following requirements.
Files needed by Windows 95 Setup
Due to limitations on the number of files that Windows 95 can currently copy, we
need the online service to provide a limited number of files that will be copied
to the destination hard disk during setup. Here are the optional install
techniques:
. Setup "shim" file (xxxSetup.exe) (small) and Kit file (xxxKit.exe) (large)
- The icon in the OLS folders point to the setup shim file (described
below). The kit file is a single, large, compressed, self extracting
archive with all of the individual client software files included. The
primary purpose of the shim file is to execute the xxxKit.exe file if
found and provide alternate behavior if not. It can also handle worldwide
distribution issues, and other pre-setup housekeeping chores. The shim
setup file will be included inside the ".cab" files for all installations,
the Kit files will be located outside of the cab files for CD and pre-
installation purposes.
(This is the preferred installation technique for client software
deliverables.)
. Monolithic self installing exe (xxxSetup.exe) - This is the equivalent of
a single exe file that is downloaded from the Internet to install an
application. The icon just executes the xxxsetup file. The primary
drawback of this technique is lack of error handling for floppy disk SKUs
and other cases where the monolithic setup file is not present. The
monolithic exe file will not be present inside the .cab files.
. Inet Config Wiz signup server files (ISP, .HTM, INS, .ICO) - Online
Providers using the Internet Configuration Wizard to access a dedicated
signup server just need to provide these small ascii text and icon files.
Because these are very small, all of them can be located inside the .cab
files.
Target Location
All client software files will be installed to the c:\Program Files\Online
Services\xxxx folder, where xxxx should be chosen by the online client vendor to
reasonably identify their product. The short file names for this folder during
setup will be c:\progra-1\online-1\xxxx. Shortcuts to these files will be placed
in the "Online Services" folder on the desktop and on the Start/Programs menu by
Windows 95 setup according to vendor requirements.
. Note: Vendor should specify in writing the title of the icons in these
two folders when providing binary file drops.
Confidential & Proprietary Page 17 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
Single EXE Setup
The simplest method to implement an add-on online service client with Windows 95
is to create a single self extracting, setup EXE that can be put in the Windows
95 cab files directory that contains all the individual client files. This exe
file will do the bulk of the client file copying and setup.
Setup "Shim" Program The preferred setup technique is to create a small
"xxxsetup" program launched by the icon in the Online Services folders that will
do the following steps:
1. Optional: Query the Locale API or the user to determine if they reside
in a country that has local access for your client software. If not,
provide alternative information and exit.
2. Required: Look for the Single EXE "kit" setup program described above,
in the c:\Program Files\Online Services\xxx folder and execute it
(possibly with appropriate command line switches)
3. Optional: If not found, look for the single EXE "kit" file in the
"c:\windows\options\cabs" directory. This is used for preinstallation
and may contain a copy of your file.
4. Optional: If not found, look for the single EXE "kit" file on the
Windows 95 CD (or on a network sharepoint) in the Windows 95 Setup
directory. The setup directory can be found in
the following registry key:
(HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\SETUP\
SourcePath) This may involve prompting the user to insert the CD.
Allow the user to cancel if they do not have a CD product or can not
find their CD. This is an important step to work properly with compact
and/or portable installs.
5. Required: If still not found, present the user with a dialog box
indicating that the client software is unavailable, and alternate
courses of action (e.g. 800 number, www web site, etc.)
The Setup Shim program may also create, rename and delete icons, including the
"setup" icon that called it, upon successful completion. It can also do any
other limited housekeeping or pre-setup configuration work before or after any
of the above steps.
Client Software Requirements
. The client software must NOT prompt the user for a certificate, ID or other
means of tracking marketing information (other than the login userid and
password for existing accounts.) If you want to collect information on
specific OEMs, please use the OEMINFO file in the \windows\system directory.
There is no easy or reliable way to distribute these certificate numbers to
OEMs end-users. If an end user does not have a certificate, they will not
sign up for your service. See additional information below about using
OEMINFO file.
. The Client software should (if not already done), eliminate the "setup" icon
from the two online services folders.
. The Client software should install it's own "client" icons ONLY in the two
Online Services folders. It should not automatically put additional copies of
it's own icon on the start menu, on the start/programs menu (or submenus), or
directly on the desktop. It can offer any/all of these additional locations
during setup, but the default should be to not create these supplemental
icons. This provides a consistent end-user experience.
. Client software binaries should be installed to c:\Program Files\Online
Services\XXX, where xxx is based on your client software brand name.
. Client software should not add or remove any system files, except using
standard APIs for this purpose. Specifically, no Windows 95 system files
should be included in the client software deliverables. When integrating with
a Windows 95 release, you should not need to update or replace any system
files.
. Client software setup program should delete the large monolithic exe or kit
file at the successful conclusion of setup, to save hard disk space.
Confidential & Proprietary Page 18 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
Support Information
. During setup and/or configuration, your client software should indicate
that all software support for the client software is provided by your
company, and not by Microsoft or the PC manufacturer that supplied your
system.
. Help buttons and icons should also clearly indicate that you provide the
technical support, and how to contact you. This includes any "Help About"
dialog boxes.
Worldwide English Configuration
When your icon/setup program is first run, you will typically ask the user some
configuration questions. The first or second one should be what country they are
in. If you don't have a Point of Presence (telephone number) there, you should
inform the customer and exit gracefully. Microsoft only has one version of
English CD, it gets used worldwide. That means US, Canada, UK, Australia, New
Zealand, India, etc. In addition, the English version of the product is usually
for sale in other countries where there is a localized version available. You
might want to look up the Locale APIs in Win95, they might help out here.
Setup Types
There are four setup types:
. Typical - your monolithic exe will be copied to the hard disk unless
specified otherwise in the contract.
. Compact - minimal hard disk space usage, your exe/kit file will NOT
be copied to the hard disk. If a setup shim exists, it will be
copied.
. Portable - same as compact with some portable-specific utilities.
Large exe/kit files will NOT be copied to the hard disk. If a setup
shim exists, it will be copied.
. Custom - Same as Typical. Custom may offer a checkbox, it will be
pre-checked but can be cleared by the customer, in which case Large
exe/kit files will NOT be copied to the hard disk. If a setup shim
exists, it will be copied.
SKUs
There are four basic OEM products:
. End User "OEM Full CD" - this is the same as the retail end-user
CD, except it will deny upgrading over a Windows 3.1 system. There
are several minor variants to the OEM Full CD but the differences
do not affect the Online Services Clients. These are provided to end
users when they buy a new system. They are also known as "backup
media" because all new PCs come with Windows 95 preinstalled, these
are the backups.
. End User "OEM DMF" Floppy Disks - these are a subset of the end
user CD, they contain less files, typically larger, optional
components such as sound schemes are not present. These are also
provided to end users, as backup media. Very few OEMs actually use
this product, however.
. MSCSD "Diskettes on the hard disk" disks - the OEM ships the
contents of the floppy disks on the hard disk. It is then up to the
end user to use the Microsoft Create System Diskettes tool to make
their own backup media. Because of the sheer number of floppy
disks, and time involved many users choose not to make their backup
media. The collateral material for this SKU includes preprinted
diskette labels for the end user.
. OEM Preinstall ToolKit (OPK) - This is a special CD provided only
to OEMs, which contains specialized tools and instructions for an
OEM to integrate Windows 95 preinstalled into a variety of
manufacturing environments. It is used in conjunction with one of
the end-user backup media options above. It contains the full
contents of the OEM Full CD version of Windows 95, including all
Online Services Clients files.
The first two OEM products above are supplied to Authorized Replicators and
Delivery Service Partners, along with manuals and collateral materials. The Ars
and DSPs then manufacture and sell bulk shrink-wrap prepackaged OEM products to
the OEMs.
Confidential & Proprietary Page 19 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
RunOnce Preinstallation Options
This section describes optional implementation practices that can improve the
user experience using your client software. However, the implications of these
options must be clearly understood, including the various OEM manufacturing
scenarios, before implementing these features.
It is possible to do some of the file uncompression, copying and configuration
at the factory or before the user takes specific action by clicking on an Icon.
This step will occur during the "RunOnce" phase of setup. This is when the grey
panel on the left side of the screen has a checklist of steps it is performing,
including items like "Configuring MS-DOS programs, Setting up Time Zone,
Configuring Windows Messaging, Setting up Help, etc." To do this, you need to
have either the setup shim exe or the monolithic setup exe meet meet the
following requirements:
. No UI - no progress bars, no blue backgrounds, no questions, no
stops for any reason, totally silent, all defaults assumed. A
command line switch is acceptable to invoke this option.
. Must be able to be run during "1st Boot - RunOnce". This means that
some system services and hardware may not be fully configured,
including Dial Up Networking. It should be able to find it's files
either in the single file on the hard disk or in a directory on the
CD. You can look in HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\
CurrentVersion\SETUP\SourcePath to find the setup UNC or Drive
Letter/directory. (Should your runonce setup not find your files,
it should fail gracefully & silently). Note that you should handle
either UNC path names or drive/directory path names.
. For Minimal Install, we will not call your app, instead it will be
called when the user clicks on your Icons in the online folder. At
this point, your usual UI can run, and ask the user any questions.
You can find some general information on OEM Preinstalling at:
http://www.microsoft.com/win32dev/guideIns/preinstl.htm.
This document is designed for apps that the OEM will merge in their factory, in
our case we're doing it on the CD but the information can still be valuable to
you. Runonce has similar requirements to the non-hardware file copy section.
OEMINFO.INI Info
OEMs are required by the preinstallation toolkit to create a simple ASCII text
INI file in the c:\windows\system directory named OEMINFO.INI. This file will
always contain a section:
[general]
manufacturer=Acme PC Manufacturing
where the manufacturer name is a string entered by the PC manufacturer. It also
can contain additional sections added by the OEM. The manufacturer name is
displayed when you view the System control panel (properties of "My Computer").
This file will only be present on preinstalled machines, it will not be present
on systems that have had the disk formatted and reinstalled from the backup
media. If you want to add additional certificate info for your client to upload,
you can add a section name yourself, with several lines of defined text (you
would replace XXX with a unique identifier based on your client software name):
[XXX]
variable 1=whatever you want
variable 2=whatever you want also
You should properly handle error conditions in the event this file does not
exist, or your private section is not present. At no time should you prompt the
end user for certificate information.
Confidential & Proprietary Page 20 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
EXHIBIT D
MAINTENANCE PROBLEM SEVERITY AND RESOLUTIONS
How Microsoft Responds to Problem Reports from Prodigy
------------------------------------------------------
Intent: Microsoft will collect problem reports from Prodigy in a timely
fashion, rank each problem report according to severity of the problem
and the potential number of Prodigy customers impacted, assign a
priority to the problem report, and provide a fixed binary or
workaround in an suitable amount of time.
When Prodigy encounters a problem, Prodigy will submit a problem report via
e-mail to _______________ which includes the following information:
===============================================================================
field description
===============================================================================
title Maximum 60 character long summary of the problem
- -------------------------------------------------------------------------------
severity 1: Crashing, causes data loss, breaks major functionality,
or other severe problem.
2: Annoying, contributes to overall instability in this area,
crashes in obscure cases, breaks minor functionality.
3: Minor, doesn't impair functionality, may affect "fit and
finish"
4: Trivial, a feature request, a good case for postponement
(to the next release)
- -------------------------------------------------------------------------------
problem Detailed description of problem, in following format:
1. Steps to reproduce problem (down to the keystroke,
typically)
2. Expected behavior (what you thought should have happened)
3. Observed behavior (what happened instead, which you did
not like)
4. Suggested fix (if appropriate, and does not duplicate
expected behavior)
- -------------------------------------------------------------------------------
hardware Description of hardware system that problem occurs on (CPU &
speed, video card, modem vs. LAN connection, amount of
RAM, manufacturer, etc.)
- -------------------------------------------------------------------------------
software Description of software system (operating system and version,
any special drivers, what other software was active in the
system at the time of the problem, versions of all
software in use, etc.)
- -------------------------------------------------------------------------------
version Exact version number of software with problem.
- -------------------------------------------------------------------------------
contact Person who originally found the problem. Please include full
name, timezone, e-mail address, and phone numbers (daytime
and evening), so that developer can follow up if necessary
to get additional details.
- -------------------------------------------------------------------------------
Microsoft will respond as follows to each problem report, based on the Severity.
Note that, as Microsoft nears a product ship deadline, the criteria for a
"showstopper" problem (must fix before ship) get harder and harder to
meet. Microsoft also reserves the right to reclassify the Severity of a
problem report from Prodigy if it does not meet, in Microsoft's
professional judgment, the Severity classification described above.
===============================================================================
Severity Response
===============================================================================
1 Reply to Prodigy within one (1) business day with an estimate for
when a fix will be available. Make best effort to supply fix
within three (3) business days.
- -------------------------------------------------------------------------------
2 Reply to Prodigy within three (3) business days with an estimate
for when (or if) a fix will be available. If Microsoft decides
to fix problem, it will make best effort to supply fix within
three (3) business days but no later than the next release.
- -------------------------------------------------------------------------------
3 Reply to Prodigy within ten (10) business days with an estimate for
when (or if) a fix will be available. If Microsoft decides to
fix problem, it will make best effort to supply fix within
twenty (20) business days.
- -------------------------------------------------------------------------------
Confidential & Proprietary Page 21 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
4 Microsoft will acknowledge receipt of problem report, and keep
Prodigy informed about what build/version of Microsoft software
(if any) will have the fix. Microsoft is under no obligation to
fix this problem, however.
- -------------------------------------------------------------------------------
How Prodigy Responds to Problem Reports from Microsoft
- ------------------------------------------------------
Intent: Prodigy will collect problem reports from Microsoft in a timely fashion,
rank each problem report according to severity of the problem and the
potential number of Microsoft customers impacted. assign a priority to
the problem report, and provide a fixed binary or workaround in an
suitable amount of time.
When Microsoft encounters a problem, Microsoft will submit a problem report via
e-mail to _______________ which includes the following information:
================================================================================
field description
================================================================================
title Maximum 60 character long summary of the problem
- --------------------------------------------------------------------------------
severity 1: Crashing, causes data loss, breaks major functionality, or
other severe problem.
2: Annoying, contributes to overall instability in this area,
crashes in obscure cases, breaks minor functionality.
3: Minor, doesn't impair functionality, may affect "fit and
finish"
4: Trivial, a feature request, a good case for postponement (to
the next release)
- --------------------------------------------------------------------------------
problem Detailed description of problem, in following format:
1. Steps to reproduce problem (down to the keystroke,
typically)
2. Expected behavior (what you thought should have happened)
3. Observed behavior (what happened instead, which you did not
like)
4. Suggested fix (if appropriate, and does not duplicate
expected behavior)
- --------------------------------------------------------------------------------
hardware Description of hardware system that problem occurs on (CPU &
speed, video card, modem vs. LAN connection, amount of RAM,
manufacturer, etc.)
- --------------------------------------------------------------------------------
software Description of software system (operating system and version,
any special drivers, what other software was active in the
system at the time of the problem, versions of all software
in use, etc.)
- --------------------------------------------------------------------------------
version Exact version number of software with problem.
- --------------------------------------------------------------------------------
contact Person who originally found the problem. Please include full
name, timezone, e-mail address, and phone numbers (daytime
and evening), so that developer can follow up if necessary
to get additional details.
- --------------------------------------------------------------------------------
Prodigy will respond as follows to each problem report, based on the Severity.
Note that, as Prodigy nears a product ship deadline, the criteria for a
"showstopper" problem (must fix before ship) get harder and harder to
meet. Prodigy also reserves the right to reclassify the Severity of a
problem report from Microsoft if it does not meet, in Prodigy's
professional judgment, the Severity classification described above.
===============================================================================
Severity Response
===============================================================================
l Reply to Microsoft within one (1) business day with an estimate for
when a fix will be available. Make best effort to supply fix
within three (3) business days.
- --------------------------------------------------------------------------------
2 Reply to Microsoft within three (3) business days with an estimate for
when (or if) a fix will be available. If Prodigy decides to fix
problem, it will make best effort to supply fix within three (3)
business days but no later than the next release.
- --------------------------------------------------------------------------------
3 Reply to Microsoft within ten (10) business days with an estimate for
when (or if) a fix will be available. If Prodigy decides to fix
problem, it will make best effort to supply fix
- --------------------------------------------------------------------------------
Confidential & Proprietary Page 22 of 23
<PAGE>
Prodigy/Microsoft Internet Explorer
Promotion & Distribution Agreement
within twenty (20) business days.
- --------------------------------------------------------------------------------
4 Prodigy will acknowledge receipt of problem report, and keep
Microsoft informed about what build/version of Prodigy software
(if any) will have the fix. Prodigy is under no obligation to fix
this problem, however.
- --------------------------------------------------------------------------------
Confidential & Proprietary Page 23 of 23
<PAGE>
Con't of # 6249 - 1
AMENDMENT No. l TO THE
PROMOTION & DISTRIBUTION AGREEMENT BETWEEN
PRODIGY SERVICES CORPORATION AND MICROSOFT CORPORATION
This Amendment is made and entered into by and between MICROSOFT CORPORATION
("Microsoft") and PRODIGY SERVICES CORPORATION ("COMPANY") as of Sept. 29,
1997.
RECITALS
The parties have entered into that certain Promotion & Distribution Agreement,
dated September 18, 1996 (the "Agreement"); and
The parties desire to provide for the amendment of the Agreement to include
additional customization features and other terms as described herein;
The parties hereby agree to amend the Agreement as follows:
AMENDMENT
1. Defined terms in this Amendment shall have the same meaning as set forth
in the Agreement, except as otherwise provided in this Amendment. The
following definitions are either replaced or added to the Agreement:
"Active Desktop" means the Channel Client feature of Microsoft's Internet
Explorer version 4.0 software which supports "webcast," "push" or
"broadcasts" of Content via the World Wide Web (the "Web").
"Channel Client" means software that enables an End User to select and
receive Channels in one or more display and/or audio elements, including
software that is: (i) an interactive application (such as a Web browser)
that displays and/or plays Content within an application (or similar)
window or directly upon a operating system desktop; and/or (ii) an
animated and network-interactive screen saver application.
"Additional Company Channel Icon" means an icon or button which has an
identifying logo and/or trademark and an integrated pointer/URL which may
be pre-configured in the Internet Explorer user interface such that an
end user, upon first starting up or using Internet Explorer, will (if
already connected to the Web) be able to link to an associated Channel
which contains Company Content which: (a) an end user must pay a fee to
Company for access, and (b) is not available over the open Internet, or
must be protected behind a firewall such that a password or other
authentication by an end user is required for access.
"Channel Icon" means an icon or button which has an identifying logo
and/or trademark and an integrated pointer/URL which may be
pre-configured in the Internet Explorer user interface such that an end
user, upon first starting up or using Internet Explorer, will (if already
connected to the Web) be able to link to an associated Channel.
"Channel" means an aggregation of Content and advertising (if any) that
is displayed or played, or available to be selected by an end user for
display and/or play, by means of a Channel Client, and which may be
further divided into sub-Channels.
Page l of 6
<PAGE>
1E4 Referral Server Amendment
"Content" means data, text, audio, video, graphics, photographs, artwork
and other technology and materials provided for use on Channels or Web
sites.
"IEAK" means a collection of tools which enable an Internet Explorer and
Outlook Express licensee to perform limited customizations to Internet
Explorer and Outlook Express, such customizations being made in
accordance with the instructions in the IEAK, the provisions in Section
2.10 (collectively, the "Instructions"), and including any updates to
the IEAK which may be provided by Microsoft to Company under this
Agreement.
"Platforms" means Windows 3.x (including Windows for Workgroups 3.x),
Windows 95, Windows 98, Windows NT, Apple Macintosh, and UNIX.
2. In addition to the rights described in Section 2.2, Microsoft hereby
grants Company the following:
(a) IEAK. Microsoft grants to Company a nonexclusive, limited worldwide,
----
royalty-free license to customize Internet Explorer version 4.0 and Outlook
Express version 4.x using the IEAK in accordance with the Instructions.
Company acknowledges and agrees that its use of the IEAK to customize
Internet Explorer version 4.0 and Outlook Express version 4.x requires the
rightful receipt from Microsoft of the License Key allocated to Company.
Company agrees that it shall only use the IEAK in accordance with the
Instructions. In the event the capabilities and/or instructions of the IEAK
are in conflict, either by providing more or fewer capabilities than the
customization rights granted in Sections 2(b) of this Amendment, the
customization rights granted in Section 2(b) of this Amendment shall have
precedence.
(b) Permitted Customizations.
------------------------
(a) Channel Customization. For versions 4.0 of Internet Explorer which
support Channels, Company may use the applicable IEAK to perform
the any or all of the following additional customizations with
respect to Channels (as further illustrated in Attachment A-l)
(i) Add a single Company Channel Icon to the topmost
navigation level of the Internet Explorer Channel bar in
the position below the Microsoft Channel Guide Icon.
Said Icon may link either to Company or third party
Channel available through Internet Explorer, provided
that any trade names, trademarks, logos or brands
displayed on the Channel Icon added by Company shall be
limited to Company's mark or Company's Internet Product
marks. Company may add multiple "sub-channels" grouped
underneath (at the second navigation level) the Company
Channel Icon on the Internet Explorer Active Desktop
channel bar, where each such sub-channel may be linked
to Company or third-party Content accessible through
Internet Explorer, and where each such sub-channel may
use any branding selected by Company.
(ii) Add multiple Additional Company Channel Icons to the
topmost navigation level of the Internet Explorer Active
Desktop Channel bar in the position below the Company
Channel Icon, where each such Additional Company Channel
must be linked to Company Content which: (a) an end user
must pay a fee to Company for access; and (b) is not
available over the open Internet, or must be protected
behind a firewall such that a password or other
authentication by an end user is required for access.
Company may add multiple "sub-channels" grouped
underneath (at the second navigation level) the
Additional Company Channel Icon(s) on the Internet
Explorer Active Desktop channel bar.
Page 2 of 6
<PAGE>
IE4 Referral Server Amendment
In the case where sub-channels are grouped underneath a Company Channel Icon or
an Additional Company Channel Icon, the Company Channel is the only Channel
which is individually recognized by IE; the sub-channels do not operate as
separate Channels by themselves (and cannot be subscribed separately using the
IE4 UI).
(iii) Configure the Company Channel added by Company to be
"subscribed" by default, such that Company Channel Content and
schedule information downloads to the end user's computer
system hard disk automatically when the end user connects to
the Internet and selects the "update" option.
(iv) Delete from the Internet Explorer Active Desktop Channel bar
any pre-configured Channel Icons that are developed or
distributed by companies which compete directly with Company,
where such deleted Channels are to include only: (i)
preconfigured Channels from other Internet access providers,
(ii) pre-configured Channels which are produced by, or
exclusively distributed by, direct competitors of Company, or
company authored content. Company may not delete a
preconfigured Channel Icon that offers Content which is not
directly competitive with Company or Company's Content but that
may nonetheless compete for the end users' attention or
interest with Content offered by Company.
(b) Selection of Pre-Configured Channels. For versions 4.0 of Internet
Explorer which support Channels, Company shall use the IEAK to select
the pre-configured Channels for the specific territory for which each
and every Company-customized version of IE is targeted for
distribution. For example, if Company customizes separate versions of
IE for distribution into territories A and B, Company shall use the
IEAK to select the pre-configured default Channels for territory A for
the version of IE Company creates for territory A, and shall use the
IEAK to select the pre-configured default Channels for territory B for
the version of IE Company creates for territory B. For the purposes of
this paragraph, "territory" shall mean a language/country combination,
such as German/Switzerland or French/Canada.
(c) Internet Explorer Features. For any Channel added by Company pursuant
to Section (a) above, Company agrees to use reasonable commercial
efforts to develop and maintain said Channel such that it demonstrates
the advanced features of Internet Explorer (including Dynamic HTML,
etc.) and meets end user expectations of performance and frequency of
update such that Company's Channel compares favorably, in Company's
reasonable judgment, to Channels offered by other companies in
Company's line of business.
(d) Use of Standard Redistribution Key. For version 4.0 of Internet
Explorer, Company may use the applicable IEAK and the IEAK
Customization Wizard with the "Standard Redistribution" key
capabilities of the Wizard to perform any or all of the following
customizations:
A. DISTRIBUTION PACKAGES
A.l Non-customized Distribution. If Company chooses not to customize
its installations for the Licensed Software, then any
distribution by Company must include the "Full" installation
option offered in the IEAK. In addition, Company may also include
the "Standard" and/or "Minimal" installation options as described
in the Instructions. Company may not exclude any Licensed
Software component from an installation.
Page 3 of 6
<PAGE>
IE4 Referral Server Amendment
A.2 Customized Distribution. If Company does choose to customize
its installations of the Licensed Software (i) any distribution
by Company must include either the "Full" or "Standard"
installation and (ii) Company may add its own components and
options to such installation; provided, however, in no event
may Company remove any components of the Licensed Software from
such installation.
B. ACTIVE SETUP CUSTOMIZATION
B.1 Customize title bar and bitmap that appear in Active Setup
installation application.
B.2 Add or customize sites from which Active Setup files are
downloaded.
C. INTERNET EXPLORER AND OUTLOOK EXPRESS CUSTOMIZATION
C.1 Customize Browser title bar (says "Microsoft Internet Explorer"
by default) only to add "provided by Company at the end of the
title.
C.2 Customize tool bar background bit map (watermark) that is
used when not in high color mode.
C.3 Change default search page (default is
home.microsoft.com/access/allinone.asp).
C.4 Change default start page (default is home.microsoft.com).
C.5 Change help "online support" page (defaults to point to
microsoft.com).
C.6 Add pre-configured "favorites" entries (default is none).
C.7 Change Favorites hierarchy (with exception of "special
folders" like "Channels")
C.8 Rename and/or customize Links (Todays' Links, Best of the
Web, Todays News, etc.)
C.9 Disable and/or customize first time boot welcome page (after
installation).
C.10 Add customized web pages to support web view functionality in
standard system folders (such as My Computer, Control Panel)
and/or import other folders which will have web view
capabilities as well (up to 10 total).
C.11 Append custom ID to end of generic IE4 user agent string.
C.12 Customize OE info pane.
C.13 Customize both the static and animated logos in Internet
Explorer and Outlook Express.
Page 4 of 6
<PAGE>
IE4 Referral Server Amendment
D. ISP CUSTOMIZATION
D.1 Import Profile created by separately purchased Internet
Connection Manager Administration Kit.
D.2 Change bitmap in Connection Manager dialog.
D.3 Pre-set the Proxy Server address.
D.4 Chose signup method (Internet Signup Server or Serverless
Local) and customize required connection information.
D.5 For Outlook Express, set:
. Incoming and outgoing mail servers
. News server
. Add custom LDAP servers
D.6 Add custom ILS server for NetMeeting if applicable.
3. Microsoft shall deliver the IEAK to Company in sufficient time to enable
Company to meet its obligations under that certain Launch Agreement being
executed by the parties on or about the same time as this Amendment. If the
IEAK should provide fewer capabilities than the customization rights
granted in Sections 2(b) of this Amendment, then Microsoft shall provide
Company with an IEAK with capabilities that are consistent with the
customization rights granted in Sections 2(b)."
4. This Amendment shall amend, modify and supersede to the extent of any
inconsistencies, the provisions of the Agreement. Except as expressly
amended by this Amendment, the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Agreement as
of the date set forth above. All signed copies of this Amendment to the
Agreement shall be deemed originals. This Amendment does not constitute an
offer by Microsoft. This Amendment shall be effective upon execution on behalf
of Company and Microsoft by their duly authorized representatives.
- --------------------------------------------------------------------------------
Microsoft Corporation Company
- --------------------------------------------------------------------------------
By: /s/ Yusuf Mehdi By: Chip Austin
- --------------------------------------------------------------------------------
Name(print): Yusuf Mehdi Name (print): /s/ Chip Austin
- --------------------------------------------------------------------------------
Title: Director of Marketing Title: SVP, SALES
- --------------------------------------------------------------------------------
Date: 10/22/97 Date: 9/26/97
- --------------------------------------------------------------------------------
[SEAL APPEARS HERE]
Prodigy Amendment No l to the Promotion Distribution 092397
Microsoft Confidential Page 5 of 6
<PAGE>
IE4 Referral Server Amendment
Attachment A-1
Illustration of Channel Bar Navigation Hierarchy & Channel Placement
1. Channel Bar Topmost Navigation Level (visible on Active Desktop) sample
configuration:
---------------
Channel Guide
---------------
Company
Channel
---------------
Additional
Company
Channel(s)
---------------
MSN
---------------
MSNBC
---------------
Disney
---------------
PointCast
---------------
(others)
---------------
The Channel Guide always occupies the first position (at the top of the Channel
Bar). Company Channel may be inserted in the second position (thereby shifting
other Channels down one position). The Company Channel Icon is visible by
default when Active Desktop is first installed. With the exception of adding the
Company Channel, and except as otherwise provided in Section 2(b)(a)(ii) and
Section 2(b)(a)(iv), all pre-configured Channels must remain on the Channel Bar
in the order shipped in the IEAK for each target territory (or country/language
combination). End users are able to add, rearrange, and/or delete any Channels
they wish after installing IE.
2. Channel Bar "sub-Channels" may be configured "under" a topmost level Category
such that when a topmost level Category is clicked, the sub-Channel(s) are
displayed. Sub-Channels are not visible until the Category containing them is
clicked.
Page 6 of 6
<PAGE>
EXHIBIT 10.32
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
DISTRIBUTION AND LICENSING AGREEMENT
(CPU-Standard Point and Click/ With or Without Insert)
THIS AGREEMENT (the "Agreement"), effective as of October 1, 1996 (the
"Effective Date"), sets forth a distribution, licensing and joint promotional
program by and between Packard Bell NEC, Inc., with an address of 6041 Variel
Avenue, Woodland Hills, CA 91367 ("MPC Manufacturer"), and Prodigy Services
Corporation, a Delaware corporation with an address of 445 Hamilton Avenue,
White Plains, N.Y. 10601 ("Prodigy").
WHEREAS, the Prodigy lnternet Service is an interactive information,
communication and transactional service of Prodigy (the "Service," which shall
include the current and future versions of the Service, regardless of the
delivery platform(s), method(s), or media, now or hereafter selected by Prodigy,
at its sole discretion, during the term of this Agreement), and which Prodigy
provides to individuals and businesses authorized by Prodigy to use the Service
("Members");
WHEREAS, Prodigy designs, develops and licenses a line of computer software
known as the Prodigy Internet software (which, together with all enhancements,
revisions, versions, modifications, demonstration versions and regardless of the
hardware platform(s) used, is referred to herein as the "Software"), which, when
utilized in conjunction with the appropriate multimedia computer or personal
computer and modem, will enable Members to gain access to the Service; and
WHEREAS, Prodigy and PC Manufacturer desire (i) to terminate the distribution
and licensing agreement between Prodigy and PC Manufacturer (Contract Number
3744, which commenced January 1, 1994, as amended) and the distribution and
licensing agreement between Prodigy and NEC Technologies, Inc., whose business
related to personal computers was acquired by PC Manufacturer and as a result of
that acquisition, PC Manufacturer assumed NEC Technologies, Inc.'s rights and
obligations pursuant to its contract with Prodigy (Contract Number 6102, which
is dated June 23, 1995); and (ii) to enter into a joint promotional program to
increase the sales of their respective products and services;
NOW, THEREFORE, in consideration of the mutual promises and conditions contained
herein, and for good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Prodigy and PC Manufacturer agree as follows:
<PAGE>
1. TERM AND TERMINATION.
1.1 The term of this Agreement (the "Term") shall be one year from the
Effective Date and shall automatically renew for additional one year terms
unless earlier terminated as provided herein. Either party may terminate this
Agreement for any reason upon thirty (30) days' prior written notice. Either
party may terminate this Agreement immediately because of the other's material
breach of this Agreement, upon ten (10) days' written notice.
1.2 All obligations of the parties under Sections 3.6 and 3.10 (each for the
periods specified therein) and Sections 5, 6, 8, 9 and 10 shall survive
expiration or termination of this Agreement.
1.3 Notwithstanding anything to the contrary contained herein, upon termination
other than for breach by Packard Bell, Packard Bell may continue to distribute
its existing inventory of Product.
2. LICENSE GRANT.
2.1 Prodigy hereby grants to PC Manufacturer, and PC Manufacturer hereby
accepts from Prodigy during the Term, subject to the terms and conditions
contained herein, a non-exclusive license ("License"):
2.1.1 to pre-install a copy of the most current version of the Software
provided by Prodigy hereunder on the hard disk of certain of PC
Manufacturer's computers (each such computer onto which the Software has
been installed pursuant to this Agreement being a "Computer" and which may
include PC Manufacturer's computers sold under the NEC, Zenith Data Systems
and Packard Bell labels and any other labels agreed to by Prodigy) by
duplication from one or more Master Disk(s) (as defined in Section 3.1
below);
2.1.2 to market and distribute the Software, as installed in Computers
equipped with a minimum of 14.4 bps (28.8 recommended) internal modem (each
such Computer, together with the Software and modem being a "Package"), in
the United States and, upon written authorization by Prodigy, in those
countries in which access to the Service is available locally;
-2-
<PAGE>
2.1.3 to use and reproduce the "Prodigy(R) Internet mark, together with
such other trademarks and service marks of Prodigy or third parties
attached hereto as Attachment A (collectively, the "Trademarks"); and
2.1.4 to sublicense the Software to Third Party Distributors solely to
grant to such Third Party Distributors the right to market and distribute
the Software as included in Packages in accordance with Section 2.1.2, and
to sublicense to Third Party Distributors the right to use the Trademarks
solely in accordance with Section 2.1.3, all in accordance with the terms
and conditions set forth in this Agreement. For purposes of this Agreement,
a "Third Party Distributor" shall mean any entity who has the right,
pursuant to an agreement with PC Manufacturer that complies with and is
consistent with the applicable terms and conditions of this Agreement, to
distribute Packages to the public. The terms and conditions stated in this
Agreement shall apply to all sublicenses made hereunder during the Term.
2.2 PC Manufacturer agrees that the License does not permit PC Manufacturer to
use, copy, modify or reproduce, distribute, or make available the Software or
any other material provided or licensed hereunder except as expressly provided
in Section 2.1. Notwithstanding the foregoing, PC Manufacturer is licensed to
distribute the Software directly and through its third party service providers
to its customers if the media on which the Software was originally distributed
becomes corrupted or is defective. PC Manufacturer shall not make any changes
or modifications to the Software, and shall not decompile, disassemble, or
reverse engineer the Software.
3. OBLIGATIONS OF PRODIGY.
3.1 Prodigy shall provide to PC Manufacturer one or more master disk(s) (each a
"Master Disk"), which shall include the most current release of the Software, to
be used by PC Manufacturer for hard disk installation of the Software under
Section 2.1.1 above. Prodigy shall have the right, in its sole discretion, at
any time, to modify any technical specifications or other technical matters
relating to the installation and/or operation of the Software, including the
hardware requirements for Computers, or other technical specifications or
matters relating to the Software that affect the operation of the Software on
Computers. PC Manufacturer shall not be obligated to start installing any
updated or new Software on Computers until its next major product launch, unless
Prodigy requests PC Manufacturer to commence installation of an updated or new
Software prior to PC Manufacturer's next major product launch because the then
current version of the Software contains material that infringes or may infringe
the rights of a third party. Major product launches normally occur every six to
eight months.
-3-
<PAGE>
3.2 Prodigy shall provide on a master disk to PC Manufacturer end-user
membership documentation (the "Documentation") for inclusion in each Package.
The Documentation shall inform the end-user regarding access to, and enrollment
in the Service, and will include a special code which will identify the Service
and the PC Manufacturer under the introductory membership, subject to such
conditions of Service membership as Prodigy may impose in its sole discretion.
3.3 Prodigy may provide PC Manufacturer end-user membership inserts ("Inserts")
for inclusion with each Computer, containing information regarding access to the
Service.
3.4 Prodigy will list PC Manufacturer's Web site in and establish a link to PC
Manufacturer's Web site from an appropriate area on the Service.
3.5 For each calendar year during the Term Prodigy shall pay to PC Manufacturer
the amount described below for each potential Prodigy Internet Member (as
defined in the Prodigy Internet Service Membership Agreement) who becomes a
Converted Membership Holder during such calendar year. For purposes of this
Agreement, a "Converted Membership Holder" is a Member who has (a) used the
procedure set forth in the Documentation to enroll in the Service, and (b) fully
paid membership fees, as determined by Prodigy, for one month of membership
following the end of any trial offer period provided by Prodigy. Each Converted
Membership Holder shall be counted only once under this Section 3.5 regardless
of the duration of his/her membership in the Service. Notwithstanding anything
in this Agreement to the contrary, (i) a Converted Membership Holder does not
include members of the Prodigy Classic Service ("Prodigy Classic," which is
another interactive, information, communication and transaction service offered
by Prodigy) who choose to convert their membership from Prodigy Classic to
Prodigy Internet or who maintain their Prodigy Classic membership and enroll in
Prodigy Internet, as well; (ii) a Member cannot become a Converted Membership
Holder on or after the effective date of termination of this Agreement,
regardless of any reason for such termination, unless the Agreement is
terminated for breach by Prodigy, in which case a Member may become a Converted
Membership Holder for six months after termination and Prodigy will pay PC
Manufacturer the amounts listed below for each such Converted Membership Holder;
(iii) Prodigy will not owe PC Manufacturer any fee for any person or entity who
becomes a Member using any registration mechanism other than the Documentation
specially coded to identify PC Manufacturer; and (iv) the fee payable by Prodigy
hereunder is limited to one Converted Membership Holder per household,
regardless of the number of Converted Membership Holders who
-4-
<PAGE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
reside in the same household. Payments to PC Manufacturer hereunder for each
calendar year during the Term shall be payable as follows:
3.5.1 No later than July 31 of the applicable year, Prodigy will report
to PC Manufacturer the number of Converted Membership Holders obtained
between January 1 and June 30 of that year, and pay to PC Manufacturer the
amount applicable to such Converted Membership Holders.
3.5.2 No later than January 31 of the immediately following year, Prodigy
will report to PC Manufacturer the number of Converted Membership Holders
obtained in the applicable year, and pay to PC Manufacturer the amount
applicable to such Converted Membership Holders, less the amount of any
payments previously made for Converted Membership Holders for that year.
3.5.3 The amount payable to PC Manufacturer for each Converted Membership
Holder in a calendar year, shall be calculated according to the following
table:
<TABLE>
<CAPTION>
Number of Converted Membership
Holders obtained in such calendar year Amount
-------------------------------------- ------
<S> <C>
[**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
</TABLE>
3.6 Prodigy and PC Manufacturer, as amended, commenced January 1, 1994 (the
"Classic Contract"), and hereby agree to terminate the Classic Contract,
effective December 31, 1996. In addition, Prodigy and PC Manufacturer
acknowledge that Agreement No. 6102 between Prodigy and NEC Technologies, Inc.,
dated June 23, 1995 (the "NEC Contract") commenced in 1995, and hereby agree to
terminate the NEC Contract, effective December 31, 1996. Notwithstanding the
termination of the Classic Contract and the NEC Contract, Prodigy shall continue
to pay PC Manufacturer the amount set forth in
-5-
<PAGE>
the Classic Contract or NEC Contract, as applicable, for each Membership Holder
(as defined in the Prodigy Service Membership Agreement for Prodigy Classic) who
becomes a Prodigy Classic Converted Membership Holder until December 31, 1997.
For purposes of this Agreement, a "Prodigy Classic Converted Membership Holder"
is a Membership Holder who has (a) used the procedure set forth in the
documentation provided to PC Manufacturer (or to NEC Technologies, Inc. before
its business related to personal computers was acquired by PC Manufacturer) to
enroll in Prodigy Classic, and (b) fully paid membership fees, as determined by
Prodigy, for one month of Prodigy Classic membership following the end of any
trial offer period provided by Prodigy. Each Prodigy Classic Converted
Membership Holder shall be counted only once under this Section 3.6 regardless
of the duration of his/her membership in Prodigy Classic. Payments to PC
Manufacturer hereunder for each Prodigy Classic Converted Membership Holder
during the period from January 1, 1997 through December 31, 1997 Prodigy and PC
Manufacturer acknowledge that Agreement No. 3744 between shall be payable as
follows:
3.6.1 On or about July 31, 1997, Prodigy will report to PC Manufacturer
the number of Prodigy Classic Membership Holders who have become Prodigy
Classic Converted Membership Holders between January 1 and June 30 of that
year, and pay to PC Manufacturer (a) the amount set forth in the Classic
Contract for each such Prodigy Classic Converted Membership Holder who
became a Prodigy Classic Converted Membership Holder under the Classic
Contract and (b) the amount set forth in the NEC Contract for each such
Prodigy Classic Converted Membership Holder who became a Prodigy Classic
Converted Membership Holder under the NEC Contract.
3.6.2 No later than January 31, 1998, Prodigy will report to PC
Manufacturer the number of Prodigy Classic Membership Holders who have
become Prodigy Classic Converted Membership Holders between July 1, 1997
and December 31, 1997, and pay to PC Manufacturer (a) the amount set forth
in the Classic Contract for each Prodigy Classic Converted Membership
Holder who became a Prodigy Classic Converted Membership Holder under the
Classic Contract and (b) the amount set forth in the NEC Contract for each
such Prodigy Classic Converted Membership Holder who became a Prodigy
Classic Converted Membership Holder under the NEC Contract.
3.7 Prodigy shall provide PC Manufacturer during the Term of this Agreement
continued access to its server to allow purchasers of PC Manufacturer's
computers the ability to register the warranty associated with their computer
online through Prodigy's 800 number. Prodigy shall download the purchaser's
data information and forward it to PC Manufacturer. Prodigy shall filter the
names of the purchasers of the PC
-6-
<PAGE>
Manufacturer's computers who complete the warranty registration process online,
which it obtains from PC Manufacturer, to eliminate the names of those
purchasers who are already enrolled in the Service. Prodigy may then use the
remaining names to issue direct mail, encouraging the purchasers to enroll in
the Service, and for no other purpose.
3.8 Subject to the following sentence, Prodigy shall provide to PC
Manufacturer on a quarterly basis during the Term of this Agreement the email
address of each Converted Membership Holder, except for those Converted
Membership Holders about whom Prodigy does not release information based on
Prodigy's privacy policy, customer agreement and email etiquette policy in
effect at the time of delivery. The date of commencement of Prodigy's
obligations under this Section 3.8 and the details concerning Prodigy's
obligations and PC Manufacturer's rights with respect to the manner and
frequency of use of the information provided by Prodigy shall be set forth in an
addendum to this Agreement to be negotiated in good faith by the parties hereto.
3.9 The parties acknowledge that this Agreement does not preclude either party
from entering into bounty-type agreements for membership acquisition similar to
this Agreement with other entities, including other personal computer
manufacturers or online service providers and competitors of PC Manufacturer or
Prodigy.
3.10 Each statement provided by Prodigy under Sections 3.5 and 3.6 above shall
be deemed to have been accepted by PC Manufacturer unless PC Manufacturer
provides Prodigy with written notice, objecting to the statement, embodying,
with specificity, the reason or reasons for the objection within one (1) year of
the date such statement is due. Provided PC Manufacturer provides such written
notice of objection as set forth above, upon at least fifteen (15) days' written
notice, PC Manufacturer may conduct an audit on its behalf by an independent
certified public accountant of Prodigy records pertaining solely to this
Agreement. Such audit shall be conducted by an independent certified public
accountant, of PC Manufacturer's choosing, subject to Prodigy's reasonable
approval, and which is not then conducting an audit of Prodigy's books for any
other person, firm or corporation, during normal business hours and not more
than once per year and shall review the immediately preceding one year period
only. The cost of the audit shall be borne by PC Manufacturer; provided,
however, that should any audit reveal the amount paid by Prodigy to PC
Manufacturer pursuant to this Agreement for any year has been understated by
more than five percent (5%) of the amount actually owed, then the reasonable
cost of such audit, shall be paid by Prodigy. Within 30 days after completion
of an audit, PC Manufacturer shall provide Prodigy with a copy of the audit
report and, if there is a discrepancy between the amount owed and the amount
actually paid by Prodigy during the audited period, the party benefited by such
-7-
<PAGE>
discrepancy shall reimburse the other party for the difference not later than
thirty (30) days following delivery of the audit report to Prodigy. Any action
to be commenced in connection with such audit must be commenced within two years
of the date each statement is due.
4. OBLIGATIONS OF PC MANUFACTURER.
4.1 PC Manufacturer shall provide to Prodigy, for a reasonable period, a
representative sample of each of its computer configurations onto which it
intends to copy the Software, to ensure proper functioning of the Software and
Service in conjunction with such computers. Prodigy shall have the right to
reject those configurations on which the Software and/or Service does not
function properly, provided that PC Manufacturer will reasonably cooperate with
Prodigy to determine if modifications are feasible to the Software and/or the
Computers to resolve the non-functionality.
4.2 PC Manufacturer shall provide to Prodigy a representative sample of each
new Computer on which the Software is installed on loan for ninety (90) days as
soon as the Software is installed and testing commences, prior to general
shipment, to enable Prodigy to test the Software as installed on the Computer.
After the ninety (90) days have expired, Prodigy will either return the Computer
or purchase it, at cost, at Prodigy's option.
When PC Manufacturer develops a new hard drive (rather than a new machine), so
that the hard drive is reconfigured with a new format, PC Manufacturer will
supply Prodigy with a sample of the new hard drive as soon as it is available,
to enable Prodigy to test the Software on the new hard drive. Prodigy will
return the old hard drive to PC Manufacturer after receipt of the new hard
drive.
4.3 PC Manufacturer will cooperate with Prodigy in testing the Software on the
Computers. PC Manufacturer shall meet with Prodigy quarterly, commencing with
the Effective Date of this Agreement, (a) to exchange technology information and
updates which may affect the other parties' product; and (b) to develop mutually
beneficial marketing strategies.
4.4 Except as indicated above, PC Manufacturer will install the most current
version of the Software provided by Prodigy onto the hard drive of only those
Computers approved by Prodigy as described above prior to shipment of such
Computers for sale to any third party, including retailers, distributors, and
end-users, such copies to be used
-8-
<PAGE>
solely as described in this Agreement. Nothing in this Agreement shall prevent
PC Manufacturer from selling computers without the Software.
4.5 Subject to Prodigy's right of prior approval set forth in Section 7 below,
PC Manufacturer shall include specific reference to the Service: (i) by using
the Service logotype or other reference to the Service as approved by Prodigy,
in PC Manufacturer's retail sales training program. PC Manufacturer will
provide a link from an appropriate area on its Web site to a Prodigy promotional
page on Prodigy's server.
4.6 PC Manufacturer shall include a copy of the Insert, if provided by Prodigy,
with each Computer. Notwithstanding anything to the contrary contained herein,
PC Manufacturer shall not be required to do anything, which, in its reasonable
judgment, could cause the amount of money which it is otherwise eligible to
receive under Intel's marketing development program to be reduced or eliminated.
4.7 Commencing with the first month after the Effective Date, by the fifth
(5/th/) business day of each month, PC Manufacturer shall provide to Prodigy its
twelve (12) month rolling forecast, including the number and types of computers
on which PC Manufacturer plans to install the Software and ship in that upcoming
period to enable Prodigy to provide PC Manufacturer with Inserts and other
promotional materials, as agreed to by the parties hereto, on a timely and cost-
efficient basis and to develop marketing plans. By the fifth (5/th)/ business
day of each month, PC Manufacturer shall report to Prodigy the number of
Packages shipped from its manufacturing facilities during the preceding month.
Both the forecasts and reports to be provided by PC Manufacturer under this
Section 4.7 shall be deemed to be Confidential Information. Prodigy acknowledges
that Packard Bell cannot and does not guaranty that any such forecast will
accurately reflect the number of Packages which it will ship and Prodigy
acknowledges that Packard Bell makes no representation regarding the number of
customers which will become Members or Converted Members.
4.8 PC Manufacturer shall supply Prodigy on a quarterly basis a file
identifying the names of the purchasers of PC Manufacturer's computers who
completed PC Manufacturer's warranty registration process online. Prodigy may
use those names for marketing purposes as described in Section 3.7 above.
5. OWNERSHIP AND PROPERTY RIGHTS.
5.1 PC Manufacturer acknowledges that each Trademark is and shall remain the
exclusive property of Prodigy or the applicable third-party owner, and all use
by PC Manufacturer of any Trademark shall inure solely to the benefit of Prodigy
or such
-9-
<PAGE>
third-party owner, as applicable. Neither this Agreement nor the License granted
hereunder shall operate as a transfer to PC Manufacturer of any rights in or to
any Trademark, except for the limited rights expressly granted under the
License. PC Manufacturer shall not take any action that would undermine,
conflict with, or be contrary to the rights and interests of Prodigy and/or any
applicable third-party owner of any Trademark, including, without limitation,
any use of, or attempt to register, any trademark, service mark, or trade name
confusingly similar to any Trademark.
5.2 It is expressly understood and agreed that no title to, or ownership of,
the Software provided on any Master Disk, or any part thereof, is hereby
transferred to PC Manufacturer, and that title thereto is and shall remain the
property of Prodigy; and that all applicable copyrights, trade secrets, patents
and other intellectual property rights in the Software and all other items
licensed hereunder are and shall remain the property of Prodigy. PC
Manufacturer shall not remove any copyright notices or other proprietary
markings from any Master Disk or any copies of the Software distributed by PC
Manufacturer.
6. CONFIDENTIALITY.
6.1 Either party hereto may disclose to the other party certain information
that the party deems confidential. As used in this Section, "Confidential
Information" means all information, regardless of the form in which it is
transmitted, relating to the disclosing party's business which, if disclosed in
tangible or electronic form, bears a legend indicating that it is confidential
information or if disclosed orally or visually only, is defined as confidential
or proprietary at the time of disclosure and is promptly thereafter summarized
in a non-confidential memorandum to the receiving party. For a period of three
(3) years from the date of disclosure, the receiving party shall not disclose
any Confidential Information it receives from the other party to any person,
firm or corporation except to:
(a) its employees of Recipient and employees of its affiliated companies who
have a need to know and who have been informed of the confidentiality
obligations hereunder and (b) contractors or consultants under contract to the
receiving party who have a need to know, who have been informed of the receiving
party's obligations hereunder, and who have agreed in writing not to disclose
Confidential Information for a period not shorter than the nondisclosure period
provided above. The terms of this Agreement are confidential and neither party
hereto shall publicize or disclose the terms of this Agreement without the prior
written consent of the other party.
-10-
<PAGE>
6.2 The confidentiality obligations hereunder shall not apply to information
that: (a) is already known to the receiving party at the time of disclosure; (b)
is or becomes publicly known through no wrongful act of the receiving party; (c)
is received from a third party without similar restrictions and without breach
of this Agreement; (d) is independently developed by the receiving party without
access to Confidential Information; or (e) is lawfully required to be disclosed
to any governmental agency or is otherwise required to be disclosed by law.
7. PRIOR APPROVAL. The parties shall provide to each other for review all
promotional, advertising and other materials using or displaying any Trademark,
or mentioning PC Manufacturer or its trademarks including without limitation any
such materials as may be used in connection with any promotional or advertising
activities in which PC Manufacturer may engage with retailers with respect to
the Service or the Software, and shall not distribute or otherwise use them
without the other's prior written approval. The parties agree to change or
correct, at the creating party's expense, any such material or use thereof which
the other party, in its reasonable judgment, determines to be inaccurate,
misleading, objectionable, or a misuse of Trademarks or of PC Manufacturer's
trademarks. PC Manufacturer further agrees to comply with any reasonable
advertising guidelines for the Service and/or the Software that Prodigy may
issue from time to time; provided, however, that if Prodigy has previously
approved any such material, PC Manufacturer may use up its existing supplies of
such materials. Likewise, if PC Manufacturer has previously approved any
Prodigy-created promotional or advertising material that uses or displays a PC
Manufacturer trademark or logo, Prodigy may use up its existing supplies of such
materials. The requirement of prior approval under this Section 7 shall not
apply to either party's use, distribution and/or duplication as permitted
hereunder of any materials that the other party provides for such use,
distribution and/or duplication.
8. WARRANTIES AND LIMITATIONS OF LIABILITY.
8.1 Prodigy warrants to PC Manufacturer that the Software, as delivered to PC
Manufacturer on the Master Disk(s), will operate in conformity with Prodigy's
published specifications when properly installed and configured on a personal
computer system approved by Prodigy hereunder; that the Master Disk(s) will be
free from defects in material and workmanship; and that Prodigy has the full
right and power to enter into this Agreement and grant PC Manufacturer the
License hereunder.
-11-
<PAGE>
8.2 PC Manufacturer may reject and return for replacement, at Prodigy's expense
and risk, any Master Disk that fails to meet the warranty set forth in Section
8.1 hereof. To be eligible for replacement, PC Manufacturer must: (i) notify
Prodigy of such failure within ten (10) days of its discovery by PC
Manufacturer. Prodigy will pay the shipping, freight and insurance charges for
PC Manufacturer's return of the Master Disk and the replacement. This Section
8.2 states PC Manufacturer's exclusive remedy for breach of the warranty set
forth in Section 8.1 hereof.
8.3 THE WARRANTIES SET FORTH IN THIS SECTION 8 ARE IN LIEU OF ALL OTHER
WARRANTIES OF EITHER PARTY, EXPRESS OR IMPLIED. WITHOUT LIMITATION, PRODIGY
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS
FOR A PARTICULAR PURPOSE. NEITHER PARTY WILL BE LIABLE FOR ANY INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES OF ANY KIND, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER LEGAL THEORY, AND REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF ANY SUCH DAMAGES.
8.4 Each party warrants that (i) it has the full right and authority to
perform, and will abide by all laws, regulations, and other legal guidelines in
performing its obligations under this Agreement; and (ii) PC Manufacturer shall
duplicate and install the Software from the Master Disk(s) onto hard disks under
this Agreement in a manner consistent with accepted industry standards for hard
disk installations, so that the Software functions properly for each Package
sold or otherwise distributed.
8.5 Neither party hereto shall be liable to the other for damages of any kind,
including incidental, consequential or special damages on account of termination
of this Agreement for any reason whatsoever; provided, however, that such
termination shall not affect any claim, demand, liability or right of either
party arising under this Agreement prior to termination, or arising in any
manner after termination in connection with the sale or distribution by PC
Manufacturer of its remaining inventory of Packages.
9. INTELLECTUAL PROPERTY & INDEMNIFICATION.
9.1 Each party shall indemnify and hold the other, their respective parent,
subsidiary and affiliate companies, its and their officers, directors, agents
and employees, free and harmless from and against all claims, costs,
liabilities, judgments, damages and expenses (including reasonable attorneys'
fees and costs) arising out of any (a) breach of any warranties or
representations made in this Agreement; (b) failure to comply in a material
respect with any governmental law, statute, ordinance, administrative order,
rule or regulation, unless the claim arises out of or is a result of the other
party's breach of this
-12-
<PAGE>
Agreement; or (c) statement by a party containing misleading or inaccurate
references to the other party, including the other party's products or services,
in any advertising or promotional materials for which prior written approval was
not obtained.
9.2 In addition to Prodigy's indemnification obligation set forth in Sub-
section 9.1 above, Prodigy shall indemnify and hold PC Manufacturer, its parent,
subsidiary and affiliate companies, its and their officers, directors, agents
and employees, free and harmless from and against all claims, costs,
liabilities, judgments, damages and expenses (including reasonable attorneys'
fees and costs) arising out of any claim that the Software and any Trademark
licensed to PC Manufacturer for use hereunder, or any combination thereof,
infringes any patent, trademark, trade secret, copyright, or other proprietary
right of any third party granted under the laws of the United States and any
other country in which access to the Service is available locally or for any
claim for damage to property, or personal injury, or brought by an unrelated
third party related to the Service or its use.
9.3 In addition to PC Manufacturer's indemnification obligation set forth in
Sub-section 9.1 above, PC Manufacturer shall indemnify and hold Prodigy, its
parent, subsidiary and affiliate companies, its and their officers, directors,
agents and employees, free and harmless from and against all claims, costs,
liabilities, judgments, damages and expenses (including reasonable attorneys'
fees and costs) arising out of any claim relating to or in connection with
damage to property, or personal injury, in whole or in part, from any (a) actual
or alleged defect(s) in any Computer or other product, whether such defect is
latent or patent, (b) actual or alleged construction or design of such Computer
or other product, or (c) failure to comply with any specification or express or
implied warranty of PC Manufacturer as respects any such Computer disk or other
product. For purposes of this Section 9.3 only, "Computer" shall be deemed to
include any modem, monitor, and/or other equipment, part, or software (other
than the Software) included or installed with, in, or on such Computer by or on
behalf of PC Manufacturer.
9.4 It shall be an ongoing condition of the indemnity provided in Sections 9.1
through 9.3 above, that (a) the indemnified party give the other party prompt
written notice of any actual or threatened indemnifiable claim; and (b) provide
the other party, at the other party's expense, with all reasonable accessible
information in the indemnified party's possession and assistance requested by
the other party. Further, the indemnification provisions set forth in Sections
9.1 through 9.3 above shall apply only with respect to a final settlement
approved in writing by the indemnifying party if the settlement is for money
damages only, and by the indemnified party if the settlement is for other than
money damages, or a final, nonappealable judgment. Each party reserves the
right, at its own expense, to assume the exclusive defense and control of any
-13-
<PAGE>
matter otherwise subject to indemnification by the other party hereunder, and in
such event, the other party shall have no further obligation to provide
indemnification for such matter hereunder.
10. MISCELLANEOUS. The parties hereto are independent contractors acting for
their own accounts; may not bind, act for or represent the other; and have no
agency, partnership or joint venture relationship. This Agreement shall be
governed by and construed in accordance with the laws of the state in which the
initial defendant to the action is domiciled without regard to its conflict of
laws rules. All notices, communications and reports required or permitted under
this Agreement shall be in writing, and the same shall be given by registered or
certified mail, return receipt requested, addressed to the parties at the
addresses first set forth above (if to Prodigy, Attn: Vice President, OEM
Marketing, with a copy to General Counsel and a courtesy copy via e-mail to
notices@prodigy. net), or to such other address as may be specified hereafter in
writing in accordance with this sentence. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof, and
supersedes any prior agreements and understandings, both written and oral, which
may have existed between the parties with respect to the subject matter hereof.
This Agreement may not be modified except by a writing signed by both parties.
No failure or delay by any party in exercising any right hereunder shall operate
as a waiver thereof, and no single or partial exercise of any right shall
preclude any other or further exercise thereof or the exercise of any other
right hereunder. Neither party may assign this Agreement or any of its rights
or obligations hereunder without the prior written consent of the other party
and any attempted or purported assignment delegation or other transfer without
such required consent shall be void. In the event any one or more of the
provisions of this Agreement shall for any reason be held to be invalid, illegal
or unenforceable, the remaining provisions of this Agreement shall be
unimpaired, and the parties will negotiate in good faith to substitute a
provision of like economic affect. This Agreement may be executed in
counterparts, which taken together, shall constitute one Agreement and any party
hereto may execute this Agreement by signing such counterpart.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives as of the date last below
written.
PACKARD BELL NEC, INC. PRODIGY SERVICES CORPORATION
By: /s/ Mal Ransom By: /s/ D. Templeton
------------------------------ -----------------------------
Name: Mal Ransom Name: Dick Templeton
----------------------------- ----------------------------
Title: Sr. V.P. Mrtg. Title: Vice President OEM
---------------------------- ---------------------------
Date: 9-19-97 , 1997 Date: 9-24-97 , 1997
----------------------------- ----------------------------
Federal Employer ID No. _____________This document has been created with
automatic paragraph numbering: Levels 1(1.); 2 (1.1); 3 (1.1.1); 4 (1.1.1.1)
and 5 (a.) etc.
APPROVED BY
MIKE BENNETT
DATE: 9/16/97
-----------------------------
-15-
<PAGE>
Attachment A
PRODIGY TRADEMARKS
Prodigy (R)
Prodigy Internet (tm)
Prodigy Internet logo
-16-
<PAGE>
Contract No. 6601-1
ADDENDUM NO. 1 TO CONTRACT NO. 6601
-----------------------------------
THIS ADDENDUM NO. 1 (the "Addendum"), is made by and between Packard Bell
NEC, Inc. ("PC Manufacturer"), whose address is 5701 Lindero Canyon Road,
Westlake Village, California 91362 and Prodigy Communications Corporation
("Prodigy"), a Delaware corporation, whose address is 44 South Broadway, White
Plains, New York 10601.
WITNESSETH:
WHEREAS, Prodigy and PC Manufacturer (together, the "Parties") entered into
an Agreement effective as of October 1, 1996 (No. 6601 and referred to
hereinafter as the "Agreement"), whereby Prodigy granted a license to PC
Manufacturer to pre-install, duplicate, market and distribute the Software onto
certain of PC Manufacturer's computers and promote such Software; and
WHEREAS, Prodigy and PC Manufacturer wish to undertake a joint promotional
program (the "Rebate Program") to increase the sales of their respective
products and services;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereby agree to the terms of
this Addendum to the Agreement as follows:
1. Defined Terms. Except as otherwise set forth in this Addendum, all
defined terms have the same meaning as provided in the Agreement.
2. Rebate Program. The Parties agree to engage in and market the Rebate
Program, which shall include the following terms, with any changes or additions
mutually agreed to by the Parties:
(a) If a potential Prodigy Internet Member (i) purchases
any of the PC Manufacturer's computer systems listed in Subsection
1 (b) below during the period between September 16, 1998 and
December 31, 1998; and (ii) becomes a Converted Membership Holder
using the pre-loaded Software, specially coded to identify the
Service, the PC Manufacturer, and the Rebate Program, by paying
$100 for a special five (5) month membership to the Service upon
enrollment during the period from September 16, 1998 through
January 31, 1999, Prodigy shall issue each such Converted
Membership a rebate check of $100 in accordance with the terms and
conditions of the Rebate Program.
Confidential
<PAGE>
Contract No. 6601-1
(b) PC Manufacturer's computer systems (the "Computer
Systems") for which the Rebate Program applies: all Packard Bell
and NEC computer-factory installed with Windows 98 software.
3. Obligations of Prodigy.
(a) Prodigy shall provide at its sole expense, including
without limitation, the costs of media and delivery, to PC
Manufacturer one or more Master Disks, which shall include the most
current release of the Software, to be used by PC Manufacturer for
hard disk installation of the Software under Section 2.1.1 of the
Agreement.
(b) The Documentation included in the Master Disks provided
by Prodigy for purposes of this Addendum shall include a special
code (which shall identify the Service, the PC Manufacturer, the
Rebate Program and the 60 Day With CC Program, as defined below)
and will offer end-users who use the procedure set forth in the
Documentation to enroll in the Service the option of enrolling in
the Service under either (i) the Rebate Program or (ii) a trial
period of sixty (60) days, provided the potential Prodigy Internet
Member enrolls in the Service with a credit card (the "60 Day With
CC Program").
(c) Prodigy shall provide PC Manufacturer Inserts relating
to the 60 Day With CC Program for inclusion with each Computer
System, stickers promoting the 60 Day With CC Program to be affixed
to the packaging for the Computer Systems, and coupons and
promotional materials relating to the Rebate Program to be
distributed by PC Manufacturer to retailers who offer the Computer
Systems for sale to consumers.
(d) Prodigy shall enter into an agreement with a fulfillment
house, to be mutually agreed by the Parties, to handle fulfillment
of the Rebate Program (which will include issuance of the checks to
Converted Membership Holders who are entitled to a rebate under the
Rebate Program, unless such issuances are made directly by Prodigy)
and customer inquiries relating to the Rebate Program.
4. Obligations of PC Manufacturer.
(a) Subject to compliance on the part of its retailers, which
PC Manufacturer shall use reasonable commercial efforts to obtain,
PC Manufacturer shall use commercially reasonable efforts to
provide national mention of the Rebate Program in Sunday newspaper
advertisements of retailers who participate in The Rebate Program
for five (5) of the ten (10)
<PAGE>
Contract No. 6601-I
weekends during the period between September 16, 1998 and December
31, 1998.
(b) To the extent possible, given timing constraints and channel
issues, PC Manufacturer shall use commercially reasonable efforts to
remove AT&T Worldnet from the folder on the Computer Systems' desktop,
entitled, "PB Direct," for the duration of the Rebate Program. In any
event, PC Manufacturer shall give at least equal prominence to Prodigy
Internet as it gives to America Online.
(c) Commencing September 16, 1998, PC Manufacturer agrees to the
replacement by Prodigy of the 60 Day With CC Program for the 60 Day no
credit card trial offer ("60 Day No CC Program") currently available
on PC Manufacturer's computer systems. PC manufacturer acknowledges
that Prodigy shall continue to honor its 60 Day No CC Program for as
long as Prodigy deems necessary or appropriate.
(d) PC Manufacturer shall promote both the Rebate Program and 60
Day With CC Program on PB Direct by (i) allowing Prodigy to include
such promotions on its servers; (ii) including promotional materials
relating to the 60 Day With CC Program in the boxes of each Computer
System; (iii) affixing stickers promoting the 60 Day With CC Program
to the packaging for the Computer Systems; (iv) distributing coupons
and promotional materials relating to the Rebate Program to retailers
who offer the Computer Systems for sale to consumers; and (v)
undertaking other promotional and marketing efforts as mutually agreed
to by PC Manufacturer and Prodigy.
5. Financial Terms.
(a) Prodigy shall not pay and PC Manufacturer shall not be
entitled to receive any fee under Section 3 of the Agreement for any
Converted Membership Holders who enroll in the Service as part of the
Rebate Program.
(b) Prodigy shall pay PC Manufacturer fees under Section 3 of the
Agreement for any Converted Membership Holders who enroll in the
Service as part of the 60 Day With CC Program. The limitations set
forth in Section 3.5 of the Agreement regarding entitlement by PC
Manufacturer to fees for Converted Membership Holders continue to
apply.
(c) PC Manufacturer shall pay Prodigy the costs associated with
the fulfillment services to be supplied in accordance with Section 3
(d) above. Payment shall be made within thirty (30) days after receipt
of each invoice therefor.
Confidential
<PAGE>
Contract No. 6601-1
6. Term of Addendum; Survival.
(a) The term of this Addendum (the "Addendum Term") shall be
effective as of the date executed by the last party signing below (the
"Addendum Effective Date") and shall continue until January 31, 1999
or such other date as mutually agreed in writing by the Parties,
except that (a) PC Manufacturer shall continue to pay Prodigy for the
fulfillment costs under Section 3 (d) until May 31, 1999; and (b)
Prodigy shall continue to pay PC Manufacturer the fees for Converted
Membership Holders who enroll in the Service under both the 60 Day
With CC Program and 60 Day No CC Program in accordance with the terms
of the Agreement.
(b) Sections 11, 12 and 14 shall survive termination of this Addendum.
7. Prodigy's Trademarks. Prodigy's trademarks, product identifications,
artwork and other symbols and devices associated with Prodigy's products and
services ("Prodigy's Trademarks") are and shall remain Prodigy's property. PC
Manufacturer is hereby authorized to use Prodigy's Trademarks solely in any
advertising and promotion of the Rebate Program which is the subject of, and
during the term of, this Addendum, provided Prodigy has approved all such uses
in advance as set forth in the Agreement, which approval shall not be
unreasonably withheld or delayed. The right to use Prodigy's Trademarks is
nonexclusive, nonassignable and nontransferable. All uses by PC Manufacturer of
Prodigy's Trademarks shall inure solely to the benefit of Prodigy.
8. PC Manufacturer's Trademarks. PC Manufacturer's trademarks, product
identifications, artwork and other symbols and devices associated with PC
Manufacturer's products and services ("PC Manufacturer's Trademarks") are and
shall remain PC Manufacturer's property. Prodigy is hereby authorized to use PC
Manufacturer's Trademarks solely in advertising and promotion of the Rebate
Program which is the subject of, and during the term of, this Addendum provided
PC Manufacturer shall have approved all such uses in advance as set forth in the
Agreement, which approval shall not be unreasonably withheld or delayed. The
right to use PC Manufacturer's Trademarks is nonexclusive, nonassignable and
nontransferable. All uses by Prodigy of PC Manufacturer's Trademarks shall inure
solely to the benefit of PC Manufacturer.
9. PC Manufacturer's Warranties. In addition to the warranties provided in
Section 8 of the Agreement, PC Manufacturer represents and warrants that (a) it
has the full right and legal authority to enter into and fully perform this
Addendum in accordance with its terms without violating the rights of any third
party; that (b) its Trademarks do not infringe the trademarks or trade names of
any third party; and (c) it will not alter copy approved by Prodigy or issue
unapproved copy containing statements or claims about the Rebate Program,
Prodigy's services or products, or Prodigy's Trademarks without the express
prior consent of Prodigy.
Confidential
<PAGE>
Contract No.6601-1
l0. Prodigy's Warranties. In addition to the warranties provided in
Section 8 of the Agreement, Prodigy represents and warrants that (a) it has the
full right and legal authority to enter into and fully perform this Addendum in
accordance with its terms without violating the rights of any third party; (b)
its Trademarks do not infringe the trademarks or trade names of any Third party;
(c) it will comply with all applicable laws, regulations and ordinances
pertaining to the promotion and conduct of the Rebate Program; and (d) it will
not alter copy approved by PC Manufacturer nor issue unapproved copy containing
statements or claims about the Rebate Program, PC Manufacturer's services or
products, or PC Manufacturer's Trademarks without the express prior consent of
PC Manufacturer.
11. Limitations of Liability. THE WARRANTIES SET FORTH IN SECTIONS 9 AND 10
ABOVE AND SECTION 8 OF THE AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OF THE
PARTIES HERETO, EXPRESSED OR IMPLIED. WITHOUT LIMITATION, EACH OF THE PARTIES
HERETO SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. EXCEPT WITH RESPECT TO LIABILITY ARISING FROM
A PARTY'S WARRANTIES, REPRESENTATIONS AND INDEMNIFICATION OBLIGATIONS HEREUNDER,
NEITHER PARTY HERETO SHALL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES) SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE
OR ANTICIPATED PROFITS OR LOST BUSINESS.
Indemnification.
(a) In addition to Prodigy's indemnification obligations set forth in
Section 9 of the Agreement, with respect to the Rebate Program which
is the subject of this Addendum, Prodigy shall indemnify and hold PC
Manufacturer harmless from all claims, demands, liabilities, suits and
proceedings (including any brought in or before any court, government
or administrative body, arbitration panel or other tribunal) and any
and all expenses arising therefrom, including reasonable attorneys'
fees, against or involving PC Manufacturer on account of or arising
out of any of the following: (i) Prodigy's breach of any of Prodigy's
warranties, representations or obligations under the Agreement or this
Addendum; and (ii) the conduct or content of the Rebate Program and
the advertising and promotion therefor, except as provided or altered
by PC Manufacturer or any retailer participating in the Rebate
Program.
(b) In addition to PC Manufacturer's indemnification obligations set forth
in
Confidential
<PAGE>
Contract No. 6601-1
Section 9 of the Agreement, with respect to the Rebate Program which
is the subject of this Addendum, PC Manufacturer shall indemnify and
hold Prodigy harmless from all claims, demands, liabilities, suits and
proceedings (including any brought in or before any court, government
or administrative body, arbitration panel or other tribunal) and any
and all expenses arising therefrom, including reasonable attorneys'
fees, against or involving Prodigy on account of or arising out of any
of the following: PC Manufacturer's breach of any of PC Manufacturer's
warranties, representations or obligations under the Agreement or this
Addendum.
(c) The indemnified party will promptly notify the other party of any
claim, demand, suit or proceeding for which the other party has agreed
to indemnify and hold the indemnified party harmless, and the other
party, upon written request by the indemnified party, will promptly
defend and continue the defense of such claim, demand, suit or
proceeding at the other party `s expense. If the other party fails to
undertake and continue such defense, the indemnified party will have
the right (but not the obligation) to make and continue such defense
as it considers appropriate, and the expenses and costs thereof,
including but not limited to attorneys' fees, out-of-pocket expenses
and the costs of an appeal and bond thereof, together with the amounts
of any judgment rendered against the indemnified party, will be paid
by the other party. Nothing herein will prevent the indemnified party
from defending, if it so desires in its own discretion, any such
claim, demand, suit or proceeding at its own expense through its own
counsel, notwithstanding that the defense thereof may have been
undertaken by the other party.
13. Prior Approval. Each of the parties hereto shall obtain the prior
approval of the other party for all promotional and advertising materials to be
used in connection with the Rebate Program in accordance with Section 7 of the
Agreement.
Confidential
<PAGE>
Contract No.6601-1
14. Confidentiality. This Addendum is confidential and shall be treated as
Confidential Information in accordance with Section 6 of the Agreement.
Except as set forth hereby, all terms of the Agreement shall remain in full
force and effect; provided however, that in the event of a conflict between this
----------------
Addendum No. 1 and the Agreement, the terms of this Addendum No. 1 will prevail.
IN WITNESS WHEREOF, the parties have caused this Addendum No. 1 to be
executed by their duly authorized representatives, effective as of the date last
below written.
PACKARD BELL NEC, INC. PRODIGY COMMUNICATIONS CORPORATION
By: By: [ILLEGIBLE SIGNATURE]
-------------------------- ---------------------------
Name: Name: [ILLEGIBLE SIGNATURE]
------------------------ --------------------------
Title: Title: EVP, GenCounsel(acting)
----------------------- -------------------------
Date: Date: 8/28/98
------------------------ -------------------------
[ILLEGIBLE SIGNATURE]
VP US Sales
8/28/98
<PAGE>
EXHIBIT 10.33
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
EXCITE SERVICES DISTRIBUTION AND CO-BRANDED AREA AGREEMENT
This agreement ("Agreement") is entered into as of the 20th day of January, 1998
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and Prodigy
Services Corporation, a Delaware corporation, located at 44 S. Broadway, White
Plains, New York 10601 ("Distributor").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com (the "Excite
Site'") and owns and/or manages related Web sites worldwide (collectively,
the "Excite Network") which, among other things, allows its users to search
for and access content and other sites on the Internet.
B. Within the Excite Site. Excite currently organizes certain content into
topical channels ("Excite Channels"), including a personalized Internet
information service known as "My Channel".
C. Distributor provides interactive information, communication and transaction
services through, among other delivery platforms, the Prodigy Internet
service ("Prodigy Internet"), an Internet-based service, and the Prodigy
Service ("Prodigy Classic"), an online service, for use by any individual,
business, or entity now or hereafter authorized by Distributor to use Prodigy
Internet or Prodigy Classic or both ("Prodigy Internet Subscribers" or
"Prodigy Classic Subscribers," as applicable, and together referred to as
"Distributor's Subscribers"). For purposes of this Agreement, unless
otherwise stated, Prodigy Internet Subscribers and Distributor's Subscribers
do not include Non-Excite Subscribers, as defined in Section 3(c) below.
D. Excite and Distributor wish to promote Excite's Internet search, navigation
and content services to certain of Distributor's Subscribers. Excite and
Distributor desire that Excite design, maintain and operate co-branded
versions of its search, navigation and content aggregation services, to
promote such co-branded services to certain of Distributor's Subscribers and
to share revenue derived from their use.
Therefore, the parties agree as follows:
1. CO-BRANDED EXCITE SERVICES
a) Excite will design and create Web pages ("Co-Branded Pages" or,
collectively, the "Co-Branded Area") for Excite Search, Excite Channels
and My Channel services which will prominently display the name and/or
brands of both Distributor and Excite.
1
<PAGE>
b) Excite and Distributor will collaborate and mutually agree upon the
appearance, content and user interface of the Co-Branded Pages.
c) The Co-Branded Pages will conform to the product description attached
hereto as Exhibit A. This product description may be changed by the
mutual agreement of the parties.
d) The Co-Branded Area will reside and be hosted on Excite's servers,
similar to those used for Excite's generally available services on the
Excite Site. Excite will have sole responsibility for providing and
maintaining at its expense, the Excite Site, the Co-Branded Area and
Excite's servers.
e) Distributor may request reasonable revisions to the Co-Branded Pages.
Excite will use reasonable efforts to accommodate Distributor's
requested changes within three (3) days, but in no event later than
fifteen (15) days, after receipt of Distributor's request.
f) Distributor will have the right to replace individual top-level. Excite
Channels with channels specified by Distributor if;
i) Excite Channel content is not among the top three "best of breed"
choices. To be among the best of breed choices requires that Excite
content will at all times be at least comparable to any other source
of similar topical content available on the Internet in terms of the
following factors, taken as a whole; (i) breadth and depth of
coverage; (ii) timeliness of content updates; and (iii) reputation
and ranking based on a cross-section of third-party reviewers in
terms of features, functionality, quality and other qualitative
factors. In the event that an Excite Channel fails to meet these
quality criteria, Distributor may request that Excite remedy the
deficient factor(s) within forty-five (45) days or, if Excite is
unable or unwilling to provide remedy, that Excite supplement the
Excite Channel with another channel containing content designated by
Distributor (a "Non-Excite Channel") on forty-five (45) days' written
notice to Excite; and
ii) Excite maintains a minimum of eighty percent (80%) of its existing
channel structure after the inclusion of any Non-Excite Channel. The
existing channel structure is defined as the selection of main
channel links located on the start page of the Excite Site.
g) Distributor may select up to two (2) subchannels containing content
designated by Distributor (a "Non-Excite Subchannel") for inclusion on
any top-level Co-Branded Channel Pages upon mutual agreement so long as
2
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
the Distributor selection is not in conflict with then existing Excite
relationships. Examples of conflicts include, but are not limited to,
cases where Excite has contractual agreements to provide exclusive or
premier placement for certain content.
h) Excite agrees that it will not sell, lease, barter, or give away to third
parties the name, telephone number, email address, residential address,
office address, and/or fax number of any of Distributor's Subscribers
without Distributor's written consent. Excite further agrees that it will
not send unsolicited email messages or other unsolicited communications
to Distributor's Subscribers without Distributor's written consent.
i) Excite will make reasonable commercial efforts to provide a co-branded
version of the MailExcite free email service ("Co-Branded Mail") to
Distributor's Subscribers of the Co-Branded Area. Prodigy Internet
Subscribers who register for Co-Branded Mail will be given an email
address which uses the domain name of "prodigyweb", or other domain name
specified by Distributor prior to the launch of the Co-Branded Mail. The
selection of a domain name other than "prodigyweb" will be subject to
prior approval by Excite, such approval not to be unreasonably withheld.
j) Excite will provide Distributor with five additional versions of the top-
level page of the Co-Branded My Channel ("OEM Pages"), as specified in
Exhibit A at no expense to the Distributor. At Distributor's request,
Excite will provide additional OEM Pages to Distributor at a cost of [**]
per OEM Page.
2. COMMUNITY SERVICES AND APPLICATIONS
a) Excite will create up to fifty chat rooms to be made available as needed
for the use of Distributor's Subscribers on topics to be specified by
Distributor ("New Chat").
b) Excite will create up to one hundred message boards on topics to be
specified by Distributor ("New Boards").
c) Excite will maintain and monitor the New Chat and New Boards referred to
in Sections 2(a) and 2(b), above, at a level of service comparable to
that provided on the Excite Site at the Effective Date of this Agreement.
d) Excite will create co-branded versions of the following applications
("the Co-Branded Applications") for use by Prodigy Internet Subscribers:
(i) Excite PAL "buddy list" and (ii) client and Java versions of Excite's
chat application.
3
<PAGE>
3. LINKS TO THE CO-BRANDED EXCITE SERVICES
a) Distributor will incorporate the Co-Branded My Channel service as the
default home page for Prodigy Internet Subscribers, except as provided in
Section 3(f) below.
b) Distributor will be free to distribute versions of Prodigy Internet with
OEM or affinity partners which do not include the Co-Branded My Channel
service ("Non-Excite Versions") should such partner so desire, subject to
Section 3(d), below.
c) Subscribers to Non-Excite Versions ("Non-Excite Subscribers") will not be
classified as Prodigy Internet Subscribers.
d) At the end of any calendar month, Non-Excite Subscribers will not account
for more than 25% of the sum of: (i) total Prodigy Internet Subscribers
and (ii) Non-Excite Subscribers.
e) The co-branded version of Excite Search will be the exclusive Internet
search service promoted by Distributor to Distributor's Subscribers.
f) At Distributor's option, Distributor may provide a default start page for
Prodigy Internet Subscribers which is not a Co-Branded Page, provided
that Distributor will incorporate the Co-Branded Area as the exclusive
personalized service and Internet search and navigation service
applications provided to Prodigy Internet Subscribers in the following
manner:
i) Distributor will display links to the co-branded versions of Excite
Search, Excite Channels and My Channel services "above the fold" on
the home page of Prodigy Internet. Any such home page(s) will exist
or be maintained at Distributor's sole discretion. For purposes of
the Agreement, "above the fold" means the area visible to a user
viewing the default home page of Prodigy Internet using a standard
Web browser without having to scroll up or down, or to the right or
left, while viewing a standard screen size (e.g., a VGA display of
640 x 480 pixels) on a standard computer monitor.
ii) If such change in presentation requires engineering or design
changes by Excite, Distributor will use best efforts to provide as
much advance notice of the required change in presentation as is
practicable.
iii) If, pursuant to Subsection (f) above, Distributor provides a default
start page for Prodigy Internet Subscribers which is not a Co-
Branded Page, and fewer than fifty percent (50%) of Prodigy Internet
Prodigy Confidential
4
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Subscribers regularly access My Channel within three (3) months
following such implementation, Excite will have the right to
terminate the Agreement.
iv) Excite may request reasonable revisions to the link(s) to the
CoBranded Area. Distributor will use reasonable efforts to
accommodate Excite's requested changes within fifteen (15) days of
receipt of Excite's request.
4. IMPLEMENTATION
a) Distributor and Excite will implement a test version of the Co-Branded
Area and links to the Co-Branded Area as specified under Phase I in
Exhibit A by February 13, 1998, and implement a final version by
February 27, 1998 (the "Phase I Implementation Date").
b) Distributor and Excite will make best efforts to implement a test version
of the additional product features specified under Phase II in Exhibit A
by March 13, 1998, but in no event later than March 20, 1998.
Distributor and Excite will make best efforts to implement a final
version of additional product features specified under Phase II in
Exhibit A by March 17, 1998, but in no event later than April 3, 1998
(the "Phase II Implementation Date").
5. ADVERTISING AND REVENUE SHARING
a) Excite will be solely responsible for selling advertising on the Co-
Branded Pages and the Excite Site, except for Non-Excite Channels and
Non-Excite Subchannels.
b) Within thirty (30) days of the end of each calendar month during the term
of the Agreement, Excite will make payment to Distributor (the
"Distributor Payment") resulting from advertising on the Co-Branded
Pages. For each calendar month, the Distributor Payment will be
calculated as [**] during the calendar month and [**] during the calendar
month.
c) Total Net Ad Revenue will be calculated as total revenue generated from
banner advertising sales on the Excite Network less: (i) Excite's sales
agency discounts and commissions both internal and external and (ii) [**]
of total revenue generated from banner advertising sales on the Excite
Network (the "Content Expense"). Such sales agency discounts
5
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
and commissions will in no event exceed [**] of total revenue generated
from banner advertising sales on the Excite Network.
d) The Distributor Portion for a given calendar month will be defined as the
product of: (i) 0.5 ("the Split") and (ii) total page views generated on
the Co-Branded Area, excluding page views generated in conjunction with
the Co-Branded Applications and Co-Branded Mail, for a given month
divided by total page views generated on the Excite Network during the
same month, including the Co-Branded Area but excluding page views
generated in conjunction with Excite PAL, chat applications and
MailExcite. (For purposes of illustration, see Exhibit D attached
hereto.)
e) Excite will calculate the Distributor Payment for each calendar month
during the term of the Agreement and make payment to Distributor within
thirty (30) days of the end of each calendar month.
f) With each payment, Excite will provide to Distributor documentation
reasonably detailing the calculation of the payment,
g) Excite will maintain accurate records with respect to the calculation of
payments due under the Agreement. Distributor may, upon no less than
thirty (30) days prior written notice to Excite, cause an independent
certified public accountant to inspect the records of Excite reasonably
related to the calculation of such payments during Excite's normal
business hours. The fees charged by such certified public accountant in
connection with the inspection will be paid by Distributor, unless the
payments made to Distributor are determined to have been less than ninety
percent (90%) of the payment owed to Distributor, in which case Excite
will be responsible for the payment of the reasonable fees for such
inspection. In addition, if the audit reveals any underpayment between
the amount owed and the amount actually paid by Excite during the audited
period, Excite will correct the underpayment by paying Distributor the
amount of such underpayment.
h) Excite will make reasonable commercial efforts to exclude advertising
from the Co-Branded Pages and the Co-Branded Applications from up to ten
(10) advertisers as specified by Distributor in Exhibit E. [**].
Not more than four times per calendar year, Distributor may update this
list of advertisers. Within two (2) business days of receiving
Distributor's written update, Excite will remove any advertising from
such advertisers from the Co-Branded Pages and Co-Branded Applications.
6
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
i) Nothing herein shall be deemed to prohibit Excite from promoting its own
services via banner advertising in the Co-Branded Pages, except in
connection with promotions of any advertiser listed in Exhibit E.
6. PROMOTION OF THE CO-BRANDED AREA AND EXCITE SERVICES
a) Excite will provide Distributor with the greater of: (i) [**] advertising
banner impressions per quarter on the Excite Site, excluding the
Co-Branded Area or (ii) [**] advertising banner for every [**] on the
Co-Branded Area during the term of the Agreement. These banner
advertisements will be used to promote Prodigy Internet at no cost to
Distributor.
b) At its discretion, Distributor will promote the Co-Branded Area in
certain promotions which feature Prodigy Internet.
c) Distributor will promote the following Excite services on Prodigy
Internet.
i) Excite Search will be the exclusive Internet search and navigation
search on all Web pages controlled by Distributor and provided to
Prodigy Internet Subscribers in which Distributor displays links to
internet search and navigation services. Distributor will not
display any "above the fold" or graphic links to any of Excite's
competitors, including, but not limited to, Alta Vista, HotBot,
InfoSeek, Lycos, Search.com, Snap! or Yahoo!, or any other Web site
promoting itself as a provider of internet search and navigation
services.
ii) Excite NewsTracker will be the exclusive personalized Internet news
clipping service on all web pages controlled by Distributor and
provided to Prodigy Internet Subscribers in which Distributor
displays links to a personalized internet news clipping service
("Personalized Internet News Clipping Service"). Distributor will
not display any "above the fold" or graphic links to any of
Excite's competitors including, but not limited to, Alta Vista,
HotBot, InfoSeek, Lycos, Search.com, Snap! or Yahoo!, or any other
Web site promoting itself as a provider of a Personalized Internet
News Clipping Service. For the purposes of this Agreement, a
Personalized Internet News Clipping Service is an Internet search
service which provides summaries of news articles from publicly
available Web pages.
iii) Distributor will create a Web page or pages promoting the
distribution of the Co-Branded Excite PAL application to Prodigy
Internet Subscribers. The promotional page or pages will be linked
to Excite's FTP server to allow downloads of Excite PAL to Prodigy
Internet Subscribers. Excite and Distributor will collaborate on the
"look and
7
<PAGE>
feel" of the Excite PAL promotional page or pages. Unless a
generally accepted standard emerges, Distributor will not promote
buddy list applications other than Excite PAL, other than paid
advertisements from other vendors and/or distributors of buddy list
applications, to Prodigy Internet Subscribers.
iv) Distributor will create a Web page or pages for Prodigy Internet
Subscribers promoting registration for Co-Branded Mail to Prodigy
Internet Subscribers. The promotional page or pages will be linked
to a co-branded registration page for Co-Branded Mail. Excite and
Distributor will collaborate on the "look and feel" of the Co-
Branded Mail promotional page or pages. Other than paid
advertisements from other vendors and/or distributors of free email
services, Distributor will not promote free email services other
than Co-Branded Mail to Prodigy Internet Subscribers.
v) Excite Shopping Search will be the exclusive internet shopping
search tool on all Web pages controlled by Distributor and provided
to Prodigy Internet Subscribers in which Distributor displays links
to Internet search shopping services. For the purpose of this
Agreement a Internet shopping search tool is an Internet search
service which provides internet-based shopping search services
across a broad range of product categories and product providers.
7. REDISTRIBUTION
With Excite's prior approval, Distributor will have the right to
redistribute the Co-Branded Area to third-party marketing partners. Any
affiliate partnerships among the Distributor, Excite and such third-party
marketing partners which involve separate development or maintenance work
may involve incremental costs to Distributor or such third party, such
terms to be mutually agreed prior to the signing of any redistribution
agreement.
8. USAGE REPORTS
Excite will provide Distributor monthly standard usage reports via email,
samples of which are contained in Exhibit C. At Distributor's request,
Excite will make commercially reasonable efforts to provide Distributor
with additional usage data.
9. SUPPORT
a) Because the Co-Branded Area is based directly on the corresponding
current, generally available Excite services, Excite will support,
maintain and respond to any problems with the Co-Branded Area in exactly
the
8
<PAGE>
same manner and with the same timeliness that it supports, maintains and
responds to any problems with the corresponding current, generally
available Excite services.
b) Upon signing of the Agreement, Excite will work with Distributor to
implement a customer service plan for Distributors Subscribers.
10. TRADEMARK OWNERSHIP AND LICENSE; USAGE APPROVAL
a) Distributor will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide subject to the
limited license granted to Distributor hereunder.
c) Each party hereby grants to the other a non-exclusive, limited license to
use its trademarks, service marks and or trade names ("Trademarks") only
as specifically described in this AGREEMENT All such use -shall be in
accordance with each party's reasonable policies regarding advertising
and trademark usage as established from time to time.
d) Each party shall provide the other for review all promotional,
advertising and other materials using or displaying the other party's
Trademarks, and shall not distribute or otherwise use `them without the
other party's prior written approval, which shall not be unreasonably
withheld or denied. If, however, the party from whom approval is sought
does not respond to the other party's request for approval within live
(5) days of receipt of the materials using or displaying the other
party's Trademarks, approval shall be deemed to have been given. In
addition, the requirement for prior approval shall not apply to the use,
distribution and/or duplication as permitted hereunder of any materials
that the party which owns the Trademarks provides to the other party for
such use, distribution and/or duplication.
e) Upon the expiration or termination of the Agreement, each party will
cease using the trademarks, service marks and/or trade names of the other
except;
(i) as the parties may agree in writing; or
(ii) to the extent permitted by applicable law.
9
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
11. TERM AND TERMINATION
a) The term of the Agreement will begin on the Effective Date and, unless
terminated pursuant to this Section or Section 3(f)(iii) above or renewed
in accordance with this Section, will end three (3) years thereafter (the
"Initial Term"). At the end of the Initial Term, the Agreement shall
automatically be renewed for successive one-year terms (each, being a
"Renewal Term") upon the same terms and conditions as set forth in this
Agreement, unless Excite notifies Distributor in writing that it does not
want to renew the Agreement at least six (6) months prior to the end of
the Initial Term or Renewal Term, as applicable.
b) Distributor may terminate the Agreement upon sixty (60) days' prior
written notice to Excite. In the event that the Agreement is terminated
as provided under this Section 11(B) earlier than six (6) months from the
Effective Date, Distributor acknowledges that Excite may be subjected to
damages. lost profits and lost business opportunities and that the amount
of any such damages, lost profits and lost business opportunities will be
difficult to ascertain with certainty. The parties agree that fair
compensation in lieu of such damages, lost profits and lost business
opportunities will be for Distributor to pay Excite [**].
c) Either party may terminate the Agreement if the other party materially
breaches its obligations hereunder and such breach remains uncured for
thirty (30) days following the notice to the breaching party of the
breach.
d) All payments that have accrued prior to the termination or expiration of
the Agreement will be payable in full within thirty (30) days thereof.
e) To compensate Excite for its costs of developing and initiating access to
the Co-Branded Area, Distributor agrees to pay Excite [**] unless
Excite's share of advertising revenue from page views in the Co-Branded
Area exceeds this amount within six (6) months from the date at which the
My Channel is provided as the default start page for Prodigy Internet
Subscribers (the "Launch Date") or the date Distributor provides a
default start page for Prodigy Internet Subscribers pursuant to Section 3
(f), above. This amount is due eight (8) months from the Launch Date or
the date Distributor provides a default start page for Prodigy Internet
Subscribers pursuant to Section 3 (f), above, or upon termination of the
Agreement, whichever occurs first.
f) Ninety (90) days prior to the expiration of the Agreement, Excite will
provide Distributor with all relevant account information related to
Prodigy internet Subscribers, including but not limited to: (i)
personalization data
10
<PAGE>
related to Prodigy Internet Subscribers' My Channel accounts (ii)
subscribers' stock portfolio information related to Prodigy Internet
Subscribers' My Channel accounts and (iii) addresses and contents of
all Co-Branded Mail accounts.
g) Following either: (i) a notice of termination under Section 11(a) or
Section 11(b) or (ii) the date of termination under Section 11(c),
above, Excite will provide Distributor with information listed in
Section 11(f), above. Excite will make best efforts to provide such
information to Distributor within thirty (30) days of the date of a
termination notice under Section 11 (a) or Section 11(b) or the date of
termination under Section 11(c).
h) The provisions of Section 1 (h) (Co-Branded Excite Services), (Section
12 (Confidentiality), Section 13 (Representations and Warranties).
Section 14 (Indemnity). Section 15 (Limitation of Liability), Section
16 (Dispute Resolution) and Section 17 (General) will survive any
termination or expiration of this Agreement.
12. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
or activities that is proprietary and confidential, which shall include
all business, financial, technical and other information of a party
marked or designated by such party as "confidential or "proprietary";
or if disclosed orally or visually only, is defined as confidential or
proprietary at the time of disclosure and is promptly thereafter
summarized in a non-confidential memorandum to the receiving party.
b) Confidential Information will not include information that (i) is in or
enters the public domain without breach of this Agreement, (ii) the
receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation or (iii) the receiving party knew prior to receiving such
information from the disclosing party or develops independently without
access to Confidential Information.
c) Each party agrees that (i) it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except as
expressly permitted in this Agreement and (ii) it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will
in no event be less than the measures it uses to maintain the
confidentiality of its own information of similar importance.
11
<PAGE>
d) Notwithstanding the foregoing, each party may disclose Confidential
Information (i) to the extent required by a court of com
petent
jurisdiction or other governmental authority or otherwise as required
by law or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other
financing sources and their advisors.
e) The information contained in the usage reports and advertising payment
calculations provided by Excite hereunder will be deemed to be the
Confidential Information of Excite.
f) The terms and conditions of this Agreement will be deemed to be the
Confidential Information of each party and will not be disclosed
without the written consent of the other party.
13. REPRESENTATIONS AND WARRANTIES: OWNERSHIP AND PROPERTY RIGHTS
a) Each party represents and warrants to the other that this Agreement has
been duly executed and delivered and constitutes a Icxxxx - valid and
binding obligation enforceable against it - in accordance with the
Agreement's terms.
b) Excite represents and warrants that (i) the Excite Search and Excite
navigation services do not and will not infringe or violate any patent,
copyright, trademark, rights of privacy and publicity or any other
intellectual property right of and will not cause injury to any third
party; (ii) Excite will be fully responsible for the content which is
authored or programmed by Excite on the Co-Branded Area, which will
include, all text, graphics, software, information, and other content
viewable or obtainable in or through the Co-Branded Area, including,
but not limited to, any databases, multimedia material (whether or not
interactive), and any other information and materials, but excluding
information obtained by Distributor's Subscribers from publicly
available Web sites where Excite's sole contribution is to provide the
tools whereby Distributor's Subscribers can access such information
(the "Excite Content"); (iii) the Excite Content is Excite's own and
original creation, except for Information validly licensed to Excite
for use by others or that is in the public domain; (iv) the Excite
Content will not constitute a libel or defamation or infringe or
violate any copyright, trademark, rights of privacy and publicity and
will not cause injury to any third party; (v) it has full ownership of
all intellectual property required to operate and promote the Co-
Branded Area (other than ,the Prodigy Trademarks licensed hereunder);
(vi) the Excite Content is legal and conforms to all applicable laws
and regulations; and (vii) the Excite Trademarks licensed to
12
<PAGE>
Distributor for use hereunder are owned by Excite, or are validly
licensed to Excite, and Excite has the right to license such Excite
Trademarks hereunder and they do not infringe or violate any patent,
trademark, trade secret, copyright or other proprietary right of any
third party.
c) Distributor represents and warrants that the Distributor's Trademarks
licensed to Excite for use hereunder are owned by Distributor, or are
validly licensed to Distributor for use hereunder, and Distributor has
the right to license such Distributor Trademarks hereunder.
14. INDEMNITY
a) Each party (the "Indemnifying Party") will indemnify, defend and hold
harmless the other party (the "Indemnified Party"), its successors and
assigns and any of its and their affiliates, officers, directors,
employees, consultants and agents from and against - and all claims,
liability, damages and/or costs, including, but not limited to,
reasonable attorneys' fees and disbursements incurred by the
Indemnified Party in any action or proceeding between Indemnifying
Party and the Indemnified Party or between the Indemnified Party and
any third party or otherwise arising from (i) the breach of any
warranty or representation in this Agreement by the Indemnifying Party;
(ii) a failure by the Indemnifying Party to comply in any material
respect with any governmental law, statute, ordinance, administrative
order, rule or regulation: or (iii) a statement of the Indemnifying
Party containing misleading or inaccurate references to the Indemnified
Party or its products or services in any of the Indemnifying Party's
advertising or promotional materials of which the Indemnified Party for
which written approval was required and not obtained.
b) The Indemnified Party will promptly notify the Indemnifying Party of
any and all such threats, claims and will reasonably assist the
Indemnifying Party with the defense and/or settlement thereof: provided
that, if any settlement requires an affirmative obligation of, results
in any ongoing liability to or prejudices or detrimentally impacts the
Indemnified Party in any way and such obligation, liability, prejudice
or impact can reasonably be expected to be material, then such
settlement shall require the Indemnified Party's written consent (not
to be unreasonably withheld or delayed) and the Indemnified Party may
have its own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY
IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND HEREBY
DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
WARRANTIES
contract7 Prodigy Confidential
13
<PAGE>
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH
SUBJECT MATTER.
15. LIMITATION OF LIABILITY
EXCEPT UNDER SECTION 14(a), IN NO EVENT WILL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE,
WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE.
16. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties' obligations
regarding trademarks, service marks, trade names and/or confidentiality
would result in irreparable injury for which there is no adequate
remedy at law. Therefore, in the event of any breach or threatened
breach of a party's obligations regarding trademarks, service marks,
trade names and/or confidentiality, the aggrieved party will be
entitled to seek equitable relief in addition to its other available
legal remedies in a court of competent jurisdiction. For the purposes
of this section only, the parties consent to venue in either the state
courts of the county in which the initial defendant to the action has
its principal place of business or the United States District Court for
the district in which the initial defendant to the action has its
principal place of business.
b) In the event of disputes between the parties arising from or concerning
in any manner the subject matter of this Agreement, other than disputes
arising from or concerning trademarks, service marks, trade names
and/or confidentiality, the parties will first attempt to resolve the
dispute(s) through good faith negotiation. In the event that the
dispute(s) cannot be resolved through good faith negotiation, the
parties will refer the dispute(s) to a mutually acceptable mediator for
hearing in the county in which the party against whom the action is
initially brought has its principal place of business.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks,
trade names and/or confidentiality, cannot be resolved through good
faith negotiation and mediation, the parties will refer the dispute(s)
to the American Arbitration Association for resolution through binding
arbitration by a single arbitrator pursuant to the American Arbitration
Association's rules applicable to commercial disputes. The arbitration
will be held in the county in which
14
<PAGE>
the party against whom the action is initially brought has its
principal place of business.
17. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
----------
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required in
connection with a merger, reorganization or sale of all, or
substantially all, of such party's assets. Any attempt to assign this
Agreement other than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the state of New York, notwithstanding the
actual state or country of residence or incorporation of either party.
c) Notice. Any notice under this Agreement will be in writing and
------
delivered by personal delivery, express courier, certified or
registered mail, return receipt requested, and will be deemed given
upon personal delivery, one (1) day after deposit with express courier
or three (3) days after sent, with proper postage and address, via
certified or registered mail. Notices will be sent to a party at its
address set forth below (and if to Distributor, to the attention of
Vice President - Business Development and to the attention of its
General Counsel, with a courtesy copy to [email protected] or such
other address as that party may specify in writing pursuant to this
Section.
d) No Agency. The parties are independent contractors and will have no
---------
power or authority to assume or create any obligation or responsibility
on behalf of each other. This Agreement will not be construed to create
or imply any partnership, agency or joint venture.
e) Entire Agreement. This Agreement is the complete and exclusive
----------------
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties.
f) Severability. In the event that any of the provisions of this Agreement
------------
are held by to be unenforceable by a court or arbitrator, the remaining
portions of the Agreement will remain in full force and effect.
g) Force Majeure. Any delay in or failure of performance by either party
-------------
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
15
<PAGE>
reasonable control of such party including, but not limited to, acts of
God, power outages and governmental restrictions.
Prodigy Services Corporation Excite, Inc.
By: /s/ Peter Glusker By: /s/ Robert C. Hood
Name: PETER GLUSKER Name: ROBERT C. HOOD
Title: VICE PRESIDENT Title: EVP-CFO
Date: 1/22/98 Date: 1/21/98
[SEAL APPEARS HERE]
contract7 Prodigy Confidential
16
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
PHASE I
- -------
Timing
Excite will implement Phase I as described in this Exhibit A by the
Phase I Implementation Date, as defined in Section 4, above.
General
a) Advertising banners are allowed on all Co-Branded Pages and all pages
of the Excite Site, as specified in Section 5, above.
b) The presence of advertising in the Co-Branded Area will be consistent
with that of similar pages on the Excite Site.
My Channel
a) The co-branded version of My Channel will be co-branded so that the
Distributor logo and Distributor signature are present on the My Channel
start page. This logo and signature will link to www.prodigy.net.
b) Advertising banners may be displayed on the co-branded My Channel start
page.
c) The co-branded My Channel will contain links to Excite Channels which will
not be co-branded.
d) The start page of the co-branded My Channel will include the following:
An area containing up to six (6) text links of up to thirty (30)
characters in length to be programmed by Distributor which may include,
inter alia, the following: (i) a link to the Prodigy Help Center and
(ii) links to content produced by either Distributor and/or third
parties.
A content module which may display up to five (5) promotional messages
or communications to Prodigy Internet Subscribers and links to web
pages set up and maintained by Distributor or third parties. It is
Distributor's responsibility to provide content for this module.
contract7 Prodigy Confidential
17
<PAGE>
e) Five (5) OEM Pages as described in Section 1 (j), above. The OEM Pages will
be identical to the co-branded version of My Channel with the exception of
the elements described in Section (d), above, of this Exhibit A.
Excite Search
The Excite Search service will be co-branded so that the Distributor's
logo and signature are present on the top level (entry page) and all
pages that return search results. This logo and signature will link to
www.prodigy.net.
PHASE II
- --------
TIMING
Excite will implement Phase II as described in this Exhibit A by the
Phase II Implementation Date, as defined in Section 4, above.
General I
a) All pages of the Co-Branded Area will be co-branded so that the
Distributor logo and Distributor signature are present as on the My
Channel start page. This logo and signature will link to
vwww.prodigy.net.
b) Phase II will incorporate all of the elements of Phase I, with the
following exceptions:
i) Excite Channels
Excite will provide a co-branded version of all Excite Channels as
part of the Co-Branded Area.
Co-branded versions of the Excite Channels will contain modules on
their top-level pages to be programmed by Distributor to contain
up to two (2) subchannels at Distributor's option in accordance
with Section 1(g), above.
ii) My Channel
Links to Excite Channels from the Co-Branded My Channel will be
replaced with links to co-branded versions of Excite Channels.
iii) Excite PAL and Chat
Excite will provide the Co-Branded Applications for use by Prodigy
Internet Subscribers.
contract7 Priodigy Confidential
18
<PAGE>
iv) Co-Branded Mail
Excite will make reasonable commercial efforts to provide Co-
Branded Mail, as described in Section 1(i), above.
contract7 Prodigy Confidential
19
<PAGE>
EXHIBIT B
IMPLEMENTATION SCHEDULE
a) No later than two (2) weeks after the signing of the Agreement. Excite will
deliver to Distributor a mock-up template of the Co-Branded Pages based on
Excite's product specification, as defined at time the Agreement is signed.
b) No later than one (1) week after delivery of the initial mock-up,
Distributor must respond to the mock-up template with comments or waive any
changes to the mock-up template.
c) Further changes to the mock-up template will be made an as-needed basis.
However, the final version of the mock-up template must be completed and
approved fourteen (14) days prior to scheduled implementation date. Failure
to have final approval fourteen (14) days in advance of the scheduled
implementation date may result in a delayed implementation date. Delayed
implementation dates will be rescheduled solely according to the
availability of Excite's engineering resources.
contract7 Prodigy Confidential
20
<PAGE>
EXHIBIT C
SAMPLE STANDARD USAGE REPORTS
[TO BE PROVIDED]
Prodigy Confidential
21
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
EXHIBIT D
SAMPLE CALCULATION OF DISTRIBUTOR PAYMENT
Excite,Inc.
Revenue Sharing Calculation Worksheet
Prodigy
<TABLE>
<CAPTION>
Prodigy
Total Total Cobranded Total Portion of
Network Prodigy Banner Gross [**] [**] Revenue
Month Pageviews Pageviews % revenue Revenue Agency Fee Content Fees Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-98 [**] [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
totals [**] [**] [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Prodigy
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Payment Net Floor Amount
Ratio Amount [**] Due
[**] [**] [**] [**]
- -------------------------------------------------------------------------------------------------
Cumulative
totals $ [**] [**] [**]
- -------------------------------------------------------------------------------------------------
</TABLE>
As Communities Pageview
As revenues from indicated ISP's, if applicable
Less Communities Revenues
contract 17 Prodigy Confidential
22
<PAGE>
EXHIBIT E
EXCLUDED ADVERTISERS
1. America Online/CompuServe
2. AT&T WorldNet
3. EarthLink
4. MindSpring
5. Erols
6. MCI Internet
7. Sprint Passport
8. Bell Atlantic Internet Services
9. BellSouth Internet Services
10. MSN
23
<PAGE>
EXHIBIT 10.34
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CROW KELLY # 1,
Landlord
and
PRODIGY SERVICES COMPANY,
Tenant
---------------------------------
L E A S E
Dated: June 6, 1988
---
<PAGE>
PRODIGY SERVICES COMPANY White Plains, New York
LEASE
TABLE OF CONTENTS
-----------------
Title Article Page
- ----- ------- ----
Parties 1
Premises 1
Use 1
Term 2
Arbitration 24 13
Assignment 20 12
Binding Effect 32 15
Casualty 11 7
Compliance with Law 16 10
Condemnation 13 9
Counterparts 29 15
Default 17 11
Entire Agreement 33 15
Estoppel Certificate 26 14
Force Majeure 21 12
Hazard Insurance 12 8
Holdover 18 12
Indemnity - Liability Insurance 27 14
Improvements and Alterations 8 5
Inspection 10 7
Landlord's Title and Allowable Use 5 4
Maintenance 6 4
Mechanics' Liens 26 14
Miscellaneous 31 15
Notices 19 12
Parking 25 13
Preparation for Occupancy 4 2
Quiet Enjoyment 22 13
Removal of Goods and Tenant's Repairs 9 6
Renewal Term 2 2
Rent 1 2
Rent for Renewal Term 3 2
Riders and Other Attachments 30 15
Services 7 5
Signs 15 10
Subordination and Non-Disturbance 23 13
Taxes 14 9
Riders
- ------
# 1 - Option Parcel # 1
# 2 - Option Parcel # 2
Exhibits
- --------
Exhibit A - Construction Agreement
Exhibit B - Plans and Specifications
Exhibit C - Option Agreement
<PAGE>
Parties THIS LEASE made the day of June, 1988, between CROW-KELLY
# 1, with offices at 11 Martine Avenue, 9th floor, White Plains,
New York, 10606 and at 87 Bedford Road, Katonah, New York 10536,
hereinafter collectively called the "Landlord", and PRODIGY
SERVICES COMPANY, a New York General Partnership between
International Business Machines Corporation, and Sears Roebuck
and Company, having its principal office at 445 Hamilton Avenue,
White Plains, New York 10601, hereinafter called the "Tenant".
WITNESSETH:
Premises That the Landlord hereby leases to the Tenant and the Tenant
hereby hires and takes from the Landlord, for the term and
subject to the agreements, conditions and provisions hereinafter
set forth, the building located at Front Street, Yorktown
Heights, New York (hereinafter called the "premises"),
consisting of sixty-one thousand one hundred (61,100) agreed
rentable square feet, together with the exclusive right to use
the appurtenances, buildings, parking areas, and improvements to
be erected upon the land and any replacements thereof.
Use (a) To be used by the Tenant for engineering, research,
warehouse, offices, sales, display, storage, service, repair and
use of the Tenant's products and equipment, education and
training of the Tenant's customers and employees, parking of
cars, and all other uses incidental and related thereto. Use by
Tenant for other lawful business, industrial and commercial
purposes shall require the written consent of the Landlord,
which shall not be unreasonably withheld or delayed.
(b) Tenant covenants and agrees not to suffer, permit,
introduce or maintain in, on or about any portion of the
premises, any hazardous or toxic materials, wastes and
substances (hereinafter "hazardous conditions") which are
defined, determined or identified as such in any federal, state
or local laws, rules or regulations; however, the Tenant shall
have the right to store petroleum products and such other
substances as may be necessary in conjunction with the operation
of its equipment and installations, subject to the Tenant
obtaining all necessary permits at Tenant's sole cost and
expense, and subject to the Tenant complying with all applicable
Federal, State, and local laws, rules and regulations relating
to such storage and use. The Tenant shall not be responsible for
any hazardous conditions which may be located at the premises at
or prior to substantial completion of the "Base Building",
unless caused by the Tenant or Tenant's subcontractors nor for
any existing hazardous condition that may be present from or on
the adjacent UPS site not caused by the Tenant, its agent,
employees, contractors or invitees.
-1-
<PAGE>
Term For a term of two (2) years to commence on the later of January 9,
1989 or ninety (90) days after delivery of the "Shell Building"
(as hereinafter defined), provided the "Base Building" (as
hereinafter defined) is "substantially complete" (as hereinafter
defined) in accordance with Articles 2 and 4 and the Construction
Agreement annexed hereto as Exhibit A. However, if the "Base
Building" is not substantially complete by January 9, 1989, then
the term shall commence forty-five (45) days after delivery of the
"Base Building" in a "substantially complete" condition. If the
term commences on a date other than the first day of a month, it
shall expire at the end of the day twenty-four (24) months from
the last day of the month in which it commenced. If the term
commences on the first day of a month, it shall expire at the end
of the day twenty-four (24) months from the last day of the
preceding month.
THIS LEASE is made upon the following terms and conditions, which
the Landlord and the Tenant covenant and agree to keep and
perform:
Rent 1. (a) The Tenant shall pay the annual rent of NINE HUNDRED
NINETY EIGHT THOUSAND NINE HUNDRED AND EIGHTY-FIVE ($998,985.00)
DOLLARS AND NO CENTS, in equal monthly installments in advance of
EIGHTY-THREE THOUSAND TWO HUNDRED AND FORTY-EIGHT DOLLARS
($83,248.75) AND SEVENTY-FIVE CENTS on the first day of each
calendar month during the term (calculated at $16.35 per square
foot per year). Rent for any period of less than one month shall
be apportioned based on the number of days in that month.
(b) If the Tenant shall fail to pay any installment or
payment of rent within five (5) days of when due, Tenant shall be
required to pay a late charge of $.05 for each $1.00 which remains
so unpaid.
(c) The Tenant will pay the rent to Crow-Kelly # 1, c/o
Trammell Crow Company, 6931 North Park Drive, 530 Cooper Center
West, Pensauken, NJ 08109 or to such other person or at such other
places as the Landlord may designate in writing.
Renewal 2. The Tenant shall have the right to renew this Lease for
Terms two (2) additional terms of five (5) years each. Each Renewal Term
shall be exercised by Tenant delivering, in person or by certified
mail, return receipt requested, a written Notice (pursuant to
paragraph 19 hereof) to Landlord at least six (6) calendar months
prior to the expiration of the initial term (in the case of the
exercise of the first renewal) or at least six (6) calendar months
prior to the expiration of the first renewal term (in the case of
the exercise of the second renewal).
Rent for 3. (a) During the first renewal term, Tenant shall pay the
Renewal annual rent of $519,350.00, in equal monthly installments in
Term advance of $43,279.17, payable on the first day of each calendar
month during the first renewal term, (calculated at $8.50 per
square foot per year of 61,100 agreed rentable square feet).
(b) During the second renewal term, Tenant shall pay the
annual rent of $647,660.00, in equal monthly installments in
advance of $53,971.67, payable on the first day of each calendar
month during the second renewal term, (calculated at $10.60 per
square foot per year for 61,100 agreed rentable square feet).
Preparation 4. (a) Prior to the commencement of the term, the Landlord,
for at its own cost and expense shall construct the "Base Building"
Occupancy in accordance the Construction Agreement annexed as Exhibit A
-2-
<PAGE>
(herein called "Landlord's Work"). All work to be done by the
Landlord shall be completed in strict accordance with the plans
and specifications and the shop drawings in a good workmanlike
manner and in compliance with federal, state and local law and
shall be certified by the architects for both parties.
(b) The term "Base Building" shall be deemed to mean the
building structure, the roof, foundation, footings, all
parking, landscaping and site work (including site drainage),
plumbing, HVAC and electrical systems as per plans and
specifications annexed hereto as Exibit B. The term "Shell
Building" shall be deemed to mean the slab, roof, complete
weathertight enclosure (glass or plastic), reasonable amount of
temporary power for construction tools and lights and access by
Tenant's contractors. The term "Tenant Work" shall be deemed to
mean all work to be done on the premises by Tenant, at Tenant's
cost and expense, excluding construction of the "Base Building"
which shall be Landlord's Work. The term "substantially
complete" for the commencement of the lease term only shall be
deemed to mean final construction and installation of all
landlord items required by the Construction Agreement and the
attached Plans and Specifications except for punch list items
and unfinished landscaping and/or final course on the parking
lot by reason of weather or other seasonal delays.
(c) The parties shall fully cooperate with each other in
order to meet the construction schedule specified in the
Construction Agreement annexed hereto. Delays in the completion
of Tenant fit-up work caused by the actions or omissions of the
Tenant shall not affect the commencement date, subject however,
to Article 21 hereof. Delays in the delivery of the "Shell
Building" to the Tenant by October 9, 1989 ready for Tenant
Work, shall result in one day deferral of the commencement date
of the term for each one day of delay. Delays to the
construction of the "Base Building" and its delivery to the
Tenant by January 9, 1989 (except for landscaping or the final
course of the parking lot which may be delayed by reason of
weather or seasonal considerations) caused by acts or omissions
of the Landlord shall result in one-day deferral of the
termination date of the term for every one day of delay, and,
in addition, and in either of the aforesaid events, Tenant
shall also receive a rent credit of $1,377.68 for each day of
delay, to be applied to the next successive rent payments due
from Tenant. It is agreed that Landlord's failure to provide
reasonable access, suitable parking, power, light, and storage
and cooperation with Tenant's contractors which result in
delays to the construction schedules, shall be considered
Landlord's delay days. Conversely, if Tenant or Tenant's
contractors fail to cooperate with Landlord's contractor, any
resulting delay shall be considered Tenant delays and shall not
affect the commencement date nor result in any rent credit to
Tenant.
(d) Subject to the provisions of Article 21, if the
Landlord is prevented from complying with its obligations under
this Article 4 because of delays caused by strikes, riots,
fire, Acts of God, governmental intervention, acts or omissions
of the Tenant, or the like which are not within the reasonable
control of the Landlord (hereinafter referred to in this Lease
as an "excusable delay") the Schedule set forth in the
Construction Agreement annexed as Exhibit A if adversely
affected by an excusable delay, shall be extended by one day
for each day of an excusable delay. Whenever the Landlord is of
the opinion that there has been an excusable delay it shall,
within five (5) days thereafter, notify the Tenant thereof or
be deemed to have waived all claims arising out of a delay in
completing the work in accordance with the provisions of this
Article.
-3-
<PAGE>
(e) Subject to the provisions of Article 21, and
notwithstanding the foregoing subparagraphs of this Article 4 or
Article 17 to the contrary, if for any reason other than delays
which are caused by the Tenant and which adversely affect the said
Schedule, the Landlord's Work has not been completed, and Landlord
has not delivered actual possession of the "Base Building" in a
"substantially complete" condition to the Tenant on or before
January 23, 1989, the Tenant may, upon Notice delivered to the
Landlord not later than twenty (20) days thereafter, terminate
this Lease, or upon Tenant's failure to give such Notice, Tenant's
right to terminate hereunder shall be deemed waived. In the event
that the parties are unable to agree on whether the premises is
substantially complete, then such determination shall be made upon
the mutual agreement and certifications of the parties'
architects, however, if the architects are unable to mutually
agree on and certify "substantial completion", then they shall
choose a third architect and the decision of a majority of the
architects as to "substantial completion" shall be binding upon
the parties.
(f) Upon termination of this Lease pursuant to this
Article, the Landlord shall have no further liability to the
Tenant for any reason whatsoever and the Tenant shall not be
liable for any costs or expenses incurred by the Landlord, or
profit, in connection with performing the work, making repairs or
otherwise in anticipation of this Lease, and this Lease shall come
to an end with like force and effect as if it had not been
executed however, the Tenant shall be liable for any hazardous
condition caused by Tenant in violation of the use clause of this
Lease.
Landlord's 5. The Landlord covenants as a condition of this Lease that
Title and it has good marketable fee title to the premises and the right
Allowable to make this Lease for the term aforesaid; that the provisions of
Use this Lease do not conflict with or violate the provisions of
existing agreements between the Landlord and third parties; that
on the date of execution of this Lease, the premises and uses
thereof for the purposes specified in this Lease will be in
conformity with all applicable legal requirements including,
without limitation, zoning and planning ordinances, and do not
violate applicable restrictions, if any; and that it will deliver
actual possession of the premises to the Tenant free of all
tenants and occupants. Each parties' "Work" under this Lease and
the annexed Construction Agreement shall conform with all
applicable legal requirements including, without limitation,
building and fire codes, and zoning and planning ordinances, and
other local laws, ordinances and rules.
Maintenance 6. (a) During the term of this Lease, the Tenant shall take
good care of the premises and the Landlord's fixtures and
appurtenances therein and thereon and shall perform all
maintenance and make all repairs (but not replacements) to the
premises not specifically imposed upon the Landlord by the
provisions hereof or due to the Landlord's willful act or
negligence including maintenance and repair to (1) the building
systems located within the building, and boilers; (2) broken or
damaged glass, (unless caused by the negligence or willful act of
the Landlord or its agents, employees, contractors or invitees);
(3) damage by vandals; (4) the interior walls, ceilings, floors
and floor coverings (including carpets and tiles) of the building;
and (5) the common areas located within the building, including
the common entrances, corridors, doors and windows, stairways and
lavatory facilities. All repairs made by the Tenant shall be equal
in quality and workmanship to the original work. The Landlord's
obligations under this Article shall consist of (1) maintaining
and making all
-4-
<PAGE>
repairs, replacements, improvements and alterations to the "Base
Building", (2) to the extent they are within the control of the
Landlord maintaining and making all repairs, replacements and
alterations to the transformers; substations; sewer, water and
sanitary systems; roads; driveways; walks; parking areas; exterior
lighting systems, loading docks, and the exterior and interior
structure of the building, including, without limitation, the
roof, exterior and bearing walls of the building and support
beams, foundation, columns and lateral support thereto; (3)
performing all repairs and restoration required by Article 11
"Casualty" and Article 13 "Condemnation", and making all
replacements to the building (and parking facility) systems. To
the extent that any portion of the "Base Building" or any of the
equipment or systems which are supplied by the Landlord shall be
covered by any warranties or guarantees, the Landlord shall
undertake to have said items repaired on Tenant's behalf.
Notwithstanding the foregoing, the Tenant shall be liable for
repairs or replacements caused by Tenant's misuse, negligence or
damage, other than those due to reasonable wear and tear.
(b) If by reason of emergency, repairs or replacements
become necessary which by the terms hereof are the responsibility
of the Landlord, the Tenant may make only such minimal repairs or
replacements which, in the opinion of the Tenant, are necessary
for the preservation of the premises, or of the safety or health
of the occupants therein or therein, or of the Tenant's property;
provided, however, that the Tenant shall first make a reasonable
effort to inform the Landlord before proceeding with such repairs,
and the Landlord shall have failed to effect such emergency
repairs within a reasonable time.
(c) If repairs, replacements or alterations are
performed by the Tenant under this Article for or on behalf of the
Landlord, the Landlord shall reimburse the Tenant within thirty
(30) days following receipt of an invoice and data supporting the
sum requested.
Services 7. The Landlord shall not be required to furnish any
services or utilities to the premises during the term of the
Lease, the Tenant hereby assuming full and sole responsibility for
the payment for such services and utilities; however, the Landlord
shall, or shall cause others to, construct and supply equipment
and exterior delivery system components (including but not limited
to pumps, pipes, transformers, conduits, cables, valves, switches,
and similar materials, etc.) as are necessary to cause the
premises and "Base Building" and "Shell Building" to be served
with basic gas, water and electric service.
Improvements 8. Tenant shall have the right, at its own expense, and
and without the Landlord's consent, to make such alterations,
Alterations additions, installations (of partitioning, trade fixtures,
machinery, equipment, furnishings, and the like) and changes
(hereinafter collectively called "Alterations") in and to the
interior of the Building and premises as it shall deem necessary
or convenient for its purposes, provided that said Alterations
shall not touch upon and impair the structural components of the
Building.
However, during the initial term of this Lease, Landlord's
consent shall be required for any Alterations to partition walls
and ceilings, which wall and ceiling Alterations shall exceed
$25,000.00 on a par project basis, such consent by the Landlord
not to be unreasonably withheld or delayed. Tenant shall give
Landlord five (5) days prior notice of any contemplated
Alterations to partition walls and ceilings costing in excess of
$25,000.00 and Landlord's failure to
-5-
<PAGE>
object to such Alterations within five (5) days after
notification shall be deemed to be Landlord's consent thereto.
Notwithstanding the foregoing, any Alterations to the roof,
slab, exterior walls, support columns or windows by Tenant, and
those Alterations which shall be deemed structural in nature,
shall require the prior written consent of the Landlord, which
shall not be unreasonably withheld. Any such contemplated
Alterations by Tenant shall be submitted to Landlord at least
ten (10) days before commencement of the work with sufficient
detail to adequately apprise Landlord of the specific work to be
performed, together with plans and specifications for the
proposed work. Landlord's failure to respond within said ten
(10) days shall be deemed to be Landlord's consent thereto.
All Alterations shall remain the property of Tenant, and in
case of damage or destruction thereto by fire or other causes
Tenant shall have the right to recover the value thereof as its
own loss from any insurance company with which it has insured
the same, or to claim any award in the event of condemnation,
notwithstanding that any of such Alterations might be considered
a part of the Premises. Any Alterations or substitutes thereof
with the exception of the uninterrupted power supply,
generators, computer flooring, ceilings, light fixtures or
cooling towers, may be removed by Tenant at any time during the
term of this Lease provided that any damage caused by such
removal shall be repaired by Tenant. In such an event, however,
Tenant shall not be required to remove pipes, wire and the like
from walls, ceilings and floors provided that Tenant properly
cuts, disconnects and caps such pipes and wires and seals them
off, if necessary, in a safe and lawful manner. Tenant agrees
that any and all such work shall be performed in a good and
workmanlike manner and in accordance with all applicable
ordinances, laws and regulations. Landlord agrees to execute
and deliver promptly after request of Tenant such instrument or
instruments embodying the approval of Landlord which may be
required by any public or quasi-public authority for the purpose
of obtaining any license or permit for the making of such
Alterations, Tenant agreeing to pay the cost of any such license
or permit. Tenant shall not allow any liens to be placed against
the Premises, or any part thereof, by reason of any such work
performed by Tenant, and Tenant shall indemnify Landlord
therefor in the event of any breach of this covenant.
Removal of 9. At the expiration of the original term, of this Lease, the
Goods and Tenant will remove its furniture, furnishings, equipment and
Tenant's computers. All of Tenant's work, including but not limited to,
Repairs generators, uninterrupted power supply system and raised
computer flooring, shall remain intact and shall become the
property of the Landlord. Tenant agrees to remove such
generators, uninterrupted power supply and raised computer
flooring as Landlord shall direct by written notice given to
Tenant no later than sixty (60) days prior to the expiration of
the term hereof. If Landlord elects to have the generators and
uninterrupted power supply and computer flooring removed by
Tenant, such removal must be accomplished by the end of the
Lease term at Tenant's sole cost and expense. In the event the
generators, uninterrupted power supply and raised computer
flooring which Landlord has notified the Tenant to remove at the
end of the Lease have not been removed at the end of this Lease,
then the Landlord may, in addition to such other rights as it
may have under the law, remove such Alterations on behalf of the
Tenant and the cost and expenses for such Alterations removal
shall be billed to and paid by the Tenant within ten (10) days
of receipt of Landlord's invoice. Tenant will (a) peacefully
yield up to the Landlord the premises broom clean and in good
order and condition, excepting ordinary wear
-6-
<PAGE>
and tear, and excepting damage, destruction or loss by fire or
other casualty or by any other cause of any kind or nature
provided the Tenant delivers to the Landlord all insurance
proceeds paid to the Tenant in connection therewith to the
extent of Landlord's interest in the premises and (b) repair all
damage to the premises and the fixtures, appurtenances and
equipment of the Landlord therein and thereon, caused by the
Tenant's removal of its furniture, fixtures, equipment,
machinery, and the like and the removal of any improvements or
alterations. Tenant's removal of its fixtures, equipment and
machinery shall not cause any hazardous condition, and upon
returning possession of the premises to Landlord, the premises
shall be free of any hazardous condition.
Inspection 10. Subject to any security and confidentiality policies of
the Tenant, Landlord and Landlord's agents and representatives
shall have the right to enter and inspect the Premises at
mutually agreeable reasonable times during business hours, for
the purpose of ascertaining the condition of the Premises.
Subject to such security and confidentiality policies, during
the period that is six (6) months prior to the end of the term
hereof, Landlord and Landlord's agents and represenatives shall
have the right to enter the Premises at mutually agreeable
reasonable times during business hours for the purpose of
showing the Premises and shall have the right to erect on the
Premises a suitable sign indicating the Premises are available.
The parties hereto mutually agree, at least thirty (30) days
prior to the normal expiration date hereof, to meet for a joint
inspection of the Premises. Landlord shall always have the right
of inspection, as manager, with notification of emergency.
Casualty 11. (a) In the event any portion of the premises is damaged
by fire or other casualty insured under Article 12(a), and the
premises can, in the opinion of the Landlord's architect, be
repaired within one hundred eighty (180) consecutive days from
the date of damage, the Landlord shall proceed immediately to
make such repairs as required by paragraph (c). This Lease shall
not terminate, but the Tenant shall be entitled to a
proportionate abatement of rent and additional rent payable
during the period commencing on the date of the damage and
ending on the date the premises are repaired as aforesaid and
delivered to the Tenant. For purposes of this paragraph (a) and
paragraph (c), rental abatement shall be based upon the portions
of the premises rendered untenantable, unfit or inaccessible for
use by the Tenant during such period. Notwithstanding the
foregoing, the Tenant shall provide rent interruption insurance
for the Landlord's benefit, at Tenant's cost.
(b) If (i) in the opinion of the Landlord's architect,
such damage to the premises cannot be repaired within one
hundred eighty (180) days from the date of the damage; or (ii)
the Landlord commences to repair but fails to complete such
repairs as required by paragraph (c) within the one hundred
eighty (180) day period, as said period may be extended for an
excusable delay (as such term is defined in Article 4), either
party may terminate this Lease by Notice to the other within
twenty (20) days from the date on which the architect's opinion
is delivered to the Tenant when termination is based on the
architect's opinion, and otherwise by such notice within twenty
(20) days from the end of one hundred eighty (180) day period,
as it may have been extended by an excusable delay. This Lease
shall terminate on the thirtieth (30th) day after such notice is
given, unless the damage repair is completed within ten (10)
days after giving of such notice or unless such loss or damage
was caused by Tenant's willful misconduct, or that of its
employees. If Tenant shall terminate this Lease pursuant to this
Article 11, then such termination shall be Tenant's sole remedy.
-7-
<PAGE>
(c) In the event neither party exercises its option to
terminate hereunder the Landlord shall, with due diligence, to
the extent that the insurance proceeds shall be sufficient for
the purpose, reconstruct the "Base Building" to substantially
the same condition as existed immediately prior to the date of
damage, and the Tenant shall reconstruct the Tenant Work to
substantially the same condition as existed immediately prior
to the date of damage. The Tenant shall be entitled to a
proportionate abatement of rent and additional rent in the
manner and to the extent provided in paragraph (a). When
required by this Article, the architect's opinion shall be
delivered to Tenant within thirty (30) days from the date of
damage.
(d) Notwithstanding paragraphs (a) and (c) of this Article
or Article 17 to the contrary, if, by operation of this Article
the Landlord undertakes but fails to repair and restore the
premises as required by the provisions of this Article and to
deliver the repaired and restored areas of the building and
improvements to the Tenant within two hundred twenty (220)
consecutive days from the date of the damage, for any reason
other than a delay caused by an act or omission of the Tenant,
subject to force majeure or other excusable delay, in which
event this period may be extended for up to sixty (60)
additional days, either party may terminate this Lease by
notice to the other within two hundred thirty (230) consecutive
days from the date of damage. In the event of termination under
this Article, this Lease and the term hereof shall terminate on
the date specified in the notice and rent and additional rent
shall be apportioned as of the effective date of termination of
this Lease.
(e) In the event that during the last twelve (12) months
of either the first or second renewal term, a casualty occurs
which shall require more than 120 days to restore the premises,
as determined by the Landlord's architect in a similar method
as under this Article, if the Tenant has not notified the
Landlord of Tenant's election to renew under the terms of
Article 2, the Tenant shall have the right to terminate this lease by
written notice delivered to Landlord within ten (10) days of Tenant's
receipt of Landlord's architect's written report, such notice to be
effective thirty (30) days after Landlord's receipt thereof. Failure
to deliver such written termination notice shall constitute a waiver
by Tenant of its right to terminate hereunder. However, if the Tenant
had notified Landlord of the Tenant's election to renew the term,
then the provisions set forth in subparagraphs (a) through (d) of
this Article 11 shall apply to the Tenant's right to terminate this
lease. Landlord hereby agrees to procure on behalf of Tenant such
rental insurance policy as to insure the payment of rent during the
unexpired balance of the term after Tenant has rightfully terminated
under this subparagraph (e) of Article 11, the cost of which is
included in the base rent.
Hazard 12. (a) The Tenant shall, from and after the term commencement
Insurance date, maintain insurance covering the building including all
interior improvements thereto and the parking area, if any, and other
improvements comprising the premises against loss, damage or
destruction caused by boiler explosion, fire and the perils specified
in the standard extended coverage endorsement, and by vandalism and
malicious mischief. Coverage shall equal at least one hundred (100%)
percent of replacement costs or actual cash value, exclusive of
architectural and engineering fees, excavation, footings and
foundations. The Landlord shall be named as an insured in the
Tenant's policy. Provided the Tenant has been notified in writing as
to the names and addresses of the Landlord's mortgagees, such policy
shall also contain the standard mortgage clause naming the mortgagees
as their respective interest may appear; however,
-8-
<PAGE>
this requirement shall not restrict or limit the right of the Tenant
to obtain and hold the insurance proceeds as provided for in Article
11. Tenant shall use its best efforts to deliver a certificate of such
policy to Landlord at least thirty (30) days before commencement of
the Tenant Work and at least thirty (30) days before the expiration of
any existing policy, but in no event later than ten (10) days prior
thereto.
(b) The Landlord and the Tenant each hereby waives its right
of recovery against the other and each releases the other from any
claim arising out of loss, damage or destruction to the building and
improvements on the premises, or contents thereon or therein, to the
extent its respective property is covered by a policy of insurance
whether or not such loss, damage or destruction may be attributable to
the negligence of either party or its respective agent, visitor,
contractor, servant or employee. Each policy shall include a waiver of
the insurer's right of subrogation against the party hereto who is not
an insured under said policy, provided such mutual waiver shall not
negatively impact the insurance coverage to be provided hereunder.
(c) The Landlord hereby covenants that in the event of any
loss, damage or destruction to the premises and the Landlord is
required by the operation of Article 11 to repair and restore, the
proceeds which are payable under policies of insurance carried by the
Tenant shall first be applied to repair and reconstruct the premises
to the extent required by this Lease and by any mortgage encumbering
the property.
Condemnation 13. (a) If the whole or any substantial part of the Premises
should be taken for any public or quasi-public use under governmental
law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof and the taking would prevent or
materially interfere with the use of the Premises for the purpose for
which they are being used, this Lease shall terminate and the rent
shall cease during the unexpired portion of this Lease, effective when
the physical taking of said Premises shall occur.
(b) If part of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof,
and this Lease is not terminated as provided in the subparagraph
above, this Lease shall not terminate but the rent payable hereunder
during the unexpired portion of this Lease shall be reduced to such
extent as may be fair and reasonable under all of the circumstances,
providing the property remains functionally usable by Tenant.
(c) In the event of any such taking or private purchase in
lieu thereof, Landlord and Tenant shall each be entitled to receive
and retain such separate awards and/or portion of lump sum awards as
may be allocated to their respective interests in any condemnation
proceeding.
Taxes 14. (a) The Tenant shall reimburse the Landlord for all taxes,
water and sewer charges, special or other assessments and other
governmental charges as are finally determined to be legally payable
by legal proceedings or otherwise (hereinafter called "real estate
taxes") levied or assessed upon the premises provided the same are due
and payable during the term and the Landlord has submitted to the
Tenant the applicable receipted tax bill or copy thereof. In no event
shall the Tenant be obligated to pay any interest or penalties imposed
for late payment or otherwise unless the Tenant fails to reimburse the
Landlord in a timely manner, and in default thereof, Tenant shall be
liable for interest on any unpaid sum at the prime rate charged by
Landlord's mortgage lender, plus five (5%) percent. If allowed by law,
the Landlord shall pay
-9-
<PAGE>
for real estate taxes in installments. Any real estate taxes
shall be apportioned so that the Tenant shall pay only that
portion of real estate taxes or installments thereof as falls
within the term. The Tenant shall not be obligated to pay any,
income tax, tax on rent or rentals, excess profits or revenue
tax, excise tax or other similar tax or charge or inheritance,
franchise, capital levy transfer, estate, succession or other
similar tax or charge that may be payable by or chargeable to
the Landlord under the present or future law of the United
States or the State in which these premises are located or
imposed by any political or taxing subdivision thereof.
(b) The Tenant shall have the right, by appropriate
proceedings, to protest or contest any assessment or
reassessment for real estate taxes, or any special assessment,
or the validity of either, or of any change in assessments
or the tax rate.
(c) In any such contest or proceedings the Tenant may
act in its own name and/or the name of the Landlord and the
Landlord will, at the Tenant's request, cooperate with the
Tenant in any way the Tenant may reasonably request in
connection with such contest or proceedings. The Landlord shall
sign such consents or other documents as the Tenant may request.
Any contest or proceedings conducted by the Tenant shall be at
the Tenant's expense and, in the event any penalties, interests
or late charges become payable with respect to the real estate
taxes as the result of such contest, the Tenant shall be solely
responsible for any penalties, interest or late charges imposed
on the Landlord through no fault of the Tenant. Nothing herein
shall be construed to permit the Tenant to withhold payment of
taxes during the pendency of any contest or proceeding, unless
the Landlord shall expressly consent thereto.
(d) The Tenant shall be entitled to receive any tax
refunds properly allocable to the term of this Lease,as it may
be extended, and relating to taxes paid by Tenant, as a result
of any such contests or proceedings.
Signs 15. The Tenant shall have the exclusive right to place its
signs in, on and about the building and land comprising the
premises, provided the same are in compliance with law, are
purchased and installed at the sole cost and expense of the
Tenant and are removed from the premises at the expiration or
earlier termination of the term hereof. The Tenant shall be
responsible for all required applications, fees and permits.
Notwithstanding the foregoing, the Landlord shall have the right
to place temporary or construction sign on the premises prior to
commencement of the Tenant's occupancy.
Compliance 16. (a) During the term the Tenant shall, at its sole cost
with Law and expense, promptly comply with all laws, ordinances, orders
rules, regulations and requirements, including but not limited
to noise abatement and sound criteria of all federal, state and
municipal governments and governmental agencies, which are
applicable to the premises or to the use, manner of use or
occupancy thereof and maintain the premises in compliance with
the requirements of the insurance companies from which the
Tenant purchases the coverages required by this Lease; provided,
however, that the Landlord shall, at its sole cost and expense,
comply with all laws, ordinances, orders, rules, regulations and
requirements and insurance requirements which are applicable to
those repairs, replacements or alterations or other obligations
to be performed by the Landlord under the provisions of this
Lease.
(b) After prior notice to the Landlord, the Tenant shall
have the right to contest by appropriate legal proceedings (in
the name of the Tenant or the Landlord or both) at the Tenant's
-10-
<PAGE>
sole cost and expenses and with counsel of the Tenant's choosing,
the validity of any law, ordinance, order, rule, regulation or
requirement with which, by the provisions of this Lease, it is
obligated to comply. If by the terms of any such law, ordinance,
order, rule, regulation or requirement, compliance therewith may
be legally held in abeyance without incurring any lien or charge
of record against the premises, and without subjecting the
Landlord to any fines, penalties or any other liability for
failure to comply therewith, the Tenant may postpone compliance
until the final determination of any such proceedings, provided
that all proceedings shall be prosecuted with due diligence.
Default 17. (a) The following events shall be deemed to be events
of default by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of the
rent herein reserved when due, or any payment with respect to
taxes hereunder when due, or any other payment or reimbursement to
Landlord required herein when due, and such failure shall continue
for a period of fifteen (15) days following written Notice from
the Landlord to the Tenant.
(ii) Tenant shall become insolvent, or shall make a
transfer in fraud of creditors, or shall make an assignment for
the benefit of creditors.
(iii) Tenant shall file a petition under any section or
chapter of the Bankruptcy Code, as amended, or under any similar
law or statute of the United States of any State thereof; or
Tenant shall have filed against it a bankruptcy or insolvency
proceeding and such proceeding is not discharged within sixty (60)
days thereafter.
(iv) A receiver or trustee shall be appointed for all
or substantially all of the assets of Tenant, and such party is
not discharged within sixty (60) days after appointment.
(v) Tenant shall desert the Premises, provided,
however, the Premises shall not be deemed deserted so long as
Tenant pays all charges due hereunder and complies with all of the
terms hereof, even though it has physically removed itself from
the Premises.
(vi) Tenant shall fail to comply with any term,
provision or covenant of this Lease (other than the foregoing in
this Paragraph 17), and shall not cure or commence to cure such
failure within thirty (30) days after written notice thereof to
Tenant, provided that such default shall in all events either be
cured in full within sixty (60) days of written notice of such
default except that if such default cannot with due diligence and
in good faith be cured within such sixty (60) day period, then no
default shall occur provided Tenant is proceeding with due
diligence and in good faith to cure such default.
(vii) Tenant shall fail to discharge or adequately bond
any lien placed upon the Premises in violation of Paragraph 26
hereof within thirty (30) days after such lien or encumbrance is
filed against the Premises.
(b) If the Landlord defaults in the performance or observance of
any provision of this Lease, the Tenant shall give Landlord notice
specifying in what manner the Landlord has defaulted and if such
default shall not be cured by the Landlord within the period of
time provided for elsewhere in this Lease, and otherwise within
thirty (30) days after the delivery of such notice (except that if
such default cannot be cured within said thirty (30) day period,
this period shall be extended for a
-11-
<PAGE>
floods, and restraints of the governments and people,
governmental prohibitions or regulations, civil disturbances
and explosions, and any other like cause beyond the reasonable
control of the party affected; however, the suspension of the
parties obligations hereunder shall not continue for a period
in excess of six (6) months by virtue of the operation of this
Article.
Quiet 22. The Tenant, on paying the rent and fully and
Enjoyment completely performing each of the covenants of this Lease on
its part to be performed, may peaceably and quietly have, hold
and enjoy the premises for the term of this Lease.
Subordination 23. This Lease shall be subordinate and subject to all
and Non- ground or underlying leases and mortgages thereon and to any
Disturbance mortgages covering the fee of the premises, that now and may
hereafter affect the premises, and to all renewals,
modifications or replacements thereof; provided, however that
with respect to any existing ground lease, underlying lease
and/or mortgage, within thirty (30) days after the date the
Landlord and the Tenant execute this Lease, and with respect
to any future ground lease, underlying lease and/or mortgage,
on or before the effective date thereof, the Landlord shall
obtain from its ground Landlord, underlying Landlord and/or
mortgagee a written agreement with the Tenant which shall be
in full force and effect and which shall provide that (a) the
Tenant shall not be joined as a defendant in any proceeding
which may be instituted to terminate or enforce the ground or
underlying lease or to foreclose or enforce the mortgage;
(b) the Tenant's possession and use of the premises in
accordance with the provisions of the Lease shall not be
affected or disturbed by reason of the subordination to or any
modification of or default under the ground or underlying
lease or mortgage; and (c) the ground and underlying Landlord
and mortgagee will receive and subject their respective
rights, if any, to any portion of the insurance proceeds
otherwise payable to the Landlord when and to the extent
necessary for the Landlord to comply with its obligations of
repair and restoration under Article 6.
If the ground or underlying Landlord and/or mortgagee or any
successor in interest shall succeed to the rights of the
Landlord under this Lease, whether through possession,
surrender, assignment, subletting, judicial or foreclosure
action, or delivery of a deed or otherwise, the Tenant will
attorn to and recognize such successor-landlord as the
Tenant's landlord and the successor landlord will accept such
attornment and recognize the Tenant's right of possession and
use of the premises in accordance with the provisions of this
Lease. This clause shall be self-operative and no further
instrument of attornment and recognition shall be required.
Arbitration 24. Except as to the payment of rent, each and every
dispute of whatsoever nature which may arise in connection
with this Lease, the options granted under Rider #1 and Rider
#2 and the Construction Agreement, the interpretation thereof
and any and all claims in connection therewith, shall be
determined by arbitration in the City of White Plains, New
York, before and in accordance with the rules of the AMERICAN
ARBITRATION ASSOCIATION then in effect, and the arbitrator(s)
hearing such dispute shall have the right to assess the fees
therefor, including legal fees to the prevailing party, and
the arbitrator's decision shall be final and binding.
Parking 25. Landlord shall provide Tenant with exclusive use of
at least 180 reserved contiguous spaces at no cost to Tenant
in the lot surrounding the Building. In the event that less
than 170 above parking spaces shall become permanently
available to Tenant for any reason other than Landlord's
voluntary action,
-13-
<PAGE>
substitute parking necessary to restore the number of spaces
to 170 shall be immediately provided at a contiguous location
or within 50 yards of any portion of the property line of the
premises, which substitute parking must be and remain
reasonably accessible to the Building, or Tenant may terminate
the Lease upon 180 days prior written notice to Landlord
delivered in the manner provided elsewhere herein, in which
event the Lease shall terminate on the 180th day after
Landlord's actual receipt of such written termination notice
and Landlord's continuing failure within such time period to
provide substitute parking necessary to restore Tenant's
reserved spaces to 170.
Mechanics' 26. The Tenant shall discharge by payment, bond or
Liens otherwise, within thirty (30) days, any mechanics' liens filed
against the premises during the term for work, labor, services
or materials claimed to have been performed at or furnished to
the premises for or on behalf of the Tenant, and the Tenant
shall hold harmless the Landlord from any such lien except
when the mechanics' liens are filed by a contractor
subcontractor materialman, or laborer of the Landlord, in
which event the Landlord shall discharge the liens by payment,
bond or otherwise.
Indemnity 27. (a) The Tenant shall defend the Landlord and hold the
Liability Landlord harmless from and against all claims, actions,
Insurance losses, damages, and expenses (including reasonable attorneys'
fees, court costs and disbursements) incurred by the Landord
in connection with the bodily injury, personal injury or
damage to property caused during the term of this Lease, in
whole or part, by the act or omission of the Tenant, its
agents, employees, licensees, invitees or contractors, arising
(i) from any occurrence in or on the premises, or (ii) from
the use by the Tenant of any part of the Premises or
(iii) from any work undertaken by the Tenant on the premises;
provided that the provisions of this Article and the indemnity
hereunder shall not be applicable when such claims, action,
losses, damages, or expenses are caused wholly or in part by
the act or omission of the Landord, its agents, employees,
contractors, licensees or invitees. The Tenant shall have the
right to defend, at its own expense and by counsel of its own
choosing, and shall defend, against any claim to which the
aforesaid indemnity agreement would apply, and the Landlord's
right to defend or settle any such claim shall be limited to
those cases where the Tenant has failed or refused to defend,
after ten (10) days written Notice and Tenant's failure to
respond within said ten (10) days. The Tenant shall apprise
the Landlord of all proceedings. The liability of the Tenant
to indemnify the Landlord, as hereinabove set forth, shall not
extend to any matter against which the Landlord shall be
effectively protected by insurance provided, however, that if
any such liability shall exceed the amount of the insurance in
question, the provisions of this Article shall apply to such
excess.
(b) The Tenant shall provide and keep in force
during the term comprehensive public liability insurance
covering liability arising out of the operation and control of
the premises in limits of not less than $1,000,000.00 combined
bodily injury and property damage. The Landlord shall be named
an additional insured. Tenant shall use its best efforts to
deliver certificates of any such policy to the Landlord at
least thirty (30) days before the commencement of Tenant Work
and at least thirty (30) days before the expiration of any
existing policy.
Estoppel 28. The Tenant agrees, at any time and from time to time
Certificate during the term, upon not less than thirty (30) days' prior
notice from the Landlord, to execute, acknowledge and deliver
to the Landlord a statement in writing (i) certifying that
this
-14-
<PAGE>
Lease is unmodified and in full force and effect (or if there have
been modifications, that this Lease is in full force and effect as
modified and stating modifications); (ii) stating the dates to which
the rent and other charges hereunder have been paid by the Tenant;
(iii) stating whether or not the Tenant has knowledge that the
Landlord is in default in the performance of any covenant, agreement
or condition contained in this Lease, and, if the Tenant has
knowledge of such a default, specifying each such default and (iv)
stating the address to which notices to the Tenant shall be sent.
Prior to the commencement of or during the term of this Lease the
Landlord shall, if requested by the Tenant, deliver an estoppel
certificate, in the substance and form described above, relative to
the status of this Lease and/or any ground lease, underlying lease
and/or first mortgage.
Counterparts 29. This Lease is executed in several counterparts, each of which
shall be deemed to be an original, and all counterparts shall
constitute one and the same instrument. This Lease shall not be
binding and in effect until at least one counterpart, duly executed
by the Landlord and Tenant, has been delivered to each party hereto.
Riders and 30. Exhibits A, B and C and Riders # 1 and # 2 are attached
Other hereto and made a part hereof.
Attachments
Miscellaneous 31. (1) This Lease shall be strictly construed against the
Landlord and the Tenant. (2) No remedy or election given by any
provisions in this Lease shall be deemed exclusive unless so
indicated, but each shall, wherever possible, be cumulative in
addition to all other remedies of law or equity which either party
may have arising out of the default of the other party and failure to
sure such default within the applicable grace period. (3) Failure of
either party to cure a default of the other under this Lease shall
not render such non-defaulting party in any way liable therefore, or
relieve the defaulting party from any of its obligations hereunder.
(4) The acceptance of possession of the premises by the Tenant shall
not be deemed a waiver of any of the obligations under this Lease to
be performed by the Landlord. (5) If there is a conflict between the
provisions of this Lease and the provisions of existing or future
rules and regulations promulgated for the building, the provisions of
the Lease (other than any rules and regulations which are attached
hereto) shall prevail and be binding on the parties. (6) The Landlord
hereby covenants that the Tenant may deal with any person, firm or
corporation for services, supplies, materials, labor, equipment,
transportation, tools, machinery and any other similar or dissimilar
services or items in connection with the use and occupation of the
premises and work performed thereon or therein, provided that such
dealings by Tenant do not cause any labor stoppage or strike.
Binding 32. This Lease shall bind and inure to the benefit of the parties
Effect hereto and their respective executors, distributees, heirs,
representatives, successors and assigns.
Entire 33. This Lease contains the entire agreement of the parties and
Agreement shall not be modified except by an instrument in writing which is
signed by both parties.
-15-
<PAGE>
IN WITNESS WHEREOF, this Lease has been duly executed by the parties hereto
as of the day and year first above written.
WITNESS: CROW-KELLY # 1
[ILLEGIBLE SIGNATURE] BY: [ILLEGIBLE SIGNATURE]
- -------------------------- --------------------------
TITLE Partner
--------------------------
WITNESS: PRODIGY SERVICES COMPANY
[ILLEGIBLE SIGNATURE] BY: [ILLEGIBLE SIGNATURE]
- -------------------------- --------------------------
TITLE President
--------------------------
[APPROVAL SEAL APPEARS HERE]
-16-
<PAGE>
R I D E R # 1
Attached To and Made Part Of
Lease Dated June ____,1998
Made Between
CROW KELLY # 1
and
PRODIGY SERVICES COMPANY
********************************************************************************
Option # 1:
- ----------
Landlord currently owns the adjacent property ("Option Parcel 1"),
presently occupied by United Parcel Service, as Tenant, and comprised of land
and a building consisting of 25,000 rentable square feet. Landlord represents
that Option Parcel # 1, and the entire 25,000 square foot building can be used
for general office purposes under present zoning in a like manner as the
Building which is the subject of this Lease Agreement. Landlord does hereby
grant Tenant the option to lease said space upon expiration of the UPS lease and
upon UPS vacating the premises, subject to the following:
Tenant's exercise of Option # 1 must be made by Tenant delivering, in
person or by certified mail, return receipt requested, a written notice
("Notice") to Landlord at any time prior to but in no event later than December
31, 1990. Regardless of the date of such notice, possession of Option Parcel 1
may be delayed until May 1, 1980, which is the latest possible date for
surrender of premises by UPS per its Lease Agreement with Landlord.
This option shall be available to Tenant at no cost until the later of,
(1) June 1, 1989 or, (2) the date that the UPS lease terminates and the premises
is surrendered to Landlord. Thereafter for a period of three (3) months from the
later of the aforesaid events, Tenant's cost to carry the option to lease Option
Parcel 1 at a direct pass-through cost consisting of Landlord's operating
expenses, taxes and insurance, such pass-through cost to Tenant being estimated
at $.28 per square foot, per month.
After expiration of the aforesaid three (3) month period, the cost to
Tenant to carry this option shall thereafter be calculated as follows:
$1,400,000 X (Landlord's Mortgagee's Prime Rate + 1%) +
annual taxes + annual insurance + annual operating expenses
------------------------------------------------------------
12
This carry cost shall be paid to Landlord monthly, in advance, by
Tenant until the earlier of (1) December 31, 1990, or (2) the date that tenant
exercises Option # 1.
In the event Tenant properly exercises Option # 1, (a) the term shall
run concurrently with the renewal term then applicable to the Building, (b) the
Landlord shall rehabilitate and renovate the existing UPS building for use as a
"flex" building which may be upgradeable at Tenant's option and expense to
general office use, so that the renovated premises shall be of equal quality,
design and character as the Building which is the subject of this Lease, and (c)
the rent to be paid shall be a fair market rental ("Fair Market Rent") for a
building of comparable size, condition, location and quality of construction
generally pertaining in the real estate market in Yorktown Heights, New York,
and surrounding communities. Fair Market Rent shall be established by Landlord
and Tenant no later than sixty (60) days from the exercise of Option # 1, and if
Landlord and Tenant are unable to agree within such time, they shall each
select an experienced appraiser who shall jointly select a third appraiser. The
opinion of the majority of the appraisers as to Fair Market Rent shall be
rendered no later than ninety (90) days from Tenant's exercise of Option # 1 and
shall be binding on both Landlord and Tenant.
<PAGE>
R I D E R # 2
Attached To and Made Part Of
Lease Dated June ___, 1998
Made Between
CROW KELLY # 1
and
PRODIGY SERVICES COMPANY
********************************************************************************
Option # 2:
- ----------
Landlord has obtained an option agreement for the purchase of the land
("Option Parcel 2") on which a 40,000 square foot one (1) floor "flex" building
may be built in an area where present zoning permits office use. The cost of
this option, which presently runs until September 1, 1998, is $10,000.00, which
will be borne by the Tenant. Upon signing this Lease Agreement, the Tenant shall
reimburse the Landlord for this $10,000.00 option payment. A copy of the Option
Agreement is annexed hereto as Exhibit C. The Landlord also hereby grants the
Tenant the right, upon written notice to the Landlord, to require the Landlord
to obtain an extension of this option, on a month to month basis until June 1,
1990, for a consideration of 1,000.00 per month to be paid by the Tenant.
Upon written notice by Tenant prior to June 1, 1990, that the Tenant elects
to have the Landlord construct a flex building an Option Parcel No. 2, the
Landlord shall use its best efforts to obtain all necessary approvals and to
close title within six (6) months from the date of Tenant's notice. The Landlord
shall use its best efforts to construct the Building within twelve (12) months
of closing title to Option Parcel 2, at Landlord's sole expense. However, in the
event that the Landlord is unable to close title and to complete construction of
the building within fifteen (15) months of closing title to Option Parcel 2,
except for force majeure, then Tenant shall have the option to cancel the lease
agreement for the premises to be constructed on Option Parcel 2, and all monies
paid by Tenant to Landlord in connection with this Option # 2 shall be refunded
by Landlord to Tenant.
The lease agreement for Option Parcel No. 2 shall be executed prior to
Landlord's purchase of Option Parcel No. 2, shall be similar in form and content
to the lease agreement to be entered into hereunder, shall run for a term of at
least five (5) years, at a rental rate equal to ninety-five (95%) percent of
fair market rent for a "flex" building similar to the demised premises, as
determined in the manner under Option # 1, with a five (5) year option to renew.
If the Tenant requires an upgrade above a "flex" building, Tenant shall bear the
additional costs and expenses for such upgrade, to be repaid during the first
two (2) years of the Lease term in a manner similar to this Lease. If the Tenant
fails or refuses to execute such lease agreement after having elected to have
Landlord construct the building, then the Tenant agrees to reimburse the
Landlord for Landlord's costs incurred in obtaining any necessary municipal
approvals, excluding any costs incurred in connection with the acquisition or
sale of the land.
<PAGE>
EXHIBIT A
CONSTRUCTION AGREEMENT
Landlord agrees to accept full responsibility for the cost and construction
of the "Base Building", (as defined in the annexed Lease) pursuant to Plans and
Specifications attached hereto as Exhibit B, including all site work, utility
services provided to the premises, primary electric service from NYSEG of 2250
KVA capacity, the "Shell Building" (as defined in the annexed Lease) with a
clear height of 21'-0" inside, HVAC system and roof structure acceptable to
Tenant.
Landlord agrees to build the "Base Building" in strict accordance with the
mutually agreed upon Plans and Specifications attached hereto as Exhibit B, as
the same may be amended or modified upon mutual agreement of the parties
(provided that the amendments or modifications are within the original scope of
work) and also in strict accordance with the shop drawings to be hereinafter
prepared by Landlord's contractors and reviewed by Tenant, and which are to be
incorporated herein by reference. Landlord shall be solely responsible for
obtaining all necessary permits and approvals which may be required by any
governmental authority, the cost of which are to be borne by the Landlord.
Copies of all permits and approvals are to be furnished to Tenant immediately
upon receipt by Landlord.
Both Landlord and Tenant mutually agree upon the following construction
schedule:
Commencement of Construction
of "Base Building"-- May 18, 1988
Delivery of "Shell Building" for
commencement of Tenant Work October 9, 1988
Substantial completion of "Base Building" -- November 22, 1988
100% completion of "Base Building" and
commencement of payment of rent -- January 9, 1989
Landlord agrees that on October 9, 1988 the "Base Building" shall be at a
stage of completion such that Tenant Work may commence. Tenant has the exclusive
right to accomplish Tenant fit-up work using its own contractors and/or
subcontractors. Landlord and Tenant agree that on and after this date,
contractors and personnel representing both parties will use their best efforts
to cooperate and to work jointly to achieve the above construction schedule, and
to facilitate the completion of Tenant Work by the agreed upon commencement
date.
Delays to the completion of Tenant Work caused by the actions or omissions
of the Tenant shall not affect the commencement date, subject however, to the
force majeure provisions of the Lease Agreement. Delays in delivery of the
"Shell Building" to Tenant by October 9, 1988 ready for Tenant Work, shall
result in one day deferral of the commencement date of the term for each one day
of delay. Delays to the construction of the "Base Building" and its delivery to
Tenant by January 9, 1989 caused by acts or omissions of the Landlord shall
result in one-day deferral of the termination date of the term for every one day
of delay, and, in addition, and in either of the aforesaid events, Tenant shall
also receive a rent credit equal to one day's rent for each day of delay.
It is agreed that Landlord's failure to provide reasonable access,
reasonable temporary power, storage, parking, and cooperation with Tenant's
contractors which result in delays to the construction schedules, shall be
considered Landlord's delay days. Conversely, if Tenant or Tenant's contractors
fail to cooperate with Landlord's contractor, any resulting delay shall be
considered Tenant delays and shall not affect the commencement date nor result
in any rent credit to Tenant.
It is agreed that delays to final completion of the landscaping and parking
area which are caused by seasonal conditions, and which do not
<PAGE>
materially affect Tenant's use of the premises and the parking areas, shall not
be considered Landlord or Tenant delays. Landlord agrees, however, that the
parking area, roads and curbing, etc., in their entirety (exclusive of asphalt
top coat) will be complete upon the commencement date of the term of the Lease,
and that the asphalt top coat and landscaping will be completed no later than
May 15, 1989 in such manner so as to minimize interference with Tenant's use of
the premises.
Landlord hereby agrees to pay Tenant the following contributions, in cash:
1. $195,000, payable sixty (60) days after commencement of work on Tenant
improvements upon Landlord's receipt of invoices;
2. $25,000 - design fee payable after Landlord's receipt of invoices and
Landlord closing on construction financing, such sum to be paid out of
either of the first two (2) draws on the construction loan.
Landlord agrees that Tenant will employ Armand P. Avakian and Edward A.
Sears Associates as project architect and engineers to review and approve the
design and Plans and Specifications for the base building shell and standard
mechanical and electrical drawings which will be prepared by Landlord with
participation and input from Tenant.
Prior to awarding a construction contract, Landlord shall submit to
Tenant's architects and engineers, for review and approval, all final
construction contract documents. Furthermore, Landlord shall submit copies of
all shop drawings to Tenant's architects and engineers, for review and comments,
prior to the approval of Landlord's architects and engineers. Tenant will review
and comment on shop drawings within nine (9) days or Tenant will have waived its
right to comment on that shop drawing. The results of the review and comments by
Tenant's architects and engineers shall be incorporated on the shop drawings
prior to approval of the shop drawings by Landlord, and all incorporated
comments shall be consistent with the agreed scope and quality outlined in the
Plans and Specifications. Any changes to the Plans, Specifications and/or shop
drawings shall be approved by the Tenant, in the case of Plans and
Specifications, or reviewed by Tenant for comments, in the case of shop
drawings.
<PAGE>
EXHIBIT C
SCHEDULE A
----------
ALL that certain plot, piece or parcel of land situate, lying and being in
the Town of Yorktown, County of Westchester and State of New York, shown and
designated as lot Section 14.5 Parcel 1 Lot 10.7 on a certain map entitled
"Section 1 Subdivision Plat of Yorktown Heights Industrial Park, Front Street,
Yorktown Heights, New York, Westchester County" made by Donald J. Donnelly,
P.L.S., dated Nov. 27, 1979, and filed in the Westchester County Clerk's Office,
Division of Land Records, on January 21, 1980 as Map No. 20149.
<PAGE>
OPTION AGREEMENT
----------------
OPTION AGREEMENT made on April , 1988, between HARRY E.
SCHACHTER, residing at (No #) South Bedford Road, Mount Kisco, New York 10549
("Schachter") and CROW-KELLY #1, a partnership formed under the laws of the
State of New York having an office at 87 Bedford Road, Katonsh, New York 10536
("C-K1").
WHEREAS, Schachter desires to sell certain real property that he
owns, which is located in the Town of Yorktown, Westchester County, New York
("Property"); and
WHEREAS, C-K1 desires to have an option to purchase the Property
from Schachter;
In consideration of the sum of $10,000.00 paid by C-K1 to Schachter,
receipt of which is acknowledged, Schachter grants, bargains and sells to C-K1,
its heirs, executors, administrators, successors and assigns, the exclusive
option to purchase the real property ("Property"), which is more particularly
described in the Agreement of Purchase and Sale ("Agreement") which is annexed
to and made a part of this Option Agreement, upon the following terms and
conditions:
1. This option and all rights and privileges under this Option
Agreement shall expire on September 1, 1989, at 5:00 P.M.
2. This option is to be exercised by C-K1 by written notice,
subscribed by C-K1 and sent by registered or certified mail within the time set
in this Option Agreement for the exercise of this option to Albert A. Capellini,
Esq. at 1500 Front Street, Yorktown Heights, New York 10598, as attorney for
Schachter (copy of notice to Schachter at South Bedford Road, Mt. Kisco, NY
10549).
3. The total purchase price shall be the sum of $540,000.00 to be
paid by C-K1 if this option is exercised, as provided in the annexed Agreement.
The sum paid for this option shall immediately be the property of Schachter
and not be credited on account of the payment to be made on the closing of
title, as provided in the annexed Agreement.
4. If C-K1 does not exercise this option as provided in this Option
Agreement, the sum of $10,000.00 and any other payments made
<PAGE>
pursuant to an extension of the option shall not be refunded to C-K1 and shall
be retained by Schachter, free of all claims of C-K1, and neither party shall
have any further rights or claims against the other.
5. If this option is exercised, as provided in this Option
Agreement, Schachter and C-K1 will respectively, as Seller and Purchaser,
perform the obligations set forth in the annexed Agreement.
6. This option shall not be assignable by C-K1 without the express
written approval of Seller at Seller's sole discretion.
7. C-K1 may extend this option for an additional period on a month
to month basis which shall expire at 5:00 P.M. on January 1, 1991, ("Extended
Option Termination Date") provided that prior to September 1, 1989, at 5:00 P.M.
C-K1 shall have notified Schachter of its intention to extend this option by
written notice subscribed by C-K1 and sent by registered or certified mail
within the time set in this Option Agreement for the original option exercise to
Albert A. Capellini, Esq., 1500 Front Street, Yorktown Heights, New York 10598,
as attorney for Schachter. Such notice of intention to extend the option shall
be accompanied by a check made payable to the order of Schachter for $1,000.00
for the month of September, 1989, and thereafter on the first day of each month
the like sum of $1,000.00 shall be sent to Schachter until the expiration date
of the extension period set forth above or earlier if C-K1 chooses not to
utilize the entire extended period permitted herein.
8. None of the aforesaid monthly extension period payments of
$1,000.00 each shall be refundable to C-K1 in the event the option to purchase
the Property is not exercised by C-K1; nor shall any of the $1,000.00 monthly
payments for the extended option period be credited towards the purchase price
in the event the option to purchase is exercised.
9. Schachter hereby grants to C-K1 a license to enter upon the
Property with such equipment and personnel as may be required at such reasonable
time or times as may be required in order to make test borings and other
subsurface or other explorations and other investigations as may reasonably be
required in connection with the preparation of plans for construction and
development on the Property. C-K1 shall conduct
<PAGE>
all such work as expeditiously as possible, with as little disturbance to the
Property as possible, shall complete the same promptly and shall, upon
completion, restore the Property as nearly as practicable to the conditions
existing immediately prior to the performance of such work. C-K1 shall indemnify
Schachter against claims and liabilities, including without limitation,
mechanic's liens, arising out of such work. Such work shall comply with the
requirements of any governmental agency having jurisdiction thereover.
IN WITNESS WHEREOF, the parties have signed this Option Agreement on
the date and year first written above.
---------------------------------
HARRY B. SCHACHTER
CROW - KELLY #1
By:
---------------------------------
GENERAL PARTNER
<PAGE>
STATE OF NEW YORK
ss.:
COUNTY OF WESTCHESTER
On the day of , 19 , before me personally came HARRY B.
SCHACHTER to me known to be the individual described in and who executed the
foregoing instrument, and acknowledged that he executed the same.
-----------------------------------
Notary Public
STATE OF NEW YORK
ss.:
COUNTY OF WESTCHESTER
On the day of , 19 , before me personally came
to me known to be the individual described in and who
executed the foregoing instrument, and who, being duly sworn by me, did depose
and say that he is a General Partner of CROW-KELLY #1 , a
co-partnership, and that he executed the foregoing instrument in the name of
CROW-KELLY #1 , and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said co-
partnership for the uses and purposes therein mentioned.
-----------------------------------
NOTARY PUBLIC
<PAGE>
WARNING:
NO REPRESENTATION IS MADE THAT THIS FORM OF CONTRACT FOR THE SALE AND
PURCHASE OF REAL ESTATE COMPLIES WITH SECTION 5-702 OF THE GENERAL
OBLIGATIONS LAW ("PLAIN ENGLISH"), CONSULT YOUR LAWYER BEFORE SIGNING
IT.
NOTE: FIRE AND CASUALTY LOSSES:
This contract form does not provide for what happens in the event of
fire or casualty loss before the title closing. Unless different
provision is made in this contract, Section 5-1311 of the General
Obligations Law will apply. One part of that law makes a purchaser
responsible for fire and casualty loss upon taking of title to or
possession of the premises.
DATE: CONTRACT OF SALE made as of the day of , 19
PARTIES: BETWEEN HARRY E. SCHACHTER, residing at
Address: (No #) South Bedford Road, Mt. Kisco, New York 10549
hereinafter called "SELLER", who agrees to sell;
and CROW-KELLY #1, a New York partnership having an office
at
PREMISES: Address: 87 Bedford Road, Katnosh, New York 10536
hereinafter called "PURCHASER" who agrees to buy the property,
including all buildings and improvements thereon (the "PREMISES"),
more fully described on a separate page marked "Schedule A," and also
known as:
Street Address: Front Street
Tax Map Designation: Section 14.5 Parcel 1. Lot 10.7
Yorktown
Together with SELLER'S interest, if any, in streets and unpaid awards
as set forth in Paragraph 9.
THIS IS A SALE OF VACANT LAND ONLY
----------------------------------
Excluded from this sale are: Furniture and household furnishings.
PURCHASE 1. (a) The purchase price is $540,000.00
PRICE:
Payable as follows:
On the signing of this contract,
by check subject to collection: $ 54,000.00
By allowance for the principal
amount still unpaid on EXISTING MORTGAGE(S): $ -0-
By a Purchase Money Note and Mortgage from
PURCHASER (or assigns) to SELLER: $ -0-
BALANCE AT CLOSING: $486,000.00
<PAGE>
ACCEPTABLE 3. All money payable under this contract unless otherwise
FUNDS: specified, shall be either:
a. Cash, but not over one thousand ($1,000.00) Dollars,
b. Good certified check of PURCHASER, or official check of any
bank, savings bank, trust company, or savings loan association
having a banking office in the State of New York, payable to the
order of SELLER, or to the order PURCHASER and duly endorsed by
PURCHASER (if an individual) to the order of SELLER in the
presence of SELLER SELLER'S attorney.
c. Money other than the purchase price, payable to SELLER at
CLOSING, may be by check of PURCHASER up to amount of the tax
adjustments or
d. As otherwise agreed to in writing by SELLER or SELLER'S
attorney.
"SUBJECT TO" 4. The PREMISES are to be transferred subject to:
PROVISIONS:
a. Laws and governmental regulations that affect the use and
maintenance of the PREMISES, provided that they are not violated
by the buildings and improvements erected on the PREMISES.
b. Consents for the erection of any structures on, under or
above any streets on which the PREMISES abut.
c. Encroachments of stoops, areas, cellar steps, trim and
cornices, if any, upon any street or highway.
d. Any state of facts an accurate survey may show provided
same does not render title unmarketable.
e. Covenants, easements, restrictions and agreements of
record.
TITLE 5. SELLER shall give and PURCHASER shall accept such title as any
COMPANY reputable title company, a member of The New York Board of Title
APPROVAL: Underwriters will be willing to approve and insure in accordance
with their standard form of this policy, subject only to the
matters provided for in this contract.
CLOSING 6. "CLOSING" means the settlement of the obligations of SELLER
DEFINED and PURCHASER to each other under this contract including the
AND payment of the purchase price to SELLER, and the delivery to
FORM OF PURCHASER of a Bargain Sale with Covenants deed in proper
DEED: statutory form for recording so as to transfer full ownership (XX
XXXXX title) to the PREMISES, free of all encumbrances except as
herein stated. The deed will contain a covenant by SELLER as
required by Section 13 of the Lien Law.
If SELLER is a corporation, it will deliver to PURCHASER at the
time of CLOSING (a) a resolution of its Board of Directors
authorizing the sale and delivery of the deed, and (b) a
certificate by the Secretary or Assistant Secretary of the
corporation certifying such resolution and setting forth facts
showing that the transfer is in conformity with the requirements
of Section 909 of the Business Corporation Law. The deed in such
case shall contain a recital sufficient to establish compliance
with that section.
CLOSING 7. CLOSING will take place at the office of seller's attorney's
DATE AND office at 10:00 a.m. o'clock within 30 days of the complete
PLACE: signing of this Agreement.
BROKER: 8. PURCHASER hereby states that PURCHASER has not dealt with any
broker in connection with this sale other than
and SELLER agrees to pay the broker the commission earned thereby
(pursuant to separate agreement).
STREETS 9. It also includes any right of SELLER to any unpaid award by
AND reason of any taking by condemnation and/or for any damage to the
ASSIGN- PREMISES by reasons of change of grade of any street or highway.
MENT OF SELLER will deliver at no additional cost to PURCHASER, at
UNPAID CLOSING, or thereafter, on demand, any documents which PURCHASER
AWARDS: may require to collect the award and damages.
MORTGAGEE'S 10. SELLER agrees to deliver to PURCHASER at CLOSING a letter
CERTIFICATE dated not more than thirty (30) days before CLOSING signed by the
OR LETTER AS holder of each EXISTING MORTGAGE, certifying the amount of the
TO EXISTING unpaid principal and interest, date of maturity, and rate of
MORTGAGE(S): interest.
SELLER shall pay the fees for recording such certificate. If the
holder of a mortgage is a bank or other institution as defined in
Section 274-a; Real Property Law, it may, instead of the
certificate, furnish an unqualified letter dated not more than
thirty (30) days before CLOSING containing the same information.
SELLER hereby states that any EXISTING MORTGAGE will not be in
default at the time of CLOSING.
COMPLIANCE 11.a. SELLER will comply with all notes or notices of violations
WITH STATE of law or municipal ordinances, orders or requirements noted in
AND or issued by any governmental department having authority as to
MUNICIPAL lands, housing, buildings, fire, health and labor conditions
DEPARTMENT affecting the PREMISES at the date hereof. The PREMISES shall be
VIOLATIONS transferred free of them at CLOSING. SELLER shall furnish
AND ORDERS: PURCHASER with any authorization necessary to make the searches
that could disclose these matters.
INSTALLMENT 12. If at the time of CLOSING the PREMISES are affected by an
ASSESSMENT: assessment which is or may become payable in annual installments,
and the first installment is then a lien, or has been paid, then
for the purposes of this contract all the unpaid installments
shall not be considered due and payable
XXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
<PAGE>
APPORTION- 13. The following are to be apportioned as of midnight of the
MENTS: day before the day of CLOSING: (a) Taxes, water charges and
sewer rents, on that of the fiscal period for which assessed.
If CLOSING shall occur before a new tax rate is fixed, the
apportionment of taxes shall be upon the basis of the old rate
for the preceding period applied to the latest agreed valuation.
Any errors or omissions in computing apportionments at
CLOSING shall be corrected. This provision shall XXX CLOSING.
WATER 14. If there be a water meter on the PREMISES, SELLER shall
METER furnish a reading to a date not more than thirty days before
READINGS: CLOSING date and the unfixed meter charges and sewer rent, if
any, shall be apportioned on the basis of such last reading.
ALLOWANCE 15. SELLER has the option to credit PURCHASER as an adjustment of
FOR UNPAID the purchase price with the amount of any unpaid taxes,
TAXES, ETC: assessments, water charges and sewer rents, together with any
interest and penalties thereon to a date not less than business
days after CLOSING, provided that official bills therefor
computed to said date are produced at CLOSING.
USE OF 16. If there is anything else affecting the sale which SELLER is
PURCHASE obligated to pay and discharge at CLOSING, SELLER use any portion
PRICE TO PAY of the balance of the purchase price to discharge it. As an
ENCUM- alternative, SELLER may deposit money with title insurance
BRANCES: company employed by PURCHASE required by it to assure its
discharge, but only if the title insurance company will insure
PURCHASER'S title clear of the matter or insure against its
enforcement out of the PREMISES, A request made within a
reasonable time before CLOSING, PURCHASER agrees to provide
separate certified check requested to assist in clearing up
these matters.
AFFIDAVIT 17. If a title examination discloses judgments, bankruptcies or
AS TO other returns against persons having names the same or similar to
JUDGMENTS, that of SELLER, SELLER shall deliver a satisfactory detailed
BANKRUPT- affidavit at CLOSING showing that they are against SELLER.
CIES:
DEED 18. At CLOSING, SELLER shall deliver a check payable to the order
TRANSFER of the appropriate State, City or County officer in the amount of
AND any applicable transfer and/or recording tax payable by reason of
RECORDING the delivery or recording of deed, together with any required tax
TAXES: return. PURCHASER agrees to duly complete the tax return and to
cause the XXXXX and the tax return to be delivered to the
appropriate officer promptly after CLOSING.
PURCHASER'S 19. All money paid on account of this contract, and the
LIEN: reasonable expenses of examination of the title to the PREMISES
and of any survey and survey inspection charges are hereby made
liens on the PREMISES and collectable out of PREMISES. Such liens
shall not continue after default in performance of the contract
by PURCHASER.
SELLER'S 20. If SELLER is unable to transfer title to PURCHASER in
INABILITY accordance with this contract, SELLER'S sole liability should be
TO to refund all money paid on account of this contract, plus all
CONVEY AND charges made for: (i) examining the title, (ii) any appropriated
LIMITATION additional searches made in accordance with this contract, and
OF (iii) survey and survey inspection charges. Upon such references
LIABILITY: and payment this contract shall be considered cancelled, and
neither SELLER nor PURCHASER shall have any further rights
against the other.
CONDITION 21. PURCHASER has inspected the PREMISES and thoroughly
OF acquainted with its condition, PURCHASER agrees to purchase it
PROPERTY: "as is" and in its present condition subject to deterioration
between now and CLOSING. PURCHASER shall have right, after
reasonable notices to SELLER, to inspect it before CLOSING.
ENTIRE 22. All prior understandings and agreements between SELLER and
AGREEMENT: PURCHASER are merged in this contract completely expresses their
full agreement. It has been entered into after full
investigation, neither party relying upon statements made by
anyone else that are not set forth in this contract.
CHANGES 23. This contract may not be changed or cancelled except in
MUST BE IN writing. The contract shall also apply to and bind distributees,
WRITING: heirs, executors, administrators, successors and assigns of the
respective parties. Each of the parties here authorize their
attorneys to agree in writing to any changes in dates and time
periods provided for in this contract.
SINGULAR 24. Any singular word or term herein shall also be read as in the
ALSO plural whenever the sense of this contract may require.
MEANS
PLURAL: 25. This contract and any valuable interest hereunder may not be
assigned by the purchaser without the written consent of the
seller and any such assignment shall be null and void and of no
force and effect.
26. Purchaser represents, warrants and covenants to Seller that
he has not dealt with any brokers in connection with this
transaction. Purchaser further agrees to indemnify and hold
Seller harmless from and against any claim, loss or liability
including the cost of defending against any such claim, loss or
liability, which may be asserted by anyone for brokerage
commissions or finder's fees or similar compensation in
connection with this transaction. The provision of this paragraph
26 shall survive the closing of title and the delivery of the
deed herein.
In Presence Of:
--------------------------------
HARRY E. SCHACHTER
CROW-KELLY #1
by:
--------------------------------
General Partner
<PAGE>
STATE OF NEW YORK, COUNTY OF
On the __________ day of __________________________ 19__, before me personally
came ___________________________________________________________________________
________________________________________________________________________________
to me known to be the individual ______ described in and executed the
foregoing instrument, and acknowledged that ____________________________
executed the same.
STATE OF NEW YORK, COUNTY OF
On the __________ day of __________________________ 19__, before me personally
came ___________________________________________________________________________
________________________________________________________________________________
to me known, who, being by me duly sworn, did depose and say that ______
he resides at No. ____________________________ that he is the ____________
of __________, the corporation described in and which executed the foregoing
instrument; that _____ he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the board of directors of said corporation, and that _____ be signed by
_____ name thereto by like order.
STATE OF NEW YORK, COUNTY OF
On the __________ day of __________________________ 19__, before me personally
came ___________________________________________________________________________
________________________________________________________________________________
to me known to be the individual ______ described in and executed the
foregoing instrument, and acknowledged that ____________________________
executed the same.
STATE OF NEW YORK, COUNTY OF
On the __________ day of __________________________ 19__, before me personally
came ___________________________________________________________________________
________________________________________________________________________________
to me known and known to me to be a partner in ___________ a partnership, and
known to me to be the person described and who executed the foregoing instrument
in the partnership name, and said __________ duly acknowledged that he executed
the foregoing instrument for and on behalf of said partnership.
Closing of title under the within contract is hereby adjourned to ______________
______ 19__, at ____ o'clock, at ______________; title to be closed and all
adjustments to be made as of ______________19 ____________________
Dated, ____________________________________19 ____________________
For value received, the within contract and all the right, title and interest of
the purchaser thereunder are hereby assigned, transferred and set over unto ___
________________________________________
and said assignee hereby assumes all obligations of the purchaser
thereunder,________________________
Dated, ____________________________________19 ____________________________
-------------------------------------
Purchaser
-------------------------------------
Assignee of Purchaser
PREMISES
Contract of Sale
Section____________________
TITLE NO. Block _____________________
- ------------------------------------
From: Lot ________________________________
County or Town _____________________
Street Numbered Address ____________
Recorded At Request of
COMMONWEALTH LAND
TITLE INSURANCE COMPANY
RETURN BY, MAIL TO:
-----------------------------------
To:
Zip No.
-----------------------------------
- --------------------------------------------------------------------------------
STANDARD FORM OF NEW YORK BOARD OF TITLE UNDERWRITERS
----------------------------------------------------------------
[LOGO OF COMMONWEALTH LAND TITLE INSURANCE COMPANY APPEARS HERE]
----------------------------------------------------------------
<PAGE>
CROW-KELLY # 1
11 Martine Avenue 87 Bedford Road
White Plains, NY 10606 Kaytonah, New York 10536
January 20, 1989
Prodigy Services Company
445 Hamilton Avenue
White Plains, NY 10601
Attention: Real Estate Department
Re: Lease Dated June 6, 1988 between Crow-Kelly # 1, as
Landlord, and Prodigy Services company, as Tenant,
Yorktown Heights, New York ("Lease")
------------------------------------
Ladies and Gentlemen:
Reference is made to the Lease. Defined terms in this letter shall have the
same meaning as those in the Lease unless otherwise specified or defined.
You and we have agreed as follows: 1. The commencement date of the Term is
and shall be January 21, 1989, on which date the first monthly installment of
minimum rent as set forth in Section 1(a) of the Lease shall be due and payable.
2. The Term shall end on February 12, 1991. 3. The first (1st) renewal option
shall be exercised by Prodigy on or before August 12, 1990 for the first renewal
term of five (5) years and seventeen (17) days, to commence February 13, 1991
and end February 29, 1996. The second (2nd) renewal option shall be exercised by
Prodigy on or before September 1, 1995 for the five (5) year term to commence
March 1, 1996 and to end February 28, 2001. During the extension of the Term
through February 12, 1991, all of the terms and conditions of the Lease
(including, without limitation, the minimum annual rent) shall be and remain
applicable.
<PAGE>
Prodigy Services Company
January 20, 1989
Page 2
If the foregoing accurately reflects your understanding, please so indicate
by signing the enclosed copies of this letter and returning them to the
undersigned, whereupon the letter shall constitute an amendment of the Lease
and a binding agreement between us.
Very truly yours,
WITNESS:
by: [SIGNATURE APPEARS HERE]
- ------------------------------- ---------------------------
Title: [TITLE APPEARS HERE]
------------------------
Accepted and Agreed:
PRODIGY SERVICES COMPANY WITNESS
by: [SIGNATURE APPEARS HERE]
--------------------------- ---------------------------
Title: VP Fin & Plng
------------------------
[SEAL APPEARS HERE]
<PAGE>
[LOGO OF PRODIGY APPEARS HERE]
Interactive Personal Service
Prodigy Services Company
445 Hamilton Avenue
White Plains, NY 10601
Telephone 914 993-8000
July 19,1990
Mr. Udo Walther, Partner
Trammell Crow Company
3700 Texas Commerce Tower
220 Ross Avenue, Suite 3700
Dallas, TX 75201-2997
Re: Lease dated June 6, 1988, as amended by Lease Amendment
dated January 20, 1989 between Crow Kelly #1 as Landlord
and Prodigy Services Company as Tenant for premises at
Front Street, Yorktown Heights, New York.
Dear Mr. Walther:
The above referenced Lease, as amended is scheduled to expire
February 12, 1991.
As per the above referenced documents please accept this letter
as notification by Prodigy Services Company of our intent to
exercise our first option to renew our Lease as amended. The
first renewal term commences on February 13, 1991 and ends
February 29, 1996 with an annual rent of $519,350.00 payable in
equal monthly installments of $43,279.17.
Prodigy Services Company
By: [SIGNATURE APPEARS HERE]
-------------------------
Title: President
----------------------
cc: Joseph P. Carlucci, Esq., Cuddy & Feder [SEAL APPEARS HERE]
<PAGE>
EXHIBIT 10.35
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
SIGNED ORIGINAL
INTERNET-SIGN UP WIZARD REFERRAL AND MICROSOFT INTERNET EXPLORER
LICENSE AND DISTRIBUTION AGREEMENT
This Internet-Sign Up Referral and Microsoft Internet Explorer
License and Distribution Agreement ("Agreement") is made and entered into this 8
day of January, 1997 ("Effective Date"), by and between MICROSOFT
CORPORATION, a Washington corporation, One Microsoft Way, Redmond, WA 98052-6399
("MS"), and Prodigy Services Corporation, a Delaware corporation ("COMPANY").
INTRODUCTION
This Agreement includes two distinct business arrangements.
Under the first arrangement, MS plans to develop and distribute an
"Internet Connection Wizard" as a means of promoting internet access services
for various Internet access service providers, including COMPANY, and of
acquiring subscribers for such access services. COMPANY will pay MS a referral
fee for each subscriber acquired by means of the Referral Server.
Under the second arrangement, COMPANY may distribute, on a royalty-free
basis, a customized version of Microsoft Internet Explorer to subscribers or
potential subscribers of its Internet access services.
In consideration of the mutual promises and covenants contained herein,
the parties agree as follows:
1. DEFINITIONS. The following terms, whenever initially capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
1.1 "Access" shall mean telecommunications facilities and services that
enable a computer user to access and use Internet sites and content by means of
a TCP/IP connection.
1.2 "COMPANY Information" shall mean information regarding or relating
to the ISP Service such as order processing information, fees, service plans,
etc., and other information that is reasonably necessary to describe and solicit
orders of the ISP Service to the ISP Subscriber and/or such other information
that has been mutually agreed to by the parties.
1.3 "Comic Chat" shall mean the graphical Internet chat client in all
available language versions requested by COMPANY, and for all available
platforms.
1.4 "Criteria" shall mean the applicable Internet Explorer criteria as
defined in the Microsoft Internet Explorer Logo Qualification Criteria, attached
to Exhibit G as Attachments 1 and 2, and such future versions as established by
MS in its sole discretion.
1.5 "Guidelines" shall mean the guidelines for use of the Logo as
outlined in the Microsoft Internet Explorer Logo Usage Guidelines which are
attached hereto as Exhibits G and H and are an integral part of this Agreement.
1.6 "IEAK" shall mean the Internet Explorer Administration Kit,
including any updates to the IEAK as may be provided by MS from time to time,
which contains a single copy of the Licensed Software in object code as well as
a set of tools that enable COMPANY to perform limited customizations to the
Licensed Software in order to facilitate the ISP Subscriber sign up process, and
to automate the task of creating diskettes/CD ROMs for distribution. COMPANY
shall use the IEAK in accordance with the instructions in the IEAK and the Logo
Guidelines provided by MS.
<PAGE>
1.7 "Internet Connection Wizard" shall mean an electronic referral
mechanism to be developed by MS to promote the ISP services for various ISP
service providers, including COMPANY, and which ordering mechanism shall enable
the end user to order ISP Service via a link to COMPANY's Sign-up Server or
other method mutually agreed to by the parties. The Internet Connection Wizard
shall prompt the ISP Subscriber to enter various Locator Information. The
Internet Connection Wizard shall be launched from an icon on the "desktop" of
the English language version of Windows 95 distributed in the United States and
Canada designated as "The Internet" or such other name designated by MS. MS may
include the Internet Connection Wizard in other MS products as determined by MS.
An overview of the referral and ordering process is set forth in Exhibit Z.
1.8 "Internet Explorer" shall mean the current and future versions of
(a) Microsoft Internet Explorer (Domestic English Language and such other
foreign language versions requested by COMPANY and which MS has available) for
the following platforms: Windows 3.x (including Windows for Workgroups 3.x),
Windows NT 4.x, Windows 95 and Apple Macintosh; and (b) a customized version of
Internet Explorer created through the use of the IEAK. Availability of various
versions of Internet Explorer is summarized in Exhibit F.
1.9 "Internet Mail and News" shall mean the client for email and
Internet newsgroups in all available language versions requested by COMPANY, and
for all available platforms.
1.10 "Internet Product" shall mean any COMPANY product which provides
access to or information about the Internet. An Internet Product may not be a
personal computer. For purposes of this Agreement, "ISP Service" (defined below)
shall be a type of Internet Product.
1.11 "Internet Site" shall mean COMPANY's worldwide web site(s) which
meet the applicable Criteria.
1.12 "ISP Information" shall mean information regarding or relating to
internet access services (including the ISP Service) such as order processing
information, fees, service plans, etc., and other information that is reasonably
necessary to describe and solicit orders of such internet access services to the
internet access service subscriber and/or such other information that has been
mutually agreed to by MS and an internet service provider (including COMPANY).
1.13 "ISP Information Page" shall mean a HTML based page which
includes ISP Information, to be maintained by COMPANY and hosted on the MS
Referral Server. The ISP Information Page shall be downloaded to the prospective
ISP Subscriber as part of the ordering and referral process.
1.14 "ISP Phone Book(s)" shall mean a listing of names of ISPs and
associated telephone numbers and other ISP Information, including COMPANY
Information. ISP Phone Books may be unique to a given telephone area code and/or
geographic region. There may be one or more ISP Phone Books specific to a single
telephone area code, geographic region or Service Area. The ISP Phone Book(s)
shall be hosted on one or more Referral Server(s). MS shall solely determine the
placement, presentation and content of COMPANY Information in the ISP Phone
Book(s). As of the Effective Date, MS maintains a single ISP Phone Book for a
particular telephone area code and/or geographic region, and the names of ISPs
in the ISP Phone Book are randomly listed and periodically rearranged so as to
not provide any particular ISP with a preferred position.
1.15 "ISP Referral Fee" shall mean an amount set forth in Exhibit D
for each new ISP Subscriber.
1.16 "ISP Service" shall mean a COMPANY service, listed in Exhibit B,
which provides an internet protocol (IP) access service to the Internet as
contemplated by this Agreement. The parties acknowledge that COMPANY may provide
access to the Internet via other Internet Product(s) not listed in Exhibit B.
1.17 "ISP Subscriber" shall mean any individual or legal entity who
subscribes to the ISP Service through the Referral and Ordering Process as
described in Exhibit Z (as may be updated from time to time) and remains a
subscriber with the ISP Service for three (3) consecutive months.
1.18 "License Key" shall mean the 10-digit alpha numeric code provided
by MS that enables COMPANY to use the customization features in the IEAK.
-2-
<PAGE>
1.19 "Licensed Software" shall mean, collectively, Internet Explorer,
NetMeeting, Internet Mail and News, and Comic Chat.
1.20 "Locator Information" shall mean an ISP Subscriber's name, email
and conventional mailing addresses, telephone and facsimile numbers, credit card
number, and any other data about such subscriber that enables the possessor of
such information to personally identify the end user. All Locator Information
shall belong solely to COMPANY and shall not be used, retained or stored by
Microsoft except as required by MS to fulfill its obligations under this
Agreement.
1.21 "Logo" shall mean the "Microsoft(R) Internet Explorer" logo
depicted in the Guidelines or such additional or replacement logos as MS may
provide from time to time under this Agreement.
1.22 "NetMeeting" shall mean Microsoft's realtime collaboration and
communication software in all available language versions requested by COMPANY,
and for all available platforms.
1.23 "Referral Server" shall mean a server maintained by MS which
shall provide an ISP Subscriber with one or more ISP Phone Books, and which
shall enable the ISP Subscriber to transmit ordering information, via the
Internet Connection Wizard to the Sign-up Server.
1.24 "Service Area" shall mean the area in which COMPANY currently
provides or will provide Access, as of the Effective Date, as set forth in
Exhibit B.
1.25 "Sign-up Server" shall mean a server maintained by COMPANY which
shall enable the ISP Subscriber to order ISP Service from COMPANY and shall
further enable COMPANY to configure the ISP Subscriber's copy of the Licensed
Software (hosted on the ISP Subscriber's computer), all via on-line
transmission. COMPANY shall use the Sign-up Server to configure the ISP
Subscriber's copy of Licensed Software in accordance with the ISP Subscriber
Configuration Guidelines set forth in Exhibit E.
1.26 "Windows 95" means the English language version of Microsoft's
Windows 95 operating system, including upgrades and direct successor versions
thereof released and distributed by Microsoft in the United States and Canada
during the Term, but not including any version of Windows NT. "Windows 95" can
include both a retail upgrade version which is upgrade of current operating
system technology, as well as an original equipment manufacturer ("OEM") version
which constitutes a full operating system installation, inclusive of
upgrade/replacement code.
2. LICENSE FOR DISTRIBUTION OF CUSTOMIZED VERSION OF MICROSOFT INTERNET
--------------------------------------------------------------------
EXPLORER; LOGO LICENSE; AND LICENSE RESTRICTIONS
------------------------------------------------
2.1 MS grants to COMPANY a nonexclusive, limited, royalty-free license
during the term of this Agreement to (a) customize Internet Explorer using the
IEAK solely in accordance with the instructions provided in the IEAK's "Custom
ISK Wizard"; and (b) use, reproduce, license, sublicense, display, perform or
otherwise distribute (including electronic distribution via download from the
ISP Service or Internet Site), and have used, reproduced, licensed, sublicensed,
displayed, performed or otherwise distributed, to and by third parties (directly
and indirectly) through COMPANY's distribution channel the Licensed Software
(including Internet Explorer as may be customized by COMPANY) to potential end
users of COMPANY's Internet Product(s) in the United States and Canada. COMPANY
acknowledges and agrees that its use of the IEAK to customize Internet Explorer
requires the rightful receipt from MS of the License Key allocated to COMPANY.
2.2 COMPANY acknowledges and agrees that its use of the IEAK to
customize Internet Explorer requires the rightful receipt from MS of the License
Key allocated to COMPANY. COMPANY agrees that it shall use the IEAK solely in
accordance with the instructions provided in the IEAK's Custom ISK Wizard that
is available to COMPANY upon input of the allocated License Key and in
accordance with the Logo Guidelines provided by MS.
2.3 [Section intentionally omitted]
-3-
<PAGE>
2.4 Subject to and expressly conditioned upon compliance with the
terms and conditions of this Agreement, MS hereby grants to COMPANY a worldwide,
nonexclusive, non-assignable, nontransferable, royalty-free, right to use the
Logo solely in conjunction with COMPANY's Internet Site(s) and/or Internet
Product(s) and in any advertising, marketing, technical or other materials
related to Licensed Software which are distributed, transmitted or promoted by
COMPANY or its distributors in connection with this Agreement and solely in the
manner described in the Guidelines. COMPANY agrees and acknowledges: MS owns the
Logo; use of the Logo will inure to the benefit of MS; COMPANY will not adopt,
use, or register any corporate name, trade name, trademark, service mark, or
certification mark, or other designation similar to, or containing in whole or
in part, the Logo; COMPANY's use of the Logo shall adhere to the Criteria.
2.5 COMPANY may not reverse engineer, decompile or disassemble the
Licensed Software.
2.6 COMPANY shall only distribute NetMeeting in conjunction with
Internet Explorer, provided that COMPANY may separately distribute NetMeeting to
an ISP Subscriber who received a copy of Internet Explorer without NetMeeting
and as a version upgrade to an ISP Subscriber who has received a prior version
of NetMeeting.
2.7 COMPANY may not permit further redistribution of the Licensed
Software by ISP Subscribers.
2.8 COMPANY shall maintain and not alter or remove any copyright,
trademark and other protective notices contained in the Licensed Software,
including the end user license agreement ("EULA") which is included in the setup
installation of the Licensed Software. COMPANY shall also comply with
Microsoft's trademark guidelines with respect to the proper use of Microsoft
trademarks associated with the Licensed Software. Notwithstanding the foregoing,
for versions of the Licensed Software distributed by COMPANY, COMPANY may attach
the EULA to COMPANY'S ISP Service member agreement. COMPANY shall obtain
Microsoft's permission, which permission shall not be unreasonably withheld or
delayed, for any changes to the installation process of the Licensed Software
with Prodigy's installation of the Internet Product distributed directly by
COMPANY, such as the "suppression" of the EULA during installation.
2.9 COMPANY shall use commercially reasonable efforts to require its
distributors, dealers and others in its distribution channels to comply with
Sections 2.5, 2.6, 2.8 and 2.10.
2.10 COMPANY shall not modify, alter or remove contents of the
Licensed Software except as expressly provided in this Agreement.
2.11 All rights not expressly granted herein are reserved by MS.
3. MICROSOFT OBLIGATIONS
---------------------
MS shall perform the following:
3.1 Develop Internet Connection Wizard and ISP Phone Book(s); Maintain
------------------------------------------------------------------
ISP Phone Book(s). Provided that COMPANY complies with its obligations under
- -----------------
this Agreement, MS shall include COMPANY's name, telephone number and other
mutually agreed upon COMPANY Information in the applicable ISP Phone Book(s)
within thirty (30) days of MS' receipt of (A) COMPANY Information and, (B) for
each platform (e.g. Windows 95, Windows 3.x, etc.), COMPANY's client software,
used to access the ISP Service. Notwithstanding anything to the contrary in this
Agreement, commencing six (6) months after COMPANY Information first appears in
an ISP Phone Book, MS may move COMPANY Information to another ISP Phone Book or
remove COMPANY Information from one or all ISP Phone Books if (C) during any two
calendar quarters during which COMPANY Information has been included in the
Referral Server COMPANY's shipments of Licensed Software (where Internet
Explorer is distributed as the default web browser) falls below eighty-five
percent (85%) of total COMPANY shipments of all web browsers or (D) during any
single calendar quarter during which COMPANY Information has been included in
the Referral Server the number of new ISP Subscribers for such quarter compared
to the number of new subscribers of other ISPs which appear in the same ISP
Phone Book as COMPANY for such quarter, is such that COMPANY is in the bottom
twenty percent (20%) of all ISPs listed in the ISP Phone Book. By way of
example, if there are six (6) ISPs in an ISP Phone Book, and COMPANY had the
fewest number of new subscribers
-4-
<PAGE>
compared to other ISPs in the ISP Phone Book, then MS could move COMPANY
Information to another ISP Phone Book or remove COMPANY Information from one or
all ISP Phone Books.
3.2 Distribution of Internet Connection Wizard. Incorporate the
------------------------------------------
Internet Connection Wizard into an icon on the "desktop" of the English language
version of Windows 95 distributed in the United States and Canada designated as
"The Internet" or such other name designated by MS.
3.3 Referral Server. Develop and maintain Referral Server and
---------------
establish a telephone number, or any other communication medium mutually agreed
to by the parties, for accessing a Referral Server. As of the Effective Date of
this Agreement, the telephone number is toll free. At COMPANY'S request from
time to time during the term of the Agreement, MS shall promptly update COMPANY
Information in the ISP Phone Book.
3.4 Promotion. Include information concerning the ISP Service in press
---------
releases and marketing activities related to promotion of the Internet
Connection Wizard.
4. COMPANY OBLIGATIONS
-------------------
COMPANY shall perform the duties described in Exhibit C.
5. PAYMENT AND REPORTING
---------------------
5.1 Advance. n/a
-------
5.2 ISP Referral Fee. In consideration of each ISP Subscriber, COMPANY
----------------
shall pay MS the ISP Referral Fee for each subscription for ISP Service ordered
by each ISP Subscriber.
5.3 Reporting. Within forty five (45) days after the end of each
---------
calendar quarter, COMPANY shall furnish MS a statement together with payment for
any amount shown thereby to be due to MS. The royalty statement shall be based
upon ISP Referral Fees for the quarter then ended, and shall be in the form of
the sample report included on Exhibit D. Late payment(s), including receipts for
foreign taxes withheld, if applicable, shall bear interest at the rate of one
and one-half percent (1.5%) per month or the maximum rate allowable by
applicable law, from the date such payment is due until the date it is actually
paid. COMPANY's report shall include for each version of the Licensed Software,
the number of copies of the Licensed Software licensed or distributed by or for
COMPANY during that calendar quarter, including "competitive upgrade" copies as
described in Exhibit D. In the event that no copies were licensed or distributed
by or for COMPANY during a calendar quarter, COMPANY shall indicate this on the
report. COMPANY's report shall further include the number of copies of all web
browsers licensed or distributed by or for COMPANY during that calendar quarter.
All such reports shall be maintained in confidence by MS and shall not be
disclosed to any third party except to its immediate legal and financial
consultants as may be required in the ordinary course of MS' business. In no
event shall MS permit access to such reports by employees or independent
contractors working on the Microsoft Network.
5.4 All amounts due hereunder shall be sent to the address listed in
Section II. All amounts due hereunder are exclusive of any taxes, duties, fees,
excises or tariffs imposed on any of COMPANY's activities in connection with
this Agreement. Such charges, if any, shall be paid by COMPANY.
6. WARRANTIES AND INDEMNITIES
--------------------------
6.1 Microsoft warrants and represents that:
(a) It has the full power to enter into this Agreement and make the
license rights set forth herein; and
(b) The Licensed Software, to the best of its knowledge, does not
infringe any copyright, patent, trade secret, or other proprietary right
held by any third party.
-5-
<PAGE>
6.2 EXCEPT AS EXPRESSLY WARRANTED IN SECTION 6.1, LICENSED SOFTWARE, THE IEAK,
THE MICROSOFT CONFIDENTIAL INFORMATION AND MICROSOFT TRADEMARKS LICENSED
UNDER SECTION 2 ARE PROVIDED TO COMPANY "AS IS" WITHOUT FURTHER WARRANTY OF
ANY KIND. MICROSOFT DISCLAIMS ALL FURTHER WARRANTIES, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY. FITNESS FOR A PARTICULAR PURPOSE, TITLE AND
NONINFRINGEMENT, WITH RESPECT TO LICENSED SOFTWARE, THE IEAK. THE
MICROSOFT CONFIDENTIAL INFORMATION AND MICROSOFT TRADEMARKS LICENSED UNDER
SECTION 2.
6.3 Indemnity by Microsoft.
----------------------
(a) Microsoft shall, at its expense and COMPANY'S request, defend any
claim or action brought against COMPANY, and COMPANY'S subsidiaries,
affiliates, directors, officers, employees, agents and independent
contractors, to the extent it is based upon a claim that the Licensed
Software and/or the Microsoft trademarks licensed under Section 2
infringe or violate any patent, copyright, trademark, trade secret or
other proprietary right of a third party ("Microsoft Claims"), and
Microsoft will indemnify and hold COMPANY harmless from and against
any costs, damages and fees reasonably incurred by COMPANY, including
but not limited to fees of attorneys and other professionals, that are
attributable to such Microsoft Claims. COMPANY shall: (i) provide
Microsoft reasonably prompt notice in writing of any such Microsoft
Claims and permit Microsoft to answer and defend such Microsoft
Claims; and (ii) provide Microsoft information, assistance and
authority, at Microsoft's expense, to help Microsoft to defend such
Microsoft Claims. Microsoft will not be responsible for any settlement
made by COMPANY without Microsoft's written permission, which
permission will not be unreasonably withheld.
(b) Microsoft may not settle any Microsoft Claim under this Section 6.3 on
COMPANY'S behalf without first obtaining COMPANY'S written permission,
which permission will not be unreasonably withheld. In the event
COMPANY and Microsoft agree to settle a Microsoft Claim, Microsoft
agrees not to publicize the settlement without first obtaining
COMPANY'S written permission, which permission will not be
unreasonably withheld.
(c) Microsoft's obligations under this Section 6.3 shall be Prodigy's
exclusive remedy for any breach of the warranty made by Microsoft
under Section 6.1.
6.4 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES
FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS
INFORMATION, AND THE LIKE, ARISING OUT OF THE USE OF OR INABILITY TO USE THE
LICENSED SOFTWARE OR IEAK, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR
LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE
LIMITATION MAY NOT APPLY.
7. TERM OF AGREEMENT
-----------------
The term of this Agreement shall commence as of the Effective Date and shall
continue for a period of two (2) years. Thereafter, this Agreement shall
automatically renew for successive one year terms unless either party gives the
other party thirty (30) days written notice of its intent not to renew.
8. DEFAULT AND TERMINATION
-----------------------
8.1 This Agreement may terminate earlier if any of the following events of
default occur: (a) if either party materially fails to perform or comply with
this Agreement or any provision hereof; (b) if either party fails to strictly
comply with the provisions of Section 10 or makes or attempts to make an
assignment in violation of Section 13.5; (c) if either party becomes insolvent
or admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; (d) if a petition under any foreign,
state, or United States bankruptcy act, receivership statute, or the like, as
they now exist, or as they may be amended, is filed by either party ; or (e) if
such a petition is filed by any third party, or an
-6-
<PAGE>
application for a receiver of either party is made by anyone and such petition
or application is not resolved favorably to either party within sixty (60) days.
8.2 Termination under subsection 8.1(b) shall be effective as of the
date notice is given. In all other cases, termination shall be effective thirty
(30) days after notice of termination to the defaulting party if such party's
defaults have not been cured. The rights and remedies provided in this Section
shall not be exclusive and are in addition to any other rights and remedies
provided by law or this Agreement.
8.3 In the event of termination or expiration of this Agreement for
any reason other than COMPANY'S material breach of Section 2.1, COMPANY'S
license rights under Section 2.1 shall, with respect to the then current version
of the Licensed Software as of the effective date of termination, survive for a
period of six (6) months following the effective date of termination. In the
event of termination of this Agreement for COMPANY'S material breach of Section
2.1, COMPANY'S license rights under Section 2.1 shall with respect to the then
current version of the Licensed Software as of the effective date of
termination, survive for a period of sixty (60) days from the effective date of
termination. Notwithstanding the foregoing, upon termination of this Agreement,
MS shall immediately remove COMPANY's Information from the ISP Phone Book(s).
8.4 End user licenses validly granted prior to expiration or
termination of this Agreement shall survive termination or expiration of this
Agreement.
8.5 Sections 1, 5, 6, 8, 10, 11, 12 and 13 shall survive termination
of this Agreement.
9. SUPPORT
-------
9.1 COMPANY shall have the sole responsibility and expense for
providing all support for the Sign-up Server and all support needed by ISP
Subscribers for the Licensed Software and the ISP Service.
9.2 MS will provide COMPANY (but not ISP Subscribers) support for
the Internet Connection Wizard. Except for such support, this Agreement does not
include technical support from MS to COMPANY. COMPANY shall purchase technical
support for IEAK and other products desired by company from MS pursuant to a
separate agreement to be negotiated by the parties.
10. NONDISCLOSURE AGREEMENT
-----------------------
10.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those necessary
to directly further the purposes of this Agreement. Each party will use
its best efforts not to disclose to third parties the other's Confidential
Information without the prior written consent of the other party. Except
as expressly provided in this Agreement, no ownership or license rights is
granted in any Confidential Information.
10.2 The parties' obligations of confidentiality under this Agreement shall not
be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential
Information. Further, either party shall be free to use for any purpose
the residuals resulting from access to or work with such Confidential
Information, provided that such party shall maintain the confidentiality
of the Confidential Information as provided herein. The term "residuals"
means information in non-tangible form, which may be retained by persons
who have had rightful and good faith access to the Confidential
Information, including ideas, concepts, know-how or techniques contained
therein. Neither party shall have any obligation to limit or restrict the
assignment of such persons or to pay royalties for any work resulting from
the use of residuals. However, the foregoing shall not be deemed to grant
to either party a license under the other party's copyrights or patents.
11. NOTICES AND REQUESTS
--------------------
-7-
<PAGE>
All notices, authorizations, and requests in connection with this Agreement
shall be deemed given on the day they are (i) deposited in the U.S. mails,
postage prepaid, certified or registered, return receipt requested; or (ii) sent
by overnight courier, charges prepaid, with a confirming fax; and addressed as
follows:
NOTICES TO COMPANY:
- ------------------
Prodigy Services Corporation
445 Hamilton Avenue
White Plains, NY 10601
Attention: General Counsel
Phone: 914-448-8713
Fax: 914-448-8223
Copy to: Contract Administration (same address as above)
E-mail copy to: [email protected]
NOTICES TO MS AND PAYMENTS/VOLUME DISTRIBUTION SUMMARIES:
- --------------------------------------------------------
Notices: MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
Attn: Vice President, Public Network Sales
Copy to: Law & Corporate Affairs, US Legal
Fax: (206) 936-7209
Payments/Volume MICROSOFT CORPORATION
Distribution Remittance Processing
Summaries: P.O. Box 84808
Seattle, WA 98124-6108
or to such other address as the party to receive the notice or request so
designates by written notice to the other.
12. AUDITS
------
12.1 During the term of this Agreement, COMPANY agrees to keep all
usual and proper records and books of account and all usual and proper entries
relating to COMPANY's ISP Subscriptions sufficient to substantiate the number of
ISP Subscribers. COMPANY shall maintain on COMPANY premises such records for
itself and for each Subsidiary which exercises rights under this Agreement.
12.2 In order to verify statements issued by COMPANY and COMPANY's
compliance with the terms of this Agreement, MS may cause an audit to be made of
COMPANY's applicable books and records. Any audit shall be conducted during
regular business hours at COMPANY's facilities upon reasonable advance notice.
Any audit shall be conducted by an independent certified public accountant of
national stature selected by MS (other than on a contingent fee basis).
12.3 COMPANY agrees to provide MS' designated audit team access to
the relevant COMPANY's records and facilities.
12.4 Prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such audit. Any such audit shall be paid for by MS unless
material discrepancies are disclosed. "Material" shall mean the under reporting
of five percent (5%) of the amount due. If material discrepancies are disclosed,
COMPANY agrees to pay MS for the costs associated with the audit in addition to
the amount of any discrepancy.
-8-
<PAGE>
12.5 Microsoft may exercise its right to audit under this Agreement
no more than once in any twelve-month period, unless the immediately preceding
audit revealed a material discrepancy.
13. GENERAL
-------
13.1 This Agreement shall be construed and controlled by the laws of
the State of Washington, and COMPANY consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. Process may be
served on either party in the manner provided in Section 11 above, or by such
other method as is authorized by law.
13.2 Neither this Agreement, nor any terms and conditions contained
herein, shall be construed as creating a partnership, joint venture, agency
relationship or as granting a franchise.
13.3 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements or communications. It shall not be modified except by
a written agreement dated subsequent to the date of this Agreement and signed on
behalf of COMPANY and MS 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.
13.4 If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
13.5 The rights and obligations hereunder shall inure to the benefit
of the successors of the parties hereto, provided that neither party may assign
this Agreement, in whole or part, without the prior written approval of the
other party, which approval shall not be unreasonably withheld or delayed.
COMPANY hereby agrees that it will remain responsible for and guarantee the
compliance of each majority owned subsidiary or affiliate which exercises rights
under this Agreement.
13.6 Any Licensed Software which COMPANY distributes or licenses to
or on behalf of the United States of America, its agencies and/or
instrumentalities (the "Government"), is provided to COMPANY with RESTRICTED
RIGHTS. Use, duplication or disclosure by the Government is subject to
restriction as set forth in subparagraph (c)(l)(ii) of the rights in Technical
Data and Computer Software clause at DFAR 252.227-7013, or as set forth in the
particular department or agency regulations or rules which provide Microsoft
protection equivalent to or greater than the above-cited clause. COMPANY shall
comply with any requirements of the Government to obtain such RESTRICTED RIGHTS
protection, including without limitation, the placement of any restrictive
legends on the Tool documentation and any license agreement used in connection
with the distribution thereof. Manufacturer is Microsoft Corporation, One
Microsoft Way, Redmond, Washington 98052-6399. Under no circumstances shall
Microsoft be obligated to comply with any Governmental requirements regarding
cost and pricing data and cost accounting. For any distribution or license of
the Licensed Software that would require compliance by Microsoft with
Governmental requirements relating to cost and pricing data or cost accounting,
COMPANY must obtain an appropriate waiver or exemption from such requirements
for the benefit of Microsoft from the appropriate Governmental authority before
the distribution and/or license of the Licensed Software to the Government.
13.7 COMPANY acknowledges that the Licensed Software and IEAK are
subject to the export control laws and regulations of the US, and any amendments
thereof. COMPANY confirms that with respect to the Licensed Software, it will
not export or re-export them, directly or indirectly, either to (a) any
countries that are subject to US export restrictions (currently including, but
not necessarily limited to, Cuba, the Federal Republic of Yugoslavia (Serbia and
Montenegro), Iran, Iraq, Libya, North Korea, and Syria); (b) any end user who
COMPANY knows or has reason to know will utilize them in the design, development
or production of nuclear, chemical or biological weapons; or (c) any end user
who has been prohibited from participating in the US export transactions by any
federal agency of the US government. COMPANY further acknowledges that the
Licensed Software and IEAK may include technical data subject to export and re-
export restrictions imposed by US law.
-9-
<PAGE>
13.8 The parties shall, at their own expense, obtain and arrange for
the maintenance in full force and effect of all governmental approvals,
consents, licenses, authorizations, declarations, filings, and registrations as
may be necessary for the performance of their respective terms and conditions of
the Agreement including, but not limited to, foreign exchange approvals, import
and offer agent licenses, fair trade approvals and all approvals which may be
required to realize the purposes of the Agreement.
13.9 In the event income taxes are required to be withheld by any
non-U.S.A. government on payments required hereunder, COMPANY may deduct such
taxes from the amount owed MS and pay them to the appropriate tax authority.
COMPANY shall promptly deliver to MS an official receipt for any such taxes
withheld or other documents necessary to enable MS to claim a U.S.A. Foreign Tax
Credit. COMPANY will make certain that any taxes withheld are minimized to the
extent permitted by the applicable law.
13.10 If either MS or COMPANY employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs.
13.11 Subject to applicable law, the parties will cooperate with each
other on press releases and similar communications regarding the
non-confidential subject matter of this Agreement, and the content, timing and
necessity of all such communications will be agreed upon in writing by both
parties.
13.12 The following Exhibits are part of this Agreement:
Exhibit A Access Specifications
Exhibit B Company ISP Service(s)
Exhibit C Company Obligations
Exhibit D ISP Referral Fees
Exhibit E ISP Subscriber Configuration
Guidelines
Exhibit F Internet Explorer
Exhibit G Microsoft(R) Internet Explorer Online
Logo Usage
Guidelines Attach 1&2 Microsoft Internet Explorer Logo
Qualification Criteria
Exhibit H Microsoft(R) Internet Explorer
Standard Logo Usage Guidelines
Exhibit Z Windows 95 ISP Referral and Ordering
Process
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above. All signed copies of this Agreement shall be deemed
originals.
MICROSOFT CORPORATION PRODIGY SERVICES CORPORATION
(COMPANY)
/s/ Cameron Myhrvold /s/ Chip Austin
- ------------------------------------ --------------------------------------
By (sign) By (sign)
Cameron Myhrvold Chip Austin
- ------------------------------------ --------------------------------------
Name (Print) Name (Print)
Vice President, Public Network Sales VP Sales
- ------------------------------------ --------------------------------------
Title Title
1/20/97 1/8/97
- ------------------------------------ --------------------------------------
Date Date
[SEAL APPEARS HERE]
-10-
<PAGE>
EXHIBIT A
---------
ACCESS SPECIFICATIONS
U.S. & Canada
-11-
<PAGE>
EXHIBIT B
---------
COMPANY'S ISP SERVICE(S)
Prodigy Internet service
COMPANY SERVICE AREA
-12-
<PAGE>
EXHIBIT C
---------
COMPANY OBLIGATIONS (NOTE: MS OBLIGATIONS ARE SET FORTH IN SECTION 3)
COMPANY shall perform the following duties/obligations:
- ------------------------------------------------------
1. Offer the ISP Service(s).
2. Develop and maintain a Sign-up Server. The Sign-up Server shall be
operational on a 7X24 basis.
3. Establish a toll free telephone number, or any other communication
medium mutually agreed to by the parties for the processing of orders
for ISP Subscribers. COMPANY shall notify MS in writing by a mutually
agreed upon date of such specific communication medium or other
relevant means of order entry secured by COMPANY for the ISP Service
and any other COMPANY Information. COMPANY shall use unique numbers,
extensions or addresses so as to ensure that all ISP Subscribers (e.g.
those directed to the Sign-up Server by the Referral Server) can be
easily segregated from other orders received by COMPANY that do not
originate from the Referral Server for revenue reporting purposes.
4. Use and display the "Microsoft Internet Explorer" logo on the home
page for COMPANY's ISP Service, along with a hot link to
www.microsoft.com/ie/ie.htm on the face of the home page.
---------------------------
5. In copies of Microsoft Internet Explorer distributed by COMPANY,
COMPANY may set the "default" URL to point to COMPANY's home page for
the ISP Service, provided that such home page includes a hot link to
www.microsoft.com/ie/ie.htm.
---------------------------
6. Offer the Microsoft Internet Explorer as the default web browser (i.e.
the only web browser offered at sign-up) for COMPANY's ISP Service. At
the time of ISP Service request from an ISP Subscriber, COMPANY shall
not express or imply that an alternate browser is available. COMPANY
may provide a non-MS web browser with its ISP Service only upon a
customer initiated request. COMPANY is not in any way obligated to
prevent the access to, use or downloading of non-MS web browsers on
third party services and Internet sites, even if accessible through
use of the ISP Service. COMPANY may provide links to use and to
download non-MS web browsers on or for use with the ISP Service solely
at a single ISP Service location or Internet Site, provided that such
locations shall be substantially minimized (for example, in a list
box) and shall not be presented in a manner which would be
contradictory to the spirit of this Section 6.
7. COMPANY shall not advertise or otherwise promote any non-MS web
browser (e.g. COMPANY shall not display any logo for, or maintain a
link to, a non-MS web browser) on COMPANY's home page for the ISP
Service, on the Start Page, or on any COMPANY home page for any other
internet access service offered by COMPANY.
8. At COMPANY'S discretion, use the Microsoft Internet Explorer name and
logo in COMPANY's packaging, advertising and promotional materials.
Such use shall be pursuant to MS' standard trademark policies as
attached hereto and as may be provided by MS to COMPANY from time to
time.
9. n/a
10. Before COMPANY is listed in the ISP Phone Book(s), COMPANY will test
and certify compliance of Access with MS specifications for security
and authentication protocols, other industry protocols, and other
specifications and standards specified by MS from time to time in
accordance with the procedures, and using the testing tools specified
by MS from time to time, including, without limitation, the
specifications set forth in
-13-
<PAGE>
Exhibit A and the acceptance testing procedures set forth in Exhibit A
provided that all of the foregoing specifications, protocols,
standards and procedures are mutually agreed to by COMPANY.
11. If MS makes a new release (other than an "Update" release which is
designated by MS as a change in the hundredths digit [x.x(x)] of any
component of the Licensed Software available, then COMPANY will
provide such new release in a timely manner to ISP Subscribers via an
electronic download.
-14-
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
EXHIBIT D
---------
ISP REFERRAL FEES
Number of New ISP Subscribers
Quarterly Fee
----------------- ---
less than [**] [**]
[**] to [**] [**]
[**] to [**] [**]
greater than [**] [**]
1. The ISP Referral Fee shall be reduced by [**] if Prodigy implements
"ActiveX" control(s) in the COMPANY'S home page for the ISP Service.
COMPANY shall notify Microsoft of the ActiveX controls implemented by the
COMPANY.
2. The ISP Referral Fee shall be reduced by an additional [**] if: (a) COMPANY
uses Microsoft Windows NT and Internet Information Server as the platform
for COMPANY'S web site that hosts the home page for the ISP Service, or (b)
COMPANY offers Microsoft Internet Information Server as one of its
platforms for web hosting services.
3. The ISP Referral Fee shall be reduced by an additional [**] if COMPANY uses
Microsoft FrontPage server extensions on COMPANY'S web hosting service.
4. Microsoft shall be paid only once for each new ISP Subscriber regardless of
the duration of his membership in the ISP Service.
5. Microsoft acknowledges that COMPANY may pay fees similar to the
above-mentioned ISP Referral Fees to QEMs. This Agreement shall not be
construed as limiting in any way whatsoever COMPANY'S right to make such
payments, and such payments shall not be construed in any way as abridging
COMPANY's obligations under this Agreement. COMPANY will not owe Microsoft
ISP Referral Fees for subscribers to the ISP Service which COMPANY obtains
other than through the Referral Server.
6. Notwithstanding anything to the contrary in this Agreement, provided that
COMPANY delivers to Microsoft a fully functional "Service Client Software"
(as defined in the PROMOTION & DISTRIBUTION AGREEMENT dated Sept 18, 1996,
License number 7699-6269) by January 15, 1997, COMPANY shall have no
obligation to pay ISP Referral Fees until MS includes COMPANY in the
"Online Services folder" in the next release of Microsoft Windows
95 (currently known as "Memphis") and releases such product to
manufacturing.
-15-
<PAGE>
EXHIBIT D (cont'd)
------------------
REFERRAL FEE REPORT
Report for ______________
Reporting Period: ____________,19___ to ___________________,19___
Microsoft License # _______________
- --------------------------------------------------------------------------------
Referral Fee Calculation:
A. Total new ISP Subscriber* for the quarter: ___________ X $___ = __________
B. Previously reported ISP Subscriber accounts
lasting less than 60 days which
terminate during the quarter ___________ X $___ = __________
C. Total fees due (Line A - Line B) = __________
D. Less Deductions for "competitive upgrades" of Internet Explorer __________
Total payment enclosed: __________
*as defined in Section 1
- --------------------------------------------------------------------------------
E. Total number of non MS web browsers distributed during quarter
through all channels: __________
F. Total number of copies of Internet Explorer distributed
through all channels where Internet Explorer is distributed
as the default web browser: __________
The undersigned hereby certifies that he/she is an officer or director of
COMPANY and that this report is complete and correct.
(Signature)
----------------------
(Print)
----------------------
(Title)
----------------------
(Date)
----------------------
Telephone Number: ( )
----------------------
-16-
<PAGE>
EXHIBIT E
---------
ISP SUBSCRIBER CONFIGURATION GUIDELINES
COMPANY's ISP Information Page shall comply with the specifications for the
standard Information Page which are as of the date of this Agreement the
following:
a. Size of the HTML page limited to 5K.
b. The page should have one exit point that points back to the main
referral page.
c. No scrolling, no tabs, no links, and no fields.
d. Should fit on 640x480 with no fields.
e. Use buttons as much as possible.
f. Do not use hot links.
g. A "cancel" leaves the entire Internet Connection Wizard.
MS reserves the right to change the above criteria upon COMPANY'S consent, which
consent shall not be unreasonably withheld.
-17-
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
EXHIBIT F
---------
INTERNET EXPLORER
Availability Version
- --------------------------------------------------------------------------------
Platform 2.0 next /c/
- --------------------------------------------------------------------------------
Windows 3.x, WFW 3.11 Today /a/ [**]
Windows NT -- [**]
Windows 95 Today /a/ [**]
Apple Macintosh Today /b/ [**]
/a/ Includes dialer, stack email client
/b/ Dialer, stack, email client due in June
/c/ Frames, tables, Java
/d/ ActiveX
-18-
<PAGE>
EXHIBIT G to the LICENSE AND DISTRIBUTION AGREEMENT
---------------------------------------------------
Microsoft(R) Internet Explorer
Online Logo Usage Guidelines
This site is best experienced with
[SYMBOL OF MICROSOFT INTERNET EXPLORER APPEARS HERE]
Click here to start.
1. Usage
Use the Internet Explorer online logo (the "Logo") only to promote
Microsoft Internet Explorer and indicate that your Internet Site includes
or is compatible with the Microsoft Internet Explorer.
The Logo may only be used on your Internet Site which must meet the
applicable Logo Qualification Criteria and may not be used in any other
fashion.
Recommended text. Based upon extensive research, we suggest that the
Internet Explorer Logo be accompanied by the following text: "This site is
best experienced with ... Click here to start." as indicated in the below
images. This information clarifies how the logo should be used, especially
for new Internet visitors who are unfamiliar with the different means of
navigating the Internet.
This site is best experienced with
[SYMBOL OF MICROSOFT INTERNET EXPLORER APPEARS HERE]
Click here to start.
This site is best experienced with [SYMBOL OF MICROSOFT INTERNET EXPLORER
APPEARS HERE] Click here to start.
Product name. It should appear as "Microsoft(R) Internet Explorer" at the
first and most prominent use in all materials and can thereafter be
referred to as "Internet Explorer."
2. Intent
You are not permitted to use the logo to disparage Microsoft, its products
or services, or for promotional goods or for products which, in MS'
reasonable judgment, may diminish or otherwise damage Microsoft's goodwill
in the Logo, including but not limited to uses which could be deemed to be
obscene, pornographic, excessively violent, or otherwise in poor taste or
unlawful, or which purpose is to encourage unlawful activities. Similarly,
you cannot imitate Microsoft's product packaging or the Logo in any of your
materials, including advertising, product packaging, and promotional
materials. The Logo must not be used in a manner that implies Microsoft's
sponsorship or endorsement of the product, service, or content presented on
your Internet Site.
3. Logo link
Used in an Internet Site, the Logo must be an active link to this URL
address:
http://www.microsoft.com/ie/ie.htm
----------------------------------
-19-
<PAGE>
4. Presentation
Prominence. Do not use the Logo or the names "Microsoft," "Microsoft
Internet Explorer," or "Internet Explorer" more prominently than your
company, product, or Internet Site name.
Artwork. Use only Microsoft authorized electronic artwork of the Logo. The
Logo must stand by itself and must include a minimum amount of empty space
surrounding the Logo (30 pixels) so as to separate it from any other
object, such as type, photography, borders, edges, and so on. The Logo may
not be used as a feature or design element of any other Logo.
Size. The Logo cannot be reduced in size beyond what is electronically
provided by Microsoft and must be placed in a prominent location on the
Internet Site where it is used. Do not remove any trademark symbols or
alter the Logo in any way. Redraws, distortions, or animation of the Logo
are not permitted beyond what is provided to authorized / registered
Microsoft Online logo Internet Sites.
Footnote. Include the following footnote on Internet Sites that include the
Logo: "Microsoft is a registered trademark in the United States and other
countries and the Microsoft Internet Explorer Logo is a trademark of
Microsoft Corporation."
Alterations to these guidelines
Microsoft reserves the right to change the Logo and these Usage Guidelines at
any time and solely at its discretion. If possible, Microsoft will provide
advanced notice of these changes. Any use of the Logo that is not consistent
with these guidelines is strictly prohibited.
Cancellation of authorization to host logo
Microsoft reserves the right to review use of the Internet Explorer Logo.
Disregard for these Usage Guidelines may result in a revocation of the right to
use the logo, and with it all benefits enjoyed through participation in the logo
program.
Third parties improperly using the Logo must correct any deficiencies in their
use of the Logo and/or in the quality of the product used in conjunction with
the Logo upon reasonable notice from Microsoft. Refusal to correct such
deficiencies may result in revocation of the right to use the Logo.
Questions
If you have any questions about the Logo Program, please send e-mail to
"[email protected]"
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
-20-
<PAGE>
ATTACHMENT I TO EXHIBIT G OF THE MICROSOFT INTERNET EXPLORER LOGO USAGE
GUIDELINES
Microsoft(R) Internet Explorer Online
Logo Qualification Criteria
This site is best experienced with
[SYMBOL OF MICROSOFT INTERNET EXPLORER APPEARS HERE]
Click here to Start
Gaining authorization to use the version of the Microsoft(R) Internet Explorer
online logo shown above for your Internet Site is easy. Simply fulfill the
following two criteria and you are eligible to use the logo.
1. Showcase on your Internet Site one or more of these HTML features:
. Ratings. Support self-regulation of content to ensure appropriate
-------
access to your Internet Site.
. Marquees. Scroll text or graphics across your screen.
--------
. Enhanced tables. Use colors/textures to make tabular data more
---------------
legible and visually appealing.
. Background sounds. Provide an auditory experience when your
-----------------
Internet Site is accessed.
. Watermarks. Create a mark of distinction on your home page.
----------
. Inline AVIs. Graphically animate your page beyond static images.
-----------
. Enhanced HTML Frame Tags. Simulate the appearance of a magazine
------------------------
with borderless, nonscrolling, floating frames, and even frames
within frames.
. Enhanced HTML style sheets. Control margins, line spacing, and
--------------------------
placement of design elements; specify fonts and point sizes; get
desktop publishing support for the Web.
2. Enroll in the logo program, and agree to follow the Logo Usage Guidelines.
Need Help Getting Started?
Please go to the FREE Microsoft Internet Explorer online logo--compliant Web
site template at http://www.microsoft.com/ie/log/actxtemp.htm. This template
will help to get you started in building your Internet Site or to simply enhance
your existing Internet Site. See examples of the new HTML features and
ActiveX(TM)-compatible controls at the ActiveX Gallery at
http://www.microsoft.com/ie/appdev/controls/default.htm.
If you want more assistance, order the ActiveX Development Kit at
http://www.microsoft.com/intdev/sdk.
Note About Changes:
Note: Due to the rapid development of Internet Explorer technology, these
criteria will change periodically over time. All online logo authorized sites
will be notified by e-mail of any changes to these criteria. Permission to use
the logo is limited to those who meet the then applicable criteria, and those
who no longer meet the criteria must discontinue use of logo.
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
-21-
<PAGE>
ATTACHMENT 2 TO EXHIBIT G OF THE MICROSOFT INTERNET EXPLORER LOGO USAGE
GUIDELINES
Microsoft(R) Internet Explorer Online
Animated Logo Qualification Criteria
This site is best experienced with
[SYMBOL OF MICROSOFT INTERNET EXPLORER APPEARS HERE]
Click here to start.
Gaining authorization to use the animated version of the Microsoft Internet
Explorer online logo shown above for your Internet Site is easy. Simply fulfill
the following three criteria and you are eligible to use the logo:
1. Showcase on your Internet Site one or more of these HTML features:
. Ratings. Support self-regulation of content to ensure appropriate
-------
access to your Internet Site.
. Marquees. Scroll text or graphics across your screen.
--------
. Enhanced tables. Use colors/textures to make tabular data more legible
---------------
and visually appealing.
. Background sounds. Provide an auditory experience when your Internet
-----------------
Site is accessed.
. Watermarks. Create a mark of distinction on your home page.
----------
. Inline AVIs. Graphically animate your page beyond static images.
-----------
. Enhanced HTML Frame Tags. Simulate the appearance of a magazine with
------------------------
borderless, nonscrolling, floating frames, and even frames within
frames.
. Enhanced HTML style sheets. Control margins, line spacing, and
--------------------------
placement of design elements; specify fonts and point sizes; get
desktop publishing support for the Web.
2. Activate your Internet Site with ActiveX(TM)-compatible Technology. Support
one or more ActiveX-compatible controls on your Internet Site.
. Demonstrate ActiveX-compatible controls. Make your Internet Site
---------------------------------------
interactive today!
. Script ActiveX-compatible controls. Use ActiveX-compatible scripts to
----------------------------------
make a Web page interactive. You can easily link together ActiveX-
compatible controls or intrinsic controls to create dynamic pages.
3. Enroll in the logo program and agree to follow the Logo Usage Guidelines.
Need Help Getting Started?
Please go to the FREE Microsoft Internet Explorer online logo--compliant Web
site template at http://www.microsoft.com/ie/log/actxtemp.htm. This template
will help to get you started in building your Internet Site or to simply enhance
your existing Internet Site. See examples of the new HTML features and
ActiveX-compatible controls at the ActiveX Gallery at
http://www.microsoft.com/ie/appdev/controls/default.htm.
If you want more assistance, order the ActiveX Development Kit at
http://www.microsoft.com/intdev/sdk.
Note: Due to the rapid development of Internet Explorer technology, these
criteria will change periodically over time. All online logo authorized sites
will be notified by e-mail of any changes to these criteria. Permission to use
the logo is limited to those who meet the then applicable criteria, and those
who no longer meet the criteria must discontinue use of logo.
TRADEMARKS. Microsoft and Windows are registered trademarks and ActiveX is a
trademark in the United States and other countries and the Microsoft Internet
Explorer Logo is a trademark of Microsoft Corporation.
-22-
<PAGE>
EXHIBIT H TO THE LICENSE AND DISTRIBUTION AGREEMENT
---------------------------------------------------
MICROSOFT(R) INTERNET EXPLORER STANDARD LOGO USAGE GUIDELINES
- --------------------------------------------------------------------------------
Includes
[LOGO OF MICROSOFT INTERNET EXPLORER APPEARS HERE]
Microsoft has established the following set of guidelines to assist you in
proper use of the Microsoft Internet Explorer standard logo (the "Logo").
The power of the Logo lies in its consistent and appropriate use. Any usage
outside these guidelines dilutes the effectiveness of the Logo and makes it more
difficult to defend our rights to the trademark.
Microsoft reserves the right to change the Logo and/or these Guidelines at any
time at its discretion. Third parties shall comply with the Guidelines as
amended from time to time.
ACCOMPANYING WORDS
The graphic may not be used without the words "Includes," "Microsoft(R)," and
"Internet Explorer" attached, except as otherwise provided below. No additional
or substitute words may be used. The words may not be abbreviated, translated,
or transliterated, as in non-English documentation. Microsoft will, however,
provide the Logo in versions where the word "Includes" may be translated for the
local market, as available. You may not substitute your own translation of the
Logo.
USING THE MICROSOFT INTERNET EXPLORER STANDARD LOGO
. Use the Logo only to promote Microsoft Internet Explorer and indicate that
your product includes Microsoft Internet Explorer.
. This Logo is NOT to be placed on World Wide Web sites for the purpose of
downloading Microsoft Internet Explorer. For this purpose, please see the
Microsoft Internet Explorer Online Logo Usage guidelines at
http://www.microsoft.com/ie/logo/.
. Microsoft will provide you with electronic artwork of the Logo. You may not
alter this artwork in any way.
. This Logo is for Microsoft and third party use only as a graphical
representation of Microsoft Internet Explorer software.
. Microsoft Use: The Logo may be used by Microsoft on packaging,
channel, collateral, advertising, direct mail, and events promotion
materials for Microsoft products that include Microsoft Internet
Explorer software. When referring to Microsoft Internet Explorer by
itself, Microsoft may use the Logo without the word "Includes."
. Third Party Use: The Logo may be used by third parties authorized
to distribute the Microsoft Internet Explorer software under a
separate License and Distribution Agreement. Authorized third
parties may use the Logo only on the product packaging of products
that include Microsoft Internet Explorer software and related
advertising.
LEGAL INFORMATION
. The Logo is owned by Microsoft Corporation. All uses of the Logo must
include the following notice: "Microsoft is a registered trademark in the
United States and other countries and the Microsoft Internet Explorer Logo
is a trademark of Microsoft Corporation." A trademark symbol (TM) should
appear to the right of the Logo without alteration from the electronic or
camera-ready artwork provided. In addition, a registered trademark symbol
((R)) must appear in the upper-right corner immediately following the word
"Microsoft." Do not remove any trademark symbols or alter the Logo in
any way.
-23-
<PAGE>
. The product name for Microsoft Internet Explorer should appear as
"Microsoft(R) Internet Explorer" at the first and most prominent use in
all materials and can thereafter be referred to as "Internet Explorer."
. Microsoft owns the Microsoft Internet Explorer Logo and all uses of the
Logo will inure to the benefit of Microsoft. Third parties shall employ
best efforts to use the Logo in a manner that does not derogate from
Microsoft's rights in the Logo and will take no action that will interfere
with or diminish Microsoft's rights in the Logo. Third parties should not
adopt, use, or register any corporate name, trade name, trademark, service
mark or certification mark, trade dress, or other designation similar to,
or containing in whole or in part the Logo.
. Third parties may not use the Logo in a manner that would imply that their
company or any goods or services provided by such third parties are
sponsored or endorsed by, or affiliated with Microsoft.
. Third parties may not display the Logo on packaging, documentation,
collateral, or advertising in a manner that suggests their product is a
Microsoft product, or in a manner that suggests Microsoft is a part of
their product name.
. You are not permitted to use the Logo to disparage Microsoft Corporation,
its subsidiaries, products, or services, or for promotional goods or for
products which, in Microsoft's reasonable judgment, may diminish or
otherwise damage Microsoft's goodwill in the Logo, including but not
limited to uses that could be deemed to be obscene, pornographic,
excessively violent, or otherwise in poor taste or unlawful, or which
purpose is to encourage unlawful activities.
. Third parties may not imitate Microsoft's product packaging or the Logo in
any of their materials, including advertising, product packaging, and
promotional materials.
. The Logo or the names "Microsoft," "Microsoft Internet Explorer," or
"Internet Explorer" cannot appear larger and/or more prominent than third
parties' trade name, service name, product name, or trademark on any
materials produced or distributed by such third parties.
. Microsoft reserves the right to object to unfair uses or misuses of its
trademarks or other violations of applicable law.
SIZING AND PLACEMENT REQUIREMENTS
. Recommended minimum size is 1" high. The "small" graphic interchange
format (GIF) file provided is an example of the smallest recommended size.
. The Logo with accompanying words must stand alone. A minimum amount of
empty space must surround the Logo so as to separate it from any other
object such as type, photography, borders, edges, and so on. The required
border of empty space around the Logo must be 1/2x wide, where x equals
the height of the Logo as measured from the top edge of the word
"Includes" to the bottom edge of the word "Explorer."
. You may not combine the Logo with any other object, including, but not
limited to, other logos, words, graphics, photos, slogans, numbers, design
features, or symbols.
. The Logo may not be used as a design feature on your product, product
packaging, documentation, collateral, or advertising.
FOUR-COLOR OR ONE-COLOR APPLICATIONS
COLORS
The color version is the preferred way of reproducing the Logo. The Logo
consists of a blue graphic element and black type. The PANTONE(R) Matching
System (PMS) color for the blue is PMS 279 C. Four-color process (CMYK)
equivalents can also be used. For online usage, the blue color should be Red 0,
Green 102, Blue 255 for 8-bit or higher resolution palettes.
The color version can be reproduced only as described here.
BLACK-AND-WHITE APPLICATIONS
The black-and-white Logo consists of a black graphic element and black type.
Please use the file provided.
ACCESSING THE FILES
The print files are provided in Encapsulated PostScript(R) (EPS) and Windows(R)
metafile (WMF) format. Use the EPS files for materials printed to a
PostScript-compatible printer. Use the Windows metafile to print to a
non-PostScript printer.
-24-
<PAGE>
These files should not be opened and edited, only placed (for example, select
"import...picture") into software programs such as common page-layout or
presentation programs, word-processing software, and so forth. Due to
translation problems between the Mac and PC, Mac(TM) EPS images may lose their
preview. When you place them into your page-layout document, you will see a box
or big `X' instead of the preview. The image will still print correctly and the
bounding box accurately shows the size of the image. EPS images are sizable, but
please scale proportionately. PC EPS images only have black-and-white previews.
If you chose to use a color PC EPS, it will still preview in black and white.
When you print it, the color will print correctly. EPS format is
device-dependent so the resolution of the device you are printing to is the
resolution you will achieve. The art files include Adobe Illustrator (ART) and
Macromedia Freehand (FH5) format. These are provided for use where the print
files supplied will not work. They are not to be altered.
QUALITY CONTROL
Microsoft reserves the right to review your use of the Logo and to conduct spot
checks on all products, product packaging, marketing materials, and
documentation and may periodically send out requests for samples. Microsoft may
also conduct spot checks in retail outlets and other product sources to monitor
your compliance with these Logo Usage Guidelines. Refusal to submit samples,
noncompliance with these Guidelines, or failure to correct any deficiencies in
your use of the Logo and/or in the quality of the product used in conjunction
with the Logo upon reasonable notice from Microsoft could result in revocation
of your license to use the Logo.
(C)1996 Microsoft Corporation. All rights reserved.
Microsoft and Windows are registered trademarks in the United States and/or
other countries and the Microsoft Internet Explorer logo is a trademark of
Microsoft Corporation.
PostScript is a registered trademark of Adobe Systems, Inc. Macintosh is a
registered trademark and Mac is a trademark of Apple Computer, Inc. PANTONE is a
registered trademark of Pantone, Inc.
- --------------------------------------------------------------------------------
-25-
<PAGE>
EXHIBIT Z
---------
WINDOWS 95 ISP REFERRAL AND ORDERING PROCESS
[FLOW CHART APPEARS HERE]
User ISP MS
User clicks on
"The Internet"
icon
Dial in MS Referral Server's
to MS ISP listing downloaded
to client
User views ISP
Information Pages &
chooses an ISP
Dial in ISP's server answers call
to ISP & presents on-line sign-up
forms
User completes sign- Sign-up information is
up form & chooses accepted by ISP server
access #
User dials local INS file sent to update
access to connect to the browser to support
ISP service ISP's service
ISP software delivered
electronically to
User logged on client
and browsing the
Internet
-26-
<PAGE>
Page 1
ADDENDUM TO MICROSOFT CORPORATION
Site License and Intranet Distribution Site License
or
License and Distribution Agreement
MICROSOFT INTERNET EXPLORER PRODUCT
Upon receipt of this Addendum, signed and completed by the individual or
organization indicated below ("Recipient"), also having signed and completed a
Microsoft Corporation ("MS") Site License and Intranet Distribution Site License
or License and Distribution Agreement ("the Agreement") for Microsoft Internet
Explorer MS may elect, at MS' sole discretion, to provide Recipient with a copy
of the MS Internet Explorer Administration Kit containing a high-security
(128-bit) implementation of Internet Explorer SSL/PCT security and related
documentation and information (collectively the "Product").
Recipient understands and acknowledges the following:
1. EXPORT RESTRICTIONS. The following terms are added to the Agreement:
Recipient acknowledges that the Product licensed hereunder is intended for
distribution only in the United States and Canada, and that any export of the
Product from the United States is regulated by the International Traffic in Arms
Regulations (ITAR, 22 CFR 120-130) of the U.S. State Department, Office of
Defense Trade Controls. A State Department license is required to export the
Product outside the United States or Canada. You agree that you will not
directly or indirectly, export or re-export the Product (or portions thereof) to
any country, other than Canada, or to any person, entity or end user subject to
U.S. export restrictions without first obtaining a State Department export
license. You warrant and represent that neither the U.S. State Department Office
of Defense Trade Controls nor any other U.S. federal agency has suspended,
revoked or denied your export privileges.
2. PERMISSIBLE EXPORTS.
Exports to Canada. Recipient acknowledges that if they are located in Canada or
intend to redistribute the Product in Canada that export of the Product to
Canada for redistribution or use in Canada or the United States is specifically
authorized and governed by U.S. export law (ITAR 22 CFR 125.5).
Other Exports. The Recipient may re-export the Product outside the United States
or Canada only as specifically authorized by an export license, distribution
agreement, or other export approval issued by the U.S. State Department, Office
of Defense Trade Controls.
3. EXCLUSIONS FROM DISTRIBUTION. The Recipient may not redistribute the Product
or 128-bit Internet Explorer electronically such that it would be made
accessible to users located outside the U.S. or Canada. Recipient may not
redistribute the 128-bit version of Internet Explorer via its publicly
accessible Internet Site without specific written authorization from Microsoft
and an export license or authorization from the U.S. State Department, if
applicable.
4. PARTIES BOUND. If "Company Name" or a company address is filled in below,
then the individual signing this Addendum represents that he/she has authority
to execute this agreement on behalf of such company and agrees that Product (and
any copies thereof) shall remain on the company premises, unless otherwise
agreed by MS.
<PAGE>
Page 2
This Addendum does not otherwise amend or alter the Agreement previously
signed and completed by the Recipient.
IN WITNESS WHEREOF, Recipient has caused this Addendum to be executed by its
duly authorized representative.
Prodigy
- --------------------------------------------------------------------------------
Company Name
- --------------------------------------------------------------------------------
Contact (Recipient)
/s/ Signature appears here
- --------------------------------------------------------------------------------
Company Authorized Representative's Signature
Chip Austin VP, Sales
- --------------------------------------------------------------------------------
Print Authorized Signature and Title
445 Hamilton Avenue
- --------------------------------------------------------------------------------
Physical Address (No P.O. Boxes)
White Plains, NY 10601
- --------------------------------------------------------------------------------
City, State/Province, Zip/Postal code, Country
914-448-8000
- --------------------------------------------------------------------------------
Phone Number
12/19/96
- --------------------------------------------------------------------------------
Date
[SEAL APPEARS HERE]
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
INTERNET EXPLORER 4.0 LAUNCH AGREEMENT
This Internet Explorer 4.0 Launch Agreement (the "Agreement") is entered into
and effective as of __________, 1997 (the "Effective Date") by and between
MICROSOFT CORPORATION, a Washington corporation located at One Microsoft Way,
Redmond, WA 98052 ("Microsoft") and "Company:"
--------------------------------------------------
Company Name Prodigy Services Corporation
& Address: 445 Hamilton Avenue
White Plains, New York 10601
--------------------------------------------------
Attention: Contact/Title:
Phone:
Fax:
Email:
--------------------------------------------------
State of Incorp.: Delaware
--------------------------------------------------
RECITALS
Microsoft is releasing version 4.0 of Internet Explorer, its Internet-related
World Wide Web ("Web") browser technology ("IE4")
Company is an Internet Service Provider ("ISP") which provides Internet access,
software and services through its Prodigy Internet service ("Company Service").
Microsoft and Company wish to engage in joint marketing and distribution
programs by which: Company will distribute IE4 to its current and prospective
subscribers directly following the release of IE4; and the parties will jointly
market and promote IE4 and Company Service.
The parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
In addition to the definitions set forth above, the following terms shall have
the meanings ascribed to them when used in this Agreement:
1.1 "Confidential Information" means: (i) any trade secrets relating to either
party's product or service plans, designs, costs, prices and names,
finances, marketing plans, business opportunities, personnel, research,
development or know-how; and (ii) the specific terms and conditions of this
Agreement. "Confidential Information" shall not include information that:
(i) is or becomes generally known or available, whether by publication,
commercial use or otherwise, without restriction on disclosure and through
no fault of the receiving party; (ii) is known and has been reduced to
tangible form by the receiving party at the time of disclosure and is not
subject to restriction; (iii) is independently developed or learned by the
receiving party without reference to any Confidential Information of the
disclosing party; (iv) is lawfully obtained from a third party that has the
right to make such disclosure.
1.2 "IE4" means Microsoft's U.S. English language version Web browsers and
related Internet client technology for all Platforms as marketed by
Microsoft under the name "Internet Explorer v. 4.x." The IE4 distributed by
Company under this Agreement may be customized by Company in accordance
with its license agreement with Microsoft dated on or about September 18,
1996.
Page 1 of 6
<PAGE>
IE4 Launch Agreement
Version: 042497
1.3 "Joint Promotion Plan" means the joint marketing and promotion activities
for IE4 and the Company Service, as set forth in Attachment 1.
1.4 "Launch" means the date on which Microsoft releases a final commercial
(non-beta) version of IE4 for Win32 to the public, either through retail
distribution or via the Web, currently scheduled for September 30, 1997.
Microsoft expects to release IE4 for the Windows 3.xx and Macintosh
Platforms within 60 days of the Win32 launch. Unless otherwise specified,
"Launch" means the launch for the Win32 Platform.
1.5 "Platforms" means the operating system platforms for which Microsoft is
releasing IE4: Windows 3.xx; Win32 (Windows 95 and Windows NT); and
Macintosh.
1.6 "Subscribers" means current or prospective subscribers to the Company
Service.
1.7 "Term" means the term of this Agreement, which shall be the period
commencing upon the Effective Date and ending upon completion of the Joint
Promotion Plan.
2. MICROSOFT OBLIGATIONS
2.1 Company Service Support. Prior to Launch, Microsoft shall:
-----------------------
(a) Secure reasonable support from Microsoft Product Support Services
("PSS") for Company technical personnel and Subscribers participating
in the IE4 beta program;
(b) Provide newsgroup support of a Company Service IE4 beta program; and
(c) Provide specialized technical support to assist Company with
distribution of IE4 betas.
2.2 Early Releases and Other Development Support. During the Term, Microsoft
--------------------------------------------
shall provide Company with early (beta and, where practical as determined
by Microsoft in its sole discretion, alpha) releases of Active Desktop and
Internet Explorer to use and reproduce for internal development purposes
only.
2.3 IE4 License. To the extent Company Service is not already licensed,
-----------
Microsoft shall provide Company with a non-exclusive, royalty-free,
worldwide license to use, customize and distribute IE4 under Microsoft's
standard Internet Explorer Administration Kit ("IEAK") terms and
conditions. IEAK terms and conditions may be viewed at:
http:\\www.microsoft.com\ie\iedist.
3. COMPANY OBLIGATIONS
3.1 Beta Program. Within two (2) weeks of receiving an official beta of IEAK
------------
for IE4.0, Company shall institute an IE4 beta program with a select number
of its Subscribers for the Windows 95 Platform. Company will use reasonable
commercial efforts to recruit at least 5,000 users.
3.2 Distribution of IE4. Within two (2) weeks of receiving a final version of
-------------------
Microsoft IEAK for 1E4, Company shall distribute IE4 to its Subscribers as
follows:
(a) Company shall host free downloading of IE4 from Company's Web site(s)
and promote the availability of the download on Company's home page.
(b) Company shall distribute a free CD-ROM containing IE4 to all existing
subscribers who request the software.
<PAGE>
IE4 Launch Agreement
Version: 042497
(c) Company shall provide a shall provide a toll-free number for
Subscribers to call and request a free copy of IE4 on CD-ROM, and
Company shall fulfill such requests. These requests shall be made
available to both new and existing customers.
3.3 Channel. Company will develop a "channel" for IE4 in accordance with
-------
Microsoft's proposed W3C standard Channel Definition Format.
4. JOINT PROMOTION PLAN
4.1 Joint Promotion Plan. The parties shall complete the activities set forth
--------------------
in the Joint Promotion Plan as Set forth in Attachment 1 (attached hereto
and incorporated by reference herein). For four months following Launch,
Company shall not advertise or otherwise promote competing browser or email
client software in television, radio or print media or on the Company Web
site; provided, however, that Company shall be free to distribute competing
browsers, including providing links on its Web site to download competing
browsers. The parties shall complete the activities set forth in the Joint
Promotion Plan.
4.2 Finalization of Plan. If the Joint Promotion Plan is not complete as of the
--------------------
Effective Date, the parties will use all reasonable efforts to complete the
Joint Promotion Plan within thirty (30) days of the Effective Date.
4.3 Review. The content, timing and necessity of any activities in the Joint
------
Promotion Plan, including any press releases, joint appearances,
advertising and the like, shall be mutually agreed upon in advance by both
parties. Each party shall appoint a representative to coordinate the
finalization and execution of the Joint Promotion Plan.
5. MISCELLANEOUS
5.1 Expenses. Unless otherwise specified, each party shall bear its own
--------
expenses for obligations incurred under this Agreement.
5.2 Non-Exclusive. Except as expressly provided in this Agreement, Microsoft
-------------
shall have no obligation to market, sell or otherwise distribute the
Product, either alone or in any Microsoft product. This Agreement is
non-exclusive, and nothing in this Agreement will be construed as
restricting Microsoft's ability to support, promote, advertise or
distribute, or have others support, promote, advertise or distribute for
Microsoft, Internet technology and services, including technology and
services from Microsoft or third party ISPs, in connection with 1E4, the
Launch or otherwise.
6. CONFIDENTIALITY
6.1 Restrictions on Use and Disclosure. Each party shall protect the other's
----------------------------------
Confidential Information from unauthorized dissemination and use with the
same degree of care that such party uses to protect its own like
information. Neither party will use the other's Confidential Information
for purposes other than those necessary to directly further the purposes of
this Agreement. Each party will use its best efforts not to disclose to
third parties the other's Confidential Information without the prior
written consent of the other party. Except as expressly provided in this
Agreement, no ownership or license rights are granted in any Confidential
Information.
6.2 Residuals. The parties' obligations of confidentiality under this Agreement
---------
shall not be construed to limit either party's right to independently
develop or acquire products without use of the other party's Confidential
Information. Further, either party shall be free to use for any purpose the
<PAGE>
IE4 Launch Agreement
Version: 042497
residuals resulting from access to or work with such Confidential
Information, provided that such party shall maintain the confidentiality of
the Confidential Information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by persons who have
had rightful and good faith access to the Confidential Information,
including ideas, concepts, know-how or techniques contained therein.
Neither party shall have any obligation to limit or restrict the assignment
of such persons or to pay royalties for any work resulting from the use of
residuals. However, this Section 6.2 shall not be deemed to grant to either
party a license under the other party's copyrights or patents.
6.3 Limitations. The other provisions of this Agreement notwithstanding, either
-----------
party will be permitted to disclose the terms and conditions of this
Agreement to their outside legal and financial advisors and to the extent
required by applicable law; provided, however, that before making any such
required filing or disclosure, the disclosing party shall first give
written notice of the intended disclosure to the other party, within a
reasonable time prior to the time when disclosure is to be made, and the
disclosing party will exercise best efforts, in cooperation with the other
party, consistent with reasonable time constraints, to obtain confidential
treatment for all non-public and sensitive provisions of this Agreement,
including without limitation dollar amounts and other numerical
information.
7. WARRANTIES
Each party warrants and represents that it has the full power and all necessary
rights to enter into and perform according to the terms of this Agreement.
8. DISCLAIMER OF FURTHER WARRANTIES
EXCEPT AS EXPRESSLY WARRANTED IN SECTION 7, NEITHER PARTY MAKES ANY
FURTHER WARRANTY OF ANY KIND AND DISCLAIMS ALL FURTHER WARRANTIES, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NONINFRINGEMENT. IN
PARTICULAR, COMPANY UNDERSTANDS AND AGREES THAT IE4 IS PROVIDED TO COMPANY AND
ITS SUBSCRIBERS "AS IS" WITHOUT WARRANTY OF ANY KIND.
9. TERMINATION
9.1 Term. This Agreement shall commence upon the Effective Date and continue in
----
full force and effect until the earlier of(i) termination for cause as set
forth in Section 9.2, or (ii) expiration of the Term.
9.2 Termination By Either Party For Cause. Either party may suspend performance
-------------------------------------
and/or terminate this Agreement immediately upon written notice at any time
if:
(a) The other party is in material breach of any material warranty, term,
condition or covenant of this Agreement, other than those contained in
Section 6, and has failed to cure that breach within fifteen (15) days
after written notice thereof, or
(b) The other party is in material breach of Section 6.
9.3 Effect of Termination. Neither party shall be liable to the other for
---------------------
damages of any sort resulting solely from terminating this Agreement in
accordance with its terms.
<PAGE>
IE4 Launch Agreement
Version: 042497
9.4 Survival. In the event of termination or expiration of this Agreement for
--------
any reason, Section 5, 7, 8, 9, 10 and 11 shall survive any termination or
expiration of this Agreement.
10. LIMITATION OF LIABILITIES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, PUNITIVE, SPECIAL OR OTHER RELATED OR SIMILAR DAMAGES (BUT NOT
INCLUDING DIRECT DAMAGES) WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR
LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION,
AND THE LIKE FOR A BREACH OF THIS AGREEMENT, EVEN IF A PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION SHALL HAVE NO APPLICATION TO
SECTION 6.
11. GENERAL PROVISIONS
11.1 Notices. All notices and requests in connection with this Agreement shall
-------
be deemed given as of the day they are received by the party to whom they
are addressed, either by messenger, delivery service, or in the United
States of America mails, postage prepaid, certified or registered, return
receipt requested, and addressed as indicated below or to such other
address as a party may designate pursuant to this notice provision:
To Company: see address on page 1
To Microsoft:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Director of Business
Development, Internet Division
Phone: (206) 936-6460
Fax: (206) 703-1360
Copy to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Law & Corporate Affairs
Fax: (206) 936-7409
or to such other address as a party may designate pursuant to this notice
provision.
11.2 Independent Parties. Nothing in this Agreement shall be construed as
-------------------
creating an employer-employee or agency relationship, a partnership, or a
joint venture between the parties.
11.3 Governing Law. This Agreement shall be governed by the laws of the State of
-------------
Washington as though entered into between Washington residents and to be
performed entirely within the State of Washington.
11.4 Attorneys' Fees. 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.
<PAGE>
IE4 Launch Agreement
Version: 042497
11.5 Assignment. This Agreement shall be binding upon and inure to the benefit
----------
of each party's respective successors and lawful assigns; provided,
however, that neither party may assign this Agreement, in whole or in part,
without the prior written approval of the other party. For purposes of this
Agreement, a merger, consolidation, or other corporate reorganization, or a
transfer or sale of any or all of a party's stock, or of all or
substantially all of its assets shall be deemed to be an assignment.
11.6 Construction. If for any reason a court of competent jurisdiction finds any
------------
provision of this Agreement, or portion thereof, to be unenforceable, that
provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect Failure by either
party to enforce any provision of this Agreement will not be deemed a
waiver of future enforcement of that or any other provision. 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.
11.7 Entire Agreement. This Agreement does not constitute an offer by Microsoft
----------------
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and merges all prior and contemporaneous
communications. It shall not be modified except by a written agreement
subsequent to the date of this Agreement and signed on behalf of Company
and Microsoft by their respective duly authorized representatives.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
- --------------------------------------------------------------------------------
MICROSOFT CORPORATION COMPANY
- --------------------------------------------------------------------------------
By: /s/ Yasuf Mehdi By: /s/ Chip Austin
Name (print) Yasuf Mehdi Name (print): Chip Austin
Title: Director of Marketing Title: SVP, Sales
Date: 10/22/97 Date: 9/26/97
- --------------------------------------------------------------------------------
[SEAL APPEARS HERE]
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
ATTACHMENT 1
JOINT PROMOTION PLAN
--------------------
I. Launch Event Participation.
--------------------------
If all obligations from Section 3, Company Requirements, are met to the
satisfaction of Microsoft, Company will be featured in the physical launch
event. Launch Event plans are still under development. Possible
participation will include on stage announcement of company's support for
the product, normally done with a video, sponsorship of Internet access for
one or many of the demo stations at the event, a demonstration machine to
introduce Company's newly developed channel for the IE 4.0 desktop.
II. Co-Marketing & Advertising.
--------------------------
If all obligations from Section 3, Company Requirements, are met to the
satisfaction of Microsoft, Microsoft will provide Co-Marketing advertising
funding for print advertising. Microsoft will fund [**] of the Company's
media buy up to a total combined media buy of [**].
Co-Marketing Ad Requirements:
. Company is responsible for all creative costs.
. Creative theme must contain reasonable messaging promoting
Company's delivery of IE 4.0. Such themes and any associated
advertising design shall be at Company's discretion.
. IE Logo requirements:
. Logo must appear in lower right hand corner of all co-funded print
advertisements.
. Sizing of Logo must adhere to the IE Logo usage requirements.
Microsoft will provide logo requirements to Company with related
logo artwork.
. Must include toll free number for fulfillment IE 4.0. Competitive
Browsers cannot be offered via this same toll free number.
. Ad Dates: Any qualifying ad must run within 6 months of the official
IE 4.0 Launch date.
. Microsoft will provide to Company the IE 4 graphical elements, which
can be used at Company's discretion.
Microsoft must approve all creative elements of co-funded advertising before
- ----------------------------------------------------------------------------
going to production.
- --------------------
III. Press Releases at Launch.
------------------------
If all obligations from Section 3, Company Requirements, are met to the
reasonable satisfaction of Microsoft, Company will receive mention in at
least one IE 4.0 press release.
IV. Partner Web Site.
----------------
If all obligations from Section 3, Company Requirements, are met to the
satisfaction of Microsoft, Company will be featured on a web site promoting
Microsoft's IE 4.0's launch access partners. Site will be located off of
Error! Bookmark not defined.
<PAGE>
EXHIBIT 10.36
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
SOFTWARE DEVELOPMENT AND PROCESSING SERVICES AGREEMENT
This Agreement (the "Agreement"), effective as of January 1, 1992 (the
"Effective Date"), is made by and between First Data Resources Inc., a Delaware
corporation, having its principal place of business at 7301 Pacific Street,
Omaha, Nebraska 68114 ("FDRI"), with one of its business units being Cable
Services Group ("CSG"), and Prodigy Services Company, a partnership established
under the laws of New York, having its principal place of business at 445
Hamilton Avenue, White Plains, New York 10601 ("PRODIGY").
WHEREAS, FDRI and PRODIGY (under its former partnership name "TRINTEX")
entered into a Software Development and Processing Services Agreement dated May
26, 1987, as amended a First Amendment dated May 1, 1990 (the "Prior
Agreement"); and
WHEREAS, pursuant to the Prior Agreement, FDRI developed, tested,
implemented and enhanced a Subscription Management System (the "SMS Product")
for PRODIGY capable of obtaining information and billing individuals and
entities for subscription to the on-line computer services provided by PRODIGY
and used such system to provide processing services to PRODIGY in connection
with PRODIGY's member billing operations; and
1 CONFIDENTIAL
<PAGE>
Contract #3284
WHEREAS, PRODIGY desires to engage FDRI to continue to provide full
life cycle systems development, data processing services and other services for
PRODIGY in connection with PRODIGY'S member billing operations and to create a
software development team at FDRI dedicated to the development of a Member
Administrative System (the "MAS System") for PRODIGY;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, the parties hereto agree as follows:
1. SERVICES
1.1 SOFTWARE DEVELOPMENT
1.1.1 The Systems
1.1.1.1 SMS System. The "SMS System" (or "SMS") means the SMS Product as
defined in Exhibits 15 and 25, together with those System Enhancements
and Maintenance to the SMS Product which FDRI furnishes to PRODIGY from
time to time during the term of this Agreement.
FDRI shall develop, test and implement each SMS System Enhancement
and/or Maintenance Change to substantially perform in accordance with
this Agreement and the
2 CONFIDENTIAL
<PAGE>
Contract #3284
operational guidelines for development and maintenance as set forth in
Exhibits 1-29. Each SMS System Enhancement and/or Maintenance
Change shall be jointly prioritized by FDRI and PRODIGY, and
implemented in accordance with each SMS Joint Detailed Project Plan
that results from Exhibit 1 Section 2 and with the SMS Implementation
Plans that result from Exhibit 5 Section 5.
1.1.1.2 MAS System. The "MAS System" (or "MAS") means and includes all modules
and subsystems of the MAS System to be developed and implemented from
time to time during the term of this Agreement by FDRI for PRODIGY as
described in the MAS Request For Information (Exhibit 20), the MAS
Level Zero Requirements Specification Documentation (Exhibit 21) and
the MAS Level One Requirements Specification Documentation (Exhibit
22).
FDRI shall develop, test and implement each module and subsystem of
the MAS System to substantially perform in accordance with this
Agreement and the operational guidelines for development and
maintenance as set forth in Exhibits 1-29. MAS shall be developed,
tested and implemented in modules and subsystems, which shall be
jointly prioritized by FDRI and PRODIGY, and implemented in accordance
with each MAS Joint Detailed Project Plan that
3 CONFIDENTIAL
<PAGE>
Contract #3284
results from Exhibit 1 Section 2 and with the MAS Implementation Plans
that result from Exhibit 5 Section 6.
1.1.2 Project Managers and Key Personnel. FDRI and PRODIGY agree to assign
and make available one Project Manager each and other key personnel
for the duration and completion of the MAS systems development, MAS
maintenance, SMS operations, SMS maintenance and MAS operations, under
the direction of the Project Managers to ensure the completion of the
SMS and MAS projects as specified in the Joint Detailed Project Plan.
In the event either or both of the Project Managers or other key
personnel are reasonably unavailable to FDRI or PRODIGY during the
duration and completion of the above tasks, then FDRI or PRODIGY may
assign a new individual upon prior written notice to the other party
designating such new individual by name and function. The Project
Managers shall be responsible for the day-to-day management and
successful completion of the MAS and SMS projects (as set forth in
Exhibit 1) and of the Joint Detailed Project Plans required under
Exhibit 1 Section 2. The Project Managers shall also establish a MAS
Design Baseline that shall be mutually agreed to by FDRI and PRODIGY,
having been reviewed and approved by appropriate management. The MAS
Design Baseline shall consist of the Functional and Data Specifi-
cations from the respective Business Area Analysis Units designated
by the parties during the Logical Phase of the MAS system
4 CONFIDENTIAL
<PAGE>
Contract #3284
development life cycle. The Logical Phase work product deliverables
that will define the MAS Design Baseline will be: Process and Data
Definitions; Process Decomposition Diagrams (Logical Process Model);
Data Flow Diagrams; Entity Relationship Diagrams (Logical Entity
Model); and Association Matrices.
1.1.3 Change Control. All proposed changes to SMS and MAS shall be
prioritized by PRODIGY; provided, however, that all changes to SMS
and/or to the MAS Design Baseline shall be mutually agreed upon and no
changes shall be built into either SMS or MAS without prior estimation
by FDRI of any cost and/or time frame implementation impact on the
respective Joint Detailed Project Plans for SMS and/or MAS; and
provided, further, that wherever costs of development or time-frames
are at issue, the parties shall negotiate in good faith to reconcile
the differences between them to reach, as soon as practicable, a
mutually agreeable project plan to accommodate the implementation of
any change. Change Control shall be administered for SMS and the MAS
Design Baseline according to the methodologies and standards resulting
from Exhibit 3 Section 10.
1.1.4 Hardware and Configuration.
1.1.4.1 SMS. In accordance with the requirements set forth in
5 CONFIDENTIAL
<PAGE>
Contract #3284
Exhibit 8, FDRI will provide PRODIGY with an initial description and
periodic description updates of the hardware, systems software and
associated systems configuration equipment (the "Equipment") necessary
to execute SMS in compliance with the performance standards set forth
in Article 3 of this Agreement. FDRI and PRODIGY understand and agree
that FDRI may, at its sole expense upon notice to PRODIGY, change any
such Equipment that is located on FDRI's premises and/or the
configuration thereof; provided that such changes shall not alter the
scope of the work agreed to by the parties or the work plan therefor.
FDRI and PRODIGY also understand and agree that except upon ninety
(90) days' prior written notice to PRODIGY of its intentions, and
PRODIGY's written consent thereto, FDRI will not make any change to
its Equipment that will have a material adverse impact on the
processing capacity or performance level of SMS.
1.1.4.2 MAS.
(a) Equipment Located at FDRI's Locations. Upon the completion of
the physical design for MAS, in accordance with the requirements
set forth in Exhibit 8, FDRI will provide PRODIGY with an initial
description and periodic description updates of the Equipment (as
that term is defined in Section 1.1.4.1
6 CONFIDENTIAL
<PAGE>
Contract #3284
above) necessary to execute MAS in accordance with the
performance standards set forth in Article 3 of this Agreement.
FDRI and PRODIGY understand and agree FDRI may, at its sole
expense upon notice to PRODIGY, change any such Equipment that is
located on FDRI's premises and/or the configuration thereof;
provided that such changes shall not alter the scope of the work
agreed to by the parties or the work plan therefor. FDRI and
PRODIGY also understand and agree that except upon ninety (90)
days' prior written notice to PRODIGY of its intentions, and
PRODIGY's written consent thereto, FDRI will not make any change
to its Equipment that will have a material adverse impact on the
processing capacity or performance level of SMS.
(b) Equipment Located or PRODIGY's Locations. FDRI and PRODIGY
understand and agree that until MAS is more completely designed
and FDRI understands which subsystems PRODIGY wishes to run at
PRODIGY's locations, FDRI will be unable to tell PRODIGY what
Equipment and configurations will be necessary to permit PRODIGY
to run each MAS subsystem. FDRI will be able to designate the
required Equipment and configurations within a reasonable period
of time. PRODIGY understands and agrees that all such Equipment
that is located on PRODIGY's premises, or the premises
7 CONFIDENTIAL
<PAGE>
Contract #3284
of any designated agent of PRODIGY, will be at PRODIGY's expense.
1.1.5 Responsibilities of FDRI and PRODIGY.
FDRI and PRODIGY shall develop mutually agreed upon Joint Detailed
Project Plans in accordance with Exhibit 1 Section 2, and
Implementation Plans for SMS and MAS in accordance with Exhibit 5
Sections 5 and 6 respectively. FDRI will put forth good faith efforts
to ensure the quality of SMS and MAS.
1.1.6 Progress Reports and Meetings for SMS and MAS. FDRI and PRODIGY agree
to meet regularly as described in Exhibit 1 Section 3 to review
progress of the MAS and SMS Systems Development and Maintenance. Such
meetings shall be held as needed, but in any event not less frequently
than quarterly and shall be documented in writing and signed by the
Project Managers, and reflect all questions discussed and decisions
made.
1.1.7 SMS Enhancements and Maintenance Team. As of the date of this
Agreement, FDRI employs certain individuals (referred to in Exhibit 6
as the "SMS Enhancements and Maintenance Team") who are and/or shall
be assigned exclusively to work
8 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
on enhancements and maintenance for the SMS Product in the following
capacities:
Personnel Rates/Per Day/Per Person
One Team Leader (Development Manager) [**]
Two Systems Analysts [**]
Six Programmers [**]
One Technical Support Person [**]
One Product Integrity (Testing/Quality
Assurance) Person [**]
FDRI will be responsible for the payment of all salary and benefits
for personnel comprising the SMS Enhancements and Maintenance Team.
Changes in personnel shall be agreed upon in writing by both Project
Managers, as provided below.
FDRI shall retain the SMS Enhancements and Maintenance Team during the
period from January 1, 1992 through December 31, 1995, and PRODIGY
shall be responsible for the payment to FDRI of [**] per month to
fund such Team upon the submission of monthly invoices by FDRI. During
the period between January 1, 1992 and December 31, 1995, FDRI will
not substantially change the quality, quantity or skill levels of the
SMS Enhancements and Maintenance Team without the prior written
consent of PRODIGY. In the event at any time after January 1, 1992
9 CONFIDENTIAL
<PAGE>
Contract #3284
PRODIGY desires an increase in personnel for the SMS Enhancements and
Maintenance Team above the levels designated above in this Section
1.1.7, PRODIGY must provide FDRI written notice of such increase,
including the reasons for requiring such increase. All such requests
shall designate the job category such personnel should be hired into.
FDRI agrees to respond to all such requests promptly, provided,
however, that any increase in personnel shall be made only upon FDRI's
written consent. Upon FDRI's consent, which shall not be unreasonably
withheld or conditioned, FDRI shall use reasonable efforts to staff
all such additional personnel. Any additional personnel for the SMS
Enhancements and Maintenance Team requested by PRODIGY and agreed to
by FDRI will be invoiced to PRODIGY at the rates set forth in this
Section 1.1.7. Such rates shall not be amended or modified during the
Original Term, as defined in Section 7.1 of this Agreement.
1.1.8 MAS Development and Maintenance.
1.1.8.1 MAS System Development. In consideration of the financial and
technical resources committed hereunder by PRODIGY for the
development/enhancement of SMS, FDRI agrees to provide for the
development of MAS a level of support equivalent to that identified in
Section 1.1.7 above. Therefore, except
10 CONFIDENTIAL
<PAGE>
Contract #3284
where otherwise required or permitted under this Section 1.1.8.1, FDRI
shall employ, in the requisite positions and at the requisite skill levels,
eleven (11) individuals who will be dedicated by FDRI to the development of
the MAS System (the "MAS Development Team"). FDRI shall train such persons
in the skill sets required for their individual MAS Development tasks,
e.g., CASE tools, database design, realtime on-line processing. If
----
necessary, FDRI may contract with third parties to fulfill the required MAS
development tasks. In all cases, FDRI will be responsible for the payment
of the salaries, benefits and project-related expenses for all personnel
comprising the MAS Development Team.
FDRI will begin employing personnel for the MAS Development Team
immediately and will have the eleven (11) individuals employed by no later
than December 31, 1992 with the goal of completing the MAS System by
December 31, 1995, in accordance with the MAS Joint Detailed Project Plans.
If despite FDRI's good faith efforts, satisfactory progress is not being
made towards the completion of the MAS System by December 31, 1995, then
the representatives for PRODIGY and FDRI designated pursuant to Section 9.9
shall meet and attempt to agree upon such additional measures as may be
necessary to achieve completion by the scheduled date of December 31, 1995.
If additional personnel are needed for
11 CONFIDENTIAL
<PAGE>
Contract #3284
reasons other than as described below, payment of these expenses shall be
separately negotiated and agreed upon by the Project Managers and their
immediate management and approved by CSG's Vice President Client Services
and PRODIGY's Vice President, Systems Operations and Telecommunications.
FDRI agrees to bear the full responsibility for hiring and funding any
additional personnel as may be necessary to achieve the scheduled
completion date for MAS as reflected in the initial MAS Design Baseline
approved by the parties. If any changes in the MAS Design Baseline which
are agreed to by PRODIGY and FDRI pursuant to Section 1.1.3 of this
Agreement shall result in the need for any additional personnel, then the
funding for such additional personnel shall be determined by mutual
agreement of the parties to this Agreement. Notwithstanding the foregoing,
if any additional personnel are needed due to changes unilaterally required
by PRODIGY either: (i) to accelerate the completion schedule set forth in
the MAS Joint Detailed Project Plans, or (ii) to significantly expand the
project beyond the scope of the MAS Design Baseline agreed to by the
parties, then PRODIGY shall bear the full cost of all personnel added to
the project in response to PRODIGY's requirement.
12 CONFIDENTIAL
<PAGE>
Contract #3284
1.1.8.2 Ownership of the SMS and MAS Systems.
(a) FDRI's Ownership Rights.
(i) SMS. The SMS System developed by FDRI pursuant to this
Agreement shall be the sole and exclusive property of FDRI, and,
subject to any rights PRODIGY may have to license such System pursuant
to this Agreement, PRODIGY acknowledges and agrees that all rights,
title and interests in and to the SMS System, including, without
limitation maskworks, firmware, computer programs, algorithms,
subroutines, methods, processes, concepts, designs, know-how,
techniques, data or other information of or concerning the SMS System
are and shall remain the sole and exclusive property of FDRI;
provided, however, that any Confidential Information of PRODIGY used
by FDRI in developing the SMS System shall be subject to the
Confidentiality Agreement between the parties dated June 5, 1986; and
provided, further, that during the Original Term and any Renewal
Period, FDRI shall not license or sell the SMS System, including any
modules or subsystems of the SMS System, nor use the SMS System, or
any modules or subsystems thereof, to provide data processing services
to any third party that is a direct competitor of PRODIGY in a line of
13 CONFIDENTIAL
<PAGE>
Contract #3284
business provided on a commercial basis by PRODIGY, whether on-line or
otherwise, domestically or internationally. Except for any patent,
copyright, trademark or other proprietary right retained by PRODIGY in any
Confidential Information of PRODIGY disclosed to FDRI under the terms of
the above-referenced Confidentiality Agreement and used by FDRI to develop
the SMS System, FDRI shall be the exclusive owner of all copyrights,
patents, patent application rights, corporate name and trademarks embodied
in or applicable to or noted in the SMS System or any components or
subsystems thereof. In the event of a conflict between this subsection
l.1.8.2(a)(i) and any provision of the above-referenced Confidentiality
Agreement, the language contained herein shall prevail.
(ii) MAS. The MAS System developed by FDRI pursuant to this Agreement shall
be the sole and exclusive property of FDRI, and, subject to any rights
PRODIGY may have to license such System pursuant to this Agreement, PRODIGY
acknowledges and agrees that all rights, title and interests in and to the
MAS System, including, without limitation maskworks, firmware, computer
programs, algorithms, subroutines, methods, concepts, designs, know-how,
techniques, data or other information of or concerning the MAS System
14 CONFIDENTIAL
<PAGE>
Contract #3284
are and shall remain the sole and exclusive property of FDRI; provided,
however, that all Confidential Information of PRODIGY used by FDRI to
develop the MAS System shall be subject to the Confidentiality Agreement
between the parties dated August 8, 1991; and provided, further, that
during the Original Term and any Renewal Period, FDRI shall not license or
sell the MAS System, including any modules or subsystems of the MAS System,
nor use the MAS System, or any modules or subsystems thereof, to provide
data processing services to any third party that is a direct competitor of
PRODIGY in a line of business provided on a commercial basis by PRODIGY,
whether on-line or otherwise, domestically or internationally. Except for
any patent, copyright, trademark or other proprietary right retained by
PRODIGY in any Confidential Information of PRODIGY disclosed to FDRI under
the terms of the above-referenced Confidentiality Agreement and used by
FDRI to develop the MAS System, FDRI shall be the exclusive owner of all
copyrights, patents, patent application rights, corporate name and
trademarks embodied in or applicable to or noted in the MAS System or any
components or subsystems thereof. In the event of a conflict between this
subsection 1.1.8.2(a)(ii) and any provision of the above-referenced
15 CONFIDENTIAL
<PAGE>
Contract #3284
Confidentiality Agreement, the language contained herein shall prevail.
(iii) CASE Encyclopedia. The CASE encyclopedia used by FDRI to develop the
MAS System (the "CASE Encyclopedia") shall be the sole and exclusive
property of FDRI, and, subject to any rights PRODIGY may have to license
the CASE Encyclopedia pursuant to this Agreement and any other rights
PRODIGY has under this subsection, PRODIGY acknowledges and agrees that all
rights, title and interest in and to the CASE Encyclopedia are and shall
remain the sole and exclusive property of FDRI.
FDRI acknowledges and agrees that the CASE Encyclopedia contains data
and/or information that describes certain PRODIGY Processes as defined in
subsection 1.1.8.2(b). During the term of this Agreement, prior to: (i)
using the MAS System (inclusive of the CASE Encyclopedia) to provide data
processing services to any third party, or (ii) using the CASE Encyclopedia
to generate software code for computer software programs or systems (other
than the MAS System) to be used for or by any third party, FDRI will notify
PRODIGY, in writing, of its intent to so use the CASE Encyclopedia, and
PRODIGY shall be given a reasonable period of time following
16 CONFIDENTIAL
<PAGE>
Contract #3284
receipt of such notification, not to exceed fifteen (15) days, in which to
designate to FDRI, in writing, those specific PRODIGY Processes identified
in the Index referred to in subsection 1.1.8.2(b) (iii) of this Agreement
which PRODIGY desires to protect from disclosure to, or use by or for, such
third party. Following such designation, FDRI, at its sole expense, shall
remove all data and information describing such PRODIGY Processes from the
CASE Encyclopedia prior to use for or by the third party in question.
Within thirty (30) days following the effective date of termination of this
Agreement, or the expiration of the Original Term or the Renewal Period,
PRODIGY shall designate to FDRI, in writing, those specific PRODIGY
Processes identified as the Index referred to in subsection l.1.8.2(b)(iii)
which PRODIGY desires to protect from disclosure to, or use by or for,
third parties. Following such designation, FDRI, at its sole expense, shall
remove all data and information describing such PRODIGY Processes from the
CASE Encyclopedia. Following the removal of all data and information
describing the PRODIGY Processes designated by PRODIGY, FDRI shall be free
to use the MAS System and/or the CASE Encyclopedia without further
restriction.
17 CONFIDENTIAL
<PAGE>
Contract #3284
(iv) FDRI Processes. FDRI has originally developed certain proprietary
processes that have been or will be described in the data and information
which forms a part of the CASE Encyclopedia, but excluding any process: (i)
mutually recognized by FDRI and PRODIGY under subsection 1.1.8.2(b) as a
PRODIGY Process; or (ii) generally known to the public prior to any
disclosure by PRODIGY; or (iii) disclosed to PRODIGY by a third party that
is rightfully in possession of such information and free of any obligation
to maintain its confidentiality at the time of disclosure; or (iv)
generally known to PRODIGY prior to its disclosure by PRODIGY (the "FDRI
Processes"). All FDRI Processes are subject to the terms of the
Confidentiality Agreement between the parties dated August 8, 1991. PRODIGY
acknowledges and agrees that [XXXXX] right, title and interest in and to
the FDRI Processes, including, without limitation algorithms, methods,
concepts, designs, know-how, computer programs, subroutines, techniques,
data or other information of or concerning the FDRI Processes, are and
shall remain the sole and exclusive property of FDRI. FDRI shall be the
exclusive owner of all copyrights or patent or trademark rights available
with respect to the FDRI Processes or any components thereof. PRODIGY shall
have no proprietary rights in the FDRI Processes other
18 CONFIDENTIAL
<PAGE>
Contract #3284
than those expressly granted by FDRI in this Agreement, and, except upon
FDRI's prior written consent, PRODIGY shall not use the FDRI Processes in
any manner other than as expressly provided in this Agreement. In the event
of a conflict between this Section 1.1.8.2(a) (iv) and any provision of the
above-referenced Confidentiality Agreement, the language contained herein
shall prevail.
(b) PRODIGY's Ownership Rights.
(i) The PRODIGY Processes. During the term of this Agreement, PRODIGY has
and will continue to submit to FDRI certain processes that have been or
will be described in the data and information which forms a part of the
CASE Encyclopedia, including but not limited to, processes that are
generally known to the public. For the purposes of this Agreement, the term
"PRODIGY Process" shall each process described in the data and information
contained in the CASE Encyclopedia that has been originally developed by
PRODIGY, and which, the parties agree: (A) has a specific applicability to
the conduct of PRODIGY's business that is or will be recognized in the
design and/or operation of the MAS System, as developed; and (B) is not
normally or routinely used by other businesses.
19 CONFIDENTIAL
<PAGE>
Contract #3284
(ii) Designation of the PRODIGY Processes. During the term of this
Agreement, PRODIGY will notify FDRI, in writing, of its intent to designate
a particular process as a PRODIGY Process. FDRI shall be given thirty (30)
days following receipt of such notification to contest the proposed
designation and to explain why FDRI believes that the process in question
does not constitute a PRODIGY Process. If FDRI does not respond within the
required time period, then FDRI shall be deemed to have agreed that the
process is a PRODIGY Process and the process shall be so identified. If
FDRI timely responds to PRODIGY's notice, then the designated
representatives of PRODIGY and FDRI shall negotiate in good faith to
resolve the issue as soon as practicable. If the parties are unable to
reconcile their differences within fifteen (15) days following FDRI's
timely response to PRODIGY, then the matter shall be escalated to the
respective functional vice presidents of the parties. If these individuals
are unable to agree on the characterization of the process at issue within
ten (10) days after the matter has been escalated to them, then the matter
will be settled by binding arbitration conducted before a single arbitrator
at a time and place mutually agreed to by the parties. Such arbitrator
shall be a person who is knowledgeable in the field of computer software
20 CONFIDENTIAL
<PAGE>
Contract #3284
development and intellectual property rights, and
acceptable to both parties. The decision of such
arbitrator shall be binding upon the parties. Each
party will bear its own costs and expenses, including
fees and expenses of counsel, if any, associated with
the arbitration.
(iii) Index of the PRODIGY Processes. At any time
during the term of this Agreement, PRODIGY may choose
to remove the PRODIGY Process designation from any
process for any reason, either upon FDRI's request or
at its own discretion. The parties shall attach as an
appendix to this Agreement an Index listing all
processes currently designated as PRODIGY Processes,
which Index shall be subject to change from time to
time to reflect the procedures set forth herein.
(iv) Ownership of the PRODIGY Processes. All PRODIGY
Processes, and related written documentation, shall be
marked as PRODIGY "Confidential" or "Proprietary" and
provided to FDRI under the terms of the Confidentiality
Agreement between the parties dated August 8, 1991.
Subject to the rights of FDRI to describe the PRODIGY
Processes in the CASE Encyclopedia and to use the
PRODIGY Processes to develop the MAS System, FDRI
acknowledges and agrees that all right, title and
21 CONFIDENTIAL
<PAGE>
Contract #3284
interest in and to the Processes, including, without
limitation algorithms, methods, concepts, designs,
know-how, techniques, data or other information of or
concerning the Processes, are and shall remain the sole
and exclusive property of PRODIGY. PRODIGY shall be the
exclusive owner of all copyrights or patent or
trademark rights available with respect to the PRODIGY
Processes or any components thereof. FDRI shall have no
proprietary rights in the PRODIGY Processes other than
those expressly granted by PRODIGY in this Agreement.
In the event of a conflict between this Section
1.1.8.2(b) (iv) and any provision of the
above-referenced Confidentiality Agreement, the
language contained herein shall prevail.
1.3 Travel Expenses. Travel expenses required for either SMS or MAS shall
be handled as follows: travel expenses incurred for air fare and
lodging by FDRI up to $25,000.00 per calendar year shall be at FDRI's
sole expense. Any travel required by FDRI above $25,000.00 in any
calendar year shall be billable to PRODIGY. PRODIGY must approve any
travel in excess of $25,000.00 in any calendar year. FDRI will report
travel expenses to PRODIGY monthly. The Vice President of Client
Services, the General Manager of SMS/MAS, the MAS Software Development
Manager and all FDRI and/or CSG staff sent for non-development
purposes shall be exempt from above
22 CONFIDENTIAL
<PAGE>
Contract #3284
travel criteria; the travel expenses for these individuals shall be
the sole responsibility of FDRI.
1.1.10 Termination of Prior Agreement. The Prior Agreement shall terminate as
of the effective date of this Agreement.
1.2 PROCESSING SERVICES
1.2.1 Description of Processing Services. FDRI shall perform data processing
and other services for PRODIGY in connection with PRODIGY's member
billing operations. The processing services to be made available to
PRODIGY by FDRI shall include the services for SMS as described in
Exhibits 15 and 17, and such services as shall be provided via the MAS
System as developed by FDRI in accordance with the specifications set
forth in Exhibits 20, 21 and 22.
1.2.2 Telecommunications. The processing services to be provided to PRODIGY
hereunder shall be delivered through a "gateway" connection between
the FDRI and PRODIGY systems (and the systems of PRODIGY's sub-
contractors and agents, as appropriate). Accordingly, FDRI shall
provide access to PRODIGY, at the FDRI data processing facility, to
telecommunications lines owned or leased by PRODIGY (at least one
operating line and one testing line), and, subject
csg.009/121892 23 CONFIDENTIAL
<PAGE>
Contract #3284
to approval by the FDRI technical staff (which approval shall not be
unreasonably withheld, conditioned or delayed), to telecommunications
lines owned or leased by PRODIGY's subcontractors or designated
agents. Any modem(s) or other specialized telecommunications equipment
designated by PRODIGY for location at the FDRI data center and
dedicated to communications for PRODIGY shall be installed and
maintained by FDRI or its designated agents at PRODIGY's expense with
the prior written approval by PRODIGY. In all cases, PRODIGY shall
bear the cost of repairs to its modems and owned or leased
telecommunications lines, absent damage due to FDRI's negligence or
willful misconduct.
All telecommunications equipment referred to above will be configured
initially as set forth in Exhibit 8.
1.2.3 Security. FDRI shall maintain the necessary levels of security
precautions to ensure at least the following, in accordance with
Exhibit 14:
Physical Site Security
Systems Security
Applications Security
Data Security
User Security
Audit Trails
Privacy of Member Data
24 CONFIDENTIAL
<PAGE>
Contract #3284
1.2.4 Disaster Recovery. Prior to the end of the first calendar quarter of
1993, FDRI shall have in place a new Disaster Recovery Plan that will
provide a connection at the Business Recovery Center for a tele-
communications line (owned or leased by PRODIGY or PRODIGY's
subcontractor or designated agent) to PRODIGY's network. The new Plan
shall provide protection substantially similar to that provided under
FDRI's existing Disaster Recovery Plan, described in Exhibit 16.
1.2.5 Maintenance. During any period in which FDRI runs the SMS and/or MAS
Systems on its own hardware on behalf of PRODIGY, FDRI shall, at no
additional charge, provide maintenance and troubleshooting with regard
to any defects in the SMS or MAS Systems.
During any period in which FDRI runs the SMS and/or MAS Systems on its
own hardware on behalf of PRODIGY -- FDRI shall, at no additional
charge, incorporate all SMS and/or MAS System enhancements,
maintenance, corrections and production fixes made by FDRI, and shall
update and provide to PRODIGY all User Guide and technical
documentation on a prompt and regular schedule and in any event not
less than semiannually. Hard copy notifications (via bulletins) of the
changes, as well as on-line help, shall be made available to PRODIGY
for use upon implementation of said
25 CONFIDENTIAL
<PAGE>
Contract #3284
changes. In addition, FDRI shall make updated Systems Operations
documentation available for PRODIGY's use upon change implementation.
FDRI will assist in troubleshooting any problems detected either by
FDRI or PRODIGY (or PRODIGY's designated subcontractor's or agent's)
with the gateway connection to the Systems, and assist PRODIGY in
implementing preventative or corrective measures, agreed to in advance
by PRODIGY, at PRODIGY's expense; provided, however, that the problem
is not attributable to the Systems, or to procedural errors caused by
or under the control of FDRI, or to FDRI's computer or
telecommunications equipment, in which case the necessary maintenance
shall be performed at FDRI's expense. If PRODIGY elects to run on
computers owned or leased by PRODIGY certain MAS such systems
developed by FDRI, PRODIGY shall be responsible for any additional
maintenance costs that may arise because such subsystems are no longer
located on FDRI computers.
1.2.6 Audit Rights. FDRI shall maintain for a period of four (4) years after
the end of each Processing Year, documentation of sufficient detail to
enable PRODIGY to verify all charges and all services provided to
PRODIGY under the terms of this Agreement during said Processing Year.
In addition, CSG agrees to maintain for ninety (90) days after the
conclusion
26 CONFIDENTIAL
<PAGE>
Contract #3284
of any month evaluated the data used to document the performance
standard results specified in Section 3.1.2 below, and to retain
summary performance standard results for one (1) year after the
conclusion of any month evaluated. PRODIGY shall have the right, at
PRODIGY's cost and expense, upon sixty (60) days' prior written
notice, to use internal or external auditors, during FDRI's normal
business hours, to review such data and all operations and records
relating to FDRI's performance under this Agreement. FDRI shall
cooperate fully with any such audits, which shall not be conducted
more frequently than once per year. If such an audit discloses an
overcharge by FDRI, or failure by FDRI to remit a performance failure
credit, of more than $10,000, FDRI shall reimburse PRODIGY for the
cost of the audit, and shall be liable to PRODIGY for the overcharges
and performance failure credit together with interest on such overage
or unremitted credit at the rate of twelve percent (12%) per year.
2. COST OF PERFORMANCE AND PAYMENT
2.1 PROCESSING SERVICES
2.1.1 Prices. The prices for processing services performed under this
Agreement are set forth in this Article and Exhibit 17.
27 CONFIDENTIAL
<PAGE>
Contract #3284
2.1.2 Price Increases. For each Processing Year after the first Processing
Year, during the Original Term and any Renewal Period, FDRI shall be
allowed to increase the prices charged during the immediately
preceding Processing Year for Ancillary Fees, which, for the purposes
of this Agreement, shall mean the fees charged for those items listed
under the heading "Ancillary Fees" in Exhibit 17 Section 3. Such
Ancillary Fees may be increased annually by an amount equal to the
rate of change in the CPI for such immediately preceding Processing
Year; provided that if the rate of change in the CPI is less than two
percent (2%), FDRI shall be permitted to raise such prices by two
percent (2%); and further provided that if the rate of change in the
CPI is greater than seven percent (7%), FDRI shall be permitted to
raise such prices by seven percent (7%). For the purposes of this
Section 2.1.2, the percentage change in the CPI during a Processing
Year shall be calculated by subtracting the CPI for the September
immediately preceding a Processing Year (the "Base CPI") from the CPI
for September of the Processing Year, multiplying by 100 and dividing
the result by the Base CPI.
For the purpose of this calculation "CPI" shall mean the Consumer
Price Index for all Urban Consumers as published by the U.S.
Department of Labor's Bureau of Labor Statistics (1967=100).
28 CONFIDENTIAL
<PAGE>
Contract #3284
2.1.3 Postage. FDRI agrees to purchase the postage required to mail account
statements, past due notices, letters and other materials mailed by
FDRI on behalf of PRODIGY. The amount charged by FDRI while this
Agreement is in effect will be (i) the then-current first-class
postal rate for each piece of mail not qualifying for the presorted
rebate or (ii) the regular first class mail charge less a discount of
$.042 per piece for each piece qualifying for the presorted discount.
If the discount allowed by the U.S. Postal Service for mail qualifying
for a pre-sorted discount shall change, PRODIGY and FDRI shall
negotiate a revised discount taking into account the amount of the
change and FDRI expenses in obtaining such discount. PRODIGY agrees to
establish and maintain a deposit with FDRI equal to the monthly
estimated expenses for postage. FDRI shall estimate the amount of
these fees for each month based upon the projected volume of services
involving postage to be performed by FDRI during the following
processing month. FDRI shall, from time to time, based upon the actual
postage paid by PRODIGY during the most recent month, request that
PRODIGY add additional amounts to this deposit if the quantity of
postage required increases and shall allow PRODIGY to decrease the
deposit if the quantity of postage required decreases. Upon the
expiration or termination of this Agreement, this deposit shall be
returned to PRODIGY; except that any interest
29 CONFIDENTIAL
<PAGE>
Contract #3284
earned on this deposit while it is maintained with FDRI, shall be
retained by FDRI.
FDRI will charge PRODIGY for all pieces of mail sorted and bundled in
ZIP Code order, at the rate of $.0046 per piece, with an additional
charge of $.0064 per piece for each piece which qualifies for the
presorted discount.
2.1.4 Data Exchange. PRODIGY, FDRI and third parties designated by PRODIGY,
may exchange information by magnetic tapes/cartridges/disks, tape
transmission units in computer-to-computer transmission. PRODIGY shall
pay all costs of delivery service if magnetic tape/cartridges are
shipped to FDRI's data center. FDRI may charge PRODIGY for tape
handling, at the rates shown in Exhibit 17, for magnetic tape/
cartridges/disks delivered to PRODIGY or third parties designated by
PRODIGY.
2.1.5 Courier Expenses. PRODIGY shall pay only for the courier expenses
associated with the transportation of special requests of reports and
documents from PRODIGY to FDRI and when requested by PRODIGY, from
FDRI to PRODIGY. PRODIGY shall retain the right to investigate, and
with FDRI implement, automated alternatives for the transfer of
special request and standard reports and documents between the
parties.
30 CONFIDENTIAL
<PAGE>
Contract #3284
2.1.6 Change orders. Day-to-day operational changes in the processing
services specified in Exhibit 15 and otherwise provided for
under this Agreement (e.g., print suppression; operational
----
schedule changes) may only be made with approval of the Project
Managers. Substantial changes in the processing services
provided under this Agreement (e.g., eliminating the microfiche
----
provided for in Exhibit 17; processing changes requiring
coding) may only be made by written amendment hereto.
2.1.7 Third Party Access. FDRI shall allow third parties access to
member, order and account information for the purpose of
verifying PRODIGY'S data, as requested by PRODIGY and at
PRODIGY's expense, subject to procedures agreed upon between
the parties and in accordance with PRODIGY'S Policy on
Protecting Member Privacy as set forth in Exhibit 14 Section 5.
2.2 PAYMENT
2.2.1 Invoices. PRODIGY agrees to pay FDRI monthly for services
provided and charges incurred pursuant to this Agreement and
for reimbursement of expenses permitted and agreed to by
PRODIGY under this Agreement. FDRI shall provide PRODIGY with a
single monthly itemized invoice with appropriate documentation
and support for all amounts due
31 CONFIDENTIAL
<PAGE>
Contract #3284
from PRODIGY under this Agreement. Such invoices shall be paid
by PRODIGY within thirty (30) days of the invoice's receipt by
PRODIGY; provided that all invoices shall be deemed received by
PRODIGY on the first business day after Such invoices are
delivered by FDRI to a reputable overnight delivery service
properly addressed and marked for next-day delivery. If payment
has not been received by FDRI within thirty (30) days following
PRODIGY's receipt of invoice, then there shall be a late charge
equal to twelve percent (12%) per year on the unpaid balance
for the period of time from the expiration of such thirty (30)
days until payment is received by FDRI.
In the event that PRODIGY, in good faith, reasonably disputes
any charges on any invoice, the parties shall make reasonable
efforts to resolve such disputes. PRODIGY shall not be
obligated to remit any late charges for any disputed items;
provided, however, that PRODIGY agrees promptly to remit all
amounts set forth on the invoices provided by FDRI pursuant to
this Section 2.2.1 that are not disputed by PRODIGY. Amounts in
reasonable dispute that cannot be resolved in time to avoid a
late charge, will be deducted from each invoice and be rebilled
by FDRI.
32 CONFIDENTIAL
<PAGE>
Contract #3284
2.2.2 Termination.
2.2.2.1 PRODIGY may cause this Agreement to terminate at the end of
the Original Term (as that term is defined in Section 7.1
below) upon written notice to FDRI given at any time prior
to June 30, 1996.
2.2.2.2 PRODIGY may terminate this Agreement immediately upon written
notice to FDRI in the event that: (i) in accordance with
Section 3.1.1(c) FDRI's failure perform in accordance with any
3 of the performance standards identified as "Critical" in
Section 3.1.1 results in a 50% reduction in PRODIGY'S
processing services bills; and (ii) such 50% reduction remains
in effect for nine or more consecutive calendar months. If this
Agreement is terminated pursuant to this Section 2.2.2.2,
PRODIGY's sole and total financial liability to FDRI shall be
as set forth in Section 2.2.3 below.
2.2.2.3 FDRI may terminate this Agreement for material breach of this
Agreement by PRODIGY on ninety (90) days' prior written notice
to PRODIGY, which notice shall specify the term or terms
allegedly breached; provided, however, that if PRODIGY shall
cure and remedy such breach within such ninety (90) day period,
such notice of termination shall be null and
33 CONFIDENTIAL
<PAGE>
Contract #3284
void, and this Agreement shall continue in full force and
affect.
2.2.2.4 Either party may terminate this Agreement upon written notice
to the other party if the other party suffers an insolvency
proceeding, either voluntary or involuntary, or is adjudicated
bankrupt or makes an assignment for the benefit it of
creditors.
2.2.2.5 No termination of this Agreement under Section 2.2.2.3 or
2.2.2.4 shall relieve either party from liability for the
performance of its obligations arising prior to such
termination, nor shall such termination supersede, nullify or
otherwise adversely effect any other rights or remedies the
terminating party may have available to it at law or in equity.
2.2.2.6 Except where the context expressly provides to the contrary,
Sections 1.1.8.2, 1.2.6, 2.2.1, 2.2.2.5, 2.2.3, 4.1.3, 6.1,
6.4, 8.1 and 9.5 shall survive the expiration or termination of
this Agreement.
2.2.3 Minimum. PRODIGY agrees that during each Processing Year of the
Original Term and any Renewal Period, PRODIGY shall pay, or be
responsible for payment of, Processing Fees to FDRI in an
amount equal to at least seventy-five percent
34 CONFIDENTIAL
<PAGE>
Contract #3284
(75%) of the Processing Fees paid to FDRI for the processing
services provided to PRODIGY under this Agreement during the
immediately preceding Processing Year ("Minimum Fees");
provided that for Processing Year 1 such minimum amount shall
equal at least seventy-five percent (75%) of the Processing
Fees paid by PRODIGY under the Prior Agreement for processing
services rendered by FDRI during the period from January 1,
1991 through December 31, 1991. The term "Processing Fees"
shall include only those amounts specifically described as
processing fees in Exhibit 17 Section 1. In the event PRODIGY
terminates this Agreement up to Section 2.2.2.2, PRODIGY shall
not be required to pay Minimum Fees with respect to any
Processing Years or portions thereof which remain in the
Original Term or, if applicable, the Renewal Period, provided
that, if this Agreement is terminated at a time other than the
end of a Processing Year, the Minimum Fees for the Processing
Year in which termination occurs shall be prorated by
multiplying the Minimum Fees otherwise applicable for such
Processing Year by a fraction the numerator of which is the
number of days between the beginning of the Processing Year and
the date of termination and the denominator of which is 365.
Any amount of Minimum Fees which remains unpaid for any
Processing Year, or portion thereof, shall be paid to FDRI
notwithstanding the termination of this Agreement.
35 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
3.1 PERFORMANCE STANDARDS - SMS and MAS
3.1.1 FDRI Responsibilities. FDRI shall maintain the computer
capacity and staff necessary to provide services in accordance
with the performance standards set forth in this Article 3
(NOTE: Unless otherwise stated, all attainment measurements to
be calculated based on calendar days in a calendar month):
(a) As measured by the FDRI host computer, on-line system
downtime shall not exceed [**] during the period from 6:00
a.m. to 3:00 a.m. Central Time for any calendar month. For
purposes of this item (a), downtime does not include
telecommunications lines or individual terminals,
controllers or modems on PRODIGY property. (Critical) (NOTE:
for the purposes of the provisions of this Section 3.1.1,
"on-line system" shall mean a system in which the input data
enters the computer directly from the point of origin (e.g.,
----
computer terminal or workstation) and the output is
transmitted directly to its ultimate destination (e.g.,
----
computer terminal or workstation) without any intermediate
stops or manual intervention.
36 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
(b) The FDRI on-line system shall not experience more
than [**] downtime occurrences during a calendar
month. This downtime does not include FDRI nightly
downtime to update the data base or any scheduled
off-hours maintenance. (Critical)
(c) The on-line system shall be updated with batch
monetary and non-monetary transactions by 6:00 a.m.
Central Time next business day [**] of the time and by
6:00 a.m. the second business day [**] of the time.
(Critical)
(d) All daily reports printing at the local business
sites shall be available to begin printing by 6:00 a.m.
Central Time [**] of the time and by 6:00 a.m. the
following day [**] of the time.
(e) Statement mailings shall be completed and mailed
[**] of the time within five (5) business days
following applicable cycle completion and [**] of the
time within seven (7)
37 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
business days following applicable cycle completion.
(Critical)
(f) Delinquency notices shall be mailed [**] of the time
within five (5) business days following applicable cycle
completion and [**] of the time within seven (7) business
days following applicable cycle completion.
(g) Computer letters shall be mailed [**] of the time
Within three (3) business days following applicable cycle
completion and [**] of the time within five (5) business
days following applicable cycle completion. FDRI shall
require at least five (5) days notice to meet this
guideline with respect to one-time mailings of more than
fifty thousand (50,000) letters.
(h) Account Holder create/update and monetary transactions
provided to FDRI on magnetic tape or computer-to-computer
transmissions, if received at FDRI by 6:00 p.m. Central
Time, shall be posted to the
38 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
appropriate accounts on the date of receipt [**] of the
time and [**] of the time by the completion of the next
day's cycle. (Critical)
(i) Statement (billing transactions) transmissions to
credit card processors or to electronic funds transfer
("EFT") processing shall be sent to the prescribed
location one (1) business day after the completion of that
day's cycle [**] of the time, and [**] of the time by the
end of the second business day after the completion of the
original cycle date. (Critical)
(j) Account Holder create/update transactions and
transaction history to PRODIGY-designated third parties or
to PRODIGY shall be sent to the prescribed location one
business day after the completion of that day's cycle [**]
of the time, and [**] of the time by the end of the
39 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
second business day after the completion of the original
cycle date.
(k) As measured by the FDRI host computer, on-line system
response time shall average three (3) seconds or less
[**] of the time. (Critical) This response time is based
on all categories of transactions existing as of Effective
Date. From and after the Effective Date any new
transaction developed on either SMS or MAS that exceeds
three (3) seconds will be measured and reported separately
when such new transaction is still in the Design Phase of
the Systems Development Cycle, and will be covered by a
separate response time agreement negotiated in good faith
by the parties based on the requirements of that
transaction.
On-line system response time shall mean the time between
the receipt of a transaction (including without limitation
real-time inquiries and updates) to the on-line system at
the FDRI data center and the delivery of the response to
the communications network at the FDRI data center.
40 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
3.1.2 SMS and MAS Performance Reporting and Remedies.
(a) During each calendar month, FDRI agrees to provide PRODIGY
with a monthly report listing the performance standards set forth
in this Article 3 and FDRI's performance during the just
concluded calendar month relative to those performance standards.
Within fifteen (15) business days after the end of said calendar
month, FDRI shall then review this report with PRODIGY. Included
in each such report shall be an analysis of the data used to
derive FDRI's performance experience.
(b) If FDRI fails [**] to perform in accordance with any 3 of the
performance standards set forth in Section 3.1.1 and not
identified as "critical," FDRI shall credit PRODIGY with a [**]
reduction on its bill for processing services during the [**]
such month. If such failure continues with respect to such
standards for a [**] such month, FDRI shall credit PRODIGY with
a [**] reduction on its bill for processing services during such
[**] month. If such failure continues with respect to such
standards for a [**] such month, FDRI shall credit PRODIGY with
a [**] reduction on its bill for processing services
41 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
during such [**] month. If such failure continues with respect
to such standards for a [**] such month, FDRI shall credit
PRODIGY with a [**] reduction on its bill for processing services
during such [**] month and on the processing services bills for
any and all consecutive, succeeding months in which such failure
continues.
(c) If FDRI fails [**] to perform in accordance with any 3 of the
performance standards set forth in Section 3.1.1 and identified
as "Critical", FDRI shall credit PRODIGY with a [**] reduction on
its bill for processing services during the [**] such month.
Continuous failure in any and all consecutive, succeeding months
shall result in a [**] reduction on the applicable bill(s) for
processing services until the failure is rectified.
(d) FDRI's failure to meet a performance standard due to any
cause beyond its reasonable control and not unique to FDRI such
as, but not limited to, the malfunction or failure of any entity
from which FDRI must obtain information or have electronic
contact in order to perform the services set forth in this
Agreement shall not be considered to be a
42 CONFIDENTIAL
<PAGE>
Contract #3284
failure for which FDRI shall be responsible under this Agreement.
(e) PRODIGY agrees that due to the difficulty of determining and
calculating its damages upon FDRI's failure to perform in
accordance with the performance standards included in this
Article 3, the remedies set forth in this Article 3 and Section
2.2.2.2 of this Agreement shall be PRODIGY's sole and exclusive
remedies, and PRODIGY hereby elects to waive any and all other
remedies to which PRODIGY may be entitled under this Agreement,
for any claim based on FDRI's failure to perform in accordance
with such performance standards.
3.1.3 Disputes. In the event that the Project Managers and their immediate
management cannot resolve disputes within five (5) business days, this
shall be so documented and escalated to CSG's Vice President Client
Services and PRODIGY's Vice President Systems Operations and Telecom-
munications for resolution by the tenth business day. It shall be the
duty of the Project Managers, their immediate management and CSG's
Vice President Client Services and PRODIGY's Vice President Systems
Operations and Telecommunications to take the necessary action to
resolve any such dispute immediately.
43 CONFIDENTIAL
<PAGE>
Contract #3284
4. LICENSE OF SOFTWARE
4.1.1 License for MAS System. During the term of this Agreement, PRODIGY may
elect to run certain completed Offer Interface and Order modules
and/or subsystems of the MAS System on computers owned or leased by
PRODIGY. PRODIGY shall provide FDRI with 60 calendar days written
notice of its desire to obtain a license from FDRI for a completed
Offer Interface or Order subsystem or module of the MAS System. Within
20 calendar days after receiving written notice from PRODIGY of its
desire to license one or more specifically-identified completed Offer
Interface or Order subsystems and/or modules, FDRI shall grant PRODIGY
a non-exclusive, royalty-free license in the form of the license
agreement attached as Exhibit 18, to use such subsystem(s) and/or
module(s) and related technical and user documentation for so long as
FDRI continues to provide processing services to PRODIGY pursuant to
this Agreement; provided that prior to the commencement of PRODIGY's
use of any such subsystem or module to perform services contemplated
by this Agreement, FDRI and PRODIGY shall jointly agree upon methods
and maintenance requirements (including, without limitation,
maintenance costs) for such subsystem or module, and shall agree upon
the coordination of any information or data which must be transferred
between FDRI and PRODIGY to permit the use of such subsystem or module
in conjunction with the
44 CONFIDENTIAL
<PAGE>
Contract #3284
remaining subsystems/modules of the MAS System. PRODIGY shall be
responsible for such additional costs to FDRI directly related to the
transfer of such subsystem(s) or module(s) to computers owned or
leased by PRODIGY, provided that such costs are supported by
reasonable documentation. Except as set forth in the immediately
preceding sentence, no grant of a license by FDRI to PRODIGY under
this Section 4.1.1 or use of the software by PRODIGY to run certain
Offer Interface or Order subsystems and/or modules of the MAS System
on computers owned or leased by PRODIGY shall eliminate, change or
reduce the Processing Fees payable to FDRI pursuant to this Agreement
during any Processing Year of the Original Term or the Renewal Period.
4.1.2 License for SMS System. During the term of this Agreement, PRODIGY may
elect to run certain completed Offer Interface and Order modules and/
or subsystems of the SMS System on computers owned or leased by
PRODIGY. PRODIGY shall provide FDRI with 60 calendar days written
notice of its desire to obtain a license from FDRI for a completed
Offer Interface or Order subsystem or module of the SMS System. Within
20 calendar days after receiving written notice from PRODIGY of its
desire to license one or more specifically-identified completed Offer
Interface or Order subsystems and/or modules, FDRI shall grant PRODIGY
a non-exclusive, royalty-free license in the form of the license
agreement
45 CONFIDENTIAL
<PAGE>
Contract #3284
attached as Exhibit 19, to use such subsystem(s) and/or module(s) and
related technical and user documentation for so long as FDRI continues
to provide processing services to PRODIGY pursuant to this Agreement;
provided that prior to the commencement of PRODIGY's use of any such
subsystem or module to perform services contemplated by this
Agreement, FDRI and PRODIGY shall jointly agree upon methods and
maintenance requirements (including, without limitation, maintenance
costs) for such subsystem or module, and shall agree upon the
coordination of any information or data which must be transferred
between FDRI and PRODIGY to permit the use of such subsystem or module
in conjunction with the remaining subsystems/modules of the SMS
System. PRODIGY shall be responsible for such additional costs to FDRI
directly related to the transfer of such subsystem(s) or module(s) to
computers owned or leased by PRODIGY, provided that such costs are
supported by reasonable documentation. Except as set forth in the
immediately preceding sentence, no grant of a license by FDRI to
PRODIGY under this Section 4.1.2 or use of the software by PRODIGY to
run certain Offer Interface or Order subsystems and/or modules of the
SMS System on computers owned or leased by PRODIGY shall eliminate,
change or reduce the Processing Fees payable to FDRI pursuant to this
Agreement during any Processing Year of the Original Term or the
Renewal Period.
46 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
4.1.3 Options for FDRI System License.
(a) If at the end of the Renewal Period, FDRI and PRODIGY are
unable to agree upon a new processing agreement, PRODIGY shall
have the option to acquire a license to use the System which FDRI
is then using to supply PRODIGY services under the terms and
conditions of this Agreement for a one time license fee of [**].
If PRODIGY elects to terminate this Agreement as of the end of
the Original Term, as provided in Section 2.2.2.1, or to
terminate this Agreement prior to the end of the Original Term
pursuant to Section 2.2.2.2, PRODIGY shall have the option to
acquire a license, as of the effective date of termination, to
use the System which FDRI is then using to supply PRODIGY
services under the terms and conditions of this Agreement for a
one time license fee of [**]. In each case, the license agreement
shall be in the form of Exhibit 23 to this Agreement and shall
grant PRODIGY a perpetual, non-exclusive license and right to use
such System, including the CASE Encyclopedia, at PRODIGY's
computer facilities to furnish PRODIGY with a data processing
system for PRODIGY's own operation.
47 CONFIDENTIAL
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
Contract #3284
(b) If: (i) FDRI and PRODIGY are unable to agree upon a new
processing agreement at the end of the Renewal Period, or (ii)
PRODIGY elects to terminate this Agreement as of the end of the
Original Term as provided in Section 2.2.2.1, or (iii) PRODIGY
terminates this Agreement prior to the end of the Original Term
pursuant to Section 2.2.2.2, then PRODIGY shall have the option
to acquire a license, as of the effective date of expiration or
termination as the case may be, to use the System which FDRI is
then using to supply PRODIGY services under the terms and
conditions of this Agreement for a one time license fee of [**].
The license agreement shall be in the form of Exhibit 23 to this
Agreement and shall grant PRODIGY a perpetual, non-exclusive
license and right to use such System, including the CASE
Encyclopedia, at PRODIGY's computer facilities to furnish PRODIGY
with a data processing system for PRODIGY's own operations. In
addition, by its terms, the license shall prohibit FDRI, for a
period of five (5) years following the date that such license
enters into effect, from using such System to provide data
processing services to any third party that is a direct
competitor of PRODIGY in any line of business provided on a
commercial basis by PRODIGY, whether on-line or otherwise,
domestically or internationally.
48 CONFIDENTIAL
<PAGE>
Contract #3284
(c) It is understood that PRODIGY shall use any System licensed
to PRODIGY pursuant to Section 4.1.3(a) or 4.1.3(b) at its
computing facilities only on its owned, leased or operated
computers. PRODIGY agrees to hold in confidence the design and
documentation of such programs and to use the same only in the
conduct of PRODIGY's business. PRODIGY may disclose such programs
or any documentation related to such programs to an auditor or
consultant selected by PRODIGY, provided that FDRI is assured by
PRODIGY that such disclosure shall be made pursuant to
confidentiality agreements as required by the license agreement
attached as Exhibit 23. The intent of this Section 4.1.3(c) is to
allow PRODIGY to perform its own data processing and record
keeping, on its owned, leased or operated equipment, but not to
allow PRODIGY to use the license for the programs developed by
FDRI to go into business as a service bureau in direct
competition with FDRI in FDRI's business of providing data
processing services for subscriber billing or franchise
operations.
(d) In the event PRODIGY exercises any option under Section
4.1.3(a) or 4.1.3(b) to acquire a license to use the System which
FDRI is then using to supply services to PRODIGY under the terms
and conditions of this Agreement, FDRI shall grant the license
rights
49 CONFIDENTIAL
<PAGE>
Contract #3284
described therein and shall provide full cooperation to assure a
smooth transition to PRODIGY's operation of the applicable System
without interruption to PRODIGY's member billing operations.
5. LIABILITY
5.1 Liability of FDRI. FDRI shall use due diligence in processing the
materials received from PRODIGY, and the performance by FDRI under
each provision of this Agreement shall be consistent with current
industry standards and established internal quality standards, as
applicable to similar functions; provided that in the event that any
such industry or internal standard is lower than any analogous
performance or internal quality standard set forth in the Exhibits of
this Agreement, the latter shall supersede the former as respects
FDRI's performance under this Agreement. FDRI shall indemnify PRODIGY
against any and all liability, loss or damage PRODIGY may suffer as a
result of claims, demands, costs or judgments against PRODIGY arising
out of FDRI's negligent performance under any provision of this
Agreement (except for FDRI's breach of Section 6.1.1); provided, that
FDRI's obligation to indemnify PRODIGY as aforesaid shall be limited
to:
50 CONFIDENTIAL
<PAGE>
Contract #3284
(a) The actual cost of reprocessing to correct any such negligent
performance;
(b) The actual net revenue or profit lost by PRODIGY resulting directly
from the negligent performance; and
(c) The additional expenses caused by such negligent performance is
incurred by PRODIGY in maintaining its operation as nearly normal as
possible (normal shall mean conditions as they would have existed if
no negligent performance had occurred).
In no event shall, however, shall FDRI's cumulative liability to PRODIGY during
any one Processing Year under any provision of this Agreement exceed the amount
of the Processing Fees paid by PRODIGY to FDRI pursuant to this Agreement for
processing services provided in the immediately preceding Processing Year;
except that during the first Processing Year, said liability limit shall in no
event exceed the amount of Processing Fees paid for processing services provided
during the period from January 1, 1991 through December 31, 1991, pursuant to
the Prior Agreement. FDRI shall in no event be obligated for any exemplary or
punitive damages.
51 CONFIDENTIAL
<PAGE>
Contract #3284
5.2 Liability of PRODIGY. PRODIGY shall indemnify and hold harmless FDRI and
its employees from and against all claims, damages, losses and expenses
arising out of FDRI's performance under any provision of this Agreement, to
the extent that such claim, damage, loss or expense is caused by the
negligence of PRODIGY, or employees of PRODIGY. PRODIGY shall have no
obligation to indemnify FDRI against any liability, loss or damage FDRI
might suffer arising out of FDRI's negligent performance under any
provision of this Agreement.
5.3 Force Majeure. If the performance of this Agreement or any obligation
hereunder is prevented, restricted or interfered with by reason of fire or
other casualty or accident; strikes or labor disputes; war or other
violence; any law, order, proclamation, regulation, ordinance, demand or
requirement of any governmental agency; or any other act or condition
whatsoever beyond the reasonable control of the parties hereto, excluding
weather conditions other than catastrophic weather conditions, the party
whose performance is so affected, upon giving prompt notice to the other
party, shall be excused from such performance to the extent of such
prevention, restriction or interference; provided, however, that the party
so affected shall take all reasonable steps to avoid or remove such causes
of
52 CONFIDENTIAL
<PAGE>
Contract #3284
nonperformance and shall immediately continue performance hereunder
whenever such causes are removed.
6. WARRANTIES AND REPRESENTATION
6.1 Original Development. FDRI represents and warrants that the SMS and MAS
Systems produced hereunder shall be of original development by FDRI, and
shall be specifically developed for the fulfillment of this Agreement and
shall not infringe upon or violate any United States patent, United States
copyright, trade secret or other proprietary right of any third party,
provided that PRODIGY acknowledges that certain licenses, as set forth on
Exhibit 29, were used by FDRI in the development of the SMS and MAS
Systems, and such licenses may be required to use the SMS and MAS Systems
if PRODIGY acquires a license from FDRI pursuant to Section 4.1.1, 4.1.2 or
4.1.3 of this Agreement. FDRI shall indemnify and hold PRODIGY harmless
from and against any loss, cost, liability or expense (including reasonable
attorneys' fees) arising out of any breach or claimed breach of this
warranty, provided that PRODIGY promptly notifies FDRI of any claim made to
PRODIGY hereunder and provides FDRI with an opportunity to control the
defense of the action and all negotiations for settlement or compromise.
53 CONFIDENTIAL
<PAGE>
Contract #3284
6.2 Performance. FDRI represents and warrants that, as developed and accepted
under this Agreement, the SMS System Enhancements and Maintenance Changes
and the MAS System shall substantially perform in accordance with all
applicable Exhibits and shall be free of any defects which substantially
affect the performance of the SMS System, as developed under the Prior
Agreement. FDRI represents and warrants that those MAS System Enhancements
developed by FDRI in furtherance of this Agreement shall be free of any
defects which substantially affect the performance of the SMS System, as
updated by the SMS System Enhancements.
6.3 Notification. PRODIGY will use reasonable efforts during the period within
ninety (90) days after the release of the SMS System Enhancements and/or
Maintenance Changes and/or any subsystem of the MAS System to discover any
defects. At any time during the period when FDRI is operating the Systems
on behalf of PRODIGY, or when PRODIGY is operating one or more subsystems
as provided in Sections 4.1.1 or 4.1.2, PRODIGY shall promptly notify FDRI
of any defects it discovers and FDRI shall promptly and diligently attempt
to remedy such defects in furtherance of its maintenance obligations under
Section 1.2.5 of this Agreement.
54 CONFIDENTIAL
<PAGE>
Contract #3284
6.4 Limitation of FDRI Warranties. THE WARRANTIES SET FORTH IN SECTIONS 6.1,
6.2 AND 6.3 HEREOF ARE LIMITED WARRANTIES AND THEY ARE THE ONLY WARRANTIES
MADE BY FDRI. FDRI MAKES AND PRODIGY RECEIVES NO WARRANTY, EXPRESS OR
IMPLIED, EXCEPT AS SET FORTH IN SECTIONS 6.1, 6.2 AND 6.3 HEREOF, AND THERE
ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. EXCEPT FOR REMEDIES PURSUANT TO SECTION 6.1 OF THIS
AGREEMENT, FDRI SHALL HAVE NO LIABILITY WITH RESPECT TO OBLIGATIONS UNDER
THIS AGREEMENT FOR INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES, EVEN IF
FDRI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. TERM OF AGREEMENT
7.1 Original Term. This Agreement is effective from the date hereof and, unless
sooner terminated in accordance with Section 2.2.2.1 or 2.2.2.2, shall
expire at the end of the fifth Processing Year, unless renewed in
accordance with the terms hereof ("Original Term").
"Processing Year" means the twelve (12) month period commencing on the
first day of Processing Year 1 and on each anniversary of such date during
the Original Term or any Renewal Period of this Agreement. Processing Year
1 shall begin on January 1, 1992.
55 CONFIDENTIAL
<PAGE>
Contract #3284
7.2 Automatic Renewal. This Agreement shall automatically be extended for two
(2) additional Processing Years (i.e., the Renewal Period), unless sooner
terminated pursuant to Section 2.2.2.1 or 2.2.2.2.
8. CONFIDENTIAL NATURE OF DATA
8.1 Return of Data. It is understood that the data and information contained in
the files maintained by FDRI on behalf of PRODIGY are the sole and
exclusive property of PRODIGY. Such data shall be deemed to constitute
Confidential Information within the meaning of the Confidentiality
Agreements between the parties dated June 5, 1986 and August 8, 1991, which
agreements shall remain in effect during the term of this Agreement,
including renewals hereof. FDRI agrees that in view of the confidential
nature of the information regarding the members of PRODIGY contained in the
documents and files which it is required to prepare, process or maintain
under this Agreement, FDRI shall perform its duties in such a manner as to
prevent the disclosure to any persons not having a need to know or not
employed or contracted by FDRI at its EDP Center of any such documents or
other information proprietary or confidential to PRODIGY. In addition, FDRI
shall perform processing services under this Agreement so as not to violate
or cause PRODIGY to violate the PRODIGY Policy on Protecting Member
56 CONFIDENTIAL
<PAGE>
Contract #3284
Privacy attached as Exhibit 14 Section 5 of this Agreement. FDRI further
agrees to return to PRODIGY upon termination or expiration of this
Agreement or upon written request from PRODIGY all or any proprietary
information or Confidential Information, provided that PRODIGY agrees to
reimburse FDRI for all costs, including postage, of returning such data.
FDRI acknowledges and agrees that it shall have no right to access the
contents of the data it stores and processes on behalf of PRODIGY other
than for purposes of providing services to PRODIGY pursuant to this
Agreement. Notwithstanding the foregoing, FDRI and PRODIGY may disclose the
existence of this contractual relationship for purposes of disclosing that
PRODIGY is a customer of FDRI and that FDRI is providing services to
PRODIGY with prior written approval between the parties.
9. GENERAL
9.1 Assignment. All the terms and provisions of this Agreement shall be
binding upon, will enure to the benefit of, and shall be enforceable by the
successors and assigns of FDRI and PRODIGY. Neither party shall assign,
transfer, or convey this Agreement without the other party's written
consent, which shall not unreasonably be withheld; provided, however, that
nothing in this Agreement will be construed to prevent, or to
57 CONFIDENTIAL
<PAGE>
Contract #3284
require prior approval for, any transfer or succession, whether by
operation of law or otherwise, in which the transferee or successor
(including any successor partnership of PRODIGY after the withdrawal or
substitution of any one or more of its general partners or a partnership or
corporation that is wholly owned by PRODIGY or by one or more of its
general partners) succeeds to all, or substantially all, of the business
and assets of the transferor or predecessor, serving as the transferee or
successor agrees to be bound by the terms of this Agreement; provided that
notwithstanding any such transfer or succession, the transferor or
predecessor shall not be released from any obligations under this
Agreement.
9.2 Applicable law. This Agreement shall be governed and construed in
accordance with the laws of the State of Nebraska, without regard to its
conflict of law rules.
9.3 Waiver. No delay or omission by either party hereto to exercise any right
or power accruing upon any noncompliance or default by the other party with
respect to the terms of this Agreement shall impair any such right or power
or be construed to be a waiver thereof. A waiver by either of the parties
hereto of any of the covenants, conditions or rights under this Agreement
58 CONFIDENTIAL
<PAGE>
Contract #3284
shall not be construed to be a waiver of any succeeding breach thereof or
of any other covenant, condition or right hereunder.
9.4 Entire Agreement. This Agreement, including all Exhibits, which are
incorporated and made a part hereof, sets forth all of the promises,
agreements, conditions and understandings between the parties respecting
the subject matter hereof and supersedes all negotiations, conversations,
discussions, correspondence, memorandums and agreements between the parties
concerning such subject matter.
9.5 Notice. Any notice required to be given by PRODIGY to FDRI shall be sent
to:
First Data Resources Inc.
7301 Pacific Street
Omaha, Nebraska 68114
Attention: Vice President, Client Services
Cable Services Group
and any notice required to be given by FDRI to PRODIGY shall be given to:
59 CONFIDENTIAL
<PAGE>
Contract #3284
Prodigy Services Company
445 Hamilton Avenue
White Plains, New York 10601
Attention: Vice President,
Systems Operations and Telecommunications.
All such notices shall be given in writing by certified mail, return
receipt requested and shall be deemed given on the date shown on the
applicable return receipt. Either party may change its address or addressee
set forth above by giving the other notice of such change in accordance
with the provisions of the section.
9.6 Headings. The title or headings of various paragraphs, Sections and
Articles hereof are intended solely for convenience of reference and shall
not be construed for any purpose whatsoever to modify or explain or place
any construction upon any of the provisions of this Agreement.
9.7 Modification. This Agreement may not be amended, changed, modified or
altered except in writing and signed by the appropriate authority for both
parties.
9.8 Representations. PRODIGY represents to FDRI that it is a partnership
between International Business Machines and
60 CONFIDENTIAL
<PAGE>
Contract #3284
Sears Roebuck & Company established under the laws of the State of New
York, and it has full authority to enter into and fully perform this
Agreement. FDRI represents that it is a corporation established under the
laws of the State of Delaware, and it has full authority to enter into and
fully perform this Agreement.
9.9 Designated Representative. Each corporation or partnership which is a party
to this Agreement shall designate, in writing, a representative who shall
be authorized to act under this Agreement, for and on behalf of such party.
Any act, approval or consent of a representative so designated shall be
deemed to be the act, approval or consent of the party which designated
such representative and the other party to this Agreement shall not be
required to inquire into the authority of such representative as to such
act, approval or consent on behalf of the party which designated such
representative. Any party may designate an alternate representative to act
for it if its primary representative is unavailable, and any act, approval
or consent of the alternate representative so designated shall have the
same force and effect as any act, approval or consent of the primary
representative, and the other party to this Agreement shall not be required
to inquire as to the unavailability of the primary representative. Any such
representative may be replaced by a successor representative by notice to
the other party and designation of a substitute
61 CONFIDENTIAL
<PAGE>
Contract #3284
for such representative. Until further notice, the designated
representatives of the parties shall be:
For FDRI Designee: Jim Coury
Alternate: Ken Jenkins
For PRODIGY Designee: Gerry Mueller
Alternate: Jerry Laubhan
Upon execution of this Agreement by both parties in duplicate, with each
being an original, this Agreement shall be effective as of January 1st, 1992.
FIRST DATA RESOURCES INC. PRODIGY SERVICES COMPANY
By: /s/ Jay A. Oxton By: /s/ Ross S. Glatzer
------------------------------- -----------------------------
Name: Jay A. Oxton Name: Ross S. Glatzer
--------------------------------- ---------------------------
Title: President - Cable Services Group Title: President & CEO
-------------------------------- --------------------------
Date: 12/30/92 Date: 12/23/92
--------------------------------- ---------------------------
[SEAL APPEARS HERE]
62 CONFIDENTIAL
<PAGE>
CONTRACT #3284
CONSENT TO ASSIGNMENT AND DELEGATION
Reference is made to that certain Software Development and Processing
Services Agreement by and between FIRST DATA RESOURCES INC., ("FDR") and PRODIGY
SERVICES COMPANY (the "Undersigned") with an effective date of January 1, 1992,
as the same may thereafter have been amended, modified or supplemented (such
contact and any and all amendments, modifications, or supplements thereto being
referred to collectively hereafter as the "Agreement").
WITNESSETH:
WHEREAS, FDR desires to assign all of its rights and interests in, and to
delegate all of its duties and obligations under, the Agreement to Cable
Services Group, Inc., a wholly-owned subsidiary of FDR ("CSG").
WHEREAS, by submission of this Consent to Assignment and Delegation, FDR
hereby notifies the Undersigned of FDR's intent to assign its rights and
interests in, and to delegate all of its duties and obligations under, the
Agreement to CSG.
NOW, THEREFORE, pursuant to the terms of the Agreements, by execution
hereof, the Undersigned consents to the assignment by FDR of all of FDR's rights
and interests in, and delegation of duties and obligations under, the Agreement
to CSG, which assignment is to be effective as of January 1, 1994.
PRODIGY SERVICES COMPANY
By: /s/ [ILLEGIBLE SIGNATURE]
--------------------------------------
Title: Vice President, Marketing & Sales
-----------------------------------
DATE: 7/18/94
----------------
[SEAL APPEARS HERE]
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
FIRST AMENDMENT
TO
SOFTWARE DEVELOPMENT AND
PROCESSING SERVICES AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
PRODIGY SERVICES CORPORATION
This First Amendment (the "Amendment") is executed this 27th day of
October, 1996, and is made by and between CSG Systems, Inc., a Delaware
corporation ("CSG"), formerly Known as Cable Services Group, Inc., as successor
in interest to First Data Resources, Inc. and Prodigy Services Corporation, a
Delaware corporation, as successor in interest to Prodigy Services Company
("PRODIGY"). CSG and PRODIGY entered into a certain Software Development and
Processing Services Agreement dated January 1, 1992 (the "Agreement"), and now
desire to amend the Agreement in accordance with the terms and conditions set
forth in this Amendment. If the terms and conditions set forth in this Amendment
shall be in conflict with the Agreement, the terms and conditions of this
Amendment shall control. Any terms in initial capital letters or all capital
letters used as a defined term but not defined in this Amendment, shall have the
meaning set forth in the Agreement. Upon execution of this Amendment by the
parties, any subsequent reference to the Agreement between the parties shall
mean the Agreement as amended by this Amendment. Except as amended by this
Amendment, the terms and conditions set forth in the Agreement shall continue in
full force and effect according to their terms.
IN CONSIDERATION of the above, CSG and PRODIGY agree as follows:
1. Section 7.1 of the Agreement is amended to add eighteen months to the
Original Term of the Agreement. The Original Term of the Agreement shall expire
on June 30, 1998.
2. Section 7.2 of the Agreement is deleted and replaced with the following:
This Agreement shall automatically be extended eighteen months (the "Renewal
Period"), unless PRODIGY provides CSG with written notice by January 2, 1998,
that it does not wish for such Renewal Period to take effect, in which case the
Agreement shall terminate at the end of the Original Term on June 30, 1998.
3. Effective January 1, 1997, Section 17.1 of Exhibit 17 is deleted and replaced
with the following:
CSG agrees that the monthly Processing Fees include processing of data received
from PRODIGY and Third Parties selected by PRODIGY. PRODIGY agrees to pay CSG
Processing Fees of [**].
4. Effective January 1, 1997, Section 1.1.7 of the Agreement is amended to
provide that PRODIGY shall pay CSG [**] from the SMS Enhancement and Maintenance
Team. If the number of hours provided by the SMS Enhancement and Maintenance
Team exceeds [**] in any one month, PRODIGY shall be billed for additional hours
incurred in that month at the rate of [**] per hour. Beginning on the first day
of the calendar month following sixty (60) days written notice from PRODIGY,
PRODIGY shall pay CSG [**] hours of service per month from the SMS Enhancement
and Maintenance Team. If the number of hours provided by the SMS Enhancement and
Maintenance Team exceeds [**] in any one month, PRODIGY shall be billed for
additional hours incurred in that month at the rate of [**] per hour. Once
PRODIGY has decreased the minimum number of hours of service provided by the SMS
Enhancement and Maintenance Team as described above, it may not make any further
modifications to the minimum number of hours of service to be provided by the
SMS Enhancement and Maintenance Team. Additionally, the first full paragraph on
page 9 of the Agreement shall be deleted and replaced with "The SMS Enhancement
and Maintenance Team personnel shall consist of one-third of a project manager,
one analyst, four programmers and one tester." Furthermore the last two
sentences of this Section shall be deleted and replaced with "Any additional
personnel for the SMS Enhancement and Maintenance Team requested by PRODIGY and
agreed to by CSG will be billed to PRODIGY at the rate of [**] per hour if
PRODIGY is paying [**] for the SMS Enhancement and Maintenance Team and [**] per
hour if PRODIGY is paying [**] for the SMS Enhancement and Maintenance Team."
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
5. The first sentence of Section 2.2.3 of the Agreement is deleted and replaced
with the following:
PRODIGY agrees that during each Processing Year of the Original Term and any
Renewal Period, PRODIGY shall pay, or be responsible for payment of Processing
Fees to CSG in an amount equal to at least [**] per month ("Minimum Fees").
6. CSG shall be PRODIGY's sole and exclusive external provider of billing
services in the United States. PRODIGY shall continue to build software as
required to process and interface with CSG in connection with the services
provided to PRODIGY by CSG under this Agreement. PRODIGY shall not sell, license
or otherwise transfer to any third party any rights to use any of the software
created by PRODIGY in connection with this Agreement, but shall be free to use
it for its own account.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") PRODIGY SERVICES CORPORATION
("PRODIGY")
By: /s/ [ILLEGIBLE SIGNATURE] By: /s/ [ILLEGIBLE SIGNATURE]
-------------------------------- ---------------------------------
Title: President Title: CEO
----------------------------- ------------------------------
Date: 11/25/96 Date: 11/21/96
------------------------------ -------------------------------
CSG SYSTEMS INC.
----------------
Approved as APPROVED PRODIGY
to form and GENERAL COUNSEL
legality
11/23/96 11/21/96
LAW DEPARTMENT ---------------
<PAGE>
[LETTERHEAD OF PRODIGY APPEARS HERE]
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
February 19, 1997
Mr. Craig Graeve
CSG Systems, Inc.
2525 N. 117th Ave.
Omaha, NE 68164
Dear Craig,
Pursuant to Section 4. of the "FIRST AMENDMENT TO SOFTWARE DEVELOPMENT AND
PROCESSING SERVICES AGREEMENT BETWEEN CSG SYSTEMS, INC. AND PRODIGY SERVICES
CORPORATION" executed October 27, 1996, this letter serves as written notice
that Prodigy Services Corporation hereby exercises its option to reduce the
minimum number of hours of service provided under the agreement by the SMS
Enhancement and Maintenance Team from [**] hours per month to [**] hours per
month. This reduction shall take effect on May 1, 1997, which is this first day
of the calendar month which follows sixty days from the date of this notice.
Please note that any hours in excess of the minimum number of hours of service
provided to Prodigy by the SMS Enhancement and Maintenance Team must be
authorized by Prodigy in writing.
Sincerely,
/s/ John M. Filepp
John M. Filepp
Senior Manager, Financial Systems
cc: E. Godshalk
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
SECOND AMENDMENT
TO
SOFTWARE DEVELOPMENT AND
PROCESSING SERVICES AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
PRODIGY SERVICES CORPORATION
This Second Amendment (the "Amendment") is executed this 31st day of December,
1997, and is made by and between CSG Systems. Inc., a Delaware corporation
("CSG") and Prodigy Services Corporation, as successor in interest to Prodigy
Services Company ("PRODIGY"), CSG and PRODIGY entered into a certain Software
Development and Processing Services Agreement dated January 1, 1992, (the
"Agreement") and that certain First Amendment thereto dated October 27, 1996
(the "First Amendment"), and now desire to amend the Agreement and the First
Amendment in accordance with the terms and conditions set forth in this
Amendment. If the terms and conditions set forth in this Amendment shall be in
conflict with the Agreement or the First Amendment, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment by
the parties, any subsequent reference to the Agreement between the parties shall
mean the Agreement as amended by this Amendment. Except as amended by this
Amendment, the terms and conditions set forth in the Agreement shall continue in
full force and effect according to their terms.
CSG and PRODIGY agree as follows:
1. The Original Term of the Agreement shall be extended until June 30, 2001.
Section 2 of the First Amendment and Section 7.2 of the Agreement are deleted,
and, except as provided in paragraph 2 below, any renewal of the Agreement's
term shall be mutually agreed upon by CSG and PRODIGY. After the second
anniversary of the date of this Amendment, PRODIGY may convert from the SMS
System to another billing system of CSG, upon terms mutually agreed upon by CSG
and PRODIGY and subject to CSG's then current prices.
2. PRODIGY shall have an option to extend the Original Term of the Agreement
until June 30, 2003; provided, however, that PRODIGY shall notify CSG in writing
of its intent to exercise its right under this paragraph 2 within ninety (90)
days of the date of execution of this Amendment.
3. The first Sentence of Section 6 of the First Amendment shall be deleted in
its entirety and replaced with the following:
CSG shall be PRODIGY's sole and exclusive provider of billing services for
Prodigy Internet and Prodigy Classic Services in the United States.
"Billing services" refers only to the membership plans billed directly to
Prodigy Internet and Prodigy Classic Services members; it does not include
premium services (e.g., games, specialized
-1-
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES
FOR THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR
OUTSIDE THEIR RESPECTIVE COMPANIES
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
content, merchandise purchases, etc.) offered on those Services or any
other billing services unless agreed to in advance in an express writing
signed by both parties.
4. The first sentence of Section 1.1.8.2(a)(i) of the Agreement shall be
deleted in its entirety and replaced with the following:
The SMS System developed by FDRI pursuant to this Agreement shall be the
sole and exclusive property of FDRI, and, subject to any rights PRODIGY may
have to license such System pursuant to this Agreement, PRODIGY
acknowledges and agrees that all rights, title and interests in and to the
SMS System, including, without limitation maskworks, firmware, computer
programs, algorithms, subroutines, methods, processes, concepts, designs,
know-how, techniques, data or other information of or concerning the SMS
System are and shall remain the sole and exclusive property of FDRI;
provided, however, that any Confidential Information of PRODIGY used by
FDRI in developing the SMS System shall be subject to the Confidentiality
Agreement between the parties dated June 5, 1986. CSG may license or sell
the SMS System, including any modules or subsystems of the SMS System, and
use the SMS System and any modules or subsystems thereof, to provide data
processing services to any third party. PRODIGY shall be entitled to a
royalty (the "Royalty") of any license fees to which CSG may be entitled
from such third party sales or licenses; provided, however, that PRODIGY
shall be entitled to the Royalty only after CSG has fully recovered the
Year 2000 Costs (as defined in paragraph 4 below) from license fees under
any such third party sales or licenses. The Royalty only shall be equal to
[**] of any license fees to which CSG may be entitled (after CSG has
recovered such costs as provided above).
5. The following language shall be added to Section 6.2 of the Agreement:
Subject to the terms of Section 6.3 and 6.4 below, CSG shall supplement and
update the SMS System such that the SMS System shall be capable of reading,
interpreting and processing invoices beyond the Year 2000. CSG shall assume
all costs (the "Year 2000 Costs") associated with modifying the SMS System
such that it operates in accordance with the performance standard contained
in this section.
6. The following language shall be added to Paragraph 3 of the First
Amendment:
Between January 1, 1998 and December 31, 1998, PRODIGY's Processing Fees
shall be at [**]. If, by [**] PRODIGY has [**] the [**]. Otherwise,
Prodigy's [**]. Notwithstanding the foregoing, during the term of this
Agreement following December 31, 1999, PRODIGY shall pay Processing Fees
adjusted in accordance with Section 2.1.2 of the Agreement. Throughout the
term
-2-
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES
FOR THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR
OUTSIDE THEIR RESPECTIVE COMPANIES
<PAGE>
[Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.]
hereof, Prodigy shall be responsible for minimum monthly fees based upon
the applicable Processing Fees pursuant to the terms of this paragraph,
multiplied by [**].
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") PRODIGY SERVICES
CORPORATION ("PRODIGY")
By: /s/ Joseph T. Ruble By: /s/ Audrey J. Parma
------------------------------ -----------------------------
Name: Joseph T. Ruble Name: Audrey J. Parma
---------------------------- ---------------------------
Title: V.P. & General Counsel Title: VP, Support Services
--------------------------- --------------------------
-3-
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES
FOR THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR
OUTSIDE THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.37
1. Introduction
Prodigy Services Corporation (the "Company") is the operator of the Prodigy
Internet service (the "Service"). The Service is an interactive information,
communication and transaction service, used by connecting your receiving and
transmitting equipment (normally a personal computer with a modem connected to
your telephone line) to the Company's network of telecommunications and computer
facilities. In addition to communication, information and transaction services,
the Service provides access to the Internet by means of the software programs
provided by the Company and its suppliers. By completing enrollment and
accepting all of the terms of this Agreement, you become an authorized user (a
"Member") of the Service. Continued acceptance of this Agreement is a condition
of membership. If you do not wish to be bound by this Agreement, please do not
enroll. The Company may change this Agreement at any time, and changes are
effective upon notice to Members. If you do not accept the change, you must
immediately terminate your use of the Service. By continuing to use the Service,
you accept each change. The Company may at any time, without notice or
liability, change, eliminate or restrict the use of, any features or functions
of the Service or limit or change the operation of any feature or function of
the Service.
Any information, products and services available on or through the Internet,
other than information, products and services clearly identified as being
supplied by the Company, are provided by other Internet users or independent
providers ("Third Party Providers"), and each Third Party Provider owns,
maintains and supports its information, products and services. The availability
and contents of an Internet site are the responsibility of the Third Party
Provider of such site. You acknowledge that portions of the Internet may contain
language, pictures or other materials which some individuals may find offensive,
inflammatory, of an adult nature, or otherwise objectionable. Such contents are
the sole responsibility of the applicable Third Party Provider. The Company has
no responsibility for or control over such materials and disclaims any and all
liability for, and knowledge of, their contents. Your access to such materials
is at your own risk. It is your responsibility to use as you see fit Internet
access control software of your choosing to limit access to the Internet by any
minors that you may permit to use your account. Minors who access the Service
are assumed to have parental or guardian consent before accessing the Service.
2. Member Responsibilities
You are responsible for complying with all terms and conditions of this
Agreement. You must be an adult and an individual to use the Service. By
accepting this Agreement, you confirm you are an adult of at least 18 years of
age (19 or 21 where applicable). You are personally responsible for all use of
the Service under your Service account even if you allow someone else to use
your Service account. Using your Service account for illegal, fraudulent or
abusive purposes is grounds for termination of membership, and may be referred
to law enforcement authorities. You are responsible for paying for information,
products and services ordered from the Company or from Third Party Providers
through the Service. The Company is not a party to any transaction between you
and a Third Party Provider, and the purchase, payment, warranty, guarantee,
<PAGE>
delivery, maintenance and all other matters concerning information, products and
services ordered from Third Party Providers are solely between you and the Third
Party Provider.
All member-related information that you provide to the Company must be accurate,
including your name, address, credit or charge card numbers and expiration dates
and any Service payment information. You are responsible for keeping such
information up to date. You must promptly inform the Company if you suspect any
breach of security, such as loss, theft, or unauthorized disclosure or use of
your Service account, password or any credit or charge card number provided to
the Company at enrollment. Until the Company is notified of a breach of security
(by notice given as described in Section 8), you will remain responsible for any
unauthorized use of your Service account. (Liability for use of credit or charge
cards is subject to your agreement with the card issuer.)
The Service is provided for your personal use only. Unless you have the
Company's express written consent, you may not resell it, in whole or part, or
otherwise commercially exploit it, or assign or transfer your membership to
anyone else. All aspects of the Service, except that portion provided by Third
Party Providers, is copyrighted property of the Company.
YOU AGREE TO DEFEND, INDEMNIFY AND HOLD HARMLESS THE COMPANY, ITS OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS FROM ANY CLAIMS, AND EXPENSES, INCLUDING
ATTORNEYS' FEES, ARISING OUT OF OR IN CONNECTION WITH: (I) ANY BREACH OF THIS
AGREEMENT BY YOU AND (II) YOUR USE OF THE SERVICE, SOFTWARE PROVIDED BY THE
COMPANY AND ITS SUPPLIERS, AND THE INTERNET.
3. Software License
All software provided to you by the Company, each revised version thereof, and
any beta test software that you choose to use (the "Software"), is licensed to
you by the Company only for your personal use in connecting to and using the
Service (and no other service) from within the 50 United States, the District of
Columbia, and Puerto Rico, and for no other purpose. You may use or copy it only
as instructed by the Company. Use or copying for any other purpose is prohibited
and is a breach of this Agreement. The Software files remain the property of the
Company at all times, and the Company may make changes to the number and/or
content of these files directly while you are connected to the Service. You
accept the terms of this license by using the Software. This license will
terminate upon termination of your membership. At that time, you must return the
Software to the Company or destroy it.
The Company is not responsible in any way for any computer programs or devices
intended for use in connection with the Software, the Service or the Internet,
even if such programs or devices are advertised or made available through the
Service.
<PAGE>
You acknowledge the Software is proprietary and confidential to the Company.
This Agreement does not convey any rights of ownership to you; title to and
ownership of all rights in trademarks, service marks, patents, copyrights, trade
secrets and other intellectual property in the Software and any copy shall
remain with the Company. You shall not transfer, sublicense, copy, reverse
engineer, decompile, disassemble, translate or otherwise alter or modify the
Software.
THE SOFTWARE IS PROVIDED "AS IS" WITHOUT ANY WARRANTY OF ANY KIND TO THE MAXIMUM
EXTENT PERMITTED BY APPLICABLE LAW, AND THE COMPANY DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE COMPANY DOES NOT
WARRANT THAT THE SOFTWARE IS ERROR FREE, WILL OPERATE WITHOUT INTERRUPTION OR IS
COMPATIBLE WITH ALL EQUIPMENT AND SOFTWARE CONFIGURATIONS. TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL THE COMPANY OR ITS SUPPLIERS BE
LIABLE FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING WITHOUT
LIMITATION, LOSS OF INCOME, DATA, USE OR INFORMATION, EVEN IF THE COMPANY OR ITS
SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME
STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR
CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU.
None of the Software or underlying information or technology may be downloaded
or otherwise exported or re-exported (i) into (or to a national or resident of)
any country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S.
Treasury Department's list of Specially Designated Nationals or the U.S.
Commerce Department's Table of Deny Orders. By downloading or using the
Software, you are agreeing to the foregoing and you are representing and
warranting that you are not located in, under the control of, or a national or
resident of any such country or on any such list. The Software and any
underlying technology may not be exported outside the United States or to any
foreign entity or "foreign person" as defined by U.S. government regulations,
including without limitation, anyone who is not a citizen, national or lawful
permanent resident of the United States. By downloading or using the Software,
you are agreeing to the foregoing and you are warranting that you are not a
"foreign person" or under the control of a foreign person.
The Software is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure
by the Government is subject to restrictions as set forth in subparagraphs (a)
through (d) of the Commercial Computer Restricted Rights clause at FAR 52.227-19
when applicable, or in subparagraph (c)(l)(ii) of The Rights in Technical Data
and Computer Software clause of DFARS and in similar clauses in the NASA FAR
Supplement.
<PAGE>
4. Fees and Payment
You are responsible for paying all fees and charges (plus applicable taxes)
associated with use of the Service under your ID, including those incurred for
premium, extra-fee features or options. By authorizing the Company to charge a
credit or charge card, or debit a bank account by electronic funds transfer for
service fees and charges, you are authorizing the Company to automatically
continue charging that card or debiting that account during your membership.
The Company may, upon notice required by applicable laws, at any time change the
amount of, or basis for determining, any fee or charge, or institute new fees or
charges. All fees and charges are payable in accordance with billing terms in
effect at the time the fee or charge becomes payable. Unless otherwise stated,
all amounts are in U.S. Dollars.
5. Termination of Membership
Either you or the Company may terminate the membership at any time and without
cause. The only right with respect to dissatisfaction with any policies,
guidelines or practices of the Company in operating the Service, any change in
features or functions, or any change in the amount or type of fees and charges
associated with the Service, is for you to terminate the membership by notice to
the Company. Under our monthly plans, if after the first thirty days of your
membership you voluntarily cancel your account, no refund, including any
membership fees or portions thereof, shall be granted. Charges for premium or
extra fee features, supplemental access charges and phone company charges cannot
be refunded at any time. You will be charged for any extra fee features you
subscribe to or use during that period's billing cycle. If you enroll in a pre-
paid annual membership plan, you may cancel your plan, but you will only be
entitled to a refund as is specified under the terms and conditions of that
plan.
The Company may terminate the membership, or suspend any individual Member's
access to the Service, without notice, for conduct that the Company believes is
a violation of this Agreement or any policies or guidelines posted by the
Company on the Service, or for other conduct that the Company believes harmful
to other Members, to Third Party Providers or to the Service or the business
interests of the Company. If you file a claim against the Company, or a claim
which in any way involves the Company, then the Company may terminate your
membership. Upon termination of your membership by the Company for any reason,
you shall not establish a new membership in any Prodigy service, for five years
from the date of termination. Upon termination of your membership, the Company
shall have no obligation to notify any third parties nor shall the Company be
responsible for any damages that may result or arise out of termination of your
membership. Termination or suspension by the Company of service to a Member also
constitutes termination or suspension (as applicable) of that Member's license
to use the Software.
6. Use of the Service
<PAGE>
You acknowledge that the Service is intended for access to and use of electronic
mail, usenet newsgroups, Internet relay chat, the Internet, and any other
proprietary or non-proprietary services that the Company makes available to its
members. You shall not use the Service to operate server programs, including,
but not limited to mail servers, IRC servers, ftp servers, or web servers.
You acknowledge that the use of the Service on a standby or inactive basis is
prohibited. This prohibition includes the use of methods or automated programs
to defeat systems which limit inactivity. The Company may automatically
terminate your session after a certain period of inactivity, which period will
be determined solely by the Company.
You are responsible for providing all equipment, devices and software (other
than the Software) necessary to receive the Service. The Company will provide
telephone numbers to connect to the Service. You are responsible for selecting
the best number for you, and for all telephone fees and charges associated with
the use of the telephone number you select. Use of the Service (or portions
thereof), and of specific telephone numbers, is subject to interruptions at the
Company's discretion or beyond the Company's control. Unauthorized access to the
Service, to restricted portions of the Service, or to the telecommunications or
computer facilities used to deliver the Service, is a breach of this Agreement
and a violation of law.
It is your responsibility to keep your password secret and to change it
frequently. You agree that your Service account will be used by one person at a
time. You may not use another Member's Service account without the specific
consent of that Member. Unauthorized use of another Member's Service account, or
improper solicitation of another Member's password, are grounds for termination
of your membership, and may be a violation of law.
You may not use the Service to submit, copy, upload, post, publish, transmit,
reproduce or distribute information, software, or other material which is
protected by copyright without the specific authority of the copyright owner;
doing so is a breach of this Agreement and may subject you to legal liability.
You are responsible (and could be held liable to others) for all submissions
from your Service account.
Information pertaining to Members of the Service, their e-mail address, and/or
their Service account - which the Company makes available to its Members (for
instance, Member Lists and Community Rosters) - are provided for your personal
use only. You are strictly prohibited from accessing, downloading, printing,
emailing, transferring, posting, selling, sharing, or otherwise using any
Member's information referred to in this paragraph for any non-personal,
commercial, unlawful or illegal purposes.
<PAGE>
You are expressly prohibited from sending the same or substantially similar
unsolicited electronic mail message, whether commercial or not, to fifty (50) or
more recipients, and from posting to a newsgroup, bulletin board, or message
board, the same or substantially similar unsolicited note, whether commercial or
not, twenty-five (25) or more times per day through the use of the Service, the
Company's equipment, or in connection with any Company e-mail address, Company
domain name, or any Company trademark including the word "Prodigy." For each day
that this provision is violated, Member shall pay the Company $50.00 per day for
unintentional violations and $500.00 per day for deliberate violations. The
Company may waive all or part of the applicable charges. Neither the Company's
demand, nor payment by the Member of these charges, shall prevent the Company
from terminating the Member's membership, seeking to obtain and enforce other
legal remedies against the Member, including damages or an injunction, or
cooperating with law enforcement agencies in connection with these violations.
The failure to enforce any provision of this Agreement, including this
paragraph, shall not constitute a waiver of any or all of Company's rights,
including the right to receive compensation for such unintentional or deliberate
violations of this Agreement, regardless of when such violations occurred.
7. Information on the Service
THE COMPANY DOES NOT ENDORSE, ASSERT OR STAND BEHIND THE TRUTHFULNESS OR
RELIABILITY OF OPINIONS, ADVICE OR STATEMENTS GIVEN OR MADE BY ANYONE OTHER THAN
AUTHORIZED COMPANY SPOKESPERSONS IN ANY MANNER ON OR THROUGH THE SERVICE,
INCLUDING, WITHOUT LIMITATION, IN PUBLIC POSTINGS AREAS OF THE SERVICE. EXPERTS,
INFORMATION PROVIDERS AND "MEMBER REPRESENTATIVES" ON THE SERVICE ARE NOT
AUTHORIZED COMPANY SPOKESPERSONS.
Opinions, advice and all other information expressed by anyone on the Service,
including information providers under contract with the Company ("Information
Providers") represent their own views and not those of the Company, and should
not be relied on for important personal decisions. For individual situations,
specific professional advice should be sought.
The Company will only use or disclose information specifically about you (or
your Membership) as is permitted by this Agreement, by the Prodigy Internet
Privacy Policy, or by law. Prodigy may make its membership list available to
other organizations so that they may make offers directly to you. If you do not
want your name, address, or other personally identifiable information to be
provided for such purposes, indicate your intent by going to the Mail Controls
Center in the online Member Support Center. From time to time, Prodigy may
record information about your computer, communications equipment and operating
system software (but no other non-Prodigy software). Prodigy, or other
organizations carefully selected by Prodigy, will use this information on an
individually-identifiable basis only to (i) analyze how current or future
Service features may operate on your equipment; (ii) monitor or improve the
performance of the Prodigy software on your equipment; or (iii) tell you about
enhancements and offerings that may become available to
<PAGE>
you. Prodigy may use or disclose aggregated (not personally identifiable)
information regarding Members for any purpose.
The Service lets you share information with other Members as well as with users
of the Internet who are not Members. You agree not to use the Service to send,
store, or submit for public posting any obscene, sexually explicit, or illegal
material (including material the transmission of which violates any applicable
law) or material which violates Internet standards or customs. The Company
reserves the right (but is not obligated) to review and remove any material
submitted for display or placed on the Internet, excluding private email. The
Company may remove from the Internet any material that the Company believes
violates this Agreement, any policies or guidelines posted by the Company on the
Service or any Internet standards or customs, or is harmful to other Members, to
Third Party Providers, or to the Service or the business interests of the
Company. You are responsible for material sent through or displayed on the
Service under your Service account, even if a claim should arise after
termination of your membership.
The Company will comply in all respects with the Electronic Communications
Privacy Act of 1986, as amended, ("ECPA") relating to private e-mail sent or
received through the Service, as well as other personal information members have
provided. The Company will not inspect the contents of private e-mail, or
disclose their contents to anyone other than the writer or an intended
recipient, without the consent of either the writer or an intended recipient,
except as permitted or required by law. The Company may establish time limits
and/or other criteria under which private e-mail will be automatically removed
from your online mailbox. The Company will have no responsibility for retaining
or delivering private e-mail that are located in a Member's online mailbox at
the time of that Member's suspension or termination, or that are addressed to
such Member thereafter. Subject to the subpoena, warrant and court order
provisions of ECPA, the Company must provide member information to the proper
authorities.
A "public postings area" of the Service is any area where Members may submit
material ("Submissions") for viewing by other Members or by non-Members using
Internet facilities, and view Submissions by other Members or by non-Members
using Internet facilities, including but not limited to, bulletin boards or chat
rooms, and similar Internet facilities, even if such area is not available to
all Members. You agree to use public postings areas only in accordance with this
Agreement, any policies and/or guidelines for the area that are displayed on the
Service and Internet standards or customs.
You may not submit copyrighted material to public postings areas without the
specific authority of the copyright owner; doing so is a breach of this
Agreement and may subject you to legal liability. BY SUBMITTING MATERIAL TO A
PUBLIC POSTINGS AREA, YOU AGREE TO INDEMNIFY THE COMPANY, AND ITS INFORMATION
PROVIDERS, THEIR EMPLOYEES AND CONTRACTORS, AND HOLD THEM HARMLESS FROM ALL
CLAIMS, INCLUDING CLAIMS FOR LIBEL AND SLANDER, ARISING FROM THE SUBMISSION.
Remember: You are responsible (and could be held liable to others) for all
<PAGE>
submissions from your Service account. Neither the Company nor its Information
Providers shall be responsible or have any liability for material displayed in a
public postings area unless posted by its authorized spokesperson. Experts,
Information Providers and "Member Representatives" are not authorized Company
spokespersons.
By submitting material to a public postings area you are irrevocably granting
the Company permission to do anything the Company may choose with all parts of
the Submission, as if it were in the public domain, including modifying it or
using it commercially and authorizing others to do so. You are also irrevocably
granting everyone else (including non-Members) permission to reproduce and/or
redistribute all or parts of your Submission in any form for non-commercial
purposes. In addition, anyone is free to use information contained in a
Submission for any purpose, at their own risk.
The Company may establish time limits and/or other criteria under which
Submissions will be automatically removed from public display. The Company has
the right, but is not obligated, to maintain archives of Submissions, regardless
of whether they were actually posted on the Service, and the Company may use or
disclose archived Submissions in any manner it deems appropriate.
8. Notices
The Company may give notices to Members by electronic mail through the Service,
by a general posting on the Service, or by conventional mail. Notices by Members
to the Company must be given by calling telephone number 1-800-213-0992 or
sending electronic mail to:
[email protected]. A notice by a Member to the Company will not change the
terms of this Agreement, or the terms of any Company policy or guideline, unless
the change is expressly accepted in writing by an authorized officer of the
Company. Customer Care representatives (including supervisors) are not
authorized to accept such changes.
9. Disclaimers
DISCLAIMER OF WARRANTIES; LIMITATIONS OF LIABILITY YOU EXPRESSLY AGREE THAT YOUR
USE OF THE SERVICE, SOFTWARE AND INTERNET IS AT YOUR SOLE RISK. THE SERVICE IS
MADE AVAILABLE ON AN "AS IS," "AS AVAILABLE" BASIS. NEITHER THE COMPANY NOR ANY
SUPPLIER, LICENSOR, EMPLOYEE, AGENT, OR CONTRACTOR MAKES ANY WARRANTY
WHATSOEVER REGARDING THE SERVICE OR THE INTERNET, ANY INFORMATION, SERVICES OR
PRODUCTS PROVIDED THROUGH OR IN CONNECTION WITH THE SERVICE OR THE INTERNET
(INCLUDING WITHOUT LIMITATION THE COMPANY SOFTWARE LICENSED HEREUNDER), OR ANY
RESULTS TO BE OBTAINED THROUGH THE USE THEREOF, AND THE COMPANY HEREBY EXPRESSLY
DISCLAIMS ON BEHALF OF ITSELF AND ALL SUPPLIERS ANY AND ALL WARRANTIES,
INCLUDING WITHOUT LIMITATION:
<PAGE>
(1) ANY WARRANTIES AS TO THE AVAILABILITY, ACCURACY, SECURITY, OR CONTENT OF
INFORMATION, PRODUCTS, OR SERVICES; AND (2) ANY WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. SOME STATES DO NOT ALLOW THE EXCLUSION OF
IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
ANY LIABILITY OF THE COMPANY, ITS SUPPLIERS, LICENSORS, EMPLOYEES, AGENTS, OR
CONTRACTORS, INCLUDING WITHOUT LIMITATION ANY LIABILITY FOR DAMAGES CAUSED OR
ALLEGEDLY CAUSED BY ANY FAILURE OF PERFORMANCE, ERROR, OMISSION, INTERRUPTION,
DELETION, DEFECT, DELAY IN OPERATION OR TRANSMISSION, COMPUTER VIRUS,
COMMUNICATIONS LINE FAILURE, THEFT OR DESTRUCTION OR UNAUTHORIZED ACCESS TO,
ALTERATION OF, OR USE OF RECORDS, WHETHER FOR BREACH OF CONTRACT, TORTIOUS
BEHAVIOR, NEGLIGENCE, OR UNDER ANY OTHER CAUSE OF ACTION, SHALL BE STRICTLY
LIMITED TO THE AMOUNT PAID TO THE COMPANY BY OR ON BEHALF OF THE MEMBER FOR
SERVICE MEMBERSHIP FEES (EXCLUDING FEES FOR SEPARATELY CHARGED EXTRA FEE
FEATURES OR OPTIONS) IN THE 12 MONTHS PRIOR TO THE CLAIMED INJURY OR DAMAGE.
IN NO EVENT SHALL THE COMPANY, ITS SUPPLIERS, LICENSORS, EMPLOYEES, AGENTS, OR
CONTRACTORS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE SERVICE, SOFTWARE OR
INTERNET, OR ANY BREACH OF ANY WARRANTY. SOME STATES DO NOT ALLOW THE LIMITATION
OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
10. Miscellaneous
This Agreement, the Interactive Features Guidelines, the Prodigy Internet
Privacy Policy, and Personal Web Pages Guidelines, which you accept by enrolling
in the Service, contains the entire agreement between you and the Company
regarding use of the Service and the Software, and may be amended at any time
upon notice from the Company to you. The provisions of this Agreement will
continue in effect even after termination of your membership. This Agreement
will be governed by and interpreted under the laws of the State of New York,
without regard to its conflict of law rules.
11. Legal Notices
As required by California Civil Code Section 1789.3, this notice is to advise
you of the following:
(a) If you have a complaint or desire further information about the Prodigy
Internet service, contact Prodigy Services Corporation in writing at 44 South
Broadway, White Plains, NY 10601
<PAGE>
(Attention: Customer Care); by telephone at 1-800-213-0992 or by electronic mail
by selecting http://help.prodigy.net to navigate to the Member Support Center
and then clicking on the appropriate link to send e-mail to the Company.
(b) The monthly charge for the Prodigy Internet service varies depending on the
service plan you have selected. For a description of all service plans and their
respective charges, go to the Manage My Account area in the Member Support
Center. Prodigy Services Corporation reserves the right to change the amount of
any fee or charge, and to institute new fees or charges, effective upon notice
to the Membership Holder.
(c) The Complaint Assistance Unit (Consumer Information Center) of the Division
of Consumer Services of the Department of Consumer Affairs may be contacted in
writing at 400 "R" Street, Sacramento, CA 95814 or by telephone at 1-916-445-
1254 or 1-800-952-5210.
Copyright 1997-98 Prodigy Services Corporation. All rights reserved.
<PAGE>
PRODIGY(R) interactive personal service 03/12/98 10:19 PM
PRODIGY Service Member Agreement
On the screens within this section can read or print the PRODIGY Service Member
Agreement.
You accepted the terms of the Agreement, as revised from time to time by
Prodigy, when you enrolled in the PRODIGY Classic service, and continued
acceptance of it is a condition to PRODIGY service Membership.
Given the timely nature of the Prodigy service, you will always find the most
current version of the Agreement here.
Recent Changes
On September 2, 1997, the second paragraph of the Member Info section was
changed.
Effective August 8, 1997, changes were made to the following sections of the
Prodigy Member Agreement:
Section 2: Membership Responsibilities: the paragraph starting Responsibility of
Membership Holders."
Section 4: Termination of Membership the paragraphs starting "If you file a
claim against Prodigy," and "Termination of service to the Membership Holder."
Section 5: Use of the Service: the paragraphs starting "You acknowledge that the
Service is intended for use of electronic mail," and "You acknowledge that use
of the Service on a standby or inactive basis is prohibited." and "Information
pertaining to Members of the Service," and "Unsolicited Commercial Emails."
<PAGE>
Section 9: Limited Warranty: the paragraph starting "YOU EXPRESSLY AGREE THAT
YOUR USE OF THE SERVICE."
- ----------------------------------
1. Introduction
Prodigy Services Company ("Prodigy") is the operator of the Prodigy service (the
"Service"). The Service is an interactive information, communication and
transaction service, used by connecting your receiving and transmitting
equipment (normally a personal computer with a modem connected to your telephone
line) to Prodigy's network of telecommunications and computer facilities.
By completing enrollment and accepting all of the terms of this Agreement, you
become an authorized user of the Service (a "Member"). Continued acceptance of
this Agreement is a condition of Membership. If you do not wish to be bound by
this Agreement, please do not enroll. Prodigy may change this Agreement at any
time. Changes are effective upon notice to Members (see Section 8 regarding
Notices). To read the current Agreement on the Service at any time, GoTo/Jump:
member agreement.
Each Service Membership can include up to six separate Members. The Member whose
Service ID ends in "A" is the Membership Holder, and may authorize up to five
other people to be Members under the Membership Holder's account.
The Membership Holder has special responsibilities in addition to the
responsibilities of being a Member. Both types of responsibilities are described
in Sections 2 and 3. Members must be individuals, and not (except with Prodigy's
written consent) firms, businesses or institutions.
Prodigy may at any time, without notice or liability, change or eliminate any
Service content or features, restrict the use of any portion of the Service,
including limiting the time of its availability, the amount of use permitted, or
the Members who are permitted to use it), or limit or change the operation of
any feature of the Service. Any changes, restrictions, or limitations may be
applied to all or to individual Members in a Membership, and may be applied
<PAGE>
regardless of whether a multiple month Membership has been purchased or any
payments have been pre-paid.
Each Membership includes periodic issues of various Member newsletters or other
communications.
- ----------------------------------
2. Membership Responsibilities; Prodigy Software License
Responsibilities of All Members. You are responsible for complying with all
terms and conditions of this Agreement, and, with all policies and guidelines
posted on the Service. You are personally responsible for all use of the Service
under your ID (including payment for orders placed) even if you allow someone
else to use your ID. Using your ID for illegal, fraudulent or abusive purposes
is grounds for termination of Membership, and may be referred to law enforcement
authorities. Enrolling or using any ID on the Service under a name other than
your own is prohibited, except where the Service permits "nicknames" or other
identifiers.
You must keep all Membership-related information that you store on the Service
up to date, including your address, any credit, debit or charge card numbers and
expiration dates, and any Service payment information.
You must promptly inform Prodigy if you suspect any breach of security, such as
loss, theft, or unauthorized disclosure or use of your ID, password or any
credit, debit or charge card number stored on the Service. Until Prodigy is
notified of a breach of security (by notice given as described in Section 8, or
by telephone at 1-800-PRODIGY (1-800-776-3449)) you will remain responsible for
any unauthorized use of the Service occurring under your ID. (Liability for use
of credit, debit or charge cards is subject to your agreement with the card
issuer.)
You may use the ordering functions of the Service only to place valid orders for
merchandise, services or other items for which such ordering functions are
intended.
The Service is provided for your personal use only. Unless you have Prodigy's
express written consent, you may not resell it, in whole or part, or
<PAGE>
otherwise commercially exploit it, or assign or transfer your Membership to
anyone else.
Responsibility of Membership Holders. You have overall responsibility for your
Membership, which includes the proper use of the Service by all Members of your
Membership. You are also responsible for all fees and charges incurred by the
Membership (see Section 3), and for payment for all orders placed by any minor
Member in your Membership. The Membership Holder must be an adult and an
individual to use the Service. By accepting this Agreement, the Membership
Holder confirms that he/she is an adult of at least 18 years of age (19 where
applicable).
Prodigy may terminate, without notice, any Membership where the Membership
Holder is a minor, or, in Prodigy's sole discretion, may permit an adult to
become the Membership Holder under procedures established by Prodigy. Access to
certain portions of Service content by other Members of the Membership may be
controlled by and is the responsibility of the Membership Holder.
Prodigy Software License. All Prodigy software provided to you, and each revised
version thereof, is licensed to you by Prodigy only for use in connecting to and
using the Service from within the 50 United States, the District of Columbia,
Puerto Rico, and Canada and you may use copy it only as instructed by Prodigy.
Use or copying for any other purpose is prohibited and is a breach of this
Agreement. The Prodigy software files remain Prodigy's property at all times,
and Prodigy may make changes to the number and/or content of these files
directly while you are connected to the Service. (The Prodigy software does not
affect or involve any other files in your computer without your authorization.)
You accept the terms of this license by using the Prodigy software. This license
will terminate upon termination of the Membership for which it was issued. At
that time, the Membership Holder must return the Prodigy software to Prodigy or
destroy it.
Prodigy is not responsible in any way for any non-Prodigy computer programs or
devices intended for use in connection with the Service and/or the Prodigy
software even if such programs or devices are advertised and/or made available
on the Service.
- ----------------------------------
<PAGE>
3. Fees and Payment
The Membership Holder is responsible for paying all fees and charges (plus
applicable taxes) associated with use of the Service under all of the IDs of the
Membership, including those incurred for extra fee features or options. Prodigy
reserves the right to change the amount of, or basis for determining, any fee or
charge, and to institute new fees or charges, and will give the Membership
Holder at least 30 days prior notice (as provided in Section 8) of any increase
in any existing fee or charge for Service access or use.
All fees or charges that are additional to the monthly Service fee (including
fees or charges for using certain features, functions or modem speeds, or for
using certain features above usage levels established from time to time by
Prodigy) apply, and may be imposed or changed, regardless of whether a multiple
month Membership has been purchased or an advance payment of the monthly Service
fee has been made.
All fees and charges are payable in accordance with billing terms in effect at
the time the fee or charge becomes payable. Prodigy may require payment of any
or all fees and charges to be made by a valid, approved major credit, debit or
charge card. Current fees and charges are posted on the Service. Unless
otherwise stated, all amounts are in U.S. Dollars. GoTo/Jump: fees to view
current fees.
By authorizing Prodigy to charge a credit, debit or charge card for service fees
and charges, you are authorizing Prodigy to automatically continue charging that
card during your Membership.
Upon request to Prodigy, Membership Holders may receive information that
supports charges for use of the Service by themselves or their authorized
Members. For online statement information, GoTo/Jump: statement.
Ordering Merchandise, Services and Information. You may order, and are
responsible for paying for, many types of merchandise, services and information
from merchants and advertisers ("Merchants") through the Service. Merchants are
independently owned and operated businesses. Prodigy is not a party to any
transactions with Merchants, and the purchase, payment, warranty, guarantee,
delivery, maintenance and all other matters
<PAGE>
concerning merchandise, services or information ordered from Merchants are
solely between you and the Merchant. All orders are subject to acceptance by the
Merchant. (See Section 7 regarding information about Members provided to
Merchants with orders.)
- ----------------------------------
4. Termination of Membership
Either the Membership Holder or Prodigy may terminate the Membership at any time
and without cause. The only right with respect to dissatisfaction with any
policies, guidelines or practices of Prodigy in operating the Service, any
change in Service content, or any change in the amount or type of fees and
charges associated with the Service, is for the Membership Holder to terminate
the Membership by notice to Prodigy. See Section 8 regarding notices.
Prodigy may terminate the Membership, or suspend any individual Member's access
to all or any part of the Service, without notice, for conduct that Prodigy
believes is a violation of this Agreement or any policies or guidelines posted
by Prodigy on the Service, or for other conduct that Prodigy believes harmful to
other Members, to Merchants or Information Providers, or to the Service or the
business interests of Prodigy.
If you file a claim against Prodigy, or a claim which in any way involves
Prodigy, then Prodigy may terminate your membership. Upon termination of your
membership by Prodigy for any reason, you shall not establish a new membership
in any Prodigy service, for five years from the date of termination.
Upon termination of a Membership by Prodigy, Prodigy will refund any unused
portion of prepaid fees or charges (excluding fees and charges for extra fee
features that are stated to be non-refundable at the time they are accepted),
after satisfying any outstanding balances owed Prodigy. Upon voluntary
termination of Membership by the Membership Holder, no refund, including any
membership fees or portions thereof, shall be granted. Membership Holder will be
charged for any extra fee features subscribed to or used for that period's
billing cycle.
<PAGE>
Termination of service to the Membership Holder automatically terminates service
to all other Members in the Membership. Upon termination or suspension of
service to a Member, that Member's banking, brokerage and other third-party
relationships will no longer be accessible through the Service.
Prodigy shall have no obligation to notify any third parties nor shall Prodigy
be responsible for any damages that my result or arise out of termination of
your membership.
Termination or suspension by Prodigy of service to a Member also constitutes
termination or suspension (as applicable) of that Member's license to use the
Prodigy software.
- ----------------------------------
5. Use of the Service
You are responsible for providing all equipment, devices and software (other
than the Prodigy software) necessary to receive the Service. Prodigy will
provide telephone numbers to connect to the Service, which for most Members will
include a local number. You are responsible for selecting the best number for
you, and for all telephone fees and charges associated with the use of the
telephone number you select. If you have any question about which telephone
number is best for you, check with your local phone company.
The Service will be available during the hours stated on the Service. GoTo:
service hours.
Use of the Service (or portions thereof), and of specific telephone numbers, is
subject to interruptions at Prodigy's discretion or beyond Prodigy's control.
Unauthorized access to the Service, to restricted portions of the Service, or to
the telecommunications or computer facilities used to deliver the Service, is a
breach of this Agreement and a violation of law.
You acknowledge that the Service is intended for use of electronic mail, usenet
newsgroups, chat, file transfers via ftp, interactive games, browsing of the
World Wide Web, and any other proprietary or non-proprietary services that the
Company makes available to its members. You shall not use the
<PAGE>
Service to operate server programs, including, but not Limited to mail servers,
IRC servers, ftp servers, or web servers.
You acknowledge that use of the Service on ,a standby or inactive basis is
prohibited. This prohibition includes the use of methods or automated programs
to defeat systems which limit inactivity. Prodigy may automatically terminate
your session after a certain period of inactivity, which period will be
determined solely by Prodigy.
Membership Holders may suspend Service use by other Members in the Membership
through the means provided on the Service. GoTo: member access. Prodigy gives
the Membership Holder the ability to limit access of Members in the Membership
to certain content available on or through the Service, including access to
content on the Internet over which Prodigy exercises no control. The
responsibility for controlling Member access to and use of such content areas is
solely that of the Membership Holder.
Information pertaining to Members of the Service, their email address, and/or
their Service account - which Prodigy makes available to its Members (for
instance, Member Lists and Community Rosters) - are provided for your personal
use only. You are strictly prohibited from accessing, downloading, printing,
emailing, transferring, posting, selling, sharing, or otherwise using any
Member's information referred to in this paragraph for any non-personal,
commercial, unlawful or illegal purposes.
Unsolicited Commercial Emails
You acknowledge that you are expressly prohibited from utilizing the Service,
Prodigy's equipment, any Prodigy email address or using the word "Prodigy" in
connection with the sending of the same or substantially similar unsolicited
electronic mail messages, whether commercial or not, to fifty (50) or more
recipients. For each day that this provision is violated, Member shall pay
Prodigy $50.00 per day for unintentional violations and $500.00 per day for
deliberate violations. Prodigy, at its sole discretion, shall determine whether
such violations are unintentional or deliberate. Prodigy may waive all or part
of the applicable charges. Neither Prodigy's demand, nor payment by the member
of these charges shall prevent Prodigy from seeking to obtain other legal
remedies against the member, including termination of membership, damages or an
injunction. The failure to enforce any provision of this Agreement, including
this paragraph, shall not constitute a waiver of
<PAGE>
any or all of Prodigy's rights, including the right to receive compensation for
such unintentional or deliberate violations of this Agreement, regardless of
when such violations occurred.
IDs and Passwords.
Use of the Service requires both an ID and a password. Each new Member receives
a unique ID and a temporary password, and must choose a new password upon
enrollment. Your ID is your address on the Service, and you and Prodigy may
disclose it to others.
The Service may also permit Members to select an additional identifier, called a
"NetName," for use with electronic mail and other features as Prodigy may
determine, and you and Prodigy may disclose NetNames to others as well.
Your password is the key that unlocks access to your personal information on the
Service. Anyone knowing both your ID and password can gain access to your
personal information and misuse it, so KEEP YOUR PASSWORD SECRET; use a password
that is hard to guess (for example, do not use your first or last name); and
change your password frequently. REMEMBER YOUR PASSWORD! If you forget your
password, Prodigy may disclose it to you under security procedures determined by
Prodigy, but reserves the right to charge for doing so. For more information on
passwords, GoTo/Jump: password security. To change your password, GoTo/Jump:
change password.
You may not use another Member's ID without the specific consent of that
Member. Unauthorized use of another Member's ID, or improper solicitation
of another Member's password, are grounds for termination of your
Membership, and may be a violation of law.
For your convenience, Prodigy provides an option that allows you to connect to
the Service automatically, without manually entering your ID and password each
time. Software available from third parties may also offer this function. If you
choose to use any automatic connection function, you acknowledge that anyone who
has access to your computer can also gain access to and abuse your Service
account. For example, anyone having access to the software or computer
containing your automatic connection information could abuse any credit, debit
or charge card information associated with your ID.
- ----------------------------------
<PAGE>
6. Information on the Service
General
PRODIGY DOES NOT EVALUATE, ENDORSE, ASSERT OR STAND BEHIND THE TRUTHFULNESS OR
RELIABILITY OF OPINIONS, ADVICE OR STATEMENTS GIVEN OR MADE BY ANYONE OTHER THAN
AUTHORIZED PRODIGY SPOKESPERSONS IN ANY MANNER ON OR THROUGH THE SERVICE,
INCLUDING, WITHOUT LIMITATION, IN PUBLIC POSTINGS AREAS OF THE SERVICE. EXPERTS,
INFORMATION PROVIDERS AND "MEMBER REPRESENTATIVES" AMONG OTHERS, ARE NOT
AUTHORIZED PRODIGY SPOKESPERSONS.
Opinions, advice and all other information expressed by Service information
providers under contract with Prodigy such as bulletin board leaders,
("Information Providers") represent their own views and not necessarily those of
Prodigy, and should not be relied on for important personal decisions. For
individual situations, specific professional advice should be sought.
The Service lets you share information with other Members as well as with users
of the Internet who are not Members. You agree not to use the Service to send,
store, or submit for public posting, any abusive, obscene, profane, sexually
explicit, threatening, or illegal material (including material the transmission
of which violates any applicable law), or material containing blatant
expressions of bigotry, racism or hate. Prodigy reserves the right (but is not
obligated) to review and remove any material submitted for display or placed on
the Service, excluding private electronic messages. Prodigy may refuse to
display or may remove from the Service any material that Prodigy believes
violates this Agreement or any policies or guidelines posted by Prodigy on the
Service, or is harmful to other Members, to Merchants or Information Providers,
or to the Service or the business interests of Prodigy.
You agree not to engage in unsolicited advertising to, or solicitation of, other
Members or users of the Internet through the Service to buy or sell any products
or services (other than in areas specifically designated for such purposes by
Prodigy) without Prodigy's prior written consent. You are responsible for
material sent through or displayed on the Service under your ID, even if a claim
should arise after termination of the Membership.
<PAGE>
Messaging. Prodigy will comply in all respects with the Electronic
Communications Privacy Act of 1986, as amended, relating to private electronic
messages sent or received through the Service Prodigy will not inspect the
contents of private electronic messages, or disclose their contents to anyone
other than the writer or an intended recipient, without the consent of either
the writer or an intended recipient, except as permitted or required by law.
Prodigy may establish time limits and/or other criteria under which private
electronic messages will be automatically removed from your online mailbox after
a period of time established by Prodigy. Prodigy will have no responsibility for
retaining or delivering private electronic messages that are located in a
Member's online mailbox at the time of that Member's suspension or termination,
or that are addressed to such Member thereafter,
Prodigy may permit Merchants to send messages to Members for commercial
purposes.
Public Postings Areas. A public postings area of the Service is any area where
Members may submit material ("Submissions"), including files, for viewing or
retrieval by other Members or by non-Members using Internet facilities, or view
or retrieve material submitted by other Members (or by non-Members using
Internet facilities, such as Service bulletin boards or chat rooms, and
analogous Internet facilities including submissions by Members via electronic
mail or any other method in response to any solicitation by Prodigy, even if
such area is not available to all Members. A Submission includes the name, ID,
chat nickname and/or other information that is displayed or included with the
submitted material, as applicable. You agree to use each public postings areas
only in accordance with this Agreement and any policies and/or guidelines for
the area that are displayed on the Service.
You may not submit copyrighted material to public postings areas without the
specific authority of the copyright owner; doing so is a breach of this
Agreement and may subject you to legal liability. BY SUBMITTING MATERIAL TO A
PUBLIC POSTINGS AREA, YOU AGREE TO INDEMNIFY PRODIGY, AND ITS INFORMATION
PROVIDERS, THEIR EMPLOYEES AND CONTRACTORS, AND HOLD THEM HARMLESS FROM ALL
CLAIMS, INCLUDING CLAIMS FOR LIBEL AND SLANDER, ARISING FROM THE SUBMISSION.
Remember: You are responsible (and could be held liable to others) for all
submissions from your ID. Neither Prodigy nor its Information Providers are
responsible or
<PAGE>
shall have any liability for material displayed in a public postings area unless
posted by their respective authorized spokesperson. Experts, Information
Providers and "Member Representatives" among others, are not authorized
Prodigy spokespersons.
By submitting material to a public postings area you are irrevocably granting
Prodigy permission to do anything Prodigy may choose with all parts of the
Submission, as if it were in the public domain, and free of moral rights,
including modifying it or using it commercially and authorizing others to do so.
You are also irrevocably granting everyone else (including non-Members)
permission to reproduce and/or redistribute all or parts of your Submission in
any form for non-commercial purposes. In addition, anyone is free to use
information contained in a Submission for any purpose, at their own risk.
Prodigy may establish time limits and/or other criteria under which Submissions
will be automatically removed from public display.
Prodigy has the right, but is not obligated, to maintain archives of
Submissions, regardless of whether they were actually posted on the Service, and
Prodigy may use or disclose archived Submissions in any manner it deems
appropriate.
Copyright. Except for public domain material, all material contained in the
Service is copyrighted. You may not reproduce, or redistribute such material, in
whole or in part, in any manner, without the prior consent of the copyright
owner, unless specifically permitted by this Agreement or on the Service. You
may make single copies of copyrighted materials displayed on the Service if they
are solely for your own personal use, and if you preserve any copyright or other
notices contained in or associated with them. You may not distribute such copies
to others, whether or not for a charge or other consideration, without written
permission from the copyright owner. Requests for permission to reproduce
portions of the Service for other purposes should be mailed to Prodigy Services
Company, 445 Hamilton Avenue, White Plains, New York 10601, Attn: Editorial
Department. This Agreement does not grant you permission to use the "Prodigy"
name or any Service logo for any purpose.
- -------------------------------------------
7. Information Supplied to Prodigy by Members
<PAGE>
One of the valuable and unique features of the Service is its ability to
personalize editorial and commercial content and offerings to your interests.
Personalization is based on information that you (or the Membership Holder)
provide to Prodigy and information derived during your use of the Service and
during installation of the Prodigy software on your equipment used to receive
the Service. You may review or update certain personal information you have
provided to Prodigy by using the Tools feature on the Service. GoTo: tools. You
may be requested to supplement or update your personal information from time to
time. All personal information that you provide on the Service must be accurate,
and Prodigy reserves the right to verify its accuracy.
Prodigy will only use or disclose information, specifically about you (or your
Membership) as is permitted by this Agreement and Prodigy's Policy on Protecting
Member Privacy. GoTo/ Jump: privacy policy. Prodigy may make its membership list
available to other organizations so that they may make offers directly to you.
If you do not want your name, address, or other personally identifiable
information to be provided for such purposes, indicate your intent by jumping
to: Opt Out, From time to time, Prodigy may record information about your
computer, communications equipment and operating system software (but no other
non-Prodigy software).
Prodigy will use this information on an individually-identifiable basis only to:
(i) analyze how current or future Service features may operate on your
equipment; (ii) monitor or improve the performance of the Prodigy software on
your equipment; or (iii) Prodigy or other organizations may tell you about
enhancements and offerings that may become available to you. Prodigy may use or
disclose aggregated (not personally identifiable) information regarding Members
for any purpose.
When you place an order on the Service, Prodigy may provide your name, address,
telephone number, and other relevant information to the Merchant, including
whether you are a minor and how long you have been a Member. Prodigy cannot and
will not be responsible for how Merchants use this information.
- --------------------------------
8 Notices
<PAGE>
Prodigy may give notices to Members by electronic mail through the Service using
the Message Center feature, by a general posting on the Service, or by
conventional mail. Any notice given to the Membership Holder will constitute
notice to all Members in the Membership.
Notices by Members to Prodigy must be given by electronic mail or conventional
mail, unless otherwise specified in this Agreement Notices by means of
electronic mail must be sent through the Member Help feature. GoTo: member help.
Notices to Prodigy by conventional mail must be sent to:
Prodigy Services Company
44 South Broadway
White Plains, NY 10601
Attention: Member Services
A notice by a Member to Prodigy will not change the terms of this Agreement, or
the terms of any Prodigy policy or guideline, unless the change is expressly
accepted in writing by an authorized officer of Prodigy. Member Services
representatives (including supervisors) are not authorized to accept such
changes.
Special Notice to California Members.
For a special notice to California Members under California Civil Code
Section 1789.3, select "Legal Notices" from the Sources and Policies section.
GoTo/Jump: policies.
- --------------------------------
9. LIMITED WARRANTY AND LIMITATIONS OF LIABILITY
YOU EXPRESSLY AGREE THAT YOUR USE OF THE SERVICE IS AT YOUR SOLE RISK. THE
SERVICE IS MADE AVAILABLE ON AN "AS IS" BASIS. NEITHER PRODIGY NOR ANY
INFORMATION PROVIDER, LICENSOR, EMPLOYEE, AGENT, OR CONTRACTOR MAKES ANY
WARRANTY WHATSOEVER REGARDING THE SERVICE, ANY INFORMATION, SERVICES OR PRODUCTS
<PAGE>
PROVIDED THROUGH OR IN CONNECTION WITH THE SERVICE, INCLUDING WITHOUT LIMITATION
THE PRODIGY SOFTWARE LICENSED HEREUNDER, OR ANY RESULTS TO BE OBTAINED THROUGH
THE USE THEREOF, AND PRODIGY HEREBY EXPRESSLY DISCLAIMS ON BEHALF OF ITSELF AND
ALL INFORMATION PROVIDERS TO IT ANY AND ALL WARRANTIES, INCLUDING WITHOUT
LIMITATION:(1) ANY WARRANTIES AS TO THE AVAILABILITY, ACCURACY, SECURITY OR
CONTENT OF INFORMATION, PRODUCTS, OR SERVICES; AND (2) ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SOME STATES DO NOT ALLOW
THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO
YOU. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY ALSO
HAVE OTHER RIGHTS WHICH VARY FROM STATE TO STATE.
ANY LIABILITY OF PRODIGY, ITS INFORMATION PROVIDERS, LICENSORS, EMPLOYEES,
AGENTS OR CONTRACTORS, INCLUDING WITHOUT LIMITATION ANY LIABILITY FOR DAMAGES
CAUSED OR ALLEGEDLY CAUSED BY ANY FAILURE OF PERFORMANCE, ERROR, OMISSION,
INTERRUPTION, DELETION, DEFECT, DELAY IN OPERATION OR TRANSMISSION, COMPUTER
VIRUS, COMMUNICATIONS LINE FAILURE, THEFT OR DESTRUCTION OR UNAUTHORIZED ACCESS
TO, ALTERATION OF, OR USE OF RECORDS, WHETHER FOR BREACH OF CONTRACT, TORTIOUS
BEHAVIOR, NEGLIGENCE, OR UNDER ANY OTHER CAUSE OF ACTION, SHALL BE STRICTLY
LIMITED TO THE AMOUNT PAID TO PRODIGY BY OR ON BEHALF OF THE MEMBER FOR SERVICE
MEMBERSHIP FEES (EXCLUDING FEES FOR SEPARATELY CHARGED EXTRA FEE FEATURES OR
OPTIONS) IN THE 12 MONTHS PRIOR TO THE CLAIMED INJURY OR DAMAGE. IN NO EVENT
SHALL PRODIGY, ITS INFORMATION PROVIDERS, LICENSORS, EMPLOYEES, AGENTS, OR
CONTRACTORS BE LIABLE WITH ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE SERVICE, OR ANY BREACH OF
ANY WARRANTY. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY
FOR INCIDENTAL OR CONSEQUENTIAL
<PAGE>
DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
YOU AGREE THAT YOU WILL NOT HOLD PRODIGY RESPONSIBLE FOR THE SELECTION OR
RETENTION OF, OR ANY ACTS, ERRORS, OR OMISSIONS BY, ANY THIRD PARTY IN
CONNECTION WITH THE SERVICE, INCLUDING WITHOUT LIMITATION THOSE WITH WHOM
PRODIGY CONTRACTS TO OPERATE VARIOUS PORTIONS OF THE SERVICE.
Prodigy's contracts with certain information providers require Prodigy to give
you specific notices regarding your use of information supplied by them and the
limitation of their liability to you. Please see Appendix A (Info Providers) for
these notices.
- --------------------------------
10. Miscellaneous
This Agreement, including Appendix A (Info Providers) and all policies and
guidelines referred to herein, which you accept by enrolling in the Service,
contains the entire agreement between you and Prodigy regarding use of the
Service and the Prodigy software, and may be amended at any time upon notice
from Prodigy to you. The provisions of this Agreement will continue in effect
even after termination of your Membership. This Agreement will be governed by
and interpreted under the laws of the State of New York, without regard to its
conflict of law rules.
You can reach Prodigy Member Services for information and assistance:
(a) by calling 1-800-PRODIGY (1-800-776-3449);
or
(b) by selecting "Ask Us For Help" from the Member Services feature. GoTo:
member help.
- --------------------------------
APPENDIX A -- Information Provider Notices
SportsTicker, a Division of Telerate Systems Incorporated, owns the copyright to
material identified as belonging to it, and any Member is permitted to store,
manipulate, analyze, reformat, print and display such
<PAGE>
material for those using such Member's personal computer only, but may in no
event redistribute such material, nor use such material in a commercial or
business related manner as a person engaged in the provision of print or
electronic publications and services, or radio, television, and cable television
services, including programming.
All information from Dow Jones & Company, Inc. ("Dow Jones"), its subsidiaries
and licensors carried on the Service (the "Dow Jones Information") is owned by
Dow Jones, its subsidiaries or licensors, and any Member is permitted to store,
manipulate, analyze, reformat, print and display the Dow Jones Information only
for such Member's personal use. In no event shall any Member publish,
retransmit, redistribute or otherwise reproduce any Dow Jones Information in any
format to anyone, and no Member shall use any Dow Jones Information in or in
connection with any business or commercial enterprise, including without
limitation, any securities, investment, accounting, banking, legal or media
business or enterprise,
DOW JONES AND ITS AFFILIATES AND LICENSORS CANNOT AND DO NOT WARRANT THE
ACCURACY, COMPLETENESS, CURRENTNESS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE DOW JONES INFORMATION. NEITHER DOW JONES NOR ANY OF ITS
AFFILIATES OR LICENSORS SHALL BE LIABLE TO ANY MEMBER OR ANYONE ELSE FOR ANY
LOSS OR INJURY CAUSED IN WHOLE OR PART BY ITS NEGLIGENCE OR CONTINGENCIES BEYOND
ITS CONTROL
IN PROCURING, COMPILING, INTERPRETING, EDITING, WRITING, REPORTING OR DELIVERING
ANY DOW JONES INFORMATION. IN NO EVENT WILL DOW JONES, ITS AFFILIATES OR
LICENSORS BE LIABLE TO ANY MEMBER OR ANYONE ELSE FOR ANY DECISION MADE OR ACTION
TAKEN BY ANY MEMBER IN RELIANCE UPON SUCH INFORMATION OR FOR ANY CONSEQUENTIAL,
SPECIAL OR SIMILAR DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Any Member is permitted to store, manipulate, analyze, reformat, print and
utilize material from The Associated Press carried on the Service (the "AP
Material") for personal use by that Member only, but may in no event
redistribute the AP Material, nor use the AP Material in a commercial or
<PAGE>
business related manner as a person engaged in the provision of print or
electronic publications and services or radio, television, and cable television
services, including programming. Members shall not, directly or indirectly,
publish, broadcast or distribute the AP Material or portions thereof in any
medium, except that corporate, governmental and institutional Members may use
portions of the AP Material for internal printed communications and memoranda.
Neither the Associated Press nor Press Association, Inc. shall be liable in any
way to any Member, third party or other person who may receive the AP Material,
or to any other person whatsoever, for any delays, inaccuracies, errors or
omissions therefrom or in the transmission or delivery of all or any part
thereof or for any damage arising therefrom or occasioned thereby. In no event
shall The Associated Press or Press Association, Inc. be liable for any direct,
consequential, punitive, special or any other damages arising in any way from
the availability of the AP Material regardless of the form of action, whether
contract or tort. All information provided by S&P ComStock ("ComStock") and
its affiliates (the "ComStock Information") on Prodigy is owned by or licensed
to ComStock and its affiliates and any Member is permitted to store,
manipulate, analyze, reformat, print and display the ComStock Information only
for such Member's personal use. In no event shall any Member publish,
retransmit, redistribute or otherwise reproduce any ComStock Information in any
format to anyone, and no Member shall use any ComStock Information in or in
connection with any business or commercial enterprise, including with out
limitation, any securities, investment, accounting, banking, legal or media
business or enterprise.
Neither ComStock nor its affiliates make any express or implied warranties
(including, without limitation, any warranty of merchantability or fitness for a
particular purpose or use) regarding the ComStock Information. The ComStock
Information is provided to the Members "as is". Neither ComStock nor its
affiliates warrant that the ComStock Information will be uninterrupted or error-
free. Neither ComStock nor its affiliates will be liable to any Member or anyone
else for any inaccuracy, error or omission, regardless of cause, in the ComStock
Information or for any damages (whether direct or indirect, consequential,
punitive or exemplary) resulting therefrom.
The Comstock Information includes market data owned and supplied by various
stock and commodities exchanges including the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Stock Exchange.
<PAGE>
Each exchange has exclusive and valuable property rights in its market data.
This data is being made available to Members only for their own internal
business or personal activities. You may not redisseminate, retransmit,
download, print or communicate this data, in any format, to any other person,
except when that communication is an occasional, infrequent transmission or
copying of de minimis segments of market data. Please be aware that these
exchanges do not guarantee the sequence, accuracy, completeness or timeliness of
the market data you are viewing and neither these exchanges nor their officers,
directors, members, employees, agents, consultants or licensors shall be liable
to any person, including, but not limited to a member or customer, for any
losses, damages, costs or expenses (including, but not limited to, loss of
profits, loss of use, direct, indirect, incidental or consequential damages)
resulting from any error, inaccuracy, delay or interruption in the dissemination
of this data or any unauthorized access or any other misuse of the system
through which the data is transmitted.
(This is the end of the
Prodigy Service Member Agreement)
Copyright 1998 Prodigy Services Company. All Rights Reserved.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1, as filed
on September 25, 1998, of our report dated April 30, 1998, except as to the
information presented under Additional Financing in Notes 8 and 11 for which the
date is September 21, 1998, on our audits of the consolidated financial
statements of Prodigy Communications Corporation as of December 31, 1996 and
1997 and for each of the two years in the period ended December 31, 1997, and of
our report dated September 10, 1998, on our audits of the consolidated financial
statements of Prodigy Services Company for the year ended December 31, 1995 and
the five and one-half month period ended June 16, 1996. We also consent to the
reference to our firm under the captions "Experts" and "Selected Consolidated
Financial Data."
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
September 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 12,363 9,607
<SECURITIES> 0 0
<RECEIVABLES> 1,740 692
<ALLOWANCES> 685 664
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,407 12,342
<PP&E> 16,261 13,164
<DEPRECIATION> 10,128 13,354
<TOTAL-ASSETS> 73,668 63,442
<CURRENT-LIABILITIES> 65,769 55,307
<BONDS> 0 0
0 0
0 0
<COMMON> 1,353 1,503
<OTHER-SE> (3,454) (19,768)
<TOTAL-LIABILITY-AND-EQUITY> 73,668 63,442
<SALES> 134,192 67,310
<TOTAL-REVENUES> 134,192 67,310
<CGS> 98,758 52,147
<TOTAL-COSTS> 250,304 98,839
<OTHER-EXPENSES> 11,851 0
<LOSS-PROVISION> (245) (21)
<INTEREST-EXPENSE> 1,287 328
<INCOME-PRETAX> (129,250) (31,857)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (129,250) (31,857)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (129,250) (31,857)
<EPS-PRIMARY> (1.86) (0.23)
<EPS-DILUTED> (1.86) (0.23)
</TABLE>
