FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: December 31, 1998
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number:
001-12143
America Online, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1322110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22000 AOL Way, Dulles, Virginia 20166-9323
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (703) 265-1000
Former name, former address, and former year, if changed since last report: Not
applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
Common Stock, as of the latest practicable date.
Title of each class
Common stock $.01 par value
Shares outstanding on January 31, 1999..................... 466,983,489
<PAGE>
AMERICA ONLINE, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1998
and June 30, 1998 3
Condensed Consolidated Statements of Operations - Three
months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Operations - Six
months ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows - Six
months ended December 31, 1998 and 1997 6
Condensed Consolidated Statement of Changes in
Stockholders' Equity - Six months ended
December 31, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
<PAGE>
<TABLE>
<CAPTION>
AMERICA ONLINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except share data)
December 31, June 30,
1998 1998
--------------------- -------------------
ASSETS (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,452 $ 631
Trade accounts receivable, less allowances of $25 and $19,
respectively 113 105
Other receivables 112 92
Prepaid expenses and other current assets 105 103
--------------------- -------------------
Total current assets 1,782 931
Property and equipment at cost, net 424 363
Other assets:
Investments including available-for-sale securities 485 449
Product development costs, net 91 88
Goodwill and other intangible assets, net 359 381
Other assets 5 3
===================== ===================
Total assets $ 3,146 $ 2,215
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 91 $ 87
Other accrued expenses and liabilities 453 433
Deferred revenue 309 242
Accrued personnel costs 64 57
Deferred network services credit 76 76
--------------------- -------------------
Total current liabilities 993 895
Long-term liabilities:
Notes payable 400 372
Deferred revenue 53 71
Other liabilities 14 6
Deferred network services credit 235 273
--------------------- -------------------
Total liabilities 1,695 1,617
Stockholders' equity:
Common stock, $.01 par value, 1,800,000,000 shares authorized,
464,432,957 and 439,972,494 shares issued and outstanding at
December 31, 1998 and June 30, 1998, respectively 5 4
Additional paid-in capital 1,513 872
Unrealized gain on available-for-sale securities 128 145
Accumulated deficit (195) (423)
--------------------- -------------------
Total stockholders' equity 1,451 598
===================== ===================
Total liabilities and stockholders' equity $ 3,146 $ 2,215
===================== ===================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICA ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in millions, except per share data)
(unaudited)
Three months ended
December 31,
-------------------------------------------------
1998 1997
--------------------- ---------------------
Revenues:
<S> <C> <C>
Online service revenues $ 779 $ 483
Advertising, commerce and other revenues 181 109
--------------------- ---------------------
Total revenues 960 592
Costs and expenses:
Cost of revenues 590 386
Marketing 132 97
Product development 32 24
General and administrative 62 52
Amortization of goodwill and other intangible assets 13 2
Settlement charge - (1)
--------------------- ---------------------
Total costs and expenses 829 560
Income from operations 131 32
Other income, net 14 1
--------------------- ---------------------
Income before provision for income taxes 145 33
Provision for income taxes (24) -
===================== =====================
Net income $ 121 $ 33
===================== =====================
Earnings per share-diluted $ 0.22 $ 0.06
Earnings per share-basic $ 0.26 $ 0.08
Weighted average shares outstanding-diluted 561 512
Weighted average shares outstanding-basic 460 413
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICA ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in millions, except per share data)
(unaudited)
Six months ended
December 31,
-------------------------------------------------
1998 1997
--------------------- ---------------------
Revenues:
<S> <C> <C>
Online service revenues $ 1,494 $ 917
Advertising, commerce and other revenues 325 197
--------------------- ---------------------
Total revenues 1,819 1,114
Costs and expenses:
Cost of revenues 1,136 713
Marketing 237 195
Product development 60 40
General and administrative 118 107
Amortization of goodwill and other intangible assets 26 4
Restructuring charge - (2)
Settlement charge - (1)
--------------------- ---------------------
Total costs and expenses 1,577 1,056
Income from operations 242 58
Other income, net 16 6
--------------------- ---------------------
Income before provision for income taxes 258 64
Provision for income taxes (30) -
===================== =====================
Net income $ 228 $ 64
===================== =====================
Earnings per share-diluted $ 0.41 $ 0.13
Earnings per share-basic $ 0.50 $ 0.16
Weighted average shares outstanding-diluted 556 508
Weighted average shares outstanding-basic 457 409
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICA ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in millions)
(unaudited)
Six months ended December 31,
------------------------------------------
1998 1997
-------------------- ------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 228 $ 64
Adjustments to reconcile net income to net
cash provided by operating activities:
Non-cash restructuring charges - (2)
Depreciation and amortization 105 57
Amortization of deferred network services credit (38) -
Compensatory stock options 7 24
Deferred income taxes 30 -
Gain on sale of investments (2) (8)
Changes in assets and liabilities:
Trade accounts receivable (9) (22)
Other receivables (19) -
Prepaid expenses and other current assets (29) 26
Other assets (1) (3)
Investments including available-for-sale securities (19) (16)
Accrued expenses and other current liabilities 33 30
Deferred revenue and other liabilities 57 2
-------------------- ------------------
Total adjustments 115 88
-------------------- ------------------
Net cash provided by operating activities 343 152
Cash flows from investing activities:
Purchase of property and equipment (110) (169)
Product development costs (21) (27)
Proceeds from sale of investments 1 7
Purchase of available-for-sale securities (45) (5)
Proceeds from sale of subsidiary 25 -
Other investing activities (17) (7)
-------------------- ------------------
Net cash used in investing activities (167) (201)
-------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 619 50
Proceeds from sale and leaseback of property and equipment 8 20
Principal and accrued interest payments on line of credit and debt (10) (58)
Proceeds from line of credit and issuance of debt 28 379
Restricted cash - 50
-------------------- ------------------
Net cash provided by financing activities 645 441
-------------------- ------------------
Net increase in cash and cash equivalents 821 392
Cash and cash equivalents at beginning of period 631 129
-------------------- ------------------
Cash and cash equivalents at end of period $ 1,452 $ 521
==================== ==================
Supplemental cash flow information Cash paid during the period for:
Interest $ 8 $ 2
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICA ONLINE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in millions, except share data)
(unaudited)
Unrealized Gain
Additional (Loss)on
Common Stock Paid -In Available-for-Sale Accumulated
Shares Amount Capital Securities Deficit Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1998 439,972,494 $ 4 $ 872 $ 145 $ (423) $ 598
Common stock issued:
Exercise of options 13,468,538 - 62 - - 62
Sale of stock, net 10,991,925 1 556 - - 557
Amortization of compensatory stock options - - 7 - - 7
Unrealized loss on available-for-sale securities, - - (11) (17) - (28)
including tax effect
Tax benefit related to stock options - - 27 - - 27
Net income - - - - 228 228
==============================================================================
Balances at December 31, 1998 464,432,957 $ 5 $ 1,513 $ 128 $ (195) $ 1,451
==============================================================================
See accompanying notes.
</TABLE>
<PAGE>
AMERICA ONLINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of America Online, Inc. (the "Company") and its
wholly and majority owned subsidiaries, have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring accruals considered necessary for a fair presentation, have been
included in the accompanying unaudited financial statements. All significant
intercompany transactions and balances have been eliminated in consolidation.
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the current year presentation. Operating results for
the three and six months ended December 31, 1998 are not necessarily indicative
of the results that may be expected for the full year ending June 30, 1999. For
further information, refer to the consolidated financial statements and notes
thereto, included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998.
Note 2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three and six months ended December 31, 1998 and
1997:
<TABLE>
(in millions except for per share data) Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
Numerator for basic and diluted earnings per share -
<S> <C> <C> <C> <C>
Income available to common stockholders $121 $33 $228 $64
============================================================
Denominator
Denominator for basic earnings per share -
Weighted average shares 460 413 457 409
Effect of dilutive securities:
Employee stock options 87 84 85 84
Warrants 14 14 14 14
Convertible preferred stock - 1 - 1
------------------------------------------------------------
Dilutive potential common shares 101 99 99 99
------------------------------------------------------------
Denominator for diluted earnings per share -
Adjusted weighted average shares
and assumed conversions 561 512 556 508
============================================================
Basic earnings per share $ 0.26 $ 0.08 $ 0.50 $ 0.16
============================================================
Diluted earnings per share $ 0.22 $ 0.06 $ 0.41 $ 0.13
============================================================
</TABLE>
Note 3. Comprehensive Income
For the three months ended December 31, 1998 and 1997, comprehensive
income was $149 million and $36 million, respectively. For the six months ended
December 31, 1998 and 1997, comprehensive income was $211 million and $80
million, respectively. The difference between net income and comprehensive
income for each period presented is due to unrealized gains or losses on
available-for-sale securities.
Note 4. Business Developments
In November 1998, the Company announced that it would acquire Netscape
Communications Corporation ("Netscape") in a transaction expected to be
accounted for as a pooling-of-interests ("the Transaction"). When the
Transaction is completed, the financial statements included in all future
filings will be restated to include the results of operations of Netscape for
all periods presented. The Company expects to issue approximately 45 million
shares in the Transaction in which the stockholders of Netscape will receive
0.45 shares of the Company's common stock for each share of Netscape common
stock (the 0.45 shares is prior to the adjustment to reflect the two-for-one
stock split that will be effected on February 22, 1999). The Transaction is
expected to close in the spring of 1999, subject to various conditions including
customary regulatory approvals and approval by Netscape's shareholders.
In November 1998, the Company announced it would enter into a
three-year strategic development and marketing alliance with Sun Microsystems,
Inc. ("Sun"). Under this alliance, both companies will use each other's sales
channels and customer relationships to market their existing products and
services, as well as their new collaboratively developed electronic commerce
solutions. The Company has committed to purchasing systems and services from Sun
with a list price of $500 million through 2002. Sun has committed that the total
revenue earned by the Company under the strategic development and marketing
agreement will not be less than $312 million, $330 million and $333 million in
the first, second and third years following the Transaction, respectively. In
addition, the Company will receive approximately $275 million in licensing
fees and approximately $75 million in marketing and advertising fees. The
strategic development and marketing agreement is subject to renegotiation in the
event that the Transaction does not close by June 30, 1999.
Note 5. Business Combinations
During the fiscal year ended June 30, 1998, the Company made two
significant acquisitions, the online services business of CompuServe Corporation
("CompuServe") and the assets of Mirabilis, Ltd., ("Mirabilis"). In exchange for
the online services business of CompuServe valued at $280 million and $147
million in cash, the Company transferred to WorldCom, Inc. all of the issued and
outstanding shares of ANS Communications, Inc., a then wholly-owned subsidiary
of the Company. For $287 million in cash (and potential contingent payments of
up to $120 million in future years), the Company purchased all the outstanding
assets, including the developmental ICQ instant communications and chat
technology, and assumed certain liabilities of Mirabilis.
The following unaudited pro forma information has been prepared
assuming that the acquisitions of CompuServe and Mirabilis had taken place at
the beginning of the respective periods. The amount of the aggregate purchase
price allocated to in-process research and development for the Mirabilis
acquisition has been excluded from the pro forma information, as it is a
non-recurring item. The pro forma effect for the six months ended December 31,
1997, would have resulted in revenues of $1,230 million, income from operations
of $115 million, net income of $117 million, and diluted and basic earnings per
share of $0.23 and $0.29, respectively. The pro forma financial information is
not necessarily indicative of the combined results that would have occurred had
the acquisitions taken place at the beginning of the period, nor is it
necessarily indicative of results that may occur in the future.
During November 1998, the Company completed its merger with
PersonaLogic, Inc. ("PersonaLogic"), in which PersonaLogic became a wholly owned
subsidiary of the Company. The Company exchanged approximately 690,000 shares of
common stock for all the outstanding common and preferred shares of
PersonaLogic. The merger was accounted for under the pooling-of-interests method
of accounting and, accordingly, the accompanying financial statements have been
restated to include the operations of PersonaLogic for all periods presented
prior to the merger. The Company expensed an immaterial amount of merger costs
during the current period. PersonaLogic's revenues for the three months ended
December 31, 1997 and the six months ended December 31, 1998 and 1997 were not
significant. During the three months ended December 31, 1997 and the six months
ended December 31, 1998 and 1997, PersonaLogic's net loss was $1 million, $1
million and $2 million, respectively.
Note 6. Sale of Spry, Inc.
On September 10, 1998, the Company announced the sale of its
subsidiary, Spry, Inc. ("Spry"). For financial reporting purposes, the assets
and liabilities of Spry have been classified in the condensed consolidated
balance sheet as a net asset held for sale, which is a component of prepaid
expenses and other current assets. The initial transaction related to the sale
of Spry closed on October 15, 1998 and will be finalized during the March 1999
quarter.
Note 7. Common Stock Offering
During July 1998, the Company completed a public offering of common
stock. The Company sold 10,780,000 shares of common stock and raised aggregate
net proceeds of approximately $550 million in new equity used for general
corporate purposes, working capital, capital expenditures, and investment in
content, programming and other assets.
Note 8. Recent Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet determined if it
will early adopt and what the effect of SFAS No. 133 will be on the earnings and
financial position of the Company.
Note 9. Stock Split
On October 27, 1998, the Company announced that its Board of Directors
approved a two-for-one common stock split. On the payment date of November 17,
1998, stockholders received one additional share for each share owned on the
record date of November 3, 1998. The impact of this stock split has been
reflected in the accompanying financial statements.
Note 10. Subsequent Events
On January 27, 1999, the Company announced that its Board of Directors
approved a two-for-one common stock split. On the payment date of February 22,
1999, stockholders will receive one additional share for each share owned on the
record date of February 8, 1999. The impact of this stock split is not reflected
in the accompanying financial statements.
On January 20, 1999, the Company sold a substantial portion of its
investment in Excite, Inc. for net proceeds of approximately $500 million. The
Company expects to record a significant gain during the March 1999 quarter
related to this transaction.
On February 1, 1999, the Company announced that it will acquire
MovieFone, Inc., ("MovieFone") in an all-stock transaction valued at
approximately $388 million. The acquisition is expected to be accounted for as a
pooling-of-interests and is expected to close in the spring of 1999, subject to
various conditions including customary regulatory approvals and approval by
MovieFone's shareholders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
America Online, Inc. is the world's leader in branded interactive services
and content. The Company operates two worldwide Internet services: the AOL
service, with more than 16 million members; and the CompuServe service, with
approximately 2.0 million members. The Company also operates AOL Studios, a
leading creator of original interactive content. Other branded Internet services
operated by the Company include AOL.COM, the world's most accessed Web site from
home; Digital City, Inc., the No. 1 local content network and community guide on
AOL and the Internet; AOL NetFind, AOL's comprehensive guide to the Internet;
AOL Instant Messenger, an instant messaging tool available on both the AOL
service and the Internet; and ICQ, an instant communications and chat technology
on the Internet.
The Company generates two types of revenues: online service revenues
and advertising, commerce and other revenues. Online service revenues are
generated from customers subscribing to the Company's AOL service and, effective
February 1, 1998, the CompuServe service. Advertising, commerce and other
revenues are non-subscription based and are generated from the Company's base of
subscribers and users across its multiple brands, as well as businesses.
Advertising, commerce and other revenues consist of advertising and related
revenues, the sale of merchandise and transaction fees associated with
electronic commerce, as well as other revenues, which consist primarily of data
network service revenues generated by ANS Communications, Inc. (through its sale
in January 1998) as well as royalty fees and development revenues.
Currently, the Company's online service revenues are generated
primarily from subscribers paying a monthly membership fee. The Company offers
several pricing alternatives to the AOL service in the U.S. designed to appeal
to a wide range of consumers. Most customers subscribing to the AOL service pay
a standard monthly membership fee of $21.95, with no additional hourly charges
(the "Flat-Rate Plan"). Subscribers can also choose to prepay for one year in
advance at the monthly rate of $19.95. The Company increased the price of its
Flat-Rate Plan from $19.95 per month to $21.95 per month, and the effective
monthly rate of the annual plan from $17.95 per month to $19.95 per month,
effective at the start of each member's monthly billing cycle in April 1998.
Those subscribers who were currently on the annual plan were not subject to an
increase until their renewal date. These increases were implemented in order to
fund the continued improvement of members' online experience and to keep pace
with the cost to the Company of members' increased usage. Other pricing options
available include an offering of three hours for $4.95 per month, with
additional time priced at $2.50 per hour, and an offering of $9.95 per month for
unlimited use--for those subscribers who have an Internet connection other than
through AOL and use this connection to access AOL services. In order to ensure
the competitiveness of its offerings, the Company has historically conducted
tests of alternative pricing plans, and will continue to do so in future
periods.
Effective February 1, 1998, the Company offered two price plans for the
CompuServe service: a standard monthly membership offering of five hours for
$9.95 per month, with additional time priced at $2.95 per hour and an
alternative offering of $24.95 per month with no additional hourly charge.
<PAGE>
In addition to the revenues generated from online service
subscriptions, the advertising, commerce and other revenues are an important
component of the Company's business objectives and provide a significant
contribution to the Company's operating results. The Company has continued to
see a general trend of increased average monthly subscriber usage since the
introduction of flat-rate pricing in December 1996. In the second quarter of
fiscal 1999, average daily subscriber usage was approximately 48 minutes,
compared to approximately 41 minutes in the second quarter of fiscal 1998. If
current usage levels increase, further pressures on operating margins may
result. The Company expects that the growth in advertising, commerce and other
revenues, assuming such growth continues, will provide it with the opportunity
and flexibility to fund the costs associated with the increased usage resulting
from flat-rate pricing, and will help fund programs designed to grow the
subscriber base within its various brands and meet other business objectives.
The Company has continued to experience improved subscriber acquisition
and retention rates, which it believes is related to the improved value offered
by flat-rate pricing and other benefits. Going forward, the Company may need to
increase its expenditures on marketing in future periods in order to acquire and
retain customers and to address potential competitive pressures.
The Company competes with a wide range of companies in the
communications, advertising, entertainment, information, media, Web-based
services, software, technology, direct mail and commerce fields for
subscription, advertising and commerce revenue and the development of
distribution technologies and equipment.
o Competitors of the Company for subscription revenues include:
- online services such as the Microsoft Network, AT&T WorldNet and
Prodigy Services Company
- national and local Internet service providers such as MindSpring
Enterprises, Inc. ("MindSpring") and EarthLink Network, Inc.
("EarthLink")
- long distance and regional telephone companies offering access as
part of their telephone service, such as AT&T Corp., MCI
WorldCom, Inc. and regional Bell operating companies
- cable Internet access services offered by companies such as At
Home Corporation and Road Runner Group
o Competitors for advertising and commerce revenues include:
- online services such as the Microsoft Network, AT&T WorldNet and
Prodigy Services Company
- Web-based navigation and search service companies, such Yahoo!
Inc., Infoseek Corporation, Lycos, Inc. and Excite, Inc.
- global media companies such as newspapers, radio and television
stations and content providers, such as the National Broadcasting
Corporation, CBS Corporation, The Walt Disney Company, Time
Warner Inc., The Washington Post Company and Conde Nast
Publications, Inc.
- cable Internet access services offered by companies such as At
Home Corporation and Road Runner Group - direct mail, catalog and
retail sales outlets
<PAGE>
o Competition for the development of distribution technologies and equipment
includes:
- broadband distribution technologies, such as cable Internet
access services offered by companies such as At Home Corporation
and Road Runner Group
- advanced telephone-based access services offered through digital
subscriber line technologies offered by local telecommunications
companies
- other advanced digital services offered by broadcast, satellite
and wireless companies
- television-based interactive computer services, such as those
offered by Microsoft's WebTV
Some of the present competitors and potential future competitors of the
Company may have greater financial, technical, marketing or personnel resources
than the Company. The competitive environment could have a variety of adverse
effects on the Company. For example, it could:
o require price reductions in the subscription fees for online
services and require increased spending on marketing, network
capacity, content procurement and product development
o negatively impact the Company's ability to generate greater
revenues and profits from sources other than online service
subscription revenues, such as advertising and electronic commerce
o limit or impede the Company's opportunities to enter into or
renew agreements with content providers and distribution partners
o limit the Company's ability to develop new products and services
o limit the Company's ability to continue to grow its subscriber base
o result in attrition in the Company's subscriber base
Any of the foregoing events could have an adverse impact on revenues or result
in an increase in costs as a percentage of revenues, either of which could have
a material adverse effect on the Company's business, financial condition and
operating results.
Results of Operations
Online Service Revenues
For the three months ended December 31, 1998, online service revenues
increased from $483 million to $779 million, or 61%, over the three months ended
December 31, 1997. This increase comprises an increase in AOL online service
revenues of $242 million, as well as CompuServe online service revenues of $54
million, which began in February 1998. The increase in AOL online service
revenues was primarily attributable to a 37% increase in the average number of
AOL North American subscribers for the three months ended December 31, 1998,
compared to the three months ended December 31, 1997, as well as a 10% increase
in the average monthly online service revenue per AOL North American subscriber.
The average monthly online service revenue per AOL North American subscriber
increased from $17.43 in the three months ended December 31, 1997 to $19.11 in
the three months ended December 31, 1998. This increase was principally
attributable to the increase in the Flat-Rate Plan membership fee from $19.95 to
$21.95, which became effective in April 1998.
For the six months ended December 31, 1998, online service revenues
increased from $917 million to $1,494 million, or 63%, over the six months ended
December 31, 1997. This increase comprises an increase in AOL online service
revenues of $475 million, as well as CompuServe online service revenues of $102
million, which began in February 1998. The increase in AOL online service
revenues was primarily attributable to a 39% increase in the average number of
AOL North American subscribers for the six months ended December 31, 1998,
compared to the six months ended December 31, 1997, as well as a 10% increase in
the average monthly online service revenue per AOL North American subscriber.
The average monthly online service revenue per AOL North American subscriber
increased from $17.40 in the six months ended December 31, 1997 to $19.11 in the
six months ended December 31, 1998. This increase was principally attributable
to the increase in the Flat-Rate Plan membership fee from $19.95 to $21.95,
which became effective in April 1998.
<PAGE>
At December 31, 1998, the Company had approximately 15.1 million AOL
service subscribers, including 13.3 million in North America and 1.8 million in
the rest of the world. Also at that date, the Company had approximately 2.0
million CompuServe brand subscribers, with 1 million in North America and 1
million in the rest of the world.
Advertising, Commerce and Other Revenues
Advertising, commerce and other revenues, which consist principally of
advertising and related revenues, fees associated with commerce and the sale of
merchandise across the Company's multiple brands, increased by 66%, from $109
million in the quarter ended December 31, 1997 to $181 million in the quarter
ended December 31, 1998. The increase was driven primarily by more advertising
on the Company's AOL service as well as an increase in commerce fees.
Advertising and commerce fees increased by 133%, from $54 million in the three
months ended December 31, 1997 to $126 million in the three months ended
December 31, 1998. Merchandise sales decreased slightly, in line with management
plans, by 3%, from $33 million in the three months ended December 31, 1997 to
$32 million in the three months ended December 31, 1998. At December 31, 1998,
the Company's advertising and commerce backlog, representing the contract value
of advertising and commerce agreements signed, less revenues already recognized
from these agreements, was approximately $729 million, up from approximately
$320 million at December 30, 1997.
For the six months ended December 31, 1998, advertising, commerce and
other revenues increased from $197 million to $325 million, or 65%, over the six
months ended December 31, 1997. The increase was driven primarily by more
advertising on the Company's AOL service as well as an increase in commerce
fees. Advertising and commerce fees increased by 134%, from $98 million in the
six months ended December 31, 1997 to $229 million in the six months ended
December 31, 1998. Merchandise sales decreased slightly, in line with management
plans, by 11%, from $57 million in the six months ended December 31, 1997 to $51
million in the six months ended December 31, 1998.
Cost of Revenues
Cost of revenues includes network-related costs, consisting primarily
of data network costs and costs associated with network equipment, personnel and
related costs associated with operating the data centers, data network and
providing customer support and billing, royalties paid to information and
service providers, the costs of merchandise sold and product development
amortization expense. For the three months ended December 31, 1998, cost of
revenues increased from $386 million to $590 million, or 53%, over the three
months ended December 31, 1997, and decreased as a percentage of total revenues
from 65.2% to 61.5%. For the six months ended December 31, 1998, cost of
revenues increased from $713 million to $1,136 million, or 59%, over the six
months ended December 31, 1997, and decreased as a percentage of total revenues
from 64.0% to 62.5%.
The increase in cost of revenues in the three and six months ended
December 31, 1998 was primarily attributable to increases in data network costs,
as well as personnel and related costs associated with operating the data
centers, data network and providing customer support and billing. Data network
costs increased primarily as a result of the larger customer base and an
increased usage per customer. Personnel and related costs associated with
operating the data centers, data network and providing customer support and
billing increased primarily as a result of the requirements of supporting a
larger data network, a larger customer base and increased online service
revenues.
<PAGE>
The decrease in cost of revenues as a percentage of total revenues in
the three and six months ended December 31, 1998 was primarily attributable to
growth of the higher margin advertising, commerce and other revenues offset by
an increase in network-related costs as a percentage of service revenues. The
increase in network-related costs as a percentage of service revenues was
primarily driven by an increase in daily member usage, from an average of 41
minutes per day in the three months ended December 31, 1997 to an average of 48
minutes per day in the three months ended December 31, 1998. This increase in
network costs as a percentage of service revenues were partially offset by a
reduction in the network cost per hour for the three and six months ended
December 31, 1997 and 1998.
Marketing
Marketing expenses include the costs to acquire and retain subscribers
and other general marketing costs. For the three months ended December 31, 1998,
marketing expenses increased from $97 million to $132 million, or 36%, over the
three months ended December 31, 1997, and decreased as a percentage of total
revenues from 16.4% to 13.8%. For the six months ended December 31, 1998,
marketing expenses increased from $195 million to $237 million, or 22%, over the
six months ended December 31, 1997, and decreased as a percentage of total
revenues from 17.5% to 13.0%. The increase in marketing expenses for the three
and six months ended December 31, 1998 was primarily attributable to an increase
in direct subscriber acquisition costs and brand advertising across multiple
brands. The decrease in marketing expenses as a percentage of total revenues for
the three months ended December 31, 1998 was primarily a result of the
substantial growth in revenues.
Product Development
Product development costs include research and development expenses and
other product development costs. For the three months ended December 31, 1998,
product development costs increased from $24 million to $32 million, or 33%,
over the three months ended December 31, 1997, and decreased as a percentage of
total revenues from 4.1% to 3.3%. For the six months ended December 31, 1998,
product development costs increased from $40 million to $60 million, or 50%,
over the six months ended December 31, 1997, and decreased as a percentage of
total revenues from 3.6% to 3.3%. The increase in product development costs for
the three and six months ended December 31, 1998 was primarily attributable to
an increase in personnel costs as a result of an increase in the number of
technical employees to support additional products across multiple brands. The
decrease of product development costs as a percent of total revenues for the
three and six months ended December 31, 1998 was mainly a result of the
substantial growth in revenues.
General and Administrative
For the three months ended December 31, 1998, general and
administrative expenses increased from $52 million to $62 million, or 19%, over
the three months ended December 31, 1997, and decreased as a percentage of total
revenues from 8.8% to 6.5%. For the six months ended December 31, 1998, general
and administrative expenses increased from $107 million to $118 million, or 10%,
over the six months ended December 31, 1997, and decreased as a percentage of
total revenues from 9.6% to 6.5%. The increase in general and administrative
costs for the three and six months ended December 31, 1998 was primarily
attributable to higher personnel costs and professional fees. The decrease of
general and administrative costs as a percent of total revenues for the three
and six months ended December 31, 1998 was mainly a result of the substantial
growth in revenues.
Amortization of Goodwill and Other Intangible Assets
Amortization of goodwill and other intangible assets increased to $13
million in the three months ended December 31, 1998 from $2 million in the three
months ended December 31, 1997. Amortization of goodwill and other intangible
assets increased to $26 million in the six months ended December 31, 1998 from
$4 million in the six months ended December 31, 1997. The increase in
amortization expense in the three and six months ended December 31, 1998 is
primarily attributable to goodwill associated with the acquisitions of the
CompuServe service in January 1998 and Mirabilis, Ltd. and NetChannel, Inc. in
June 1998 partially offset by the sale of ANS in January 1998.
<PAGE>
Restructuring Charge
In connection with a restructuring plan adopted in the second quarter
of fiscal 1997, the Company recorded a $49 million restructuring charge
associated with the Company's change in business model, the reorganization of
the Company into three operating units, the termination of approximately 300
employees and the shutdown of certain operating divisions and subsidiaries. As
of September 30, 1997, substantially all of the restructuring activities had
been completed and the Company reversed $2 million of the original restructuring
accrual in the first quarter of fiscal 1998.
Settlement Charge
In the quarter ended December 31, 1996, the Company recorded a charge
of $24 million related to a legal settlement reached with various State
Attorneys General to resolve potential claims arising out of the Company's
introduction of flat-rate pricing and its representation that it would provide
unlimited access to subscribers. Pursuant to this legal settlement, the Company
agreed to make payments to subscribers, according to their usage of the AOL
service, who may have been injured by their reliance on the Company's claim of
unlimited access. These payments do not represent refunds of online service
revenues, but are rather the compromise and settlement of allegations that the
Company's advertising of unlimited access under its flat-rate pricing plan
violated consumer protections laws. As of December 31, 1997, the Company revised
its estimate of the total settlement charge and reversed $1 million of the
original settlement accrual.
Other Income, Net
Other income, net consists primarily of investment income and
non-operating gains net of interest expense and non-operating charges. The
Company had other income of $14 million and $1 million in the three months ended
December 31, 1998 and 1997, respectively. The Company had other income of $16
million and $6 million in the six months ended December 31, 1998 and 1997,
respectively. The increase in other income in the three and six months ended
December 31, 1998 was primarily attributable to an increase in net interest
income and a reduction of non-operating losses related to various investments
offset by prior year gains on the sale of certain available-for-sale securities.
Provision for Income Taxes
The provision for income taxes was $24 million and zero in the three months
ended December 31, 1998 and 1997, respectively. The provision for income taxes
was $30 million and zero in the six months ended December 31, 1998 and 1997,
respectively. Income tax expense for the three months ended December 31, 1998
includes $23 million for U.S. federal and state income taxes and $1 million for
foreign taxes. Utilization of operations-related deferred tax benefits reduced
the Company's U.S. federal and state income tax expense by $33 million and $13
million in the three months ended December 31, 1998 and 1997, respectively.
Utilization of operations-related deferred tax benefits reduced the Company's
U.S. federal and state income tax expense by $73 million and $26 million in the
six months ended December 31, 1998 and 1997, respectively. As of December 31,
1998 the Company had net operating loss carryforwards available to offset future
U.S. federal taxable income of approximately $1.6 billion.
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations through cash generated from
operations, the sale of its capital stock and the sale of convertible notes. The
Company has financed its investments in facilities and telecommunications
equipment principally through leasing. Net cash provided by operating activities
was $343 million and $152 million in the six months ended December 31, 1998 and
1997, respectively and increased primarily due to the Company's increase in net
income. Net cash used in investing activities decreased to $167 million from
$201 million in the six months ended December 31, 1998 and 1997, respectively
due to the timing of purchased property and equipment as well as proceeds from
the Company's sale of Spry, Inc. Net cash provided by financing activities was
$645 million and $441 million in the six months ended December 31, 1998 and
1997, respectively. Included in financing activities for the six months ended
December 31, 1998 were $550 million in aggregate net proceeds from a public
stock offering of its common stock. The Company also has available, to meet its
working capital needs, a $200 million secured revolving credit facility with no
amounts outstanding as of December 31, 1998.
The Company uses its working capital to finance ongoing operations and
to fund marketing and the development of its products and services. The Company
plans to continue to invest in subscriber acquisition, retention and brand
marketing to expand its subscriber base, as well as in network, computing and
support infrastructure. Additionally, the Company expects to use a portion of
its cash for the acquisition and subsequent funding of technologies, content,
products or businesses complementary to the Company's current business. The
Company anticipates that available cash and cash provided by operating
activities will be sufficient to fund its operations for the next twelve months.
On January 20, 1999, the Company sold a substantial portion of its
investment in Excite, Inc. for net proceeds of approximately $500 million.
Seasonality
The number of subscriber acquisitions and the amount of usage per
subscriber appear to be highest in the second and third fiscal quarters, when
sales of new computers and computer software are highest due to the holiday
season and following the holiday season, when new computer and software owners
are discovering Internet services while spending more time indoors due to winter
weather. However, the Company does not know whether such increases in subscriber
acquisitions and usage are primarily attributable to seasonal factors or to
increased demand for Internet services as a result of the growing market demand
and utility for such services.
<PAGE>
Year 2000 Compliance
The Company utilizes a significant number of computer software programs
and operating systems across its entire organization, including applications
used in operating the AOL service, the CompuServe service, the proprietary
software of the AOL and CompuServe services, member services, network access,
content providers, joint ventures and various administrative and billing
functions. To the extent the Company's software applications contain source
codes that are unable to appropriately interpret the upcoming calendar year
2000, some level of modification, or even possibly replacement of such
applications may be necessary. The Company has appointed a Year 2000 Task Force
to perform an audit to assess the scope of the Company's risks and bring its
applications into compliance. This Task Force is undertaking its assessment of
the Company's compliance and has begun testing. The Company's client and host
software and corporate business and information systems are currently undergoing
review and testing. The testing of the Company's system hardware components
began in January 1999. To date, the Company has experienced very few problems
related to Year 2000 testing, and the problems that have been identified are in
the process of being fixed. The international portion of the AOL service and the
CompuServe service continues to move forward with system inventory gathering, as
well as an analysis of common systems. The international services utilize the
same AOL infrastructure, so it is anticipated that additional costs of
compliance for the international portion will be minimal.
In addition, the Company is in the process of asking its vendors, joint
venture partners and content partners about their progress in identifying and
addressing problems that their computer systems may face in correctly processing
date information related to the Year 2000, but has received very few complete
responses. The Company intends to continue its efforts to seek reassurances
regarding the Year 2000 compliance of vendors, joint venture partners and
content partners. In the event any third parties cannot timely provide the
Company with content, products, services or systems that meet the Year 2000
requirements, the content on the Company's services, access to the Company's
services, the ability to offer products and services and the ability to process
sales could be materially adversely affected.
The costs incurred by the Company through December 1998 to address Year
2000 compliance were approximately $3 million. The Company currently estimates
it will incur a total of approximately $8 million in costs to support its
compliance initiatives. Although the Company expects its proprietary software to
be Year 2000 compliant on or before December 31, 1999, it cannot predict the
outcome or the success of its Year 2000 program, or that third party systems are
or will be Year 2000 compliant, or the costs required to address the Year 2000
issue, or whether a failure to achieve substantial Year 2000 compliance will
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company is in the process of developing a contingency
plan to address possible risks to its systems. It is the Company's intention to
implement its contingency plan no later than July 1999.
Inflation
The Company believes that inflation has not had a material effect on
its results of operations.
Forward-Looking Statements
This report and other oral and written statements made by the Company
to the public contain and incorporate by reference forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The forward-looking statements are based on
management's current expectations or beliefs and are subject to a number of
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Such statements address
subjects including the following: future financial and operating results;
subscriber growth and retention; timing and benefits of acquisitions and other
alliances; development and success of multiple brands; new markets, products,
services, features and content (such as the "You've Got Pictures" service);
corporate spending; network capacity; new platforms and access and distribution
technologies; and the Company's ability to shape public policy in, for example,
telecommunications, privacy and tax areas.
<PAGE>
The following factors, among others, could cause actual results to
differ materially from that described in the forward-looking statements:
Factors related to increased competition, including: price reductions
and increased spending; negative impact on the Company's ability to
generate greater revenues and profits from sources such as advertising and
electronic commerce; limitations on the Company's opportunities to enter
into or renew agreements with content and distribution providers;
limitations on the Company's ability to develop new products and services;
limitations on its ability to grow its subscriber base; and increased
attrition in the Company's subscriber base.
The risk that the Company and its data communications access providers
will be unable to provide adequate server and network capacity. Risks
associated with the fixed costs and minimum commitment nature of a
substantial majority of the Company's network services, such that a
significant decrease in demand for online services would not result in a
corresponding decrease in network costs. Risks related to the buildout of
AOLnet and the expansion of server and network capacity: the risk that
supply shortages for local exchange carrier lines from local telephone
companies could impede the provision of adequate network capacity; and the
risk of the failure to obtain the necessary financing. Risks related to
CompuServe's reliance on network services which are provided under a single
agreement.
Any damage or failure to the Company's computer equipment and the
information stored in its data centers.
The inability to increase revenues at a rate sufficient to offset the
increase in data communications costs resulting from increasing usage.
Risks and uncertainties associated with current or future price changes,
including: the risk that competitive offerings to the AOL service may
become more attractive to AOL members; the risk of slowing or reversing
subscriber growth or reducing subscriber retention rates and the resulting
impact on the Company's ability to generate advertising revenues; and the
risk that the Company may be required to increase marketing expenses. The
resulting risk that gross and operating margins will decrease.
The risk that because of seasonal and other factors, the Company is
unable to predict growth in usage, subscriber acquisitions and advertising
commitments.
The failure of the Company to establish new relationships with
electronic commerce, advertising, marketing, technology and content
providers or the loss of a number of relationships with such providers or
the risk of significantly increased costs or decreased revenues needed, to
maintain, or resulting from the failure to maintain, such relationships, as
the case may be.
The risk associated with accepting warrants in lieu of cash in certain
electronic commerce agreements, as the value of such warrants is dependent
upon the common stock price of the warrant issuer at the time the warrants
are earned.
The risks related to the acquisition of businesses, including the
failure to successfully integrate and manage acquired technology,
operations and personnel, the loss of key employees of the acquired
companies and the risk of significant charges for in-process research and
development or other matters. The risk of loss of services of executive
officers and other key employees.
The inability of the Company to introduce new products and services;
and its inability to develop, or achieve commercial acceptance for, these
new products and services. The failure to resolve issues concerning
commercial activities via the Internet, including security, reliability,
cost, ease of use and access. The risk of adverse changes in the U.S.
regulatory environment surrounding interactive services.
<PAGE>
The Company's inability to offer its services through advanced
distribution technologies such as cable, satellite, wireless, television,
broadcast and enhanced telephone distribution and the inability to offer
advanced services such as voice and full motion video. The Company's
inability to develop new technology or modify its existing technology to
keep pace with technological advances and the pursuit of these
technological advances requiring substantial expenditures.
The failure of the Company or its partners to successfully market,
sell and deliver its services in international markets; and risks inherent
in doing business on an international level, such as laws that differ
greatly from those in the United States, unexpected changes in regulatory
requirements, political risks, export restrictions and controls, tariffs
and other trade barriers and fluctuations in currency exchange rates.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On November 11, 1998, the Company acquired PersonaLogic, Inc. in
exchange for the issuance of 392,834 shares of Company Common Stock (share
numbers do not reflect the two-for-one stock split effected November 17, 1998).
The private placement is exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on October 20,
1998. Following are descriptions of the matters voted on and the results of such
meeting (share numbers do not reflect the two-for-one stock split effected
November 17, 1998):
<TABLE>
Number of Shares
Matter Voted On For Against Abstain
1. Election of Directors:
<S> <C> <C> <C>
Frank J. Caufield 162,915,182 19,390,834 N/A
Robert W. Pittman 162,911,990 19,396,026 N/A
General Colin L. Powell 162,872,345 19,434,671 N/A
Franklin D. Raines 162,891,940 19,416,076 N/A
2. Amendment of Restated Certificate of 145,509,040 36,663,786 135,190
Incorporation to increase the number of
authorized shares
3. Approval of an increase in the number of 180,582,361 1,545,711 179,944
shares of Common Stock authorized for issuance
under the Company's Employee Stock Purchase Plan
4. Approval of an amendment to the eligibility 180,683,133 1,403,059 221,824
requirements under the Company's Employee Stock
Purchase Plan
5. Proposal to ratify the appointment of Ernst & 181,903,214 287,470 117,332
Young as the Company's independent public
accountants for the fiscal year ended June 30, 1999
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 Agreement and Plan of Merger dated as of November
23, 1998 by and among America Online, Inc., Apollo
Acquisition Corp. and Netscape Communications
Corporation. (Filed as Exhibit 2.1 to a Current
Report on Form 8-K for an event on November 23, 1998
and hereby incorporated by reference.)
Exhibit 10.1 Strategic Development and Marketing Agreement made and
entered into on November 23, 1998, by and between
America Online, Inc. and Sun Microsystems, Inc.
(Confidential treatment of portions of this document has
been requested.)
Exhibit 10.2 Sun Microsystems, Inc. Service Provider Agreement
effective on November 1, 1998 (Confidential treatment of
portions of this document has been requested.)
(b) Reports on Form 8-K
Form Item # Description Filing Date
- ---- ------ ----------- -----------
Form 8-K 5, 7 Announcement of entering into an Agreement November 24, 1998
and Plan of Merger, dated as of November 23,
1998 between America Online, Inc. and
Netscape Communications Corporation
Announcement of entering into strategic
development and marketing agreements with
Sun Microsystems, Inc.
<PAGE>
AMERICA ONLINE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICA ONLINE, INC.
DATE: February 10, 1999 SIGNATURE:/s/___________________________
Stephen M. Case
Chairman of the Board
and Chief Executive Officer
DATE: February 10, 1999 SIGNATURE: /s/__________________________
J. Michael Kelly
Senior Vice President
and Chief Financial Officer
<PAGE>
Exhibit Index
Exhibit 2.1 Agreement and Plan of Merger dated as of November
23, 1998 by and among America Online, Inc., Apollo
Acquisition Corp. and Netscape Communications
Corporation. (Filed as Exhibit 2.1 to a Current
Report on Form 8-K for an event on November 23, 1998
and hereby incorporated by reference.)
Exhibit 10.1 Strategic Development and Marketing Agreement made
and entered into on November 23,1998, by and between
America Online, Inc. and Sun Microsystems, Inc.
(Confidential treatment of portions of this document
has been requested.)
Exhibit 10.2 Sun Microsystems, Inc. Service Provider Agreement
effective on November 1, 1998
(Confidential treatment of portions of this document
has been requested.)
EXHIBIT 10.1
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
ASTERISKS (*) DENOTE SUCH OMISSIONS
STRATEGIC DEVELOPMENT AND MARKETING AGREEMENT
This Strategic Development and Marketing Agreement (this "Agreement") is made
and entered into this 23rd day of November, 1998, by and between America Online,
Inc. ("AOL") and Sun Microsystems, Inc. ("Sun").
Certain terms used in this Agreement are defined in Section 24 hereof. This
agreement is confidential between the parties, provided that either party may
disclose the terms of this Agreement, and any associated collateral documents,
in order to comply with applicable laws and regulations, including securities
laws and regulations, and further provided that either party may disclose
information regarding portions of the financial provisions of this Agreement
after consulting with and obtaining the approval of the other party's Executive
Representative, which consent will not be unreasonably withheld or delayed. AOL
and Sun hereby agree as follows:
1.0 Objectives. AOL and Sun intend to cooperate in the development and marketing
of software and services in the area of electronic commerce and extended
communities and connectivity ("EC2") to businesses worldwide. The parties intend
to offer together an integrated, end-to-end solution including consumer traffic,
dial-up connectivity, network services, client software, server software,
computer systems, computer hardware, professional services, help desk and
service and support, but, subject to the terms and conditions herein, each party
would be free to offer its components in conjunction with competitive components
from third-parties. As described in this Agreement, some components of such
solution will be collaboratively developed, and some will be developed
principally or entirely by AOL or Sun. The solution offered by the parties is
expected to include traffic from AOL's multiple brands and related directory
services, configurable Netcenter or AOL.Com services and information, AOL
network access services, AOL instant messaging functionality, Sun support
services, Sun or AOL consulting services and Netscape or AOL outsourcing
services. As described in this Agreement, some components of such solution will
be marketed and sold by both parties pursuant to collaborative marketing and
sales plans, and some components would be marketed and sold by AOL or Sun only.
The business objectives of the parties include the following:
1.1 Establish a cooperative relationship between AOL, the world's leading
internet content provider, and Sun, the world's leading network computing
platform supplier, to create and deliver the best, integrated, end-to-end
enterprise commerce solutions using, where appropriate, the Java and Jini
technology from Sun.
1.2 Sustain and grow leadership in the browser marketplace for both
consumers and the enterprise to deeply penetrate the enterprise desktop
environment.
1.3 Accelerate revenues from merchants and build deep relationships with
top merchants by speeding their adoption of electronic commerce.
1.4 Create more value from relationships with electronic commerce merchants
and customers by *** creating new services revenues.
1.5 Sustain and grow a strong electronic commerce and enterprise middleware
software and services business, including developing a leading commerce
software and service platform that enables powerful turnkey and customized
solutions.
1.6 Sustain and grow the Sun Solaris, SPARC, Java and Jini business
technologies, as the choice for enterprises and service providers
worldwide.
1.7 *** approximately 3 lines omitted ***
1.8 Establish and operate productive research and development, marketing,
sales and services to support this strategy.
2.0 Software To Be Developed. The parties intend to develop the following
products:
2.1 AOL Distributed Communicator Client. The "AOL Distributed Communicator
Client" will be a client application that will include the fullest and most
robust set of features and functions of any of the client applications to
be developed pursuant to this Section 2,*** approximately 2 lines omitted
***. The AOL Distributed Communicator Client *** will include the initial
Release of the AOL Distributed Communicator Client and all subsequent
Releases of such application. *** approximately 9 lines omitted ***
2.2 Third Party Communicator Client. The "Third Party Communicator Client"
will be a client application.*** approximately 6 lines omitted *** The
specification of the features and functions included in the Third Party
Communicator Client may be modified from time to time by AOL, after
consultation with Sun. The Third Party Communicator Client *** will include
the initial Release of the Third Party Communicator Client and all
subsequent Releases of such application that are commercially released
during the term of this Agreement.
2.3 OEM Communicator Client. The "OEM Communicator Client" will be a client
application incorporating a browser component, with features and functions
as set forth in the Collaborative Work Plans. The OEM Communicator Client
will include the initial Release of such application and all subsequent
Releases of such application that are commercially released during the term
of this Agreement.
2.4 New Browser. The "New Browser" will consist of a basic browser with
functions for browsing, rendering display of and accessing the Internet,
including enabling access to a portal, *** approximately 4 lines omitted
***. The functions and features to be included in the New Browser will be
described in more detail in the Collaborative Work Plans. The New Browser
will include the initial Release of such application and all subsequent
Releases of such application that are commercially released during the term
of this Agreement. *** approximately 3 lines omitted ***
2.5 Network Application and Server Software. The "Network Application and
Server Software" will consist of network applications and server software
as specified in the Collaborative Development Work Plans, and will include,
without limitation, an application server, email server, commerce server
and directory software, as well as other software specified in the
Collaborative Development Work Plans.
2.6 Commencement of Development. No collaborative development work shall
commence pursuant to this Agreement, and Sun shall not be provided with
access to any Netscape or AOL code, prior to the Closing Date.
3.0 Development Responsibilities.
3.1 AOL Distributed Communicator Client. AOL will develop the AOL
Distributed Communicator Client, *** approximately 4 lines omitted ***
3.2 Third Party Communicator Client. AOL will, with assistance from Sun,
develop the Third Party Communicator Client, *** approximately 6 lines
omitted ***
3.3 OEM Communicator Client. AOL will, with assistance from Sun, develop
the OEM Communicator Client,*** approximately 6 lines omitted ***
3.4 New Browser. AOL will, with assistance from Sun, develop the New
Browser, *** approximately 8 lines omitted ***
3.5 Network Application and Server Software. AOL and Sun will
collaboratively develop the Network Application and Server Software, ***
approximately 3 lines omitted ***. AOL and Sun shall cooperate and
coordinate their development efforts so that, to the extent commercially
reasonable, the Client Software shall be compatible with and support the
interfaces, protocols and APIs of the Network Application and Server
Software in the Product Suites and vice versa.
3.6 Java Technology. The parties agree to use reasonable efforts to modify
the existing Netscape browser to develop the New Browser to incorporate,
for each System Platform, the most current release available of the
complete Java Runtime Environment (JRE) on all System Platforms for which
Sun has a JRE available. The parties agree to use all reasonable efforts to
ensure that Java code executing on the JRE so invoked has the same access
privileges and capabilities as Java code running native on the operating
system and can display user interfaces within the browser window consistent
with the user experience of running Java applets today, provided that Sun
provides such JRE to AOL, *** in binary form in a fully operational and
commercially viable form. Without limiting the foregoing, AOL shall have no
obligation to incorporate into any browser any JRE provided by Sun that
fails to operate properly on the applicable System Platform for such
version of such browser due to the fault of Sun or any party other than
AOL, or *** or which would cause a material degradation in the performance
characteristics of such browser relative to competitive browsers in the
marketplace, or which cannot ***approximately 8 lines omitted*** Without
limiting the foregoing, with respect to the *** AOL shall have no
obligation to ***approximately 3 lines omitted*** Sun agrees to provide
error corrections and bug fixes for the JREs on all supported System
Platforms pursuant to its standard terms of support (but without fee to
AOL). In the event Sun fails to provide such error corrections and bug
fixes in a timely commercially reasonable manner, Sun shall, pursuant to
the TLDA entered into between AOL and Sun, provide AOL with the source
code, test suites and related development tools for such JREs and the right
to use such source code, test suites and related development tools for the
purpose of supporting and maintaining such JREs in accordance with the
TLDA. Sun agrees to use reasonable efforts to *** In order to permit the
binary JRE to be integrated into such browsers, AOL agrees to use
reasonable efforts to incorporate and support the Open Java Interface in
such browsers. AOL and Sun agree to collaborate and consult with one
another and to cooperate with one another in good faith in an effort to
define and integrate this interface into such browsers for use by the JREs
in such browsers. AOL further agrees that if such incorporation of the JRE
is successfully implemented in a version of such browser for any applicable
System Platform, AOL will incorporate such version of such browser in the
versions of the OEM Communicator Client, Third Party Client and AOL
Distributed Communicator Client for such System Platform *** If the JRE is
so incorporated in the OEM Communicator Client, Third Party Client or AOL
Distributed Communicator Client, and AOL elects to distribute any version
of such product via download, such version shall either be the JRE enabled
version of such product, or AOL will make the JRE enabled version of such
product available for download in addition to any non-JRE enabled version
of such product made available for download. If the JRE is so incorporated
in the OEM Communicator Client, Third Party Client or AOL Distributed
Communicator Client, and AOL elects to distribute any version of such
product via CD-ROM, the version of the product distributed by AOL via
CD-ROM will be such JRE-enabled version, to the extent contractually
permissible and subject to size limitations, and provided that AOL shall
have no obligation to require that its OEMs include the JRE-enabled
version. AOL shall have the right to distribute via download a smaller
version of the New Browser without the JRE, provided such version has hooks
that permit the user optionally to download and install the JRE. AOL will
consider as part of the Collaborative Development Work Plans whether to
expose to the JRE all public and private developer interfaces within the
browser (including, without limitation those in NSHTML.DLL), but shall have
no obligation to do so. AOL's obligations pursuant to this Section 3.6 are
conditioned upon Sun's granting to AOL *** any rights to Java technology
necessary to comply with this Section 3.6. In the event of any
inconsistency or conflict between this Section 3.6 or Section 9.8.1 of this
Agreement and the TLDA entered into between Sun and AOL, the terms of this
Section 3.6 and the terms of Section 9.8.1 shall control.
3.7 Intent To Develop Leading Products. The parties agree to use their
reasonable efforts to maintain the existing Netscape browser and the New
Browser as competitive alternatives to the browser component of Internet
Explorer from Microsoft, and agree that it is their intention to make all
products developed and distributed pursuant to this Agreement leading and
competitive products in their respective product categories.
3.8 JRE Bundling on CD-ROMs. On any CD-ROMs on which AOL ships the AOL
classic client and on which AOL provides installation options permitting
third party software other than AOL classic client software to be a
separate installable item, ***approximately 3 lines omitted*** AOL agrees,
subject to any third party contractual limitations, to use reasonable
efforts to co-package the latest version of the JRE with such client and to
offer to users an installation option to install such JRE, provided that
the JRE meets commercially reasonable standards making it suitable for
inclusion and installation, including without limitation reasonable quality
assurance and size limitations. AOL shall have no obligation to display
such installation option until after the user has gone through any included
registration process for any AOL Service Offering. AOL will also consider
including*** approximately 6 lines omitted ***
3.9 Design of Clients. *** approximately 7 lines omitted ***.
3.10 Third Party Components and Protocols; Divergence of Development. In
the event AOL (i) elects to use third party software or technology for core
functionality and features of the browser component of any of the Client
Software, (ii) adopts and maintains protocols or interfaces that are
inconsistent with Sun's reasonable server-dictated requirements; or (iii)
fails to support protocols or interfaces that are reasonably required by
Sun's server-dictated requirements, Sun shall have the right, but not the
obligation, to have AOL provide to Sun the source code, test suites, and
related development tools reasonably required for Sun to pursue independent
development of a browser based on the Existing Netscape Software and/or
Collaborative Software and to create client applications incorporating such
independently developed Sun browser. Any resulting products developed by
Sun shall be deemed to constitute Designated Collaborative Software for
purposes of this Agreement.
4.0 Sales and Marketing.
4.1 Customers.
4.1.1 General. In accordance with the Marketing and Sales Plan, the
parties will work together to actively market Product Suites, as
well as other related products, including Sun, Netscape, and AOL
products and services, to customers.
4.1.2 AOL Committed Sales Force. Sun acknowledges that AOL intends to
commit an AOL sales force to target sales by AOL to AOL EC
Service Opportunities. Such sales force may consist of (i) AOL
interactive marketing sales personnel and (ii) the current
Netscape Netcenter sales personnel. AOL shall bear all costs of
such committed sales force. Sun shall provide reasonable
assistance to AOL, as reasonably requested by AOL from time to
time, in connection with this AOL committed sales effort. Sun
shall provide such assistance through the sales and marketing
resources that Sun is required to provide pursuant to the
provisions of Section 4.1.3 and the Marketing and Sales Plan,
which may include access to and participation of Sun employees
who are not part of the collaborative sales team, such as Sun
technical personnel. Sun also acknowledges that AOL intends to
maintain a professional services group to support AOL EC Services
Opportunities independent of any persons providing collaborative
services pursuant to this Agreement.
4.1.3 Collaborative Sales. AOL and Sun shall each form their own
respective sales forces targeting sales of the Product Suites to
non AOL EC Service Opportunities. The AOL collaborative sales
force shall consist of AOL and Netscape enterprise sales and
marketing, professional services and technical support personnel
selected by AOL. The Sun collaborative sales force shall consist
of Sun sales personnel selected by Sun. The AOL and the Sun
collaborative sales forces shall both sell only off a common
pricelist and on standard terms and conditions, with such
pricelist and terms and conditions to be designated by the Lead
Executive for marketing and sales. Each of AOL and Sun will, as
specified in the Marketing and Sales Plan, commit specified
target levels of sales and marketing resources (personnel and a
portion of marketing budget) to the staffing and support of their
respective collaborative sales forces and coordinate the efforts
of their respective collaborative sales forces. In addition, Sun
will support the collaborative sales activities of the AOL
collaborative sales force with respect to any Sun products and
services, which may include access to and participation of Sun
employees who are not part of the collaborative team, such as Sun
technical personnel, and AOL will support the collaborative sales
activities of the Sun collaborative sales force with respect to
AOL Services Offerings, which may include access to and
participation of AOL employees who are not part of the
collaborative team, such as AOL technical personnel.
4.1.4 Sharing of Revenues Collected from Customers. Subject to the
provisions of Section 4.2, revenues from the sale or license of
products or services shall be shared as set forth below. Each
party acknowledges that these provisions are intended to reflect
how revenues are allocated and are not controlling as to which
revenues are recognized by which parties, which recognition shall
be at the sole discretion of each party in accordance with
Generally Accepted Accounting Principles.
4.1.4.1 AOL and Netscape Software and Associated Services. AOL
will receive 100% of the revenues (and pay all of the
associated cost of goods) collected from any sale or
license of AOL and Netscape products and Associated
Services, including without limitation from sales or
licenses of the AOL Distributed Communicator Client and
Associated Services (but excluding Existing Netscape
Software and Existing Netscape Software Upgrades and
Associated Services), less a sales commission equal to
*** of such revenues which shall be payable to Sun if a
Sun salesperson was primarily responsible for making the
sale of the AOL products or Associated Services.
4.1.4.2 Third Party Communicator and Existing Netscape Software
and Associated Services. AOL will receive 100% of the
revenues (and pay all of the associated cost of goods)
collected from any sale or license of the Third Party
Communicator and Associated Services and Existing
Netscape Software and Existing Netscape Software Upgrades
and Associated Services, less a sales commission equal to
*** of such revenues, which shall be payable to Sun if a
Sun salesperson not on the collaborative marketing and
sales force was primarily responsible for making the sale
of the AOL products or Associated Services.
4.1.4.3 Sun Software and Services. Sun will receive 100% of the
revenues collected (and pay all of the costs of goods)
from any sale or license of Sun software and professional
services, less a sales commission equal to *** of such
revenues, which shall be payable to AOL if an AOL
salesperson was primarily responsible for making the sale
of the Sun products or Associated Services. This Section
4.1.4.3 shall not apply to "Sun Products" as defined in
the Service Provider Agreement between the parties of
even date herewith.
4.1.4.4 Designated Collaborative Software and Services. AOL will
receive *** of the Gross Margin collected from any sale
or license of Designated Collaborative Software products
and Associated Services and Sun will receive *** of the
Gross Margin collected from such sales or licenses.
Whichever party to this Agreement enters into the sales
contract with the customer will receive the revenues from
such contract and remit *** of the Gross Margin to the
other party as provided in this Section.
4.1.4.5 Sales bonus. To the extent the amounts payable to AOL in
any quarter that are applied to the Minimum Commitment
exceed one hundred twenty-five percent (125%) of the
applicable Minimum Commitment for such quarter as set
forth in Section 4.5, Sun shall, in addition to any other
amounts payable by Sun to AOL, pay to AOL a bonus equal
to*** of the amount by which such amounts payable to AOL
exceed one hundred twenty-five percent (125%) of the
applicable Minimum Commitment for such quarter.
4.1.5 Marketing Co-op Fee. During the term of this Agreement, as
consideration for the marketing and selling of Sun products and
services and the products and services developed under the
Collaborative Activity, Sun will pay AOL a marketing co-op fee,
which shall be applied as determined by AOL. The marketing co-op
fee shall be Ten Million Dollars ($10,000,000) for the first year
following the Closing Date, Ten Million ($10,000,000) for the
second year following the Closing Date, and Ten Million Dollars
($10,000,000) for the third year following the Closing Date,
payable each year in quarterly payments as provided in Section
8.l.
4.2 Additional Revenue Determination and Allocation Provisions
4.2.1 Revenue Calculation. For purposes of determining the appropriate
revenue or Gross Margin allocation under Section 4.1.4, in cases
where a single product or service is sold, the revenues received
shall be deemed to equal the gross revenues (before sales
commission) collected from the end user or the OEM customer and
the Gross Margin shall be calculated in accordance with Section
21.20. In cases where multiple products or services are sold in a
bundled sale, the revenues per product or service will be
calculated by computing the overall discount (or ***, whichever
is lower) from list price for the bundled sale (or the aggregate
sum of the list prices for each individual component in the
bundled sale, if there is no list price for the bundled sale) and
applying that discount to the list price for the product. ***
approximately 10 lines omitted ***.
4.2.2 Special Revenue Allocations. Notwithstanding anything to the
contrary herein, including without limitation the provisions of
Section 4.1.4, AOL shall retain all collected revenues from
existing Netscape OEM and customer contracts (including without
limitation revenues collected in connection with any existing
service, development, support, maintenance, reseller, VAR, OEM
and other contracts) and existing contracts for the sale and
distribution of Existing Netscape Software and any updates,
enhancements and/or new releases thereof. As used in this Section
4.2.2, the term "existing contracts" shall mean any contracts
entered into on or before the Closing Date for the duration of
the remaining term of such contracts as well as any extensions or
renewals of the term of such contracts to the extent the customer
or OEM elects to exercise any unilateral right of extension or
renewal contained in such existing contracts. AOL and Sun each
shall retain their existing customer contracts for the Netscape
client software, with all service, maintenance and support
provided by AOL, to the extent Netscape is obligated to provide
such service, maintenance and support under existing service,
maintenance and support agreements, and all service, maintenance
and support provided by Sun, to the extent Sun is obligated to
provide such service, maintenance and support under existing
service, support and maintenance agreements. AOL and Sun will
each have the right to fulfill its respective obligations under
existing contracts, notwithstanding anything to the contrary
contained in this Agreement
4.3 Priority of Marketing by Sun. In conducting its marketing activities,
Sun shall prioritize the marketing of the following client products, where
they exist for the customer platform, in the following manner:
(a) As part of the standard Product Suites offering and any other time
Sun is marketing, distributing or selling a browser component, Sun will
give first priority to the marketing and sale of ***.
(b) If a customer indicates that it does not want ***,Sun will next
attempt to market and sell ***.
(c) If a customer indicates that it does not want ***, Sun will next
attempt to market and sell ***.
*** approximately 7 lines omitted ***
4.4 AOL Service Components and Service Offerings. AOL and Sun each agrees
actively to market, promote and support the Product Suites. Without
limiting the foregoing, Sun will actively market, promote and support the
AOL Service Components and AOL Service Offerings that are incorporated into
products comprising the Product Suites in connection with its marketing,
promotion and sales of the Product Suites, provided that Sun customers will
not be required to use or maintain any AOL Service Components included in
the Product Suites. Notwithstanding anything to the contrary herein,
including without limitation the provisions of Section 4.1.4, AOL shall
retain all collected revenues related to or derived from sales or licenses
of AOL Service Components and AOL Service Offerings. Neither Sun nor the
collaborative sales team shall have any right to sell any AOL Service
Offerings without AOL's prior written consent, and AOL shall have no
obligation to provide such consent.
4.5 Minimum Revenue Commitments by Sun. Sun will commit that, during the
term of this Agreement, the total of the net amounts paid per year to AOL
under Sections, 4.1.4.2, 4.1.4.4, 9.6.2 (including, without limitation, net
of commissions payable to Sun sales personnel) and under 4.2.2 (which
includes revenues derived by AOL from the sale of Existing Netscape
Software and Existing Netscape Software Upgrades and Associated Services),
will be not less than Three Hundred Twelve Million Dollars ($312,000,000)
for the first year following the Closing Date, Three Hundred Thirty Million
Dollars ($330,000,000) for the second year following the Closing Date, and
Three Hundred Thirty Three Million Two Hundred Fifty Thousand Dollars
($333,250,000) for the third year following the Closing Date, payable in
quarterly minimum payments the ("Minimum Commitment") as set forth in
Section 8.1.
4.6 Penetration Rate for Business Desktop. So long as certain specified
milestone deliverable dates are satisfied as set forth in the Collaborative
Development Work Plans, Sun shall use all reasonable efforts to achieve
penetration of enterprise desktops by the Third Party Communicator Client
and AOL Distributed Communicator Client as set forth in the Marketing and
Sales Plan as mutually-agreed in writing prior to the Closing Date,
including without limitation bundling the Third Party Communicator with
Sun's Solaris operating system, actively promoting the Third Party
Communicator on Sun's website, and such other actions as Sun normally takes
to promote and market its products, provided that Sun shall be relieved of
such obligations to achieve such penetration if Sun embarks on a divergent
development path with respect to the Third Party Communicator Client
pursuant to Section 3.10. If the agreed level of penetration is not
achieved, Sun will take reasonable steps (e.g., increased marketing,
promotion and salesforce incentives) to increase the penetration rate to
the required level within six months; provided that, if Sun believes that
the failure to achieve the requisite level of penetration was due to
factors beyond its reasonable control and/or that the penetration rate
shortfall cannot reasonably be remedied through increased marketing and
promotion unless additional remedial action is also taken during such six
month period, Sun will so inform AOL and the parties shall discuss Sun's
concerns and attempt to agree through good faith negotiation on an
appropriate plan to increase the penetration rate within such six month
period. Such plan may include actions by Sun and/or AOL, depending on the
circumstances. The Executive Representatives shall facilitate such
negotiation. If either Executive Representative believes that negotiation
will not succeed in a timely fashion, he or she may refer such dispute to
the two chief executive officers to resolve. The Incentive Plan referred to
in Section 13.1 will set forth the method by which Sun will provide
incentives to its sales force to achieve the requisite penetration rate.
The escalation procedures set forth in this Section 4.6 shall constitute
AOL's sole and exclusive remedy for any failure to achieve the specified
target penetration rate.
4.7 Marketing and Sales Plan. The Marketing and Sales Plan will set forth a
detailed description of how the two sales and marketing teams (i.e., the
sale forces described in Sections 4.1.2 and 4.1.3, respectively) will
collaborate, including the initial sales force compensation and incentive
plans (as further described in Section 13.1) to be implemented
independently by the parties, the goal of which will be to provide
appropriate incentives for the sales forces to meet and exceed the Minimum
Commitments.
4.8 Warranties, Indemnification and Support. Sun shall have the exclusive
right to provide and will provide all warranty and support services in
connection with sales and licenses (other than pursuant to existing
contracts as set forth in Section 4.2.2) by the collaborative sales force
and by the dedicated AOL sales force of the Product Suites, including
warranty and support services for supported Systems Platforms other than
the Sun Systems Platform, which may include Systems Platforms such as
Windows NT, HP-UX, Linux and IBM AIX. Sun will fulfill warranty and support
obligations in connection with all sales and licenses by AOL arising from
sales by the collaborative sales force and by the dedicated AOL sales force
of the Product Suites (other than pursuant to existing contracts as set
forth in Section 4.2.2). In consideration of Sun's providing such support
services, AOL will pay to Sun the sum of One Million Dollars ($1,000,000)
per month during the term of this Agreement. In addition, Sun will, at the
request of AOL, fulfill warranty and support obligations for existing
contracts as set forth in Section 4.2.2 ***. Such support services shall
include frontline technical support, including call receipt, call
screening, installation assistance, problem identification and diagnosis,
and other standard support services customarily provided by Sun's
twenty-four hour per day, seven day per week support center. Backline
escalation support shall be provided by the collaborative development team.
Sun shall defend, indemnify and hold AOL harmless from all third party
claims and allegations relating to alleged breach or failure to provide
support services or breach of support service obligations under Sun's
standard maintenance contracts under which it is obligated to support the
Product Suites. AOL will promptly notify Sun in writing of any such claim
or allegation giving Sun the sole right of defense and settlement, and will
assist Sun, at Sun's expense (except for the value of time of AOL
employees), to defend or settle such claim or allegation. AOL shall have
the right to employ separate counsel and to participate in the defense of
such claim at its own cost. Sun shall not be liable for litigation expenses
of or settlements by any third parties unless Sun agrees in writing.
5.0 Management Process for Development and Sales and Marketing.
5.1 Executive Representatives. Each party shall designate a senior
executive reporting to its chief executive officer, president or chief
operating officer as its Executive Representative to the other for the
purpose of this Agreement. AOL's initial Executive Representative shall be
David Colburn, and Sun's initial Executive Representative shall be William
J. Raduchel. The Executive Representatives shall collaboratively report
quarterly in writing (which may be electronic) to both chief executive
officers on the progress of development under this Agreement and shall work
to facilitate cooperation between the parties to achieve the development
goals of this Agreement. The chief executive officers shall consult prior
to changing the Executive Representatives.
5.2 Executive Meeting. In January and July of each year, the chief
executive officers and the relevant members of their management teams
including the Executive Representatives shall meet to review the
development progress and sales and marketing progress under this Agreement.
The January meetings shall be in California hosted by Sun and the July
meetings in Virginia, hosted by AOL. The host Executive Representative
shall be responsible, in consultation with the participants and the other
Executive Representative, for organizing such meeting and establishing its
agenda.
5.3 Management Process for Client Software Development and Network
Application and Server Software Development.
5.3.1 Lead Executives. The initial Lead Executives and Deputy Lead
Executives for each major component ("MC") of the collaborative
development activity are set forth in Sections 5.3.3 and 5.3.4.
Future Lead Executives will be designated by AOL after
consultation with Sun. AOL shall have the right, after
consultation with Sun, to replace the Lead Executive for either
MC at any time if in its good faith judgement such action is in
the best interests of the parties. The Lead Executive and Deputy
Lead Executive must be replaced by a person of similar rank and
stature unless the parties otherwise agree. The Lead Executives
and Deputy Lead Executives shall not be changed prior to the
Closing Date.
5.3.2 Powers of Development Lead Executives; Deputy Lead Executives.
The Lead Executive shall maintain and revise the corresponding
Collaborative Development Work Plan for each MC in accordance
with its terms and will have the right, after consultation with
the Deputy Lead Executive, to designate the project leader for
each major project and to establish teams and team leaders for
various development projects. For each Lead Executive there shall
be a Deputy Lead Executive. The Deputy Lead Executive shall be
assigned by the party other than the party employing the Lead
Executive, after consultation with the Lead Executive. Each party
shall structure all employees and resources for each MC under the
Lead Executive or Deputy Lead Executive for that MC, and the Lead
and Deputy Lead Executives and project leaders shall direct such
resources in accordance with and to achieve the objectives of the
Collaborative Development Work Plan.
5.3.3 Client Software. The initial Lead Executive for the Client
Software MC shall be Barry Schuler. The Lead Executive for the
Client Software MC shall have the right, after consultation with
the Deputy Lead Executive, to make all decisions with respect to
the design and development of the Client Software and the New
Browser, including without limitation the features and functions
to be included in each such product design and all decisions
regarding development priorities and resource allocation.
5.3.4 Network Application and Server Software. The initial Lead
Executive for the Network Application and Server Software MC
shall be Ed Zander. As part of the Collaborative Development Work
Plans, with the consent of each party through its Lead Executive
or Deputy Lead Executive, which consent shall not be unreasonably
withheld or delayed, the Lead Executive will establish mutually
agreeable targets for development of the Network Application and
Server Software. It is AOL's present intention not to replace the
initial Lead Executive for Network Application and Server
Software unless such development targets are missed in a material
fashion, but AOL shall have the right, after consultation with
Sun, to replace the Lead Executive for the Network Application
and Server Software MC at any time after the Closing Date. The
Lead Executive for the Network Application and Server Software
may be an employee of either party. In selecting the project
leader and team leaders for various development projects to be
undertaken in the development of the Network Application and
Server Software, the Lead Executive for the Network Application
and Server Software shall appoint a significant number of AOL
employees as project and/or team leaders.
5.3.5 Collaborative Development Work Plans. Prior to the Closing Date,
the Lead Executive and Deputy Lead Executives shall establish and
attach hereto as Schedule 5.3 the initial Collaborative
Development Work Plans for the two MCs of the initial
Collaborative Development Activity (consisting of an MC for
Client Software development and an MC for Network Application and
Server Software development), setting forth the objectives,
principal deliverables of each such MC and providing for
priorities in going forward. Changes to the principal
deliverables or priorities sections of the Collaborative
Development Work Plan for Network Application and Server Software
shall require the consent of both parties not to be unreasonably
withheld or delayed, but all other changes to such Collaborative
Development Work Plans may be made by the Lead Executive for the
applicable MC after consultation with the Deputy Lead Executive
for such MC. In making such changes, the Lead Executive must act
solely in accordance with the terms and objectives of this
Agreement.
5.3.6 Cross Platform Development. Understanding that it is the parties'
intention to offer cross platform solutions, the parties shall,
to the extent commercially reasonable, develop the Client
Software and the Network Applications and System Software to
operate on a variety of System Platforms, including the Sun
System Platform as well as other Systems Platforms including
Windows NT, IBM AIX, Linux, HP-UX and other Systems Platforms.
Any decision to support a platform other than Solaris or Windows
NT shall require a financial analysis showing a reasonably
appropriate return on investment, and in all cases all
Collaboratively Developed Software at the date of first customer
shipment must ship on Solaris.
5.3.7 Non-Disclosure; Limitations on Work on Other Development. All
individuals engaged in Collaborative Development Activities will
be prohibited from using or disclosing any confidential
information or trade secrets learned or developed in the course
of such Collaborative Development Activities other than in the
course of their work on the Collaborative Development Activities
or their work for AOL or Sun, respectively. AOL and Sun each
acknowledges that the parties may have to establish procedures
and/or enter into supplemental confidentiality agreements to
address issues that may arise in connection with Collaborative
Development Activities, such as, by way of example, the use of
confidential information of third parties which one party may not
have the right to disclose to the other party. In addition, AOL
and Sun each agrees that after it has assigned developers to the
Collaborative Development Activities, it shall use reasonable
efforts to keep such individuals assigned to the Collaborative
Development Activities, and AOL and Sun each agrees that it will
not reassign multiple employees engaged in the Collaborative
Development Activities to work on similar or competitive
development activities for other customers, clients, or strategic
partners. If AOL or Sun reassigns an individual employee to work
on similar or competitive development activities for a customer,
client, strategic partner or other third party, such party to
this agreement shall advise the customer, client, strategic
partner or other third party that such employee was involved in
similar or competitive development activities pursuant to this
Agreement and that such individual is subject to a
confidentiality and non-disclosure agreement prohibiting such
individual from using or disclosing any confidential information
or trade secrets learned or developed in the course of such
Collaborative Development Activities.
5.3.8 Protection of Software. AOL and Sun will agree on procedures so
that development is conducted in a such a manner that AOL Service
Components, other AOL and Netscape proprietary software, Sun
software, and the Collaborative Software are not inadvertently
placed in the public domain or required to be publicly disclosed
pursuant to the Mozilla Public License or Netscape Public
License. Both parties shall comply with such procedures, and
notwithstanding anything to the contrary contained in this
Agreement, in no event may a Lead Executive make any decision to
implement development in a manner inconsistent with such
procedures without the written consent of both AOL and Sun, which
either party may withhold in its sole discretion.
5.4 Management Process for Sales and Marketing.
5.4.1 Marketing and Sales Plans. An initial draft of the Marketing and
Sales Plan for the Collaborative Marketing and Sales Activity
will be mutually agreed upon prior to the Closing Date by the
Lead Executive and Deputy Lead Executive for marketing and sales,
setting forth the objectives and targets, and principal methods
for marketing and sales of the Product Suites and components
thereof. Major substantive changes to such initial Marketing and
Sales Plan shall require the consent of both parties, such
consent not to be unreasonably withheld, but any minor changes
may be made by the corresponding Lead Executive after
consultation with the Deputy Lead Executive. In making such
changes, the Lead Executive must act solely in accordance with
the terms and objectives of this Agreement. The Lead Executive
and Deputy Lead Executive shall not be changed prior to the
Closing Date.
5.4.2 Powers of Marketing and Sales Lead Executive. The Lead Executive
for Marketing and Sales shall maintain and revise the Marketing
and Sales Plan in accordance with its terms. For each Lead
Executive there shall be a Deputy Lead Executive. The Deputy Lead
Executive shall be assigned by the party other than the party
employing the Lead Executive. The Lead Executive for Marketing
and Sales, after consultation with the Deputy Lead Executive for
Marketing and Sales, shall have the right to establish projects
and teams and project and team leaders for various major sales
efforts ("SE's") of the Marketing and Sales Plan. Each party
shall structure all employees and resources of such party's
respective collaborative sales team under the Lead Executive or
Deputy Lead Executive, and the Lead Executive and Deputy Lead
Executives and their subordinates shall direct such resources in
accordance with and to achieve the objectives of the applicable
Marketing and Sales Plan.
5.4.3 Lead Executives. The initial Lead Executive for Marketing and
Sales shall be Ed Zander. The initial Deputy Lead Executive for
Marketing and Sales shall be Barry Schuler. As part of the
Marketing and Sales Plans, AOL and Sun will establish mutually
agreeable targets for marketing and sales of the Product Suites.
It is AOL's present intention not to replace the initial Lead
Executive for Marketing and Sales unless such targets are not
met, but AOL shall have the right, after consultation with Sun,
to replace the Lead Executive for Marketing and Sales at any time
after the Closing Date. In the event replaced, the Lead Executive
and Deputy Lead Executive may only be replaced by a person of
similar rank and stature unless the parties otherwise agree. The
Lead Executive for Marketing and Sales must be an employee of
either AOL or Sun.
5.4.4 Coordination. The AOL collaborative sales force and the Sun
collaborative sales force shall coordinate their sales efforts
and endeavor to cooperate with one another to achieve maximum
sales of the Product Suites in accordance with the Marketing and
Sales Plan.
5.4.5 Cross Platform Marketing and Sales. The collaborative sales
forces of AOL and Sun will be trained and knowledgeable about and
shall, to the extent commercially reasonable, actively market and
promote the sale or license of the Product Suites on the Sun
Systems Platform, Windows NT and on a variety of other System
Platforms to which the Product Suites have been ported, which may
include IBM AIX, Linux, HP-UX and other Systems Platforms, which
marketing and promotion shall include efforts to license the
Product Suites on an OEM basis.
6.0 Other Development and Marketing Rights and Limitations.
6.1 AOL. During the term of this Agreement, AOL will market Network
Application and Server Software only to AOL EC Service Opportunities and
only to enable such opportunities. In sales to AOL EC Service Opportunities
made by AOL personnel, AOL may elect to have the sales and licensing
agreements for the goods and services sold be between the customer and AOL
or may elect to have such agreements be between Sun and the customer. AOL
shall have the unrestricted right to market and distribute the Client
Software and New Browser during and after the term of this Agreement in any
manner whatsoever, including without limitation through OEM licensing
arrangements.
6.2 Sun. During the term of this Agreement, Sun will have the right to
market, including through reseller and OEM arrangements, the Collaborative
Software through the Collaborative Marketing and Sales Activities as well
as its independent sales force, subject to the provisions of Section 4.1.4.
6.3 Sun Development. Subject to the provisions of Sections 6.6 and 6.7, Sun
is free to develop at its own expense additional client, server and
application software, functionality and features for EC2. Any such software
developed by Sun independently which is not a derivative work of the
Existing Netscape Software or the Collaborative Software and was not
developed pursuant to any Collaborative Development Work Plan shall not
constitute Collaborative Software or Designated Collaborative Software, and
Sun shall own such independent developments and all proprietary rights
therein.
6.4 AOL Development. AOL is free to develop at its own expense and to
collaborate with one or more third parties in developing additional client,
server and application software, and functionality and features for
electronic commerce and extended communities and connectivity, including
without limitation software based on and derived from the Existing Netscape
Software. Any such software developed by AOL independent of any
Collaborative Development Work Plan shall not constitute Collaborative
Software or Designated Collaborative Software, and AOL shall own such
independent developments and all proprietary rights therein.
6.5 Replacement of IE Browser. To the extent contractually permissible, AOL
will periodically evaluate replacing the browser component of Microsoft
Internet Explorer browser with the New Browser in the AOL classic online
service offering and to use the New Browser in clients for other brands
such as ICQ and CompuServe, provided that the parties acknowledge that AOL
has no present intention to make any such replacement or use and shall have
no obligation to make any such replacement or use, and that it is AOL's
present expectation that it will not seek to terminate or limit its present
agreement and may seek to renew and/or extend and expand its present
agreement with Microsoft Corporation to continue to distribute Microsoft
Internet Explorer. It is acknowledged that among the critical issues for
AOL in evaluating the merits of any such possible replacement would be ***
approximately 8 lines omitted ***
6.6 No Development or Marketing of Competitive Clients. Except as provided
in Section 3.10, for any System Platform for which AOL implements, in the
OEM Communicator Client and Third Party Communicator Client, the most
recent version of Sun's JRE pursuant to Section 3.6, Sun shall not during
the term of this Agreement, directly or indirectly through any third party,
develop, market, advertise, or distribute any software product or assist in
advertising, marketing, or distributing any software product on such System
Platform (including without limitation any other browser component)
including or bundled with features and functions which make it competitive
with a desktop client such as the client for the AOL classic online
service, AOL Distributed Communicator Client, the Third Party Communicator
Client, the OEM Communicator Client or Microsoft Internet Explorer (as it
continues to evolve away from a browser to a fully featured online desktop
client),*** approximately 11 lines omitted *** This Section 6.6 shall not
be deemed to limit or prohibit Sun from continuing to develop, market,
advertise, promote and distribute browsers that are 100% Pure Java or are
for platforms other than personal computers or workstations, subject to the
provisions of Section 4.3, nor from continuing to develop, market and
promote client software other than browsers except as provided in this
Section.
6.7 Support for Product Suites Standards. It is the intention of the
parties that all client software will support industry-standard protocols
and the standards, protocols and defaults in the Product Suites, including
without limitation the standards, protocols and defaults of the AOL
Services Components in the Product Suites, and except as provided in
Section 3.10, Sun agrees not to implement, in the Sun Systems Platform or
in other software competitive with or offering similar functionality to the
Product Suites, inconsistent or conflicting standards, protocols or
defaults, including without limitation inconsistent or conflicting with the
components, features, functionality, interfaces, protocols and APIs of the
New Browser.
6.8 Impact of License to Competing OEM. If, during the term of this
Agreement, AOL grants an OEM license to any of the network application and
server software comprising the Existing Netscape Software or any derivative
works thereof developed by AOL to any other Systems Platform suppliers,
each such transaction must be structured so that the revenues to AOL
reflect *** and in such event the Minimum Commitment as set forth in
Section 4.5 for each quarter subsequent to AOL granting such a license
shall be reduced by *** of the consideration received by AOL during the
preceding quarter pursuant to such license agreement for the rights granted
to such OEM with respect to any such software, provided that in the event
AOL receives an upfront large sum or advance pursuant to such an agreement,
the reduction arising from such amount shall be applied pro rata across all
then remaining quarterly Minimum Commitments.
6.9 Licenses by Sun. During the term of this Agreement, Sun shall structure
its license transactions for the Existing Netscape Software and Designated
Collaborative Software so that the revenues to Sun *** and Sun shall not
enter into licenses for such software intending to (a) have a material
adverse impact on the penetration rate for the business desktop as set
forth in Section 4.6 or (b) materially reduce the amounts payable to AOL
hereunder.
6.10 Resources. AOL and Sun shall each provide a minimum level of staffing
through their respective collaborative sales forces, as set forth in the
Marketing and Sales Plan, to achieve the objectives of the SE's, and AOL
and Sun shall each provide a minimum level of development staffing, as set
forth in the initial Collaborative Development Work Plans, to achieve the
objectives of the Network Application and Server Software development MC.
Sun shall be responsible for using all reasonable efforts at its expense to
provide whatever remaining resources are needed to achieve the goals of
each SE as set forth in the Marketing and Sales Plan and to achieve the
goals set forth in the Collaborative Development Work Plan for Network
Application and Server Software, but in no event will Sun be required to
provide more than the maximum levels of Sun staffing set forth in the
Marketing and Sales Plan and the Collaborative Development Work Plan for
Network Application and Server Software. Sun will provide a level of
staffing for Sun's collaborative sales force at least as large as that of
AOL's collaborative sales force, and Sun shall provide a level of staffing
for the Collaborative Development Activities at least as great as the
staffing AOL provides for the Collaborative Development Activities. Either
party may reduce its level of staffing if such party concludes that then
current and reasonably anticipated business conditions no longer justify
then current staffing levels. In the event the aggregate level of staffing
provided by AOL in any quarter for Collaborative Development Activities and
Collaborative Marketing and Sales Activities is less than ***, the
otherwise applicable Minimum Sales Commitment for the next quarter shall be
reduced by *** per person for such shortfall (i.e., for each person by
which such staffing by AOL is below ***), provided that in the event the
composition of such AOL staffing with respect to mix of salary levels
changes materially, Sun and AOL will negotiate in good faith adjustments to
such *** per person shortfall reduction.
7.0 Escalation and Dispute Resolution for Collaborative Development and
Marketing and Sales.
7.1 General. The parties shall attempt to promptly resolve through good
faith negotiation any dispute or disagreement between them directly
relating to design and development priorities and decisions and resource
allocation under the Collaborative Development Work Plan for Network
Application and Server Software and marketing and sales priorities and
decisions under the Marketing and Sales Plans. ***approximately 10 lines
omitted***
7.2 Deadlock on Major Disputes. ***approximately 48 lines omitted***
8.0 Payment Timing Provisions.
8.1 Timing. Fees payable pursuant to Section 4.1.5, 4.5 and 9.8.2 shall be
paid quarterly in advance not later than the fifth business day of the
quarter for which due, except that amounts payable pursuant to such
Sections for the first quarter shall be paid on the Closing Date, and, in
the event to first quarter is not a complete quarter, amounts payable
pursuant to such Sections for the first partial quarter and the first full
quarter shall be payable on the Closing Date. Unless otherwise specified,
other fees shall be paid no later than 45 calendar days after the end of
the quarter for which due (including fees in excess of the minimum amounts
due with respect to any quarter). No fees are payable until the quarter in
which the Closing Date occurs, and any fees for that quarter, including
minimum quarterly fees specified in this Agreement, including in Sections
4.1.5, 4.5 and 9.8.2, shall be a pro rata amount based on the number of
days remaining in such quarter. In the event the first quarter is not a
complete quarter (i.e., the Closing Date occurs other than at the beginning
of the quarter), any reductions in minimum revenues or other fees specified
in this Agreement, including in Sections 4.1.5, 4.5 and 9.8.2, shall not
apply until the second full quarter. For partial quarters at the beginning
and the end of each year of the term of this Agreement, the quarterly
amount payable shall be a prorated portion of the full quarterly amount
specified for such year, based on the number of days in such partial
quarter period. (For example, if the first anniversary of the Closing Date
is March 20, 2000, the prorated Minimum Commitment payable pursuant to
Section 4.5 for the partial period running from January 1, 2000 through
March 20, 2000 shall be the applicable prorated portion of $78,000,000,
which amount shall be due and payable on January 1, 2000, and the prorated
Minimum Commitment for the partial period running from March 21, 2000
through March 30, 2000 shall be the applicable prorated portion of
$82,500,000, which amount shall also be due and payable on January 1, 2000.
8.2 No Right To Withhold or Offset. Sun will have no right whatsoever to
withhold payment of any minimum fees or revenues provided for in Sections
4.1.5, 4.5 or 9.8.1 on the basis of any alleged right of offset or any
alleged breach by AOL of any of its obligations pursuant to this Agreement
or for any other reasons except to the extent permitted pursuant to a
final, non-appealable judgment obtained from a court of competent
jurisdiction in litigation between AOL and Sun. Notwithstanding anything to
the contrary set forth in this Agreement, in the event Sun believes that
AOL has breached any obligations under this Agreement, Sun shall have no
right to cease paying any such minimum fees and revenues, even if Sun has
terminated or purported to terminate this Agreement, and Sun's sole and
exclusive remedy shall be to litigate the dispute and to continue making
such payments during the pendency of the litigation. AOL shall be entitled
to injunctive relief to compel Sun to continue making such payments during
the pendency of such litigation.
8.3 Late Charges. In the event that either party does not receive any
amounts from the other party hereunder on or before the day upon which such
amounts are due and payable, and fails to cure such breach within ten (10)
business days following written notice from the other party, such
outstanding amounts shall thereupon be subject to payment of a late charge
which shall accrue until payment at the rate of one percent (1%) per month.
Amounts received by shall first be credited against any unpaid late charges
accrued pursuant to this Section, and accrual of such late charges shall be
in addition to and without limitation of any and all additional rights or
remedies under this Agreement or at law or in equity.
9.0 Intellectual Property Rights.
9.1 Ownership. Each party shall own all preexisting software and/or
technology which it makes available to the Collaborative Development
Activity or which it developed or develops with its own resources without
use of any intellectual property of the other party and not as part of the
Collaborative Development Activities and all proprietary rights therein. To
the extent such software and/or technology is incorporated into the
Designated Collaborative Software, it shall, to the extent so incorporated,
be subject to the provisions of Sections 9.2, 9.3 and 9.4.
9.2 Designated Collaborative Software. AOL shall own all improvements and
modifications to any preexisting software or technology of either party,
any new software and technology created through Collaborative Development
Activity to create the Client Software and/or New Browser, and all
newly-created intellectual property rights therein, whether completed or
work in progress. Sun shall own all improvements and modifications to any
preexisting software of either party and any new software and technology
created through Collaborative Development Activity to create the Network
Application and Server Software and all newly-created intellectual property
rights therein.
9.3 AOL License to Sun. AOL hereby grants to Sun and its subsidiary, Sun
Microsystems International, B.V. ("Sun International B.V.") a Software
License to all Designated Collaborative Software owned by AOL pursuant to
Sections 9.1 and/or 9.2, subject only to the payment by Sun of the amounts
provided in this Agreement. Such license shall be unrestricted as to field
of use, except for those limitations set forth in Section 6.6 and 6.7. AOL
also hereby grants to Sun a non-exclusive, perpetual, non-terminable, fully
sublicensable right under any patents issued anywhere in the world for
which AOL is or becomes the beneficial or legal owner which were reduced to
practice in the course of the Collaborative Development Activity to make,
have made, practice, have practiced, use, lease, sell and otherwise
transfer any and all inventions, methods or processes which are the subject
of any claim of any such patent.
9.4 Sun License to AOL. Sun shall grant to AOL a Software License to all
Designated Collaborative Software owned by Sun pursuant to Sections 9.1
and/or 9.2, whether written in Java or any other programming language. Such
license shall be unrestricted as to field of use. Notwithstanding the
foregoing grant to AOL, AOL's rights to the Java Platform shall be governed
solely by the TLDA executed concurrently herewith by the parties. Sun also
hereby grants to AOL a non-exclusive, perpetual, non-terminable, fully
sublicensable right under any patents issued anywhere in the world for
which Sun is or becomes the beneficial or legal owner which were reduced to
practice in the course of the Collaborative Development Activity to make,
have made, practice, have practiced, use, lease, sell and otherwise
transfer any and all inventions, methods or processes which are the subject
of any claim of any such patent.
9.5 Procedures for Litigating Proprietary Rights Claims Against Third
Parties. AOL and Sun agree to cooperate with one another and to negotiate
in good faith procedures and terms and conditions permitting each party to
pursue infringement claims against third parties with respect to the
Designated Collaborative Software and other rights licensed to one another
pursuant to this Agreement. The parties will consider and discuss whatever
arrangements might most efficiently and fairly permit such actions to be
pursued, which might include, by way of example, an assignment of an
undivided joint interest in the software at issue in order to confer
standing to sue on the party seeking to bring such action, an agreement by
which the other party is joined as a party plaintiff in the action with
provisions allocating the responsibilities and costs of litigating such
claims, or some other mechanism.
9.6 License to Existing Netscape Software.
9.6.1 License for Development. As of the Closing Date, as between AOL
and Sun, AOL shall own all rights in and shall grant to Sun a
Software License to the Existing Netscape Software. AOL may also
elect to grant to Sun a Software License to any Existing Netscape
Software Upgrades that AOL makes available for Collaborative
Development Activities pursuant to this Agreement. Such license
shall be subject to the limitations set forth in this Agreement
on Sun's marketing and licensing thereof during the term of this
Agreement, which shall include those limitations set forth in
Sections 6.3, 6.6 and 6.7 of this Agreement as well as
limitations during and after the term of this Agreement
permitting Sun and Sun International B.V. to use the Existing
Netscape Software (and any Existing Netscape Software Upgrades,
if any, licensed to Sun) solely for purpose of developing the New
Browser, the OEM Communicator Client, and the Designated
Collaborative Software as part of the Collaborative Development
Activity. Such licenses shall also be subject to any contractual
restrictions with third parties for the duration of such
contractual restrictions. AOL represents that concurrently with
the execution of this Agreement, AOL is obtaining from Netscape
contractual commitments requiring that Netscape cooperate with
AOL between the date of this Agreement and the Closing Date to
identify any "Encumbrances" (as defined in this Section) that may
adversely affect AOL's rights to Netscape Existing Software
and/or any components thereof as set forth below, including
without limitation AOL's rights to grant others access to source
code and sublicense such rights. Such cooperation shall include
granting AOL full access to Netscape technology licenses,
agreements by which technology rights were acquired by Netscape
and information regarding intellectual property infringement or
misappropriation claims, if any, relating to the Netscape
Existing Software and all components thereof. As used in this
Section, "Encumbrances" means any restriction or limit that would
prevent or materially limit or restrict AOL from granting
pursuant to this Agreement the applicable source and binary
access, use and distribution rights under Sections 9.6.1, 9.6.2
and 14.7 of the Agreement with respect to the Netscape Existing
Software or any component thereof ("Sun License Rights"),
including, without limitation, limitations and restrictions on
source access and sublicensing fights, as well as prohibitions or
requirements to obtain consents to assignment of rights from
Netscape to AOL upon the Closing Date where to failure to obtain
such consent would materially limit or restrict AOL's rights,
including sublicensing rights. AOL further represents that it is
obtaining from Netscape concurrently with the execution of this
Agreement contractual commitments obligating Netscape to use
reasonable efforts to remove, limit or diminish such
Encumbrances, in a priority order to be specified by AOL. After
the Closing Date, AOL shall continue such efforts. ***
approximately 4 lines omitted *** Sun and AOL will consider the
scope and impact of any such Encumbrances in determining what
work to undertake pursuant to the Collaborative Development Plans
and the products to be included in the Product Suites.
9.6.2 Reseller Rights. AOL shall grant to Sun, effective as of the
Closing Date and continuing for the term of this Agreement, (a)
the right to distribute the Existing Netscape Software in binary
form only except as set forth below; (b) the right to use the
source code for the Existing Netscape Software solely for
purposes of supporting and maintaining the binary copies
distributed to Sun customers; and (c) the right to license the
source code for the Existing Netscape Software to OEM licensees
solely for the purpose of permitting such OEM licensees to
support and maintain the binary copies distributed by such OEMs,
provided that Sun may provide such source code to OEM licensees
only pursuant to the terms of a written agreement substantially
in conformance with a form approved by AOL, which approval shall
not be unreasonably withheld or delayed, containing customary
terms and conditions to preserve the confidentiality of such
source code and containing customary limitations and disclaimers
of warranties and exclusions and limitations of liability. The
rights granted to Sun pursuant to this Section 9.6.2 with respect
to the Existing Netscape Software shall terminate upon expiration
or termination of this Agreement, except that Sun shall retain
thereafter a limited source code license to retain and use such
software solely for the support of existing customers as of such
expiration or termination.
9.6.3 Delivery. Promptly following the Closing Date, AOL will deliver
to Sun a copy of all Existing Netscape Software that is subject
to the license granted pursuant to Section 9.6.1 and 9.6.2.
9.7 Post Termination Rights. The license rights of the parties following
expiration or termination of this Agreement are set forth in Sections 14.5
and 14.7.
9.8 License Fees.
9.8.1 Payments from AOL to Sun. AOL shall pay to Sun quarterly license
fees of $5 million per quarter during the term of this Agreement
for the Sun-owned components licensed to AOL by Sun pursuant to
Section 9.4. No license fee shall be required after expiration or
termination of this Agreement for any such license rights that
survive termination. AOL may allocate up to *** of the fees under
this section to any payments required under any TLDA between Sun
and AOL, and any unused balance of such amounts not applied to
TLDA fees may be carried forward and applied to future fees under
any TLDA.
9.8.2 Payments from Sun to AOL. Sun shall pay to AOL quarterly license
fees during the term of this Agreement for the software and
trademark rights granted to Sun by AOL pursuant to Sections 9.3,
9.6 and 12, which shall be Eighty-Six Million Dollars
($86,000,000) for the first year following the Closing Date,
Ninety-Five Million Five Hundred Thousand Dollars ($95,500,000)
for the second year following the Closing Date, and Ninety-Seven
Million Dollars ($97,000,000) for the third year following the
Closing Date, payable in quarterly payments as provided in
Section 8.1. No license fee shall be required after expiration or
termination of the definitive agreement for any such license
rights that survive termination.
10.0 Netcenter.
10.1 Objectives. AOL shall develop the Netcenter to be a portal for a
variety of customers with a focus on business customers in terms of the
services, information and customization options offered.
10.2 Ownership. AOL owns and controls the Netcenter without restriction and
shall be responsible for all of its associated costs.
10.3 Portal Revenues. Notwithstanding anything to the contrary herein, AOL
shall retain all revenue, and bear all costs, related to or derived from
the Netcenter.
10.4 Promotion. Sun agrees to cooperate with AOL to make the Netcenter the
Sun default network portal for the Product Suites and to help gain
additional traffic for the Netcenter. Without limiting the foregoing, the
Netcenter will be the default home page in the New Browser, Third Party
Communicator Client and OEM Communicator Client, any client applications
developed by Sun pursuant to Section 3.10, the HotJava browser and, to the
extent practicable and commercially reasonable, the Bedouin browser or any
other thin client browser used on platforms other than personal computers
and workstations, although Sun customers shall not be required to maintain
such home page against their will. *** approximately 5 lines omitted ***
Sun shall always position the Netcenter in its meetings, promotions and
advertising no less favorably than any other portal addressed in such
meetings, promotions and advertising, if any, but the parties recognize and
agree that the objectives of this Agreement require that Sun market and
distribute the Product Suites and System Platform to other connectivity and
portal vendors without restriction, and in such cases such other
connectivity and portal vendors shall have the right to use and promote
their own home pages and/or portals in connection with the Products Suites
and System Platform.
11.0 Systems Platform.
11.1 Ownership. Sun owns and controls the Sun System Platform without
restriction and shall be responsible for all of its associated costs. Sun
shall develop the Sun System Platform to be the premiere foundation for
Product Suites customers in terms of its performance, scalability,
reliability and cost-effectiveness.
11.2 Promotion. AOL agrees to cooperate with Sun to make the Sun System
Platform the AOL preferred System Platform for Products Suites for both AOL
and AOL EC Service Opportunities. AOL shall always position the Sun System
Platform in its meetings, promotions and advertising no less favorably than
any other Systems Platform addressed in such meetings, promotions and
advertising, if any, but the parties recognize and agree that the
objectives of this Agreement may require that AOL market and distribute the
Product Suites on other System Platforms to meet customer requirements.
12.0 Branding.
12.1 Ownership. Each party shall retain all rights, title and other
interest to its brand names, service marks, trademarks and other
proprietary markings except as expressly provided otherwise in this
Agreement.
12.2 Brand Names and Trademarks. Subsequent to the execution of this
Agreement and prior to the Closing Date, AOL and Sun shall negotiate in
good faith and enter into a written trademark license, which shall include
reasonable and customary terms, including appropriate quality control
provisions, pursuant to which AOL shall license to Sun on a royalty-free,
non-sublicensable basis effective as of the Closing Date: (a) the right to
use the Netscape Communicator trademark in connection with the Third-Party
Communicator Client and related sales and marketing materials, and shall
license to Sun the right to use successors or replacements of the Netscape
Communicator trademark in connection with the Third-Party Communicator
Client and related sales and marketing materials, provided the Third-Party
Communicator Client meets the requirements for branding with such mark(s);
(b) the right to use the Netscape trademarks that Netscape currently uses
as the titles for the Existing Netscape Software in connection with the
collaborative marketing and sales of the Existing Netscape Clients pursuant
to this Agreement; and (c) such other trademarks, if any, as AOL and Sun
may mutually agree. Such trademarks shall be licensed to Sun following
expiration or termination of this Agreement subject to reasonable quality
control requirements and a reasonable transition period (not to exceed
fifteen (15) months) and plan which shall be set forth in the definitive
trademark license. Such trademark license shall also provide for a
trademark license from AOL to Sun to use the Netscape Communicator
trademark, and such other trademarks, if any, as AOL and Sun may mutually
agree, for any software developed by Sun pursuant to Section 3.10, subject
to such software meeting AOL's reasonable quality control and other
transition requirements for such branding and subject to a phase-out of
Sun's use of such trademarks in connection with such products after a
reasonable transition period (not to exceed fifteen (15) months).
12.3 Branding of Collaborative Software. The branding for the Collaborative
Software shall be determined by mutual agreement of the Lead Executive and
Deputy Lead Executive for marketing and sales, and each party shall have
the right to use such marks in connection with the Product Suites and
related sales and marketing materials during the term of this Agreement.
Following any expiration or termination of this Agreement, Sun shall retain
ownership of any trademark by which the entire Product Suites are
identified, subject to transition or phase-out terms permitting continued
use by AOL for a reasonable transition period (not to exceed fifteen (15)
months), which terms and conditions shall be negotiated in good faith and
embodied in a written trademark license agreement. Following any expiration
or termination of the Agreement, Sun and AOL shall each have the
non-exclusive right to use any titles by which the individual Network
Application and Server Products in the Product Suites were identified
during the term of this Agreement, provided that AOL and Sun shall
differentiate their uses of such marks following any expiration or
termination of this Agreement by always using any such mark in connection
with a name or trademark prominently identifying AOL or Sun as the source
of such goods or services (for example, AOL Commerce Server and Sun
Commerce Server).
13.0 Employee Incentives.
13.1 economic incentives for their respective employees engaged in the
Collaborative Development Activity and collaborative marketing and sales is
essential to its success and shall create and operate an Incentive Plan
("Incentive Plan") for all employees engaged full-time in the Collaborative
Development Activity or in collaborative marketing and sales. Each party
shall bear its own expenses in connection with its respective Incentive
Plans. Compensation for the collaborative marketing and sales force will
consist of base salary with an additional commission/incentive opportunity,
and the commission incentive plan will (i) represent a significant part of
each individual's total annual compensation (base salary plus
commission/incentive plan) and (ii) support the metrics included in the
Marketing and Sales Plan. The parties commit to cooperate with one another
to complete the Incentive Plan as soon as practicable and commercially
reasonable and prior to the Closing.
13.2 Senior Managers. All senior managers and above shall receive a
significant portion of their compensation through an annual bonus program,
tied to performance under the Collaborative Development Work Plans and/or
Marketing and Sales Plans, and paid annually to those employees still
employed by either party as of the date of payment of the bonus.
13.3 Sales Representatives. All sales representatives shall receive a
significant portion of their compensation through an incentive bonus
program tied to meeting objectives under the Marketing and Sales Plans.
13.4 Pool For All Personnel. The Lead Executives and Deputy Lead Executive
from each party, respectively, may make periodic project and spot bonus
payments tied to performance under the Collaborative Development Work Plans
and/or Marketing and Sales Plans, to employees of such party from a pool of
funds of up to*** of total salaried compensation for all personnel employed
by such party in such activities.
13.5 Lead Executives and Deputy Lead Executives. At least one-half of the
total incentive compensation by MC for any Lead Executives or Deputy Lead
Executives (other than an Executive Officer of Sun or AOL, if a Lead
Executive or Deputy Lead Executive is an Executive Officer) must be
provided under the IP.
14.0 Termination.
14.1 Term. This Agreement shall terminate at midnight Pacific Daylight Time
on the date three (3) years following the Closing Date.
14.2 Early Termination. This Agreement assumes the intended merger of
Netscape and AOL. If the Closing Date does not occur on or before June 30,
1999, the parties agree to negotiate in good faith for a period of thirty
(30) days thereafter in an effort to agree on alternative terms to achieve
as much as possible the same effect as this Agreement using solely Sun
technology, provided that if the parties fail to agree on such alternative
terms within such thirty (30) day period, either party may elect to
terminate this Agreement by giving written notice to the other party.
14.3 Termination for Breach. Subject to Section 7.2 of this Agreement,
either party may terminate this Agreement for a material breach of its
terms by the other party by giving the other party written notice at least
ninety (90) days in advance of such termination date, and the Agreement
shall terminate on that date unless the breaching party has cured or
corrected such breach prior to that time, provided that such ninety (90)
day period shall be shortened to a ten (10) business day cure period
following written notice in the event of a failure to pay amounts due
pursuant to this Agreement. Without limiting the foregoing, in the event
Sun fails to pay any amounts due to AOL pursuant to this Agreement,
including without limitation minimum fees or revenues provided for in
Sections 4.1.5, 4.5 and 9.8.2, and fails to cure such breach within the ten
(10) business day cure period provided for in this Section, AOL shall have
the right, exercisable upon written notice to Sun, without limiting any of
AOL's other rights or remedies, to terminate this Agreement and all
licenses granted to Sun by AOL, including all licenses granted to Sun by
AOL pursuant to Sections 9.3, 9.6 and 12 (in which event Sun will have no
license rights pursuant to Section 14.7.1 or 14.7.2). In the event of a
termination of this Agreement and all licenses granted to Sun by AOL as a
result of Sun's failure to pay any minimum fees and revenues in a timely
manner, Sun's obligation to pay all minimum fees and revenues provided for
in Sections 4.1.5, 4.5 and 9.8.2 shall be accelerated so as to make all
such fees and revenues be due and payable immediately. Notwithstanding
anything to the contrary set forth in this Agreement, AOL shall have no
right to terminate the licenses granted to Sun by AOL pursuant to Sections
9.3, 9.6 and 12, except for a failure by Sun to pay any fees and revenues
due pursuant to this Agreement and a failure to cure such breach in a
timely manner as provided in this Section 14.3.
14.4 Limitation on AOL Right To Terminate Licenses. Except in the event Sun
fails to pay the fees payable under Sections 4.1.5, 4.5 and 9.8.2 as
required in Section 8 (the "Specified Payment Obligations"), AOL shall have
no right whatsoever to terminate or reduce Sun's license rights set forth
in Sections 9.4, 9.6.1, 9.6.2, 12.2, 12.3, 14.7.1 or 14.7.2 (the
"Licenses") on the basis of any alleged breach by Sun of any of its
obligations pursuant to this Agreement or for any other reasons, except to
the extent permitted pursuant to a final, non-appealable judgment obtained
from a court of competent jurisdiction in litigation between AOL and Sun.
Notwithstanding anything to the contrary set forth in this Agreement, in
the event AOL believes that Sun has breached any obligations under this
Agreement, other than the Specified Payment Obligations, AOL shall have no
right to terminate or reduce such licenses, even if AOL has terminated or
purported to terminate this Agreement, and AOL's sole and exclusive remedy
shall be to litigate the dispute, provided that nothing contained herein
shall be deemed to limit AOL's right to enforce the limitations set forth
in this Agreement on the scope or duration of such licenses. Sun shall be
entitled to injunctive relief to prevent AOL from terminating or limiting
such licenses in any way other than as expressly allowed in this Section.
14.5 Termination on a Change in Control. During the term of this Agreement,
if either party is acquired or if any third-party acquires effective voting
control of either party, such party shall promptly notify the other party
in writing, and the other party may terminate this Agreement effective six
(6) months after receipt of such notice; provided that if Sun terminates
this Agreement pursuant to this Section 14.4, it shall be obligated to
continue to pay all then remaining minimum payments and fees that would
have been due if this Agreement had expired on the date set forth in
Section 14.1, when and as such minimum payments and fees would otherwise be
payable pursuant to this Agreement.
14.6 AOL Post Termination License Rights. Following any expiration or
termination of this Agreement, AOL shall be free to further develop and
enhance the Designated Collaborative Software for its own account in all
respects, shall be entitled to full ownership of any AOL separately
developed code based on or derived from the Designated Collaborative
Software, including without limitation any AOL separately developed
modifications and enhancements to the Designated Collaborative Software
(such as, by way of example, the Third Party Communicator Client and AOL
Distributed Communicator Client), shall have no duty to account to or pay
Sun with respect to any use or exploitation of the Designated Collaborative
Software, and shall not be subject to any limitations on field of use with
respect to the Designated Collaborative Software. Following any expiration
or termination of this Agreement, AOL shall have no rights of any kind to
any software developed by Sun, which does not constitute Collaborative
Software or Designated Collaborative Software.
14.7 Sun Post Termination License Rights.
14.7.1 Designated Products. As used in this Agreement, "Designated
Products" means (a) any network applications and server software
included in the Product Suites or marketed and sold through
Collaborative Marketing and Sales Activities pursuant to the
Marketing and Sales Plan at any time during the term of this
Agreement, and (b) the Designated Collaborative Software. Except
as provided in Section 14.3, Sun and Sun International B.V. shall
be granted effective upon expiration or termination of this
Agreement a Software License to the Designated Products and shall
be free following any expiration or termination of this Agreement
to further develop and enhance any Designated Products for their
own respective accounts in all respects, shall be entitled to
full ownership of any Sun and Sun International B.V. separately
developed code based on or derived from the Designated Products,
including without limitation any Sun separately developed
modifications and enhancements to the Designated Products, shall
have no duty to account to or pay AOL with respect to any use or
exploitation of the Designated Products, and shall not be subject
to any limitations on field of use with respect to the Designated
Products (including without limitation those limitations set
forth in Sections 6.3, 6.6 and 6.7 of this Agreement), provided
that (a) AOL may elect to require that, within one hundred eighty
(180) days following any expiration or termination of this
Agreement, Sun cease to distribute and remove from any Designated
Products and derivative works thereafter marketed or distributed
by Sun and Sun International B.V. any or all AOL Service
Components, as specified by AOL, and (b) such license shall be
subject to any contractual restrictions with third-parties for
the duration of such contractual restrictions.
14.7.2 Third Party Communicator Client and AOL Distributed Communicator
Client. Following any expiration or termination of this
Agreement, Sun shall have no rights of any kind to the Third
Party Communicator Client or the AOL Distributed Communicator
Client or any software developed by AOL which does not constitute
Designated Software, other than a limited source code license to
retain and use such software solely for the support of existing
customers as of such expiration or termination.
14.7.3 Delivery. Promptly following expiration or termination of this
Agreement, AOL shall deliver to Sun a copy of all source code and
binary code comprising the Designated Products to the extent Sun
does not already have such code in its possession.
14.8 Purchase of Sun Products and Services Post-Termination.
14.8.1 EC2 Products and Services. For seven years after the expiration
or termination of this Agreement for any reason other than (a) a
termination by Sun arising from a material breach by AOL or (b) a
termination pursuant to Section 14.2 resulting from a failure of
the Closing Date to occur, AOL will be entitled to purchase Sun
***
14.8.2 Other Products and Services. For seven years after the expiration
or termination of this Agreement for any reason other than (a) a
termination by Sun arising from a material breach by AOL or (b) a
termination pursuant to Section 14.2 resulting from a failure of
the Closing Date to occur, AOL will be entitled to purchase ***
14.9 Post Termination Limitations. For a period of eighteen (18) months
following any termination or expiration of this Agreement (other than a
termination arising from a material breach by the other party), each party
agrees to continue to market and distribute the Network Applications and
Server Software in a manner generally consistent with the manner in which
such Network Applications and Server Software were marketed and distributed
by such party during the term of this Agreement, and each party agrees not
to sell or dispose of all or substantially all of its respective rights in
such software during such eighteen (18) month period, provided that this
Section shall not be deemed to limit or prohibit either party from selling
or disposing of such rights in connection with a merger or sale of assets
in which a third party acquires or succeeds to all or substantially all of
such party's assets, including such rights.
15.0 General Representations and Warranties.
15.1 AOL Representations and Warranties. AOL warrants, covenants and
represents to Sun that:
15.1.1 AOL has the full corporate right, power and authority to enter
into this Agreement and to perform the acts required of it
pursuant to this Agreement;
15.1.2 the execution of this Agreement and the performance by AOL of its
obligations and duties under this Agreement shall not violate any
agreement to which AOL is a party or the rights of any other
party; and
15.1.3 AOL is not relying on nor does Sun make any representations,
warranties or agreements not expressly provided for in this
Agreement.
15.2 Sun Representations and Warranties. Sun warrants, covenants and
represents to AOL that:
15.2.1 Sun has the full corporate right, power and authority to enter
into this Agreement, to perform the acts required of it;
15.2.2 the execution of this Agreement and the performance by Sun of its
obligations and duties under this Agreement shall not violate any
agreement to which Sun is a party or the rights of any other
party; and
15.2.3 Sun is not relying on nor does AOL make any representations,
warranties or agreements not expressly provided for in this
Agreement; and
16.0 No Proprietary Rights Indemnity. Neither AOL nor Sun makes any warranties
with respect to noninfringement and expressly disclaim all implied warranties of
title and against infringement. Neither AOL nor Sun shall have any obligation to
defend or indemnify the other against any third party claims of infringement or
misappropriation of any proprietary rights in any materials or technology
provided by either party to the other or developed pursuant to this Agreement.
17.0 Other Remedies Cumulative. Except where otherwise specified, the rights and
remedies granted to a party under this Agreement are cumulative and in addition
to, and not in lieu of, any other rights or remedies which the party may possess
at law or in equity, including, without limitation, rights or remedies under
applicable patent, copyright, trade secret or proprietary rights laws, rules or
regulations.
18.0 Audit Rights. AOL and Sun agree to allow mutually acceptable independent
CPA auditors, which auditors shall not be compensated on a contingency basis and
shall be bound to keep all information confidential except as necessary to
disclose discrepancies to the other party, to audit and analyze relevant
accounting records of each other to ensure compliance with all terms of this
Agreement. Any such audit shall be permitted within thirty (30) days of one
party's receipt from the other of a written request to audit, during normal
business hours, at a time mutually agreed upon. The cost of such an audit shall
be borne by the requesting party unless a material discrepancy is found, in
which case the cost of the audit shall be borne by the other party. A
discrepancy shall be deemed material if it involves a payment or adjustment of
more than five percent (5%) of the amount actually due from the paying party in
any given quarter. Audits shall occur no more frequently than once per calendar
year and shall not interfere unreasonably with the audited party's business
activities and shall be conducted in the audited party's facilities during
normal business hours on reasonable notice. An audit may cover any period;
provided that: (i) the period has not been previously audited; and (ii) the
period under audit is within a three year period immediately preceding the
commencement of the audit. A party shall promptly reimburse the other for the
amount of any discrepancy arising out of such audit which indicates that such
party is owed amounts hereunder as well as the costs of the audit, if
applicable, as provided above.
19.0 Limitation Of Liability; Exclusion of Damages; Disclaimer of Warranties.
19.1 Exclusion of Damages. NEITHER PARTY HERETO SHALL, UNDER ANY
CIRCUMSTANCES, BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, EVEN IF APPRISED OF THE LIKELIHOOD OF SUCH
DAMAGES OCCURRING.
19.2 Limitation of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY'S
TOTAL LIABILITY OF ALL KINDS ARISING OUT OF OR RELATED TO THIS AGREEMENT
REGARDLESS OF THE FORUM AND REGARDLESS OF WHETHER ANY ACTION OR CLAIM IS
BASED IN CONTRACT, TORT NEGLIGENCE OR OTHERWISE, EXCEED THE SUM OF (a)
FIFTY MILLION DOLLARS; PLUS (b) ALL AGGREGATE AMOUNTS PAID BY SUCH PARTY TO
THE OTHER FOLLOWING NOTIFICATION TO THE OTHER PARTY OF AN ALLEGED MATERIAL
BREACH GIVING RISE TO AN ALLEGED RIGHT OF TERMINATION.
19.3 Exceptions. THE EXCLUSIONS OF DAMAGES AND LIMITATIONS OF LIABILITY SET
FORTH IN SECTIONS 19.1 AND 19.2 SHALL NOT OPERATE TO LIMIT (a) AMOUNTS
ACTUALLY DUE AND PAYABLE PURSUANT TO THE EXPRESS TERMS OF THIS AGREEMENT,
OR (b) AMOUNTS OTHERWISE RECOVERABLE BY ONE PARTY FROM THE OTHER IN AN
ACTION AT LAW OR IN EQUITY ARISING FROM THE OTHER PARTY'S INFRINGEMENT OR
MISAPPROPRIATION OF ANY PATENTS, COPYRIGHTS, TRADE SECRETS OR OTHER
PROPRIETARY RIGHTS DURING OR AFTER THE TERM OF THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION INFRINGEMENT OR MISAPPROPRIATION CLAIMS ARISING FROM THE
OTHER PARTY'S BREACH OF THIS AGREEMENT.
19.4 Disclaimer of Warranties. NEITHER SUN NOR AOL MAKES ANY WARRANTIES TO
THE OTHER WITH RESPECT TO THE OPERATION OR PERFORMANCE OF ANY OF THE
SOFTWARE DEVELOPED OR LICENSED BY EITHER PARTY TO THE OTHER PURSUANT TO
THIS AGREEMENT, AND SUN AND AOL EACH HEREBY DISCLAIMS ALL SUCH WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
20.0 Miscellaneous Provisions
20.1 Notices. Any notice, consent, approval, request, authorization,
direction or other communication under this Agreement ("Notice") that is
required to be given in writing will be deemed to have been delivered and
given for all purposes (i) on the delivery date if delivered by confirmed
facsimile; (ii) on the delivery date if delivered personally to the party
to whom the same is directed; (iii) one business day after deposit with a
commercial overnight carrier, with written verification of receipt; or (iv)
five business days after the mailing date, whether or not actually
received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a
receipt is available. In the case of AOL, such notice will also be deemed
to have been delivered and given for all purposes on the delivery date if
delivered by electronic mail from an AOL.com email address via the U.S.
America Online brand service to screenname "[email protected]." Notices
shall be addressed as follows:
To Sun:
In the case of Sun, such notice will be
provided to both:
Chief Strategy Officer
Sun Microsystems, Inc.
901 San Antonio Road
MS CUP-01
Palo Alto, California 94033
And
Vice President and General Counsel
Sun Software and Technology
901 San Antonio Road
MS CUP-01
Palo Alto, California 94033
To AOL:
In the case of AOL, such notice will be
provided to both:
Senior Vice President for Business Affairs
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
And
Deputy General Counsel
American Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
20.2 Section 365(n) of Bankruptcy Code. All rights and licenses granted
under or pursuant to this Agreement by Sun to AOL or by AOL to Sun are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the
United States Bankruptcy Code, 11 U.S.C. Section 101, et seq. (the
"Bankruptcy Code"), licenses of rights to "intellectual property" as
defined under Section 101(56) of the Bankruptcy Code. The parties agree
that AOL and Sun, as licensees of such rights and licenses, shall retain
and may fully exercise all of their respective rights and elections under
the Bankruptcy Code; provided such licensee party abides by the terms of
this Agreement.
20.3 Due Diligence. In connection with the intended merger of AOL and
Netscape, AOL and Sun has each conducted certain due diligence with respect
to Netscape and its products, services, business and technology. At Sun's
request, AOL has made available to Sun certain information and analysis
learned or developed by AOL in the course of its due diligence. Neither Sun
nor AOL makes any representations or warranties to the other regarding
Netscape or any aspect of its business, products, services or technology,
and Sun and AOL each understands, acknowledges and agrees that it is
responsible for conducting whatever due diligence it may desire to conduct.
Neither AOL nor Sun makes any representations or warranties to the other
regarding the accuracy of any materials provided to either party by
Netscape or the accuracy of any analysis or conclusions which either party
may have made based on any such information provided by Netscape or the
accuracy of any such information, materials, analysis or conclusions which
AOL and Sun may have provided to the other party.
20.4 Employees. Each party shall be responsible for paying all salaries,
wages, employee benefits and associated expenses for which its own
employees are eligible under such party's employment policies, any legally
required benefits or insurance, any taxes or governmental charges payable
or subject to withholding in connection with the employment of such party,
and any expenses associated with such employees activities under this
Agreement. Each party shall have exclusive supervision and control with
respect to its own respective employees and shall have no right to
supervise, control, discipline, terminate or reassign any employees of the
other party. In the event that either party makes a reasonable and good
faith determination that an employee of the other party working on
Collaborative Development Activities or Collaborative Marketing and Sales
Activities lacks requisite skills or experience, does not work well with
other project team members, or is otherwise unsatisfactory, the parties
will consult with one another in good faith regarding whether such employee
should be replaced, provided that the final determination as to whether to
retain, reassign or terminate any employee shall be made solely by the
party employing such individual.
20.5 Non-Exclusivity. Sun and AOL agree except for any express obligations
of AOL and Sun as set forth in this Agreement, nothing in this Agreement is
intended or shall be construed to prohibit or restrict either AOL or Sun
from developing or acquiring products or services similar to or competitive
with products or services of the other party.
20.6 Waiver. The waiver by either party of a breach of or a default under
any provision of this Agreement, shall not be construed as a waiver of any
subsequent breach of the same or any other provision of the Agreement, nor
shall any delay or omission on the part of either party to exercise or
avail itself of any right or remedy that it has or may have hereunder
operate as a waiver of any right or remedy. Except as expressly provided
herein to the contrary, no amendment or modification of any provision of
this Agreement shall be effective unless in writing and signed by a duly
authorized signatory of Sun and AOL.
20.7 Costs and Expenses. Except as expressly provided herein to the
contrary, each party shall be responsible for its costs and expenses
incurred in connection with the negotiation and execution of this Agreement
and its performance hereunder.
20.8 No Partnership. No agency, partnership, joint venture, or employment
is created as a result of this Agreement and neither AOL nor AOL's agents
shall have any authority of any kind to bind Sun in any respect whatsoever,
nor shall Sun or Sun's agents have any authority of any kind to bind AOL.
20.9 Headings. The captions and section and paragraph headings used in this
Agreement are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement.
20.10 Attorneys' Fees. If any party to this Agreement brings an action
against the other party to enforce its rights under this Agreement, the
prevailing party shall be entitled to recover its costs and expenses,
including without limitation, attorneys' fees and costs incurred in
connection with such action, including any appeal of such action.
20.11 Severability. If the application of any provision or provisions of
this Agreement to any particular facts of circumstances shall be held to be
invalid or unenforceable by any court of competent jurisdiction, then: (i)
the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby, and (ii) such provision or provisions shall be reformed without
further action by the parties hereto and only to the extent necessary to
make such provision or provisions valid and enforceable when applied to
such particular facts and circumstances.
20.12 Entire Agreement. This Agreement, including the attachments hereto,
constitute the entire agreement between the parties concerning the subject
matter hereof and supersedes all proposals or prior agreements whether oral
or written, and all communications between the parties relating to the
subject matter of this Agreement and all past courses of dealing or
industry custom.
20.13 No Presumptions. No presumption shall arise in interpreting the
provisions of this Agreement by virtue of the role a party or its counsel
played in drafting this Agreement or any provision hereof.
20.14 Assignment and Sublicenses. This Agreement may not be assigned by
either party without the prior written consent of the other party, except
that subject to the provisions of Section 14.4 of this Agreement permitting
termination of this Agreement by either party in the event of an
acquisition or change of control of the other party during the term of this
Agreement: (a) either party shall have the right, without the other party's
consent, to assign this Agreement and its rights and obligations thereunder
to any successor of such party by way of merger or consolidation or the
acquisition of substantially all or a material portion of the business and
assets of the assigning party relating to this Agreement or the licenses
granted pursuant to the definitive Agreement (a "Successor"); and (b)
either party shall have the right, without the other party's consent, and
without limiting any of its other rights under the licenses, to sublicense
any and all licenses granted pursuant to this Agreement to any Successor.
These rights shall be retained provided that such Successor or sublicensee
shall expressly assume all of the obligations and liabilities of the
assigning or sublicensing party to the other party relating to such
definitive agreement or licenses.
20.15 Applicable Law. This Agreement shall be governed by the laws of the
State of California.
21.0 Definitions. As used in this Agreement, the following terms have the
indicated meanings:
21.1 AOL EC Service Opportunities are sales opportunities to sell to a
specific business opportunity within a commercial customer, including both
new commerce startup companies and major established companies, looking to
establish EC2 relationships with AOL, where the essence of the sale and
relationship with AOL is the provision of EC2 services (including, for
example, providing Netcenter services, Netcenter offerings and/or consumer
traffic) and the sale of the Product Suites is secondary to the
transaction.
21.2 AOL Distributed Communicator Client or AOL Distributed Communicator
Client shall have the meaning specified in Section 2.1.
21.3 AOL Service Components are software, services or linkages to AOL
Service Offerings, such as, without limitation,***, built-in software links
to AOL default home page, etc.
21.4 AOL Service Offerings means AOL service offerings providing customers
with content, electronic commerce, communication and other services, such
as, without limitation, service portions of AOL services such***, default
home page,***, remote dial-up access, AOL calendar, etc.
21.5 Associated Services means with respect to any software or hardware,
any support, maintenance, training, installation, and other professional
services associated with the applicable software or hardware and any
development and customization services associated with the applicable
software.
21.6 Client Software means the New Browser, the OEM Communicator Client,
the Third Party Communicator Client and the AOL Distributed Communicator
Client.
21.7 Closing Date means the date on which the intended merger of AOL and
Odyssey closes in accordance with the Agreement and Plan of Merger between
AOL and Odyssey.
21.8 Collaborative Development Activity means all activities contemplated
under this Agreement to be conducted under Collaborative Development Work
Plans relating to the development of certain software packages comprising
those components of the Product Suites that are to be developed
collaboratively by the parties.
21.9 Collaborative Development Work Plans shall have the meaning specified
in Section 5.3.5.
21.10 Collaborative Marketing and Sales Activity means all activities
contemplated under this Agreement related to collaborative marketing and
sales of the Product Suites, including all activities under the Marketing
and Sales Plans.
21.11 Collaborative Software means all software developed through
Collaborative Development Activity, including without limitation the OEM
Communicator Client, the Third Party Communicator Client, the New Browser
and the Network Application and Server Software. Collaborative Software
does not include the Netcenter, the AOL Distributed Communicator Client,
the AOL Service Components, the AOL Service Offerings, or the Sun Systems
Platform. Collaborative Software does not include the Existing Netscape
Software except to the extent that such Existing Netscape Software is
modified or enhanced through Collaborative Development Activity to create a
derivative work based on such Existing Netscape Software.
21.12 Designated Collaborative Software means the Collaborative Software
other than the Third Party Communicator Client.
21.13 Designated Products shall have the meaning specified in Section
14.7.1.
21.14 Deputy Lead Executives for collaborative development activity shall
have the meaning specified in Section 5.3.
21.15 Deputy Lead Executive for collaborative marketing and sales activity
shall have the meaning specified in Section 5.4.
21.16 EC2shall have the meaning specified in Section 1.0.
21.17 Executive Representative shall have the meaning specified in Section
5.1.
21.18 Existing Netscape Software means all Netscape client and server
software (including without limitation development tools, tests and other
development components) in existence as of the Closing Date, and any
maintenance upgrades and new releases of such software, if any, which were
already in progress at Netscape, provided such upgrades or releases are
completed and either scheduled to be commercially released by AOL or
actually released by AOL within a period of three (3) months following the
Closing Date. Existing Netscape Software does not include any software
developed pursuant to Collaborative Development Activity contemplated under
this Agreement and does not include the Third Party Communicator Client or
AOL Distributed Communicator Client.
21.19 Existing Netscape Software Upgrades means all updates, modifications,
enhancements and new releases of the Existing Netscape Software, if any,
which AOL elects to develop based on the Existing Netscape Software, which
AOL develops outside of Collaborative Development Activities and that
therefore do not constitute Collaborative Software pursuant to this
Agreement.
21.20 Gross Margin means gross revenues booked by a party in connection
with the sale and or licensing of software and/or Associated Services less
(a) such party's Cost of Goods associated with such software and/or
Associated Services and (b) sales commissions paid by such party in
connection with the sale or licensing of such software and/or Associated
Services. For purposes of this definition, "Cost of Goods" means, with
respect to software, costs of goods calculated in accordance with Generally
Accepted Accounting Principles. For purposes of this definition, "Cost of
Goods" means, with respect to Associated Services, all personnel and
associated costs of providing such services, calculated in accordance with
generally accepted accounting principles.
21.21 Java Platform means the Java Virtual Machine and, with respect to any
particular level or implementation of Java technology, such as, by way of
example, the Java Development Kit or Personal Java, those Java classes
required in the Sun specification for such level or implementation of the
Java Platform technology.
21.22 JRE shall have the meaning specified in Section 3.6.
21.23 Lead Executives for collaborative development shall have the meaning
specified in Section 5.3.
21.24 Lead Executive for collaborative marketing and sales shall have the
meaning specified in Section 5.4.
21.25 Marketing and Sales Plan shall have the meaning specified in Section
5.4.1.
21.26 MC shall have the meaning specified in Section 5.3.1.
21.27 Minimum Commitment shall have the meaning specified in Section 4.5.
21.28 New Browser shall have the meaning specified in Section 2.4.
21.29 Netcenter means the web site(s) operated and branded by Netscape as
it may change from time to time, but which currently includes web site
hosting, search engine capabilities, free email, and a variety of content
channels covering sports, finance, entertainment and other topics and
service offerings.
21.30 OEM Communicator Client shall have the meaning specified in Section
2.3.
21.31 Product Suites means suites of products and services assembled and
marketed pursuant to the Marketing and Sales Plan, which may include the
Third Party Communicator Client, the OEM Communicator Client, the New
Browser, the Network Application and Server Software, and any other
software assembled and marketed pursuant to the Marketing and Sales Plan,
as well as communication services, directory services, commerce servers,
application servers, electronic mail, electronic collaboration software,
web servers, proxy servers and other related software.
21.32 Release means, with respect to any software product, the first
commercially released version of such product and any subsequent
commercially released versions of such product incorporating modifications,
updates, enhancements, corrections, patches and/or improvements.
21.33 SDK shall have the meaning specified in Section 2.4.
21.34 SE shall have the meaning specified in Section 5.4.2.
21.35 Software License means a non-exclusive, irrevocable, perpetual,
worldwide, royalty-free license, which (except as otherwise specified in
this Agreement) survives termination of this Agreement, to use, modify,
publish, reproduce, distribute, transmit, display and perform, through any
and all methods and technologies now known or hereafter invented, in source
or binary form, in whole or in part, alone or with other software or
technology including the right to sublicense such rights through multiple
tiers of distribution and being subject only to the provisions specifically
contained in this Agreement on license fees during the term of this
Agreement and permitted fields of use during and after the term of this
Agreement, as applicable.
21.36 Systems Platform means those platforms comprising software and
hardware on which the Product Suites operate, whether Sun's or a third
party's and shall include, as applicable, Microsoft windows NT, HP-UX, IBM
AIX and Linux in addition to Sun's software and hardware.
21.37 Third Party Communicator Client shall have the meaning specified in
Section 2.2.
21.38 TLDA means the Technology License and Distribution Agreement entered
into between Sun and AOL concurrently herewith.
21.39 Sun Systems Platform means the Sun software and Sun hardware on which
the Product Suites operate.
IN WITNESS WHEREOF, the parties have executed this Strategic Development and
Marketing Agreement this 23rd day of November, 1998.
AMERICA ONLINE, INC.
By:/s/David M. Colburn
David M. Colburn
Senior Vice President, Business Affairs
SUN MICROSYSTEMS, INC.
By:/s/William J. Raduchel
William J. Raduchel
Chief Strategy Officer
EXHIBIT 10.2
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
ASTERISKS (*) DENOTE SUCH OMISSIONS
Sun
microsystems
SUN MICROSYSTEMS, INC.
SERVICE PROVIDER AGREEMENT
This "AGREEMENT" is effective on November 1, 1998, by and between Sun
Microsystems, Inc., ("Sun"), having a place of business at 901 San Antonio Road,
Palo Alto, California 94303 and America Online, Inc. ("AOL") having a place of
business at 22000 AOL Way, Dulles, Virginia 20166. The General Commercial Terms
that govern the relationship between Sun and AOL follow in Section 1. Generally
applicable legal terms are contained in Section 2.
1.0 GENERAL COMMERCIAL TERMS
1.1 DEFINITIONS
(A) "EQUIPMENT" means the hardware components (may also be referred
to as "hardware") of Products and includes the media on which
Software is loaded.
(B) "Sun Products" or "Product(s)" means the Sun computer hardware
products sold to AOL and the software products licensed to AOL
under this Agreement.
(C) "SOFTWARE" means the software program components of Products in
machine-readable form and related documentation.
(D) "AOL" includes all entities in which AOL directly or indirectly
owns more than 50% of the voting securities together with all
other entities of which AOL directly or indirectly owns at least
19.9% of the voting securities and which operate an on-line
service utilizing an AOL-owned brand; provided that any such
entities agree in writing to be bound by the terms of this
Agreement.
(E) "AOL Services" includes integrated, end-to-end electronic
commerce and extended communities and communication services.
1.2 SCOPE. This Agreement governs AOL's authorization to purchase
certain Sun Products directly from Sun for internal use by AOL.
Authorized AOL buying locations are set out in Exhibit A;
provided that AOL may add buying locations upon written notice to
Sun. AOL may not resell Sun Products pursuant to this Agreement.
AOL may apply to become a Sun Authorized Value Added Reseller and
Sun will in good faith negotiate terms for an Agreement on a most
favored reseller basis. The parties Agreement entitled "Strategic
Alliance and End User Discount Agreement" dated September 24,
1997 is hereby immediately terminated; however, this termination
shall not affect any Sun Enterprise Services obligations set
forth therein, all of which will survive in accordance with the
terms set forth therein.
1.3 PURCHASE COMMITMENTS
(A) AOL commits to purchase Sun Products so that "net revenue" to Sun
(applicable list price of Sun Products minus the discount
provided herein) is as follows:
For November 1, 1998 until June 30, 2000: $100 Million
(the "First Period");
July 1, 2000 until June 30, 2001: $100 Million
(the "Second Period"); and,
July 1, 2001 until June 30, 2002: $100 Million
(the "Third Period").
(B) If AOL fails to purchase the amount of the commitments for any
Period set forth in Section 1.3(A), AOL shall pay Sun "Liquidated
Damages," as Sun's sole and exclusive remedy for AOL's failure to
meet its commitments under Section 1.3(A) as follows:
1) For the First Period, the Liquidated Damages shall
be forty percent (40%) of the shortfall of the
amounts committed in the First Period under Section
1.3(A);
2) For the Second and Third Periods, the Liquidated
Damages shall be ten percent (10%) of the first 20
Million Dollars ($20,000,000) of the shortfall of the
amounts committed in the Second and Third Periods
under Section 1.3(A) and forty percent (40%) of any
remaining portion of the shortfall.
For any Sun Product purchases in any Period in excess of the
minimum amount required for such Period, such excess can be
carried forward and applied to the minimums required in the next
Period. At AOL's request, AOL may apply any Liquidated Damages
assessed and paid as a credit against fifty percent (50%) of any
amounts purchased in excess of the commitments required under any
remaining Period under Section 1.3(A). If this Agreement is
extended pursuant to Section 1.15(A), then AOL purchases of Sun
Products in excess of the commitments of Period Three may be
applied against the Sun Product purchase commitments of all such
extensions. Sun Product purchased by AOL from Sun authorized
resellers will be applied against the minimum commitments for
each or any Period provided AOL submits written notification to
Sun of such purchases and Sun confirms the purchases. Purchases
made by AOL in November 1998 are governed by the terms of this
Agreement.
1.4 ACCOUNT PLAN. AOL will submit Account Plans to Sun. The initial
Account Plan will be submitted in February 1999; Account Plans
shall thereafter be submitted annually, commencing July of 1999.
The initial Account Plan will cover the remainder of the year
ending June 1999. Each further Account Plan will cover the then
applicable Commitment Period identified in Section 1.3 or any
extension period pursuant to Section 1.15. The Account Plan shall
set forth procurements planned for the applicable Period. The
Account Plan will state AOL's understandings and intentions, but
will have no other binding effect.
1.5 SUN DEVELOPMENT FUND.
Sun agrees to invest *** in the development of Sun's systems and
Java platforms on features and enhancements (including
client-side) in each of the following periods:
(i) from November 1, 1998 until December 31, 1999;
(ii) calendar year 2000, and
(iii) calendar year 2001
Sun will expend these funds pursuant to the "Joint Development
Agreement" being entered by the parties concurrently herewith. In
the event the Joint Development Agreement between the parties is
terminated, AOL will be entitled to a credit equal to thirty
percent (30%) of any of the unused funds specified herein which
credit may be applied against purchases of Sun Products.
1.6 SALES AND SERVICE SUPPORT.
In consideration of the purchase commitments as identified in
Section 1.3, Sun commits to provide service maintenance pricing
as follows:
(A) For Products Purchased and Installed in the continental United
States. For the first *** of aggregate purchases of Sun Products
purchased by AOL under the Agreement for its internal use (the
"Initial Installed Base") the maintenance fee will be *** per
annum on Products. The maintenance fee will only increase for
additional purchases as follows:
(i) for AOL purchases that result in an installed base of up
to *** systems beyond the Initial Installed Base (for
AOL's internal use), there will be no additional
maintenance fee;
(ii) when AOL has an installed base of more than *** systems
beyond the Initial Installed Base, the maintenance fee
will be increased by the rate of *** per annum.
(iii) the maintenance fee will be thereafter be increased by
the additional rate of *** per annum for each additional
*** systems in the Installed Base (i.e., at *** systems,
etc.) beyond the Initial Installed Base. For each and
every *** per annum increase in the maintenance fee, Sun
will place one additional full-time, dedicated support
person on-site at AOL and shall increase the on-site
spares to the appropriate levels. For purposes hereof,
the "Installed Base" hereunder will mean systems
purchased and installed hereunder, less systems taken out
of service by AOL.
(B) For Products Purchased and Installed outside the continental
United States. For Sun Products purchased and installed outside
of the continental United States, AOL, at its option, may receive
maintenance and Service Support for such Products either by:
(1) Entering a maintenance contract with Sun, at the Platinum
Level (as defined herein) where available, and paying Sun
*** of the applicable list price of the Sun Products; or
(2) Agreeing to pay Sun for a full-time, dedicated support
person on-site at AOL at a rate of *** per year plus the
local published uplift. AOL will provide Sun with prior
notice as to each of the locations where it will require
service on Sun Products.
(C) Sun's obligations to provide sales, services and maintenance
support hereunder shall terminate upon the termination or
expiration of this Agreement, whichever is sooner. However, if
AOL desires to Continue service on Sun Product purchased
hereunder upon the earlier of the termination or expiration of
this Agreement, then Sun will continue to provide support on the
terms and conditions hereof, including fees, subject to
modifications of fees to reflect cost increases to Sun of
applicable labor and parts, for a period of up to four (4) years
following termination.
(D) The maintenance provided hereunder will be Sun's Platinum level
of support (as the terms of that offering, which are not
inconsistent with the terms of this section, are set forth in the
offering attachment hereto). In furtherance of this commitment,
Sun shall deploy its Mission Critical Readiness Team (MCRT); such
support includes Platinum level service plus AOL-dedicated
personnel in Sun's Customer Care Center, 24 x 7 x 365 escalations
and on-site spares. At least 8 dedicated support personnel will
initially be provided, some of which will be on-site at AOL (as
mutually determined by AOL and Sun), with appropriate increases
as provided herein and by Sun's highest level policies.
(E) Upon AOL's reasonable request, Sun agrees to replace Sun system
parts with AOL-owned third-party "Sun Certified Parts" and
further install such "Sun Certified Parts" in Sun systems
purchased hereunder and, within a reasonable proximity of the
original system, reinstall the removed Sun parts in other Sun
systems purchased by AOL hereunder. In the event that AOL-owned
"Sun Certified Parts" do not resolve a specific identified repair
issue, then AOL agrees to purchase from Sun the appropriate
parts. Installation will be included as part of all sales, as
part of the maintenance fee.
(F) AOL may use SPDF hands (as provided for in section 1.9 below)
toward payment on Sun Enterprise Services training classes and
training services. If AOL cannot or chooses not to so utilize
SPDF, or has exhausted all SPDF, Sun grants AOL a twenty-five
percent (25%) discount off the Sun Enterprise Services Price List
for published training and educational offerings. The discount
set forth above is in addition to free classes (i.e.. product
release and orientation classes) offered by Sun which will be
made available to AOL.
1.7 CORPORATE EXECUTIVE MEETINGS. So that Sun may provide the systems
and products and services required by AOL, the parties agree to
meet as often as needed by mutual consent, to discuss and
recommend methodologies and processes (including any application
re-engineering, tuning requirements, life-cycle costs, and target
cost-performance goals). In addition, AOL shall maintain and
provide to Sun a standing requirements list, in priority order,
of features requested by AOL. This list, with status, shall be
reviewed at each meeting.
1.8 PRICES AND DISCOUNTS.
(A) Prices and license fees for Products will be based on the
appropriate Sun Computer Systems Division ("CSD") Worldwide Price
List consisting of four geographic price lists that will be used
for all purchases of Sun Products. The appropriate Price List
will be determined by the "Country of Final Destination." Each
Country of Final Destination is covered by one of these price
lists, as specified in the Country Price List Table incorporated
in the Worldwide Price List Book.
(B) AOL's net price for Products or spare parts purchased and
licensed under this Agreement shall be the Sun applicable
Worldwide List Price at the time AOL's order is accepted, less a
discount of *** on Category A Products, *** on Category B
Products and *** on Category H Products.
(C) AOL is authorized to purchase "Development Equipment" consisting
of Sun Products priced pursuant to the applicable Worldwide Price
List at the time the order is accepted less a discount of *** on
Category A Products, *** on Category B Products and *** on
Category H Products. AOL is required to inform Sun in writing as
to the specific development project for which the Development
Equipment is to be used pursuant to procedures to be agreed upon
by the parties.
(D) Discounts provided herein will not apply to those Products which
are listed as "non-discountable" in the appropriate price list,
nor may they be applied to exceed any listed maximum discount.
Such discounts will apply towards purchases of discountable spare
parts, but such discounts will not apply to purchases of
training, installation (except where included in the purchase
price of the Products), consulting, repairs, maintenance work or
similar services and some code license fees. Price lists are
subject to change at any time.
(E) *** approximately 21 lines omitted ***
(F) Sun agrees to grant AOL most favored customer status, such that
no other commercial customer providing services similar to AOL
Services (excluding government, education, non-profit customers
and resellers to these customers) shall receive better pricing,
terms and conditions on an overall basis taking into account all
benefits, terms and conditions on an overall basis accruing to
AOL under this Agreement.
(G) In the event that Sun reduces its list price on any Sun Product,
such reduced list price will be utilized for calculating prices
on all of such Sun Products purchased by AOL within sixty (60)
days prior to such price reduction. AOL will receive a credit for
the price reduction which may be utilized for purchase of Sun
Products including for payments of invoices of any affected
product.
1.9 SERVICE PROVIDER DEVELOPMENT FUND ("SPDF") This section governs
AOL accrual, use, and reimbursement of SPDF.
(A) AOL will receive SPDF at a rate equal to two percent (2%) of its
net direct purchase of Sun Products.
(B) SPDF shall be utilized by AOL as follows:
50% of SPDF on SMI technology, training, services
50% of SPDF on Marketing Initiatives. SPDF may be
utilized for all marketing undertaken by AOL under
the Strategic Development and Marketing Agreement
being entered into by the parties concurrently
herewith.
(C) The policies and procedures governing the AOL's reporting, use
and reimbursement of SPDF are set forth on the web site (URL to
be determined).
(D) AOL agrees to pay all such taxes as required.
(E) All claims for reimbursement must be received by the designated
co-op agency within 6 months from the accrual date. Any funds not
claimed during this time period will be forfeited to Sun. AOL
shall be advised in writing of unused funds at least thirty (30)
days prior to the forfeiture due.
(F) Sun shall not be responsible in any way for any acts, errors or
omissions of the designated co-op agency.
1.10 SALES INFLUENCE PROGRAM. AOL shall receive influence credit
pursuant to the Sun Sales Influence Agreement attached hereto
when:
(i) AOL actually influences a sale of Sun Products to
customers who have not purchased Sun Products in the
twelve (12) months preceding the sale, and
(ii) as provided in Section 12 thereof.
1.11 PAYMENT TERMS. Prices and fees for Sun Products and services are
exclusive of all shipping and insurance charges, and do not
include sales tax or any other tax based upon the value of
Products, services and/or Software. AOL is responsible for
payment of all such charges and taxes. AOL agrees to pay any fees
within 30 days from the date of invoice or shipment, whichever is
later. Sun reserves the right in its reasonable commercial
judgment to place AOL on credit hold, in which event Sun will
promptly inform AOL and may, a) with respect to Product
purchases, delay or reschedule AOL orders, and b) with respect to
Services, discontinue the delivery of Services upon 30 days'
notice to AOL if payment has not been received. Interest will
accrue from the date on which payment is due at the lesser of 15%
per annum or the maximum rate permitted by applicable law. AOL
will not be required to pay the disputed portion of any invoice,
pending resolution of that dispute, provided that Notice of the
dispute has been forwarded to Sun in writing within 15 days of
the date of the invoice.
1.12 ORDERS AND DELIVERY. AOL may submit written Product orders to Sun
at any time. However, acceptance of AOL's Product orders will
only be effective upon issuance of Sun's order acknowledgment
form. Sun will use reasonable efforts to meet the delivery
date(s) identified on the acknowledgment form. If AOL places a
purchase order with Sun and Sun cannot deliver Sun Products
within the greater of the Sun published lead time or eight (8)
weeks, and AOL cancels the order, reorders non-Sun computer
equipment of comparable functionality to the Sun Products ordered
and provides Sun with documentation evidencing the alternative
purchase, then Sun will credit against the applicable yearly
commitment identified in Section 1.3, the net amount of the
cancelled order. Unless otherwise specified an AOL's order, Sun
may not make partial deliveries or invoice each partial delivery.
Such deliveries will not relieve AOL of its obligation to accept
other parts of its order. Title to Equipment, and risk of loss of
or damage to Products, will pass to AOL upon shipment by Sun, Ex
Works Sun's product delivery center. For purposes of AOL's
payment obligations hereunder, products will be deemed accepted
upon receipt by AOL. Sun's product offerings are continually
evolving. Accordingly, Sun reserves the right to make product
substitutions and modifications that do not cause a material
adverse effect in product performance.
1.13 RESCHEDULING, RECONFIGURATION, AND CANCELLATION CHARGES. AOL may
reschedule, reconfigure, refuse or cancel the whole or part of
any Product order once, at no charge, provided the written
request to do so is received by Sun at least sixty (60) days
prior to the scheduled delivery date and, in the case of
rescheduling or reconfiguration, the requested delivery date is
within sixty (60) days of the original delivery date. If an order
for a Product is rescheduled, reconfigured, refused, or cancelled
at AOL's request on any other basis, or if Sun reschedules the
Product order because AOL fails to meet an obligation under the
Agreement, then Sun may, upon written notice to AOL and
reasonable opportunity for AOL to cure, charge AOL a restocking
fee equal to ten percent (10%) of the applicable list price of
the rescheduled, refused, reconfigured or cancelled portion of
the order.
1.14 PRODUCT UPGRADES. The list price of Product upgrades is based
upon the return to Sun of specified parts from system(s) being
upgraded, as identified in the applicable End User Price List. If
Sun does not receive the specified parts within forty-five (45)
days of upgrade delivery to AOL, Sun will invoice AOL for the
non-returned parts. AOL agrees to pay Sun for such non-returned
parts the difference between the list price of the purchased
upgrade(s) and the list price of the upgraded system(s) if
purchased new.
1.15 TERM AND TERMINATION
(A) Term.
This Agreement shall commence an November 1, 1998 and shall
remain in force until and through June 30, 2002. Upon written
request from AOL, this Agreement will be extended for up to three
(3) years, in separate one year increments, if AOL commits to
purchase 100 Million in Sun Products during each year this
Agreement is extended.
(B) Termination.
(1) This Agreement may be terminated by either party, by notice,
if the other party fails to cure any material remediable breach
of this Agreement within ninety (90) days of receipt of Notice of
such breach.
(2) If Sun terminates the "Strategic Development and Marketing
Agreement" as a result of the change of control of AOL as
provided in the Strategic Development and Marketing Agreement,
then Sun may immediately terminate this Agreement upon Notice.
(3) If AOL terminates the "Strategic Development and Marketing
Agreement" as a result of the change of control of Sun as
provided in the Strategic Development and Marketing Agreement,
then AOL may immediately terminate this Agreement upon Notice.
(C) Effect of Termination.
(1) Upon any termination or expiration of this Agreement, AOL
shall no longer be authorized to purchase Sun Products. In the
event of termination for cause, Sun will not be obligated to
accept any AOL orders that have not been previously accepted.
(2) Rights and obligations under this Agreement which by their
nature should survive, will remain in effect after termination or
expiration hereof. Neither party shall be liable to the other for
damages of any kind, on account of the termination or expiration
of this Agreement in accordance with its terms and conditions.
(D) Netscape Closing.
In the event the currently contemplated merger between AOL and
Netscape does not close, then:
(1) Section 1.3(B) shall be amended such that AOL's commitments
for the First, Second and Third Periods shall be 30 Million
Dollars ($30,000,000) for each Period so that the total
commitments over the three Periods shall be 90 Million Dollars
($90,000,000). In such event, Liquidated Damages for each Period
shall in all instances be based upon forty percent (40%) of any
shortfall below the revised commitment provided in this Section
1.15(D)(1). Section 12 of the Sales Referral Agreement attached
hereto will be nullified.
(2) In the event that both the contemplated merger between AOL
and Netscape does not close and the Joint Development Agreement
is terminated, then AOL will have the option to eliminate any
further Liquidated Damages for failure to meet the revised
commitments under Section 1.15(D)(1) and AOL will be entitled to
the credit for the unused finds specified in Section 1.5.
(3) In the event that AOL exercises the option set forth in
Section 1.15(D)(2), the provisions of Section 1.8(F) will be
nullified and the provisions of Section 1.8 will be renegotiated.
1.16 BINARY CODE LICENSE
(A) Grant and Restrictions: As set forth in Exhibit B (Binary Code
License), AOL is granted a non-exclusive and non-transferable
license ("License") for the use of Software provided with Product
in machine-readable form and accompanying documentation, by the
number of users for which the applicable fee has been paid.
Transfer of the License shall be pursuant to Exhibit C. Software
is copyrighted and title to all copies is retained by Sun, its
licensors or both. AOL will not make copies of Software or
accompanying documentation, other than a reasonable number of
copies of Software for archival purposes and, if applicable, AOL
may, for its internal use only, print the number of copies of
on-line documentation for which the applicable fee has been paid,
in which event all proprietary rights notices on Software will be
reproduced and applied. AOL will not modify, decompile,
disassemble, decrypt, extract or otherwise reverse engineer
Software.
(B) License to Develop: In the event that AOL desires to develop
software programs which incorporate portions of Software
("Developed Programs"), the following provisions apply, to the
extent applicable: Developed Programs are to have an application
programming interface that is the same as that of Software; fonts
within such Software will remain associated with their toolkit or
server; Developed Programs may be used and distributed, but only
on computer equipment licensed to utilize Solaris operating
system software, unless an additional Developer's License
Agreement has been executed by Sun and AOL; AOL is not licensed
to develop printing applications or print, unless AOL has secured
a valid printing license; incorporation of portions of Motif(R)
in Developed Programs may require reporting of copies of
Developed Programs to Sun; and AOL agrees to indemnify, hold
harmless and defend Sun from and against any losses, expenses,
claims or suits, including attorney's fees, which arise or result
from distribution or use of Developed Programs, to the extent
that such claims or suits arise from the development performed by
AOL.
(C) Confidential Information: Software is confidential and
proprietary information of Sun, its licensors, or both. AOL
agrees to take reasonable steps to protect Software from
unauthorized disclosure or use.
(D) U.S. Government Restrictions: If AOL is acquiring Software or
accompanying documentation on behalf of the U.S. Government, it
will be subject to "Restricted Rights", as that term is defined
in the Federal Acquisition Regulations ("FARs") in paragraph
52.227-19(c)(2), or its equivalent paragraph in the DOD
Supplement to the FARs or its successor provisions.
(E) Termination: The License is effective until terminated. AOL may
terminate the License at any time by destroying Software and
accompanying documentation and all copies thereof. The License
will terminate immediately upon Notice from Sun if AOL fails to
comply with the terms of this License Section or the Confidential
Information obligations set forth above. Upon termination, AOL
will destroy all copies of Software and accompanying
documentation.
1.17 YEAR 2000 WARRANTY
(A) Sun warrants that specified versions of Products identified on
Sun's external Web site (url: www.sun.com/y2000/cpl.html) as
being Year 2000 compliant ("Listed Products") will not produce
errors in the processing of date data related to the year change
from December 31, 1999 to January 1, 2000. Date representation,
including leap years, will be accurate when Listed Products are
used in accordance with their accompanying documentation,
provided that all hardware and software products used in
combination with Listed Products properly exchange date data with
them.
(B) Specified versions of Products identified on Sun's eternal Web
site as not yet compliant, but which have a compliance date
scheduled, will become Listed Products when a remedial patch,
update or subsequent release is issued, but in no event later
than June 30, 1999. Other Products are not covered by these
warranties.
(C) AOL's sole and exclusive remedy for Sun's breach of these
warranties will be for Sun: (i) to use commercially reasonable
efforts to provide AOL promptly with equivalent Year 2000
compliant products; or (ii) if (i) is commercially unreasonable,
to refund to AOL its net book value for non-compliant Products.
(D) UNLESS SPECIFIED IN THIS SECTION, ALL EXPRESS OR IMPLIED
CONDITIONS, REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED
WARRANTY OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT, ARE DISCLAIMED, EXCEPT TO THE EXTENT THAT SUCH
DISCLAIMERS ARE HELD TO BE LEGALLY INVALID.
SECTION 2: GENERAL TERMS
2.1 AOL's OBLIGATIONS
(A) Indemnity and Insurance. Each Party will defend, indemnify, save
and hold harmless the other Party and the officers, directors,
agents, Affiliates, distributors, franchisees and employees of
such other Party from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorney's
fees ("Liabilities resulting from the indemnifying Party's breach
of any duty, representation, warranty of this Agreement, except
where such Liabilities result from the gross negligence or
knowing and willful misconduct of such other Party. Each Party
agrees to (i) promptly notify the other Party in writing of any
indemnifiable claim and give the other Party the opportunity to
defend or negotiate a settlement of any such claim at such other
Party's expense, and (ii) cooperate fully with the other party,
at that other Party's expense, in defending or settling such
claim.
(B) Fair Representation. AOL shall display, demonstrate and represent
Sun Products fairly and shall make no representations concerning
Sun or its Sun Products which are false, misleading, or
inconsistent with those representations set forth in promotional
materials, literature and manuals published and supplied by Sun.
AOL shall comply with all applicable laws and regulations in
performing under this Agreement.
2.2 LIMITATION OF LIABILITY. Except for obligations under the Section
entitled "Aircraft Product and Nuclear Applications," any
applicable software license, and any damages caused by gross
negligence, and to the extent not prohibited by applicable law:
(A) Each party's aggregate liability to the other for claims relating
to this Agreement, whether for breach or in tort, shall be
limited to the amount paid by AOL for Product which is the
subject matter of the claims.
(B) Neither party be liable for any indirect, punitive, special,
incidental or consequential damages in connection with or arising
out of this Agreement (including loss of business, revenue,
profits, use, data, or other economic advantage), however it
arises, whether for breach or in tort, even if that party has
been previously advised of the possibility of such damage.
(C) If a court concludes or the parties agree that an exclusive
remedy provided for in this Agreement fails of its essential
purpose, then Sun will have no liability for damages for the
breach or nonperformance of the Section(s) covered by the
exclusive remedy.
2.3 PRODUCT WARRANTY. Product warranties may vary depending on the
type of Sun Products purchased. Applicable terms and conditions
are as set out in the then current Sun applicable End Price List.
Software provided with Product is warranted to conform to
published specifications for a period of ninety (90) days from
the date of delivery. Sun does not warrant that; (i) operation of
any such Software will be uninterrupted or error free; or (ii)
functions contained in such Software will operate in combinations
which may be selected for use by the licensee or meet the
licensee's requirements. These warranties extend only to AOL as
an original purchaser. Sun reserves the right to change these
warranties at any time upon notice and without liability to AOL
or third parties.
(A) Limitation of Liabilities under Warranty: AOL's exclusive remedy
and Sun's entire liability under these warranties will be: (i)
with respect to Equipment, repair or at Sun's option,
replacement; and (ii) with respect to Software, using reasonable
efforts to correct such Software as soon as practicable after AOL
has notified Sun of such Software's nonconformance. If such
repair, replacement or correction is not reasonably achievable,
Sun will refund the purchase price/license fee.
(B) No Warranty: No warranty will apply to: (i) any and all Software
customization, such Software is provided "AS IS", and "WITH ALL
FAULTS"; or (ii) any Product that is modified without Sun's
written consent or which has been misused, altered, repaired or
used with Equipment or software not supplied or expressly
approved by Sun.
2.4 NO OTHER WARRANTIES. UNLESS SPECIFIED IN THIS AGREEMENT, ALL
EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT, ARE DISCLAIMED, EXCEPT TO
THE EXTENT THAT SUCH DISCLAIMERS ARE HELD TO BE LEGALLY INVALID.
2.5 CONFIDENTIAL INFORMATION. If Sun desires that information
provided to AOL under this Agreement be held in confidence, Sun
will identify the information as confidential or proprietary. AOL
may not disclose Sun's confidential or proprietary information
and may use it only for purposes specifically contemplated in
this Agreement. Sun will treat tangible business and financial
information, including but not limited to, any technical
operation, membership or capacity information, of AOL that has
been previously identified as confidential, with the same degree
of care as it does its own similar information. If either party
is regarded by law to disclose or produce confidential
information to a third party, then the producing/disclosing party
shall (i) notify the other party in a manner to allow the other
party to seek appropriate protections from or conditions upon the
required disclosure, and (ii) take other reasonable steps to
secure confidential status of the confidential information. The
foregoing obligations do not apply to information which: (i) is
or becomes known by recipient without an obligation to maintain
its confidentiality; (ii) is or becomes generally known to the
public through no act or omission of recipient, or (iii) is
independently developed by recipient without use of confidential
or proprietary information. This Section will not affect any
other confidential disclosure agreement between the parties.
2.6 IMPORT AND EXPORT LAWS. All Products and technical data delivered
under this Agreement are subject to U.S. export control laws and
may be subject to export or import regulations in other
countries. AOL agrees to comply strictly with all such laws and
regulations and acknowledges that it has the responsibility to
obtain such licenses to export, re-export or import as may be
required after delivery to AOL. AOL agrees that it will not
export Products outside the United States for purposes of resale
unless AOL has been accepted into Sun's Passport Program and has
executed a Passport Exhibit to this Agreement. AOL recognizes
that under the Passport Program, the prices it pays may be
different from those stated in this Agreement, and that purchases
made outside the U.S. will be subject to local terms and
condition.
2.7 AIRCRAFT PRODUCT AND NUCLEAR APPLICATIONS. Products are not
designed or intended for use in on-line control of aircraft, air
traffic, aircraft navigation or aircraft communications; or in
the design, construction, operation or maintenance of any nuclear
facility. Sun disclaims any express or implied warranty of
fitness for such uses. AOL represents and warrants that it will
not use or resell the Sun Products for such purposes, and that it
will use its best efforts to ensure that its customers and
end-users of the Sun Products are provided with a copy of the
foregoing notice.
2.8 TRADEMARKS LOGOS AND PRODUCT DESIGNS
"Sun Trademarks" means all names, marks, logos, designs, trade
dress and other brand designations used by Sun in connection with
Products. AOL may refer to Products by the associated Sun
Trademarks, provided that such reference is not misleading and
complies with the then current Sun Trademark and Logo Policies.
AOL shall not remove, alter or add to any Sun Trademarks, nor
shall it co-logo Product. AOL is granted no right, title or
license to, or interest in, any Sun Trademarks. AOL acknowledges
Sun's rights in Sun Trademarks and agrees that any use of Sun
Trademarks by AOL shall inure to the sole benefit of Sun. AOL
agrees not to (i) challenge Sun's ownership or use of, (ii)
register, or (iii) infringe any Sun Trademarks, nor shall AOL
incorporate any Sun Trademarks into AOL's trademarks, service
marks, company names, internet addresses, domain names, or any
other similar designations. If AOL acquires any rights in any Sun
Trademarks by operation of law or otherwise, it will immediately
at no expense to Sun assign such rights to Sun along with any
associated goodwill, applications, and/or registrations.
2.9 ADDITIONAL GENERAL TERMS
(A) Dispute Resolution. Any action related to this Agreement will be
governed by California law, excluding choice of law rules.
(B) Relationship of the Parties. This Agreement is not intended to
create a relationship such as a partnership, franchise, joint
venture, agency or employment relationship. Neither party may act
in a manner which expresses or implies a relationship other than
that of independent contractor, nor bind the other party.
(C) Assignment. Neither party may assign or otherwise transfer any of
its rights or obligations under this Agreement, without the prior
written consent of the other party, except that Sun may assign
its right to payment and may assign this Agreement to an
affiliated company.
(D) Waiver or Delay. Any express waiver or failure to exercise
promptly any right under this Agreement will not create a
continuing waiver or any expectation of non-enforcement.
(E) Force Majeure. A party is not liable under this Agreement for
non-performance caused by Force Majeure events or conditions
beyond that party's control if the party makes reasonable efforts
to perform. This provision does not relieve AOL of its obligation
to make payments then owing.
(F) Notices. All written Notices required by this Agreement must be
delivered in person or by means evidenced by a delivery receipt
and will be effective upon receipt.
(G) Execution. This Agreement shall become binding only after it has
been signed by an authorized officer of AOL and an authorized
officer of Sun.
(H) Entire Agreement.
(i) This Agreement is the parties' entire agreement relating
to subject matter. It supersedes all prior or
contemporaneous oral or written communications,
proposals, conditions, representations and warranties and
prevails over any conflicting or additional terms of any
quote, order, acknowledgment, or other communication
between the parties relating to its subject matter during
the term of this Agreement.
(ii) No modification to this Agreement will be binding unless
in writing and signed by an authorized representative of
each party.
(I) Point of Contact. Both parties agree to appoint and maintain a
single person to serve as the point of contact for all day to day
communications regarding the performance and implementation of
this Agreement (the "Contact Person"). Sun's initial Contact
Person is Mike Abramowitz. AOL's initial Contact Person is Terry
Laber. A party's Contact Person may be changed upon written
notice to the other party.
(J) Injunctive Relief. It is understood and agreed upon that,
notwithstanding any other provisions of this Agreement, breach of
this Agreement by a party may cause irreparable damage for which
recovery of money would be inadequate and that either party shall
be entitled to timely injunctive relief to protect such party's
rights under this Agreement in addition to any and all remedies
at law.
(K) Return of Information. Upon the expiration or termination of this
Agreement, each party will, upon the written request of the other
party, return or destroy (at the option of the party receiving
the request) all Confidential Information, documents, manuals and
other material specified by the other party.
(L) Headings. The paragraph headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define,
limit, construe, or describe the scope or extent of such
paragraph or in any way affect this Agreement.
(M) Acknowledgment. The parties hereto each acknowledge that the
provisions of this Agreement were negotiated to reflect an
informed, voluntary allocation between them of all risks (both
known and unknown) associated with the transactions contemplated
hereunder. The limitations and disclaimers related to warranties
and liabilities contained in this Agreement are intended to limit
the circumstances and extent of liability. The provisions of such
sections (and this Section) will be enforceable independent and
severable from any other enforceable or unenforceable provision
of this Agreement.
(N) Reference Customer. Sun will be entitled to use AOL as a
reference customer and to refer to AOL any materials in which
Sun's clients and customers are mentioned, subject in each case
to AOL's approval. AOL grants Sun the right to use AOL's name and
logos and related other trade marks, trade names and service
marks in connection with any such materials.
(O) Exhibits. The attached Exhibits may be modified only upon the
mutual written consent of the parties. The current version of
each Exhibit is hereby incorporated by reference.
Sun and AOL acknowledge that each has read and understood this Agreement and
consents to be bound by its terms. Agreed to this 23rd day of November, 1998.
SUN MICROSYSTEMS, INC.: AMERICA ONLINE INC.:
By:/s/ W. J.Raduchez By:/s/ Matt Korn
Name: W. J. Raduchez Name: Matt Korn
Title: Chief Strategy Officer Title: Senior Vice President,
Network Operations
Date: 11/23/98 Date: 11/23/98
EXHIBIT A
AOL AUTHORIZED BUYING LOCATIONS
[TO BE PROVIDED BY AOL]
[NOT INCLUDED AS AN EXHIBIT TO ORIGINAL
AGREEMENT. EXHIBIT WILL BE PUBLICLY FILED
BY THE COMPANY ONCE IT HAS BEEN PREPARED.]
EXHIBIT B
END USER BINARY CODE LICENSE
SUN IS WILLING TO LICENSE THE OPERATING SYSTEM SOFTWARE TO YOU ONLY UPON THE
CONDITION THAT YOU ACCEPT ALL OF THE TERMS CONTAINED IN THIS LICENSE AGREEMENT.
READ THE TERMS AND CONDITIONS OF THIS LICENSE CAREFULLY BEFORE USING THE
SOFTWARE. BY USING THE SOFTWARE, YOU AGREE TO THE TERMS AND CONDITIONS OF THIS
AGREEMENT. IF YOU ARE NOT WILLING TO BE BOUND BY THIS AGREEMENT, YOU ARE NOT
AUTHORIZED TO USE THE OPERATING SYSTEM SOFTWARE.
1. License to Use. Customer is granted a non-exclusive and non-transferable
license ("License") for the use of the applicable Solaris(R)* operating system
software in machine-readable form, together with accompanying documentation
("Software"), by the number of users and with the class of computer hardware for
which the corresponding fee has been paid.
2. License to Develop. In the event that Customer desires to develop software
programs which incorporate portions of Software ("Developed Programs"), the
following provisions apply, to the extent applicable: Developed Programs are to
have an application programming interface that is the same as that of Software;
fonts within Software are to remain associated with their toolkit or server;
Developed Programs may be used and distributed, but only on computer equipment
licensed to utilize Solaris operating system software, unless an additional
Developer's License Agreement has been executed by Sun and Customer; Customer is
not licensed to develop printing applications or print, unless Customer has
secured a valid printing license; and Customer agrees to indemnify, hold
harmless and defend Sun from and against any claims or suits, including
attorneys' fees, which arise or result from distribution or use of Developed
Programs to the extent such claims or suits arise from the development performed
by Customer.
3. Restrictions. Software is copyrighted and title to all copies is retained by
Sun and/or its licensors. Customer shall not make copies of Software, other than
a single copy of Software for archival purposes and, if applicable, Customer
may, for its internal use only, print the number of copies of on-line
documentation for which the applicable fee has been paid, in which event all
proprietary rights notices on Software shall be reproduced and applied. Except
as specifically authorized in Paragraph 2 above, Customer shall not modify,
decompile, disassemble, decrypt, extract, or otherwise reverse engineer
Software, except to the extent any of the foregoing limitations are
unenforceable under applicable law. Software is not designed or licensed for use
in on-line control equipment in hazardous environments such as operation of
nuclear facilities, aircraft navigation or control, or direct life support
machines.
4. Confidentiality. Software is confidential and proprietary information of Sun
and/or its licensors. Customer agrees to take adequate steps to protect Software
from unauthorized disclosure or use.
5. Warranty. Sun warrants that the media on which Software is furnished will be
free of defects in materials and workmanship under normal use for a period of
ninety (90) days from the date of purchase, as evidenced by a copy of the
receipt. Otherwise, Software is provided "AS IS," without a warranty of any
kind. This warranty extends only to Customer as the original licensee.
Customer's exclusive remedy and Sun's entire liability under this warranty will
be the correction of defects in media or replacement of the media, or, if
correction or replacement is not reasonably achievable by Sun, the refund to
Customer of the license fee paid, upon return of Software.
6. Disclaimer of Warranty. EXCEPT AS SPECIFIED IN THIS LICENSE AGREEMENT, ALL
EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT, ARE HEREBY EXCLUDED TO THE EXTENT ALLOWED BY APPLICABLE LAW.
7. Limitation of Liability. IN NO EVENT WILL SUN BE LIABLE FOR ANY LOST REVENUE,
PROFIT OR DATA, OR FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE
DAMAGES HOWEVER CAUSED AND REGARDLESS OF THEORY OF LIABILITY ARISING OUT OF THE
USE OF OR INABILITY TO USE SOFTWARE, EVEN IF SUN HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. In no event shall Sun's liability to Customer,
whether in contract, tort (including negligence), or otherwise, exceed the
license fee paid by Customer for Software. The foregoing limitations shall apply
even if the above stated warranty fails of its essential purpose.
8. Termination. This License is effective until terminated. Customer may
terminate this License at any time by destroying all copies of Software
including any documentation. This License will terminate immediately UPON notice
from Sun if Customer MATERIALLY fails to comply with any provision of this
License. Upon termination, Customer must destroy all copies of Software.
9. Export Regulations. Software, including technical data, is subject to U.S.
export control laws, including the U.S. Export Administration Act and its
associated regulations, and may be subject to export or import regulations in
other countries. Customer agrees to comply strictly with all such regulations
and acknowledges that it has the responsibility to obtain licenses to export,
re-export, or import Software.
10. U.S. Government Restricted Rights. If Customer is acquiring Software
including accompanying documentation on behalf of the U.S. Government, the
following provisions apply. If Software is supplied to the Department of Defense
("DOD"), Software is subject to "Restricted Rights", as that term is defined in
the DOD Supplement to the Federal Acquisition Regulations ("DFAR") in paragraph
252.227-7013(c)(1). If Software is supplied to any unit or agency of the United
States Government other than DOD, the Government's rights in Software will be as
defined in paragraph 52.227-19(c)(2) of the Federal Acquisition Regulations
("FAR"). Use, duplication, reproduction or disclosure by the Government is
subject to such restrictions or successor provisions. Contractor/Manufacturer
is: Sun Microsystems Computer Company, 2550 Garcia Ave., Mountain View, CA
94043.
11. Governing Law. This Agreement is made under, shall be governed by and
construed in accordance with the laws of the State of California, U.S.A.,
excluding its choice of law provisions.
12. Severability. If any of the above provisions are held to be in violation of
applicable law, void, or unenforceable in any jurisdiction, then such provisions
are herewith waived to the extent necessary for the License to be otherwise
enforceable in such jurisdiction. However, if in Sun's opinion deletion of any
provisions of the License by operation of this paragraph unreasonably
compromises the rights of liabilities of Sun or its licensors, Sun reserves the
right to terminate the License and refund the fee paid by Customer as Customer's
sole and exclusive remedy.
13. Integration. This Agreement is the entire agreement between Customer and Sun
relating to Software and: (i) supersedes all prior or contemporaneous oral or
written communications, proposals and representations with respect to its
subject matter; and (ii) prevails over any conflicting or additional terms of
any quote, order, acknowledgment, or similar communication between the parties
during the term of this Agreement. No modification to this Agreement will be
binding, unless in writing and signed by a duly authorized representative of
each party.
EXHIBIT C
LICENSED SOFTWARE TRANSFER NOTIFICATION/AGREEMENT
TO: Sun Microsystems, Inc.
Attn: Contracts Department, M/S UPAL01-455
901 San Antonio Road
Palo Alto, CA 95134
TRANSFER NOTIFICATION:
In connection with the sale of used Sun workstations ("Equipment")
Licensee undertakes to notify Sun Microsystems, Inc., of the transfer
of certain Licensed Software in conjunction with such sale, to the
party herein named below under "Transfer Agreement" ("Transferee").
Licensee warrants that Licensee has not retained any copies of the
Licensed Software transferred in conjunction with the sale of used
Equipment to Transferee and hereby relinquishes all rights in the
Licensed Software previously granted by Sun.
Licensed Software Transferred: Used Equipment Sold
Licensed Software:
Equipment Serial Number:
a. a.
b. b.
c. c.
d. d.
Signed:
Name:
Title:
Company:
Address:
Date:
TRANSFER AGREEMENT:
EXHIBIT C
(CONTINUED)
Transferee herein acknowledges receipt of the Licensed Software in conjunction
with the purchase of the Equipment herein set forth above.
Transferee further agrees to the terms and conditions governing the transfer and
use of the Licensed Software as contained in Sun's Binary Code License, attached
hereto. The term "LICENSEE" as contained in the Binary Code License shall be
deemed to apply to Transferee.
Signed:
Name:
Title:
Company:
Address:
Date:
ATTACHMENT
SUN PLATINUM SERVICES OFFERING
This SunSpectrum Support Program Module describes the specific terms by which
Customer purchases SunSpectrum support services from Sun and by which Sun,
through its Enterprise Services Division, delivers SunSpectrum support services
to Customer. To the extent not inconsistent with the following terms, the
provisions of the Service Provider Agreement between Sun and AOL are
incorporated by reference. The terms of this Program Module apply to systems
listed on a Schedule or Quote ("Schedule") which references this Program Module,
and are identified on Sun's then current Enterprise Services Price List for
SunSpectrum support ("system(s)"). This Program Module is effective as of the
date indicated on the applicable Schedules and continues in effect until the
expiration or termination of all Schedules to this Program Module.
1) CUSTOMER REQUIREMENTS:
(A) SUPPORT REQUESTS: Customer may designate certain of its employees
as "Contacts" for each eight (8) hour shift during the period in
which Telephone Assistance is provided by Sun. Only Contacts may
initiate support requests. Each Contact must possess or, at
Customer's expense, acquire the necessary expertise and training
(as from time to time defined by Sun) to diagnose and resolve
system software malfunctions with direction by Sun.
(B) CUSTOMER'S DUTIES: Customer will perform routine system
preventative maintenance and cleaning. Prior to requesting
support from Sun, Customer must comply with all published
operating and troubleshooting procedures for the systems. If such
efforts are unsuccessful in eliminating the malfunction, Customer
will then promptly notify Sun of the malfunction. Customer must
establish and maintain a procedure external to systems for
reconstruction of lost or altered files, data, or programs.
Customer must provide Sun support personnel with: (a) reasonable
and safe access to systems; (b) adequate working space and
facilities at the installation site necessary to service systems;
and (c) cooperation in maintaining a site activity log. Customer
acknowledges that the examination, replacement, and handling of
hardware components can be hazardous. Support tasks should only
be performed by qualified service personnel with the appropriate
technical training and experience to recognize these hazards
(e.g., electrostatic discharge) and who observe all protection
procedures and precautions. Customer agrees to use qualified
service personnel and to employ adequate safety precautions in
the performance of its obligations hereunder.
(C) MOVEMENT OF COVERED SYSTEMS: All services will be delivered at
the installation site(s) indicated on the Schedule(s) referencing
this Program Module. Support of systems moved by Customer to a
new installation site is subject to local availability and will
be subject to additional fees. If requested by Customer, Sun may
supervise any movement of systems in accordance with the terms
and conditions of the SunMOVES Program Module. If Sun does not
supervise the movement of systems, Sun may require that it
inspect and recertify the systems as a condition of continued
support of those systems.
(D) REMOTE SUPPORT REQUIREMENTS: To obtain remote services, including
without limitation Remote Systems Monitoring and Remote Dial-In
Analysis, Customer must procure and maintain a Sun-specified
gateway, and Customer is responsible for any costs associated
with procuring and maintaining that gateway. Customer will be
responsible for all outbound telecommunications charges related
to the remote services. If remote services are not permitted or
facilitated by Customer, Sun reserves the right to decline to
deliver remote services and/or to assess additional charges on
Customer for the delivery of services which would otherwise be
provided remotely.
1) ADDITIONAL SYSTEMS: Customer may add systems to a Schedule at Sun's then
current per system fee, at any time upon notice to Sun, subject to the rights of
Sun set forth in INSPECTIONS. Sun will provide services for systems added to a
Schedule for a period coterminous with the term of the Schedule, and Sun shall
pro rate the fee for such services. Customer will receive an add-on Schedule
reflecting the additional covered systems and associated additional fee.
2) PRICES: Prices for Services hereunder are set forth in the SP Agreement.
3) INSPECTIONS: Systems are subject to inspection by Sun prior to the
commencement of support, and any costs for required repairs or updates will be
charged to Customer at Sun's current published time and material rates.
4) LICENSE: Software updates, version releases and product releases
(collectively "enhancement releases"), maintenance releases, patches, and
SunSolve(TM) knowledge database provided hereunder may only be used, or accessed
by, systems listed on a Schedule. Use of software enhancement releases,
maintenance releases, and patches is governed by the applicable software license
obtained with the original product. On line versions of support databases may
only be accessed by Contacts for the sole purpose of diagnosing and resolving
problems on systems listed on a Schedule. Use of educational software and
videotape products is governed by, and the Customer agrees to be bound by, the
license agreement accompanying each individual product.
5) EXCLUSIONS: Sun's obligation to provide support services under this Program
Module is contingent upon proper use and care of systems. Sun has no obligation
to provide support under this Program Module, should such support be required
because of: (a) improper use, abuse, accident, or neglect; (b) causes external
to the system, such as failure to maintain environmental conditions within the
operating range specified by the manufacturer of the systems; or (c) failure to
maintain software and systems at Sun-specified minimum configuration or release
level. Any support delivered by Sun as a result of such events will be invoiced
separately and paid at Sun's then current published time and material rates.
Operating supplies and accessories, such as magnetic tapes and anti-glare
coatings on video display monitors, and unsupported options are not covered by
this Program Module. Sun will have no obligation to provide support under this
Program Module if Customer fails to meet its obligations under Section 10
(Payment Terms) of the Master Terms of Service.
6) LEVELS OF SUPPORT:
(A) 7 X 24 TELEPHONE ASSISTANCE: Unlimited, toll-free assistance for
Sun supported software, hardware, and network problems 24 hours
per day, 7 days a week, including Sun holidays.
(B) 7 X 24 ON-SITE ASSISTANCE: On-site hardware support assistance 24
hours per day, 7 days per week, including Sun holidays.
(C) CUSTOMER-DEFINED PRIORITY AND RESPONSE TIME: When Contact calls
for support assistance, Contact will assign a priority rating to
the call: URGENT, SERIOUS or NOT CRITICAL:
* URGENT (system unusable) - Live transfer of service request.
Personnel arrive at the installation site within an average of
two (2) hours of service request for on-site hardware support
assistance.
* SERIOUS (system seriously impaired) - Live transfer of
service request. Personnel arrive at the installation site
within an average of four (4) hours for on-site hardware
support assistance.
* NOT CRITICAL - Live transfer of service request. Personnel
arrive at the installation site after an average of one (1)
business day or at a later mutually convenient time for
on-site hardware support assistance.
(D) SITE ACTIVITY LOG: On-site service performed will be recorded in
a site activity log.
(E) REMOTE DIAL-IN ANALYSIS: Remote examination and diagnosis of
systems through the Customer provided gateway.
(F) REMOTE SYSTEMS MONITORING: Sun's remote systems monitoring tools
will periodically collect data from designated systems of
Customer. Customer gives Sun ongoing permission to access the
supported system, strictly for the purpose of fulfilling Sun's
support responsibilities. Customer agrees to obtain an
appropriate gateway per the remote services requirements of
Section 1(d) above, and this gateway will include a Sun-specified
telecommunications line dedicated to remote systems monitoring.
Sun reserves the right to limit the use and availability of this
feature at any time. The remote systems monitoring tools may be
configured for the Customer's requirements.
(G) SOLARIS ENHANCEMENT RELEASES: Unless otherwise specified by Sun,
Customer will receive periodic delivery of one (1) copy of
Solaris enhancement releases.
(H) PATCHES AND MAINTENANCE RELEASE ACCESS: Unless otherwise
specified by Sun, Customer will receive patches and maintenance
releases for Solaris software.
(I) SUNSOLVE LICENSE: Customer is granted a license to use SunSolve,
subject to the license terms above under LICENSE.
(J) SUNSOLVE EARLYNOTIFIER SERVICE: Periodic notice from Sun
containing information on newly discovered problems and bugs.
(K) PERSONAL TECHNICAL ACCOUNT SUPPORT; SERVICE ACCOUNT MANAGEMENT:
Customer account will be assigned to a Sun Account Advocate who
will assist Customer in assessing critical support issues and
help coordinate Sun's response. The assigned Sun Account Advocate
may also provide available information on known bugs, potential
system problems, and currently available patches, as well as
maintain pertinent account information in Sun's Customer Account
Management Database. These services are provided to Customer
during Sun's local business hours, excluding Sun holidays.
(L) ACCOUNT SUPPORT PLAN: Sun's local customer support management
will provide the process for the design of an Account Support
Plan for Customer.
(M) ACCOUNT SUPPORT REVIEW: Monthly account review of Customer's
service activity and requirements if requested by Customer.
(N) SUN VENDOR INTEGRATION PROGRAM (Sun VIP): Provision of
multivendor software problem management; includes coverage for
approved ISVs (as may be designated by Sun from time to time)
with whom Customer maintains a valid service contract with
equivalent hours of coverage and response times.
(O) SKILLS ASSESSMENT: Sun will assist Customer annually in
evaluating the skills of up to ten (10) of Customer's technical
personnel with responsibility for systems administration.
(P) MISSION CRITICAL SUPPORT TEAMS: For Customer defined URGENT
problems, telephone assistance will be provided by a separate
team of experienced Sun personnel. Availability of such personnel
may be limited during peak call periods and non-business hours,
during which times backup Sun Solution Center engineers will be
available to handle service requests.
(Q) SYSTEM AVAILABILITY GUARANTEE: For properly configured,
maintained and administered systems, Sun will commit to maintain
certain levels of System Availability, as defined in Exhibit A,
SunSpectrum System Availability Guarantee.
(R) SOFTWARE RELEASE PLANNING: Provision of assistance to Customer in
evaluating new Solaris releases and Customer's need for migration
from any of the following versions of Solaris: Solaris 2.X
through the most current version of Solaris. The service is
subject to Customer complying with Sun's requests for information
and data relevant to providing this service.
(S) SOFTWARE PATCH MANAGEMENT ASSISTANCE: Provision of assistance to
Customer in evaluating whether patches for selected Sun software
products should be applied to Customer's systems. This service is
subject to Customer complying with Sun's requests for information
and data relevant to providing this service.
(T) FIELD CHANGE ORDER ("FCO") MANAGEMENT ASSISTANCE: Provision of
assistance to Customer in evaluating the service impact of Field
Change Orders for selected Sun hardware products. This service is
subject to Customer complying with Sun's requests for information
and data relevant to providing this service.
(U) INSTALLATION SERVICES: For systems installed outside the
continental United States, Customer's choice of one installation
service from among: SunBasic Start?, DeskStart?, ServerStart?,
and SPARCstorage(TM) ArrayStart?. The particular installation
service selected by Customer will be listed on a Schedule.
(V) ADDITIONAL FEE SERVICES: Subject to an additional per service
fee, Customer may purchase the additional services:
* SUN UNBUNDLED SOFTWARE ENHANCEMENTS: Periodic delivery of
one (1) copy of enhancement releases. Enhancements may
not be available for all software products.
* ADDITIONAL MEDIA AND DOCUMENTATION: One additional copy
of media and documentation for Solaris enhancement
releases and/or Sun unbundled software enhancements
obtained under this Program Module.
* ADDITIONAL CONTACTS: Customer may designate additional
Contacts meeting the requirements set forth above under
CUSTOMER REQUIREMENTS, SUPPORT REQUESTS.
* ACCOUNT SUPPORT REVIEW: Semi-annual account review of
Customer's service activity and requirements if requested
by Customer.
* ADDITIONAL MEDIA AND DOCUMENTATION: One additional copy
of media and documentation for Solaris enhancement
releases and/or Sun unbundled software enhancements
obtained under this Program Module.
THE PARTIES ARE NOT REQUIRED TO EXECUTE THIS DOCUMENT UNLESS CUSTOMER WISHES TO
HAVE A SIGNED PROGRAM MODULE.
THE PARTIES HAVE READ THIS PROGRAM MODULE AND AGREE TO BE BOUND HEREBY. THIS
PROGRAM MODULE IS EFFECTIVE AS OF --/--/--.
SUN MICROSYSTEMS, INC. CUSTOMER: America Online, Inc.
By: /s/ W. J. Raduchez By: /s/ Matt Korn
Print: W. J. Raduchez Print: Matt Korn
Title: Chief Strategy Officer Title: Sr. Vice President, Network
Network Operations
ATTACHMENT
SALES REFERRAL AGREEMENT BETWEEN AMERICA ONLINE, INC.
AND SUN MICROSYSTEMS, INC.
This Agreement is entered into and effective November 1, 1998 by and between
America OnLine, Inc. ("AOL") and Sun Microsystems, Inc. (hereafter referred to
as "Sun"). The Service Provider Agreement between Sun and AOL effective November
1, 1998 is incorporated by reference.
1. TERM
The AOL/Sun Sales Referral Program (hereinafter referred to as "SRP") will
have the same term as the Service Provider Agreement and will terminate
upon termination or expiration of the Service Provider Agreement.
2. ELIGIBLE PRODUCTS, SERVICES AND SOFTWARE
Sun Products listed on the then current United States Computer Systems
Division Price List are eligible for the Program fees as specified in this
Agreement. (Such Sun Products are hereinafter referenced as "Eligible
Products".) This Program is for Sun sales influenced by AOL in the United
States. If AOL desires to participate in SRP-type programs outside of the
United States, Sun agrees to negotiate those agreements with AOL.
3. ELIGIBLE SALES/APPLICATION SOLUTIONS
Eligible Products sold directly to an end user in the United States by Sun
that are a direct result of the sale of Application Solutions (as defined
below) shall be considered an "Eligible Sale" under this Agreement. A
"sale" under this Agreement shall be considered "Eligible" only if AOL
initiates the sales opportunity, recommends Eligible Products to the end
user, and drives the sale of the Eligible Products to an end user who has
not purchased Sun Products in the past twelve (12) months. Sun will
determine, its sole opinion, whether a sale is an Eligible Sale within the
meaning of this Agreement.
"Applications Solutions" means AOL Services deployed in the employment and
utilization of technology to solve a specific business problem or develop a
business solution. AOL's "Application Solutions" within the meaning of this
Agreement are set forth on Exhibit A. Other AOL Services can apply for
program eligibility, via written request to Sun. At the written consent of
Sun, the additional applications will become eligible for SRP credit
through the term of the existing agreement.
Eligible Sales, as determined by the Sun end user sales representative,
shall not include any follow-on sales of Eligible Products to a Sun
customer.
4. FEE SCHEDULE FOR DIRECT SALES
AOL's fee for Eligible Sales by Sun shall be *** of the Sun U.S. Computer
System's list price for all Eligible Products. The then current list price
is defined as of the time of order placement.
5. PROCESS AND PAYMENT
The following sets forth SRP process, which both parties shall adhere to
under this Agreement:
A. In order to qualify as an "Eligible Sale," AOL will submit to Sun, under
an appropriate Non-Disclosure Agreement, a list of "Target Accounts." The
Target Account list will identify AOL's customers or potential customers to
which AOL will be recommending Eligible Product and potentially making a
Request for Eligible Sale (as defined below). AOL will not be eligible for
payment under this program for sale of Sun product into accounts that are
not on the Target Account list. The Target Account list may be amended by
AOL upon the consent of Sun; however, for AOL to be eligible for payment
hereunder, the new account must be on the eligible list for at least 120
days. Request for amendment to the Target Account list must be in writing
to the Sun Contacts identified below and an account will be deemed on the
Target Account as of the date of Sun's written confirmation of the
amendment of the Target Account List. The Target Account list is Exhibit B
to the Agreement.
B. In order to qualify as an "Eligible Sale" AOL will submit to the Sun
designee a "Request for Eligible Sale" which will include:
1. the name and location of end user;
2. the sales opportunity identified by AOL;
3. the AOL Application Solution sold to the end user;
4. the Sun Sales Team engaged in the opportunity;
5. a copy of the Agreement between AOL and the end user;
6. a description of how AOL initiated and drove the sale of Sun
hardware to the end user.
C. Sun's sales representatives will determine whether the Sun hardware sale
qualifies as an "Eligible Sale" and will notify AOL.
D. Sun will make Quarterly payments of SRP Program fees (if any) to AOL
within thirty (30) days after the close of each of Sun's fiscal year
quarters. Initial start-up of payment process may extend payment by an
additional fifteen (15) days for the first one hundred and twenty (120)
days after execution of Agreement.
E. In the event that the end user returns Eligible Product for credit for
which AOL has previously received a corresponding SRP Program fee, Sun will
be reimbursed for such fee unless the cause was a failure of Eligible
product to perform according to Sun's specifications. In addition, if the
end user fails to make payment for Sun Eligible Products for which AOL has
received a corresponding SRP Program fee predominantly caused by a failure
of AOL's Applications Solutions, Sun will be reimbursed for such fee.
6. GEOGRAPHIC COVERAGE
The SRP Program will be valid for all Eligible Sales in North America.
7. Each party is an independent contractor and is free to set its own prices
for all products that each party licenses or sells to end user customers
for its own accounts.
8. AMERICA ONLINE CONTACTS
Program Administrator:
Contract Manager:
Product Manager:
9. SUN CONTACTS
Sales Manager:
Program Administrator:
Contract Manager:
Product Manager:
10. This Agreement is not exclusive and either party may enter into similar
arrangements with one or more third parties.
11. (A) The parties may provide one another certain proprietary
information under this Agreement, including but not limited to
the following: pricing, end user lists and marketing information.
The parties shall adhere to the terms and conditions of the GA
between the parties herein, as it pertains to such proprietary
information hereunder.
(B) Sun shall make the following efforts to ensure that its personnel
mark as "Sun Confidential Proprietary" any pricing information
and proposal specific configuration specifications provided to
AOL hereunder (the "Sensitive Information").
Sun shall prepare a Description/Announcement of this Agreement
that generally describes the terms and conditions of the
Agreement, including specifically Sun's policy that it mark or
label Sensitive Information as "Confidential and Proprietary".
This SRP Description/Announcement will be provided in writing:
(i) to the Sun U.S. Sales Force within thirty (30) calendar days
of the date of execution of this Agreement; (ii) when Sun's Sales
Force makes any inquiry regarding the Agreement; and (iii) on a
semi-annual basis, to the Sun Sales Force generally.
If Sun complies with the special efforts set forth above and, in
spite of such efforts, Sun in good faith and in the normal course
of business delivers to AOL Sensitive Information without marking
or labeling such Information as "Sun Confidential and
Proprietary", then AOL will be liable for the unauthorized
disclosure of such Information if such disclosure is made to a
competitor of Sun and is made consciously, deliberately and in
bad faith, with the intent of identifying clearly to the
competitor that the Sensitive Information belongs to Sun.
12. Notwithstanding any of the provisions of Sections 2, 3, 4, 5 and 6, Sun
will pay AOL a commission of *** of the applicable list price of all Sun
Products and Services (excluding any "Software and Associated Services" as
defined in the Strategic Development and Marketing Agreement) sold by Sun
in connection with any "AOL EC Service Opportunity" as defined in the
Strategic Development and Marketing Agreement. Payments will be made
pursuant to the first sentence of Section 5(D) of the SRP Agreement. If
Payment is made pursuant to this paragraph, then no other payments will be
made under this Agreement with respect to such sales.
In the event that the currently contemplated merger between AOL and
Netscape closes but subsequently the Strategic Development and Marketing
Agreement is terminated due to a breach thereof by AOL, then this Section
12 will be nullified.
In the event that AOL is deemed an agent under applicable law or this
program creates by operation of law any further Sun obligations, payments
or other responsibilities in addition to those set forth in this Agreement,
then AOL waives any such additional claims, responsibilities, payments,
penalties or obligations. To the extent these additional payment
obligations cannot be waived, Sun is entitled to apply any such payments as
a credit against any amounts AOL is entitled to under any agreements or
other obligation between Sun and AOL.
Agreed to and accepted, this 23rd day of November, 1998.
SUN MICROSYSTEMS, INC. AMERICA ONLINE, INC.
By:/s/ W. J. Raduchez By: /s/ Matt Korn
Name: W. J. Raduchez Name: Matt Korn
Title: Chief Strategy Officer Title: Sr. Vice President,
Network Operations
Date: 11/23/98 Date: 11/24/98
SALES REFERRAL PROGRAM ("SRP") AGREEMENT
EXHIBIT A
This is Exhibit A as referenced in the foregoing Agreement and sets forth AOL's
Applications Solutions. AOL may add or delete from this list in a timely manner.
SRP payment shall not be made on the sales of Sun Price listed Products against
applications not reviewed and accepted by Sun.
[TO BE PROVIDED BY AOL]
[NOT INCLUDED AS AN EXHIBIT TO ORIGINAL
AGREEMENT. EXHIBIT WILL BE PUBLICLY FILED
BY THE COMPANY ONCE IT HAS BEEN PREPARED.]
SALES REFERRAL PROGRAM ("SRP") AGREEMENT
EXHIBIT B
TARGET ACCOUNTS
[TO BE PROVIDED BY AOL]
[NOT INCLUDED AS AN EXHIBIT TO ORIGINAL
AGREEMENT. EXHIBIT WILL BE PUBLICLY FILED
BY THE COMPANY ONCE IT HAS BEEN PREPARED.]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,452
<SECURITIES> 0
<RECEIVABLES> 253
<ALLOWANCES> 27
<INVENTORY> 12
<CURRENT-ASSETS> 1,782
<PP&E> 574
<DEPRECIATION> 150
<TOTAL-ASSETS> 3,146
<CURRENT-LIABILITIES> 993
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 1,446
<TOTAL-LIABILITY-AND-EQUITY> 3,146
<SALES> 1,819
<TOTAL-REVENUES> 1,819
<CGS> 1,136
<TOTAL-COSTS> 1,577
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 258
<INCOME-TAX> 30
<INCOME-CONTINUING> 258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228
<EPS-PRIMARY> .50
<EPS-DILUTED> .41
</TABLE>
