Sun Had Large Role in Supporting
Deal Between AOL and Netscape
By DAVID BANK
Staff Reporter of THE WALL STREET JOURNAL
Sun Microsystems Inc. committed more than $1.25 billion to help America
Online Inc. purchase Netscape Communications Corp., according to
documents Sun filed with the Securities and Exchange Commission.
Sun, a Palo Alto, Calif., computer maker, signed a side agreement with
AOL that gave Sun a much larger role in financing the Netscape purchase
than was disclosed when the deal was announced in November. At that
time, the stock swap was valued at $4.28 billion, but its value has risen
along with AOL stock to about $7 billion.
As part of Sun's agreement to sell Netscape's business software, Sun
guaranteed AOL would receive revenue of at least $975 million over three
years. The amounts of the guaranteed minimums weren't disclosed at the
time the deal was announced. In addition, Sun will pay AOL a one-time
$275 million licensing fee and $10 million a year in cooperative marketing
fees.
In return, AOL will pay Sun $1 million per month for technical support and
$5 million per month to license various Sun technologies, in particular the
Java technology platform. As reported at the time, AOL will also buy
$500 million of Sun hardware and services.
In a statement, Sun said, "Today we have no reason to believe these
revenues are not attainable." The company said the commitments cover
sales by Sun, AOL and Netscape of Netscape's current enterprise
software suite and future co-developed software.
The payments were disclosed in Sun's 10-Q filing with the SEC, which
included an edited version of the agreement with AOL. Sun's documents
also disclose more details about product plans. In particular, Sun is
committed to use its Java programming technology to develop
AOL-specific software to enable AOL's services to be available over
many types of hardware devices, which are likely to include inexpensive
computers, kiosks and hand-held devices.
In addition to new versions of Netscape's Communicator software,
including one specifically for AOL, the two companies are committed to
creating what the documents describe as a "new browser," which would
compete with Microsoft Corp. products. Most details of the browser
project were deleted from the public version of the agreement, but it
appears to consist of browser components that could be integrated into
AOL services and adapted for smaller digital devices.
For Sun, the deal is an effort to maintain the viability of Netscape's
browser as the most important distribution channel for its Java technology,
which the company is expanding into a full-fledged competitor to
Microsoft's Windows. AOL is committed to using the most current version
of Sun's "Java Runtime Environment" on both Netscape's browser and the
new jointly produced browser.
The agreement binds the companies to use "reasonable efforts to maintain
the existing Netscape browser and the New Browser as competitive
alternatives to the browser component of Internet Explorer from
Microsoft."
AOL is expected to release additional details of the merger agreements in
filings next week. The documents are of particular interest to Microsoft in
light of its antitrust trial. The software giant has argued the AOL-Netscape
merger shows that competition remains vigorous in the Internet market.
One section of the agreement, however, bars Sun from developing Internet
"client" software that competes with AOL's offerings.
The agreement doesn't require AOL to break its contract with Microsoft,
under which AOL includes the Internet Explorer browser with its online
service. The contract says AOL has no plans to replace Internet Explorer
with the "new browser," but will "periodically evaluate" the decision. At the
point the contract discusses the "critical issues" for AOL in making such a
replacement, the companies have deleted eight lines of text.
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