MS Invests $50M in USi, Raises ASP Stakes

ANNAPOLIS, MARYLAND (11/14/2000) - Microsoft Corp. today took a giant step into the application service provider market, announcing a US$50 million equity investment in USinternetworking as part of a strategic alliance to develop and market managed application services built on the Windows 2000 and .NET platforms.

The Microsoft alliance was one of several developments detailed by USi Monday in advance of official announcements today. The announcements, which also include a strategic alliance with wireless ASP Aether Systems and a round of more than $300 million in equity and commercial credit funding, illustrate the growing acceptance of ASPs as a viable business model, USi CEO Andrew Stern says.

With the Microsoft alliance, USi gains muscle in marketing managed application services. The two companies will join in developing, delivering and marketing services that will be powered by the Windows .NET platform. USi already offers Microsoft Exchange-based messaging and collaboration service through its iMAP portfolio of services. The alliance builds on that relationship by bringing Microsoft's engineering and technical support to all of USi's products. USi has agreed to use Microsoft's technology platform for all of its iMAP offerings. In addition to providing Microsoft products, USi will continue to deliver enterprise applications such as Siebel, PeopleSoft, Lawson and Ariba.

Microsoft will provide USi with engineering and technical support to launch new offerings and to move existing services to the Microsoft platform.

USi says the first of the Microsoft technology-based services will be available next month, with additional services released through May 2001. In addition, Microsoft will join USi to market its offerings to targeted customers beginning in February.

In the wireless arena, USi has partnered with Aether to create enterprise-level managed application services for wireless devices. The first joint offering - wireless e-mail and messaging services for Microsoft Exchange via Blackberry - is available immediately. USi says wireless-enabled Web and e-commerce applications will be released in the next two months, with more wireless applications coming in 2001. In addition to its technology investment, Aether also committed $10 million to USi.

In addition to the investments from Aether and Microsoft, USi announced:

A $60 million equity investment by USi's early investors, including USi's chairman of the Board Christopher R. McCleary and its CEO Andrew A. Stern, that also includes a $5 million equity commitment from a wholly owned subsidiary of GE Capital.

A $50 million commitment on a 3-year revolving line of credit led by GE Capital.

The commitments are contingent on several conditions, including the receipt of the full $50 million equity investment from Microsoft.

USi also announced the closing of an equity financing arrangement covering the sale of $140 million in USi common stock with Acqua Wellington North American Equities Fund Ltd. The arrangement gives USi access to up to $140 million during the next 28 months.

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