<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INFOSEEK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 77-0494507
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR 1399 MOFFETT PARK DRIVE
ORGANIZATION) SUNNYVALE, CALIFORNIA 94089
(408) 543-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HARRY M. MOTRO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INFOSEEK CORPORATION
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 543-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID J. SEGRE, ESQ. ANDREW E. NEWTON, ESQ. DAVID K. THOMPSON, ESQ.
AARON J. ALTER, ESQ. VICE PRESIDENT, GENERAL PETER JUZWIAK, ESQ.
WILSON SONSINI GOODRICH & COUNSEL THE WALT DISNEY COMPANY
ROSATI AND SECRETARY 500 SOUTH BUENA VISTA
PROFESSIONAL CORPORATION INFOSEEK CORPORATION STREET
650 PAGE MILL ROAD 1399 MOFFETT PARK DRIVE BURBANK, CALIFORNIA
PALO ALTO, CALIFORNIA SUNNYVALE, CALIFORNIA 91521
94304 94089 (818) 560-6000
(650) 493-9300 (408) 543-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Mergers described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.[_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.001 per
share(1).............. 28,138,000 shares $0.003(3) $ 357,110 $ 106
- ---------------------------------------------------------------------------------------------
Common Stock $0.001 per
share(2).............. 38,000,000 shares $17.63(4) $669,940,000 $197,633
- ---------------------------------------------------------------------------------------------
Total.................. 66,138,000 shares $197,739(5)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Represents the number of shares of the Common Stock of the Registrant
which may be issued to shareholders of Starwave Corporation, a Washington
corporation ("Starwave"), pursuant to the Starwave Merger described
herein.
(2) Represents the number of shares of the Common Stock of the Registrant
which may be issued to shareholders of Infoseek Corporation, a California
corporation ("Infoseek California"), pursuant to the Infoseek Merger
described herein. Pursuant to the Infoseek Merger, the Registrant will
become the holding company of Infoseek California, and the Registrant
expects that its shares will trade on the Nasdaq National Market and
Infoseek California shares will cease trading on the Nasdaq National
Market.
(3) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended,
the registration fee has been calculated based on one-third of the par
value of the securities of Starwave to be received by the Registrant.
(4) Pursuant to 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as
amended, the registration fee has been calculated based on the average of
the high and low prices per share of Infoseek California Common Stock on
October 8, 1998 as reported on the Nasdaq National Market, which shares of
Infoseek California will be received by the Registrant.
(5) The amount of the total registration fee includes $64.28 previously paid
pursuant to Section 14(g) of the Securities Exchange Act of 1934, as
amended, in connection with the filing by Infoseek California of a Joint
Proxy Statement/Prospectus related to the Mergers described herein.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LOGO OF INFOSEEK CORPORATION]
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
October 14, 1998
Dear Shareholder:
Enclosed with this letter is the Joint Proxy Statement/Prospectus relating
to our previously announced agreements with The Walt Disney Company and
certain of its subsidiaries, including Starwave Corporation, that are subject
to shareholder approval. As you may be aware, Infoseek is proposing to acquire
Starwave, which is currently approximately 91% owned (excluding shares
underlying options outstanding under Starwave stock option plans) by a Disney
subsidiary. In addition, Infoseek and Disney have proposed to establish a
strategic relationship concerning the development, launch and promotion of a
planned new Internet portal service to be named Go Network(TM) (the "New
Portal Service") that would combine certain content, promotion, brands and
technologies of Infoseek, Starwave and its joint ventures relating to ESPN
SportsZone and ABCNews.com, and Disney, and, as currently planned, would
provide for universal navigation, registration, community and commerce
services across the web sites comprising the service, including not only
Infoseek and Starwave sites but also ESPN SportsZone, ABCNews.com and certain
Disney web sites. In an effort to outline a number of the material terms of
the proposed transactions, I have prepared this summary letter that should be
read in conjunction with the more detailed descriptions appearing in the Joint
Proxy Statement/Prospectus. Please take the time to read through the Joint
Proxy Statement/Prospectus and call our investor relations department at (408)
543-6000, or our proxy solicitor, Morrow & Co., Inc. at (800) 566-9061 if you
have any questions.
The Boards of Directors of each of Infoseek and Starwave have unanimously
approved the several proposed transactions described in the Joint Proxy
Statement/Prospectus and have unanimously recommended their approval by the
shareholders of Infoseek and Starwave, respectively. Infoseek and Starwave
believe that, through the acquisition of Starwave and the related transactions
with Disney, including the planned development, launch and promotion of the
New Portal Service, the combined companies will be better positioned to
compete more effectively in the rapidly developing and changing Internet
market. Infoseek also believes that an alliance with a major media company,
such as Disney, with its strong brand recognition and promotional
capabilities, rich content assets and other resources, will better enable
Infoseek to achieve its long-term strategic objectives in an Internet market
that Infoseek believes increasingly will require portal services to integrate
a more robust array of multimedia content and services. As such, Infoseek
believes that its future success in part will depend upon its ability to
leverage the promotional capabilities of Disney and to effectively and timely
integrate such content and services, including but not limited to further
advancements in search and directory and other technologies and functionality,
development of on-line communities, implementation of electronic commerce, and
provision of rich and diverse multimedia content. Infoseek, Starwave and
Disney believe that the planned New Portal Service offers an attractive
opportunity to address the emerging demands of the Internet market, its users
and advertisers.
<PAGE>
The specifics of the several proposed transactions are as follows:
. Infoseek would acquire 100% of the outstanding shares of Starwave common
stock for approximately 25,512,000 shares of Infoseek common stock and
would assume options outstanding under Starwave stock option plans, which
would thereafter be exercisable subject to vesting, for an aggregate of
approximately 2,626,000 shares of Infoseek common stock. Starwave is a
producer of Internet-based sports, news and entertainment services.
Through its joint ventures with Disney, Starwave produces such online
services as ESPN SportsZone, ABCNews.com and additional sports sites,
including NBA.com, NFL.com, NASCAR Online and Outside Online. As a result
of Disney's ownership position in Starwave, Disney would receive
approximately 23,200,000 shares of Infoseek common stock in the Starwave
acquisition.
. Disney would purchase an additional 2,642,000 shares of Infoseek common
stock and receive a warrant to purchase 15,720,000 shares of Infoseek
common stock in exchange for $70 million in cash and a five-year $139
million promissory note. The warrant generally will vest and be
exercisable as to one-third of the shares subject to the warrant on each
of the three anniversary dates following the closing of the Starwave
acquisition. The exercise price for the warrants will be 120% of the
thirty-day average closing price preceding each anniversary date, subject
to a $50 maximum exercise price.
. Disney's 25.8 million shares of Infoseek common stock would represent
approximately 43% of the total outstanding shares of Infoseek. The
warrant would enable Disney to achieve a majority shareholder position
over time, but Disney has agreed to a three-year standstill whereby its
ownership position in Infoseek will not exceed 49.9%, subject to certain
exceptions.
. Disney will receive three of an expanded eight seats on the Infoseek
Board of Directors, with the other five seats filled by current Infoseek
directors. If Disney elects to achieve a majority shareholder position,
any Disney tender offer for the remaining shares of Infoseek made during
the standstill period would require approval from the non-Disney Board
members, subject to certain exceptions. Any Disney tender offer, whether
during or after the standstill period, would also have to be conditioned
on tenders by a majority of shares of Infoseek common stock not held by
Disney.
. The planned New Portal Service will incorporate Infoseek's proprietary
and Starwave's joint venture properties and certain Disney-licensed
properties. The planned New Portal Service will be operated by Infoseek
and governed by a joint Infoseek/Disney advisory committee.
. Infoseek has agreed to purchase, and Disney's wholly-owned subsidiary
ABC, Inc. has agreed to provide, $165 million in promotional support for
the New Portal Service over five years. As part of such promotion, Disney
has agreed to co-brand all ABCNews.com and ESPN SportsZone owned non-
traditional media promotion with promotions for the New Portal Service.
Disney has also agreed to integrate Infoseek's search and directory
technology into its own Internet-based services.
. As a result of its acquisition of Starwave, Infoseek will assume
Starwave's joint venture interests in ESPN SportsZone and ABCNews.com.
Additionally, Disney has agreed to amend the joint venture terms to
extend for ten years from the date of the Starwave acquisition.
. In connection with the proposed transactions, Infoseek would establish a
new holding company structure which involves a reincorporation into
Delaware, the result of which would be that each of Starwave and Infoseek
(which is currently incorporated in California) would become wholly-owned
subsidiaries of a new Infoseek Corporation (which is incorporated in
Delaware). Infoseek, a Delaware corporation, would thereafter be the
registered public company, the shares of which would be traded on Nasdaq
and would be held by the former shareholders of Infoseek and Starwave.
<PAGE>
I ask you to take the time to read through the enclosed Joint Proxy
Statement/Prospectus in order to fully understand the terms of the proposed
transactions, and I encourage you to return your proxy card promptly. On
behalf of the Board of Directors, I thank you for your support and ask you to
vote in favor of the proposals described in the Joint Proxy
Statement/Prospectus.
Sincerely,
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive
Officer
This letter contains forward-looking statements regarding the planned New
Portal Service to be named Go Network and the timing of its development and
launch and the proposed Infoseek acquisition of Starwave and related
transactions with Disney, both of which are subject to risks and
uncertainties. Actual results may differ materially from those set forth in
such statements as a result of a number of factors, including, but not limited
to, the progress and timing of development and launch of the planned New
Portal Service, consumer acceptance and use of the new service, and the
increasingly competitive nature of the Internet market. In addition, launch of
the planned New Portal Service is conditioned upon and subject to the
consummation of the Infoseek acquisition of Starwave and related transactions
with Disney, that are subject to customary closing conditions, including
shareholder approval.
<PAGE>
[LOGO OF INFOSEEK CORPORATION]
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
October 14, 1998
Dear Shareholder:
As you may be aware, Infoseek Corporation, a California corporation
("Infoseek California"), has entered into an Agreement and Plan of
Reorganization, dated as of June 18, 1998 (the "Reorganization Agreement"),
among Infoseek California, Infoseek Corporation, a newly organized Delaware
corporation ("Infoseek Delaware"), Starwave Corporation, a Washington
corporation ("Starwave"), and Disney Enterprises, Inc., a Delaware corporation
("DEI"). Pursuant to the Reorganization Agreement, Infoseek is proposing to
acquire Starwave, which is currently approximately 91% owned by DEI (excluding
shares underlying options outstanding under Starwave stock option plans), and
to establish a new holding company structure which involves a reincorporation
into Delaware, the result of which would be that each of Starwave and Infoseek
California would be wholly-owned subsidiaries of Infoseek Delaware. Infoseek
Delaware would thereafter be the registered public company, the shares of
which would be traded on The Nasdaq Stock Market and would be held by the
former shareholders of Infoseek California and Starwave. In addition, Infoseek
and The Walt Disney Company, including certain of its subsidiaries, including
DEI (collectively, "Disney"), have proposed to establish a strategic
relationship concerning the development, launch and promotion of a planned new
Internet portal service to be named Go Network(TM) that would combine certain
content, promotion, brands and technologies of Infoseek, Starwave, ESPN
SportsZone, ABCNews.com, and Disney, and would provide for universal
navigation, registration, community and commerce services across the web sites
comprising the service, including not only Infoseek and Starwave sites but
also ESPN SportsZone, ABCNews.com and certain Disney web sites.
In addition, as part of the strategic transaction and conditioned upon and
subject to consummation of the several transactions contemplated by the
Reorganization Agreement, Disney has agreed to purchase pursuant to a Common
Stock and Warrant Purchase Agreement (the "Securities Purchase Agreement") an
additional 2,642,000 unregistered shares of Infoseek common stock and a
warrant, subject to vesting, to purchase an additional 15,720,000 unregistered
shares of Infoseek common stock (the "Warrant") in exchange for approximately
$70 million in cash and a $139 million five-year promissory note. The Warrant
vests, subject to certain acceleration events, and becomes exercisable as to
one-third of the shares subject to the Warrant on each of the first three
anniversaries of the effective time of the proposed mergers at an exercise
price equal to 120% of the average of the closing sale prices of Infoseek
common stock on Nasdaq for the thirty trading days prior to each such vesting
date, subject to a $50 per share maximum exercise price.
Based upon the capitalization of Infoseek California and Starwave as of
October 9, 1998, upon consummation of the several transactions contemplated by
the Reorganization Agreement and the Securities Purchase Agreement, Disney
would hold approximately 43% of Infoseek Delaware's outstanding common stock
on a primary shares basis and would have the right to acquire through the
Warrant exercisable over time additional shares that, when aggregated with
those owned by Disney, would result in Disney's ownership of approximately
50.1% of outstanding Infoseek Delaware common stock on a fully diluted basis
assuming exercise of all outstanding options, warrants and other rights to
acquire Infoseek Delaware common stock. Pursuant to the Reorganization
Agreement, a special meeting of shareholders of Infoseek (the "Infoseek
Shareholders Meeting") will be held at the offices of Infoseek, 1399 Moffett
Park Drive, Sunnyvale, California 94089, on November 18, 1998 at 10:00 a.m.
local time.
At the Infoseek Shareholders Meeting you will be asked to consider and vote
upon the following proposals, both of which are conditions to consummating the
strategic transaction:
(1) approval and adoption of the Reorganization Agreement and approval of
a reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
<PAGE>
Infoseek California, Infoseek Delaware and ICO Acquisition Corp., a newly
formed California corporation and wholly-owned subsidiary of Infoseek
Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will be
merged with and into Infoseek California and each outstanding share of
Infoseek common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"), with the result
that Infoseek California will become a wholly- owned subsidiary of Infoseek
Delaware; and
(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave and
Starwave Acquisition Corp., a newly formed Washington corporation and
wholly-owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares of Infoseek Delaware common stock (the
"Starwave Merger"), with the result that Starwave will become a wholly-
owned subsidiary of Infoseek Delaware, and the issuance to Disney of
2,642,000 shares of Infoseek Delaware common stock and a Warrant to
purchase an additional 15,720,000 shares of Infoseek Delaware common stock
pursuant to the Securities Purchase Agreement (and the shares underlying
such Warrant).
After careful consideration, the Infoseek Board of Directors has unanimously
approved the Reorganization Agreement, the Securities Purchase Agreement and
the transactions contemplated thereby, and has concluded they are fair to, and
in the best interests of, Infoseek and its shareholders. Your Board of
Directors unanimously recommends a vote in favor of approval of the
Reorganization Agreement and the Infoseek Merger, and in favor of the issuance
of shares of Infoseek Delaware common stock in connection with the Starwave
Merger, and the issuance of shares of Infoseek Delaware common stock and the
Warrant to Disney pursuant to the Securities Purchase Agreement.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
proposals to be voted upon at the Infoseek Shareholders Meeting and a Proxy
card. The Joint Proxy Statement/Prospectus more fully describes the proposed
transactions. Shareholders are urged to review carefully the information
contained in the accompanying Joint Proxy Statement/Prospectus prior to voting
on the proposals.
All shareholders are cordially invited to attend the Infoseek Shareholders
Meeting in person. If you attend the Infoseek Shareholders Meeting, you may
vote in person if you wish even though you have previously returned your
completed Proxy. Whether or not you plan to attend the Infoseek Shareholders
Meeting, it is important that your shares be represented and voted at the
Infoseek Shareholders Meeting, regardless of the number of shares you hold.
Approval of the Reorganization Agreement and the Infoseek Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Infoseek common stock. Approval of the issuance of shares of Infoseek Delaware
common stock in connection with the Starwave Merger, and the issuance of
shares of Infoseek Delaware common stock and the Warrant to Disney pursuant to
the Securities Purchase Agreement requires the affirmative vote of the holders
of a majority of shares of Infoseek common stock, present in person or
represented by proxy, at the Infoseek Shareholders Meeting. Therefore, please
complete, sign, date and return your Proxy in the enclosed envelope. Stock
certificate(s) will not be exchanged in connection with the Infoseek Merger.
Your Infoseek California stock certificate will automatically represent an
equal number of shares of Infoseek Delaware common stock upon consummation of
the Infoseek Merger, so please do not send stock certificate(s) representing
your Infoseek California shares with your proxy.
On behalf of the Board, I thank you for your support and ask you to vote in
favor of the foregoing proposals.
Sincerely,
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive Officer
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE>
INFOSEEK CORPORATION
(A CALIFORNIA CORPORATION)
1399 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 18, 1998
----------------
TO THE SHAREHOLDERS OF INFOSEEK CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Infoseek
Shareholders Meeting") of Infoseek Corporation, a California corporation
("Infoseek California" or "Infoseek"), will be held on November 18, 1998 at
10:00 a.m., local time, at the offices of Infoseek located at 1399 Moffett
Park Drive, Sunnyvale, California 94089 to consider and vote upon the
following proposals:
(1) approval and adoption of an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of June 18, 1998, among Infoseek
California, Infoseek Delaware, a newly-formed Delaware corporation
("Infoseek Delaware"), Starwave Corporation, a Washington corporation
("Starwave") and Disney Enterprises, Inc., a Delaware corporation ("DEI"),
and approval of a reincorporation transaction, as contemplated by the
Reorganization Agreement, pursuant to an Agreement and Plan of Merger by
and among Infoseek California, Infoseek Delaware and ICO Acquisition Corp.,
a newly formed California corporation and wholly-owned subsidiary of
Infoseek Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will
be merged with and into Infoseek California and each outstanding share of
Infoseek common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"), with the result
that Infoseek California will become a wholly-owned subsidiary of Infoseek
Delaware; and
(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave, and
Starwave Acquisition Corp., a newly formed Washington corporation and
wholly-owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares (the "Exchange Ratio") of Infoseek
Delaware common stock (the "Starwave Merger"), with the result that
Starwave will become a wholly-owned subsidiary of Infoseek Delaware, and
the issuance to The Walt Disney Company, a Delaware corporation (including
certain of its subsidiaries, including DEI, "Disney") of 2,642,000 shares
of Infoseek Delaware common stock and a Warrant to purchase an additional
15,720,000 shares of Infoseek Delaware common stock (and the shares
underlying such Warrant) pursuant to a Common Stock and Warrant Purchase
Agreement (the "Securities Purchase Agreement"). In light of the fixed
number of shares of Infoseek Delaware common stock issuable in connection
with the Starwave Merger, the issuance of shares of Starwave capital stock
(not subject to outstanding options, warrants, or other rights to acquire
Starwave capital stock) or the grant or issuance of additional options,
warrants or other rights to acquire Starwave capital stock subsequent to
the date hereof will result in a proportional adjustment to the Exchange
Ratio.
Information relating to the above proposals is set forth in the attached
Joint Proxy Statement/Prospectus. Infoseek shareholders of record at the close
of business on October 9, 1998 (the "Record Date") are entitled to
<PAGE>
notice of, and to vote at, the Infoseek Shareholders Meeting and any
adjournments or postponements thereof. Approval and adoption of the
Reorganization Agreement and approval of the Infoseek Merger described above
will require the affirmative vote of the holders of a majority of the shares
of Infoseek common stock outstanding on the Record Date. Approval of the
issuance of shares of Infoseek Delaware common stock in connection with the
Starwave Merger, and the issuance of shares of Infoseek Delaware common stock
and the Warrant to Disney pursuant to the Securities Purchase Agreement will
require the affirmative vote of the holders of a majority of shares of
Infoseek common stock, present in person or represented by proxy, at the
Infoseek Shareholders Meeting. All shareholders are cordially invited to
attend the Infoseek Shareholders Meeting in person.
By order of the Board of Directors
/s/ Harry M. Motro
Harry M. Motro
President and Chief Executive
Officer
Sunnyvale, California
October 14, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE INFOSEEK SHAREHOLDERS MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF STARWAVE CORPORATION]
13810 S.E. EASTGATE WAY, SUITE 400
BELLEVUE, WASHINGTON 98005
October 14, 1998
Dear Shareholder:
As you may be aware, Starwave Corporation, a Washington corporation
("Starwave"), has entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), among Infoseek Corporation, a California
corporation ("Infoseek California"), Infoseek Corporation, a newly organized
Delaware corporation ("Infoseek Delaware"), Starwave and Disney Enterprises,
Inc., a Delaware corporation ("DEI"). Pursuant to the Reorganization
Agreement, Infoseek is proposing to acquire Starwave, which is currently
approximately 91% owned by DEI (excluding shares underlying options
outstanding under Starwave stock option plans), and to establish a new holding
company structure which involves a reincorporation into Delaware, the result
of which would be that each of Starwave and Infoseek California would be
wholly-owned subsidiaries of Infoseek Delaware. Infoseek Delaware would
thereafter be the registered public company, the shares of which would be
traded on The Nasdaq Stock Market and would be held by the former shareholders
of Infoseek California and Starwave. In addition, Infoseek and The Walt Disney
Company, including certain of its subsidiaries, including DEI (collectively,
"Disney"), have proposed to establish a strategic relationship concerning the
development, launch and promotion of a planned new Internet portal service to
be named Go Network(TM) that would combine certain content, promotion, brands
and technologies of Infoseek, Starwave, ESPN SportsZone, ABCNews.com, and
Disney, and would provide for universal navigation, registration, community
and commerce services across the web sites comprising the service, including
not only Infoseek and Starwave sites but also ESPN SportsZone, ABCNews.com and
certain Disney web sites. Pursuant to the Reorganization Agreement, a special
meeting of shareholders of Starwave (the "Starwave Shareholders Meeting") will
be held on November 18, 1998 at 10:00 a.m., local time, at the Bellevue
Hilton, located at 100-112th Avenue, N.E., Bellevue, Washington 98004.
At the Starwave Shareholders Meeting you will be asked to consider and vote
upon the following proposal which is a condition to consummating the strategic
transaction:
Approval and adoption of the Reorganization Agreement and the acquisition
of Starwave, as contemplated by the Reorganization Agreement, pursuant to
an Agreement and Plan of Merger by and among Infoseek Delaware, Starwave,
and Starwave Acquisition Corporation, a newly formed Washington corporation
and wholly-owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares of Infoseek Delaware common stock,
subject to potential adjustment as described in the attached Joint Proxy
Statement/Prospectus (the "Starwave Merger"), with the result that Starwave
will become a wholly-owned subsidiary of Infoseek Delaware.
The Starwave Board of Directors has unanimously approved the Reorganization
Agreement and the transactions contemplated thereby, and has concluded they
are fair to, and in the best interests of, Starwave and its shareholders. Your
Board of Directors unanimously recommends a vote in favor of approval of the
Reorganization Agreement and the Starwave Merger.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
proposals to be voted upon at the Starwave Shareholders Meeting and Proxy
card. The Joint Proxy Statement/Prospectus more fully describes the proposed
transactions.
<PAGE>
Shareholders are urged to review carefully the information contained in the
accompanying Joint Proxy Statement/Prospectus.
All shareholders are cordially invited to attend the Starwave Shareholders
Meeting in person. If you attend the Starwave Shareholders Meeting, you may
vote in person if you wish even though you have previously returned your
completed Proxy. Whether or not you plan to attend the Starwave Shareholders
Meeting, it is important that your shares be represented and voted at the
Starwave Shareholders Meeting, regardless of the number of shares you hold.
Approval of the Reorganization Agreement and the Starwave Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Starwave Class A and Class B Common Stock voting together without regard to
class. Therefore, please complete, sign, date and return your Proxy in the
enclosed envelope. Please do not send in the stock certificate(s) representing
your Starwave common stock at this time.
On behalf of the Board, I thank you for your support and ask you to vote in
favor of the Reorganization Agreement and the Starwave Merger.
Sincerely,
/s/ Michael B. Slade
Michael B. Slade
Chief Executive Officer
YOUR VOTE IS IMPORTANT--PLEASE RETURN YOUR PROXY PROMPTLY
<PAGE>
STARWAVE CORPORATION
(A WASHINGTON CORPORATION)
13810 S.E. EASTGATE WAY, SUITE 400
BELLEVUE, WASHINGTON 98005
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 18, 1998
---------------
TO THE SHAREHOLDERS OF STARWAVE:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Starwave
Shareholders Meeting") of Starwave Corporation, a Washington corporation
("Starwave"), will be held on November 18, 1998 at 10:00 a.m., local time, at
the Bellevue Hilton, located at 100-112th Avenue N.E., Bellevue, Washington
98004, to consider and vote upon the following proposal:
Approval and adoption of an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of June 18, 1998, among Infoseek
Corporation, a California corporation ("Infoseek"), Infoseek Corporation, a
newly organized Delaware corporation ("Infoseek Delaware"), Starwave and
Disney Enterprises, Inc., a Delaware corporation, and the acquisition of
Starwave pursuant to an Agreement and Plan of Merger contemplated by the
Reorganization Agreement by and among Infoseek Delaware, Starwave, and
Starwave Acquisition Corp., a newly formed Washington corporation and
wholly- owned subsidiary of Infoseek Delaware ("Starwave Merger Sub"),
whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right
to receive approximately 0.26 shares (the "Exchange Ratio") of Infoseek
Delaware common stock, subject to potential adjustment as described in the
attached Joint Proxy Statement/Prospectus (the "Starwave Merger"), with the
result that Starwave will become a wholly-owned subsidiary of Infoseek
Delaware. Shareholders should note that, in light of the fixed number of
shares of Infoseek Delaware common stock issuable in connection with the
Starwave Merger, the issuance of shares of Starwave capital stock (not
subject to outstanding options, warrants, or other rights to acquire
Starwave capital stock) or the grant or issuance of additional options,
warrants or other rights to acquire Starwave capital stock subsequent to
the date hereof will result in a proportional adjustment to the Exchange
Ratio.
Information relating to the above proposal is set forth in the attached
Joint Proxy Statement/Prospectus. Shareholders of record at the close of
business on October 9, 1998 (the "Record Date") are entitled to notice of, and
to vote at, the Starwave Shareholders Meeting and any adjournments or
postponements thereof. Approval and adoption of the Reorganization Agreement
and approval of the Starwave Merger described above will require the
affirmative vote of the holders of a majority of the shares of Starwave Class
A and Class B Common Stock outstanding on the Record Date voting together
without regard to class. All shareholders are cordially invited to attend the
Starwave Shareholders Meeting in person. Shareholders are or may be entitled
to assert dissenters' rights in connection with the Starwave Merger described
above under Chapter 23B.13 of the Washington Business Corporation Act, a copy
of which is attached to the enclosed Joint Proxy Statement/Prospectus.
By order of the Board of Directors
/s/ Michael B. Slade
Michael B. Slade
Chief Executive Officer
Bellevue, Washington
October 14, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE STARWAVE SHAREHOLDERS MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
[LOGO OF INFOSEEK CORPORATION] [LOGO OF STARWAVE CORPORATION]
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS
OF
SHAREHOLDERS OF INFOSEEK CORPORATION, A CALIFORNIA CORPORATION
AND
SHAREHOLDERS OF STARWAVE CORPORATION, A WASHINGTON CORPORATION
TO BE HELD ON NOVEMBER 18, 1998
----------------
INFOSEEK CORPORATION
(A DELAWARE CORPORATION)
----------------
PROSPECTUS
THE BELOW MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGERS ARE COMPLEX TRANSACTIONS. THE
SHAREHOLDERS OF EACH OF INFOSEEK AND STARWAVE ARE URGED TO READ AND CONSIDER
CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, INCLUDING THE
MATTERS REFERRED TO BEGINNING ON PAGE 21 UNDER "RISK FACTORS."
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATE-
MENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
----------------
No person has been authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby, and, if given, any such information or
representation must not be relied upon as having been authorized by Infoseek,
Starwave or any other person. This Joint Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities or the solicitation of a proxy in any jurisdiction to or from any
person to or from whom it is not lawful to make any such offer or solicitation
in such jurisdiction. Neither the delivery of this Joint Proxy
Statement/Prospectus nor any distribution of securities hereunder shall create
under any circumstances any implication that there has been no change in the
affairs of Infoseek or Starwave since the date hereof, or that any information
herein is correct as of any time subsequent to the date as of which such
information is provided.
----------------
For purposes of this Joint Proxy Statement/Prospectus, (i) references to
"Infoseek" without further modification shall be deemed to refer to Infoseek
Corporation, a California corporation ("Infoseek California"), prior to the
Infoseek Merger (as defined below), and to Infoseek Corporation, a Delaware
corporation ("Infoseek Delaware") and its subsidiaries, after the Infoseek
Merger (as defined below); (ii) references to "Disney" shall be deemed to
refer to The Walt Disney Company, a Delaware corporation (as a single entity,
"The Walt Disney Company"), and, unless the context otherwise requires, its
subsidiaries, including Disney Enterprises, Inc., a Delaware corporation
("DEI") and the principal operating subsidiary of The Walt Disney Company; and
(iii) references to "Starwave" shall be deemed to refer to Starwave
Corporation, a Washington corporation.
(Continued on next page)
----------------
This Joint Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to shareholders of Infoseek and Starwave on or about
October 14, 1998.
The date of this Joint Proxy Statement/Prospectus is October 14, 1998.
<PAGE>
(Continued from previous page)
This Joint Proxy Statement/Prospectus is being furnished to the holders of
common stock of Infoseek California in connection with the solicitation of
proxies by the Board of Directors of Infoseek for use at the Special Meeting
of Shareholders of Infoseek (the "Infoseek Shareholders Meeting") to be held
on November 18, 1998, or any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Special Meeting of
Shareholders of Infoseek. The Infoseek Shareholders Meeting will be held at
the principal offices of Infoseek, 1399 Moffett Park Drive, Sunnyvale,
California 94089.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of common stock of Starwave in connection with the solicitation of proxies by
the Board of Directors of Starwave for use at the Special Meeting of
Shareholders of Starwave (the "Starwave Shareholders Meeting") to be held on
November 18, 1998, or any adjournment or postponement thereof for the purposes
set forth in the accompanying Notice of Special Meeting of Shareholders of
Starwave. The Starwave Shareholders Meeting will be held at the Bellevue
Hilton, 100-112th Avenue N.E., Bellevue, Washington 98004.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Infoseek Delaware with respect to the issuance of shares of common stock of
Infoseek Delaware to be issued to holders of outstanding shares of Starwave
Class A Common Stock and Class B Common Stock (all such Class A and Class B
shares are referred to collectively herein as "Starwave common stock") upon
consummation of the Starwave Merger (as defined below) and with respect to the
issuances of shares of common stock of Infoseek Delaware to be issued to
holders of outstanding shares of Infoseek California common stock upon
consummation of the Infoseek Merger (as defined below). See "Terms of the
Mergers." Infoseek Delaware is a newly formed Delaware corporation and
presently is a wholly-owned subsidiary of Infoseek California. Infoseek
Delaware has not conducted business activities to date.
Infoseek California, Infoseek Delaware, Starwave and DEI have entered into
an Agreement and Plan of Reorganization, dated as of June 18, 1998 (the
"Reorganization Agreement"). Pursuant to the Reorganization Agreement,
Infoseek is proposing to acquire Starwave, which is currently approximately
91% owned by DEI (excluding shares underlying options outstanding under
Starwave stock option plans), and to establish a new holding company structure
which involves a reincorporation into Delaware, the result of which would be
that each of Starwave and Infoseek California would be wholly-owned
subsidiaries of Infoseek Delaware. Infoseek Delaware would thereafter be the
registered public company, the shares of which would be traded on The Nasdaq
Stock Market ("Nasdaq") and would be held by the former shareholders of
Infoseek California and Starwave. Accordingly, initially the business of
Infoseek Delaware will consist primarily of holding the capital stock of
Infoseek California and Starwave, and each of Infoseek California and Starwave
will continue to operate their current businesses. In addition, Infoseek and
Disney have proposed to establish a strategic relationship concerning the
development, launch and promotion of a planned new Internet portal service to
be named Go Network(TM) that would combine certain content, promotion, brands
and technologies of Infoseek, Starwave, and its joint ventures relating to
ESPN SportsZone and ABCNews.com, and Disney, and would provide for universal
navigation, registration, community and commerce services across the web sites
comprising the service, including not only Infoseek and Starwave sites but
also ESPN SportsZone, ABCNews.com and certain Disney web sites.
The Reorganization Agreement, among other things, provides for: (i) a
reincorporation transaction pursuant to an Agreement and Plan of Merger by and
among Infoseek California, Infoseek Delaware and ICO Acquisition Corp., a
newly formed California corporation and wholly-owned subsidiary of Infoseek
Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub will be merged
with and into Infoseek California and each outstanding share of Infoseek
California common stock will be converted into the right to receive one share
of Infoseek Delaware common stock (the "Infoseek Merger"); and (ii) the
acquisition of Starwave pursuant to an Agreement and Plan of Merger by and
among Infoseek Delaware, Starwave and Starwave Acquisition Corp., a newly
formed Washington corporation and wholly-owned subsidiary of Infoseek Delaware
("Starwave Merger Sub"), whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
<PAGE>
(Continued from previous page)
Delaware common stock (the "Starwave Merger"), subject to adjustment under
certain circumstances (the "Exchange Ratio"). The Exchange Ratio for the
Starwave Merger is equal to the quotient obtained by dividing: (x) 28,138,000
shares by (y) the aggregate number of shares of Starwave capital stock
outstanding and issuable upon exercise of options, warrants, or other rights
to acquire Starwave capital stock as of the effective time of the Starwave
Merger. Based on the outstanding capitalization of Starwave as of October 9,
1998, the applicable Exchange Ratio would be approximately 0.26 shares as
indicated above. Issuance of shares of Starwave capital stock (not subject to
outstanding options, warrants or other rights to acquire Starwave capital
stock) or the grant or issuance of additional options, warrants or other
rights to acquire Starwave capital stock subsequent to the Record Date shall
result in a proportional adjustment to the Exchange Ratio based upon the
foregoing formula. The Reorganization Agreement does not provide for a minimum
Exchange Ratio or a right of termination based upon any reductions in the
Exchange Ratio that may arise from any issuance of additional shares of
capital stock or rights to acquire capital stock by Starwave. Starwave
management does not currently anticipate any material increase in the
outstanding shares of Starwave capital stock prior to the consummation of the
Mergers (other than issuance of shares upon exercise of outstanding stock
options). Should Starwave issue additional capital stock (or rights to acquire
such capital stock) in excess of 10% of the total outstanding capital stock of
Starwave as of October 9, 1998, shareholders of Infoseek and Starwave will
receive a revised solicitation relating to the transactions described herein.
The Infoseek Merger and the Starwave Merger are collectively referred to in
this Joint Proxy Statement/Prospectus as the "Mergers."
Infoseek common stock is listed for quotation on Nasdaq under the symbol
"SEEK." On June 17, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement,
the high and low sales prices of Infoseek common stock on Nasdaq were $35 1/8
and $33 3/8 per share, respectively. On October 9, 1998, the high and low
sales prices of Infoseek common stock were $20 1/8 and $17 7/8 per share,
respectively. Because the number of shares of Infoseek to be issued to the
holders of Starwave common stock and in respect of outstanding options to
acquire Starwave common stock is fixed at 28,138,000, changes in the market
price of Infoseek common stock will affect the dollar value of Infoseek common
stock to be received by shareholders of Starwave in the Starwave Merger.
Because shareholders of Infoseek California will receive one share of Infoseek
Delaware common stock for each share of Infoseek California common stock,
changes in market price will not affect the number of shares of Infoseek
California common stock issued in the Infoseek Merger. Shareholders of
Starwave are encouraged to obtain current market quotations for Infoseek
common stock prior to the Starwave Shareholders Meeting. It is a condition of
the obligations of Infoseek and Starwave to consummate the Mergers that the
shares of Infoseek Delaware common stock to be issued in the Mergers be
approved for listing on Nasdaq, subject only to official notice of issuance.
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORWARD-LOOKING STATEMENTS............................................... 1
AVAILABLE INFORMATION.................................................... 1
PROSPECTUS DELIVERY...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
TRADEMARKS............................................................... 2
SUMMARY.................................................................. 3
Overview of Mergers and Related Transactions........................... 3
Description of Reorganization Agreement and Related Agreements......... 4
The Companies.......................................................... 6
Date and Place of the Meetings......................................... 7
Purpose of the Meetings; The Mergers................................... 7
Record Date............................................................ 8
Infoseek California Shareholders Entitled to Vote...................... 8
Starwave Shareholders Entitled to Vote................................. 8
Votes Required......................................................... 9
Solicitation of Proxies................................................ 9
Appraisal Rights of Dissenting Infoseek California Shareholders........ 9
Appraisal Rights of Dissenting Starwave Shareholders................... 10
The Reorganization Agreement........................................... 10
Stock Ownership Following the Mergers and Related Transactions......... 11
Recommendations; Fairness Opinion...................................... 12
Governmental and Regulatory Matters.................................... 12
Certain Federal Income Tax Consequences................................ 12
Anticipated Accounting Treatment....................................... 13
Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Merger................................................. 13
Nasdaq Listing......................................................... 13
Stock Options.......................................................... 13
Anti-takeover Provisions of Delaware Law and Infoseek Delaware's
Charter Documents..................................................... 14
Market Price Information............................................... 14
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL INFORMATION AND
COMPARATIVE PER SHARE DATA.............................................. 15
Infoseek California Selected Financial Information..................... 15
Starwave Selected Financial Information................................ 16
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.... 17
Selected Unaudited Pro Forma Combined Condensed Financial Data......... 18
COMPARATIVE PER SHARE DATA............................................... 19
MARKET PRICE INFORMATION................................................. 20
RISK FACTORS............................................................. 21
Risks Related to the Combined Companies, the Mergers and Related
Transactions.......................................................... 21
Risks Related to Starwave's Business................................... 28
Risks Related to Infoseek's Business................................... 34
INFOSEEK SHAREHOLDERS MEETING............................................ 43
Date, Time and Place of Infoseek Shareholders Meeting.................. 43
Purpose................................................................ 43
Record Date and Outstanding Shares..................................... 43
Vote Required.......................................................... 43
Proxies................................................................ 44
Recommendation of Infoseek Board of Directors.......................... 44
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STARWAVE SHAREHOLDERS MEETING............................................ 45
Date, Time and Place of Starwave Shareholders Meeting.................. 45
Purpose................................................................ 45
Record Date and Outstanding Shares..................................... 45
Vote Required.......................................................... 45
Proxies................................................................ 45
Recommendation of Starwave Board of Directors.......................... 46
THE MERGERS AND RELATED TRANSACTIONS..................................... 47
Background of the Mergers and Related Agreements....................... 47
Recommendation of Infoseek Board of Directors and Reasons for the
Mergers............................................................... 50
Recommendation of Starwave Board of Directors and Reasons for the
Merger................................................................ 53
Opinion of Infoseek's Financial Advisor................................ 54
Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Mergers................................................ 59
Certain Federal Income Tax Consequences................................ 60
Governmental and Regulatory Matters.................................... 61
Accounting Treatment................................................... 62
Stock Exchange Listing................................................. 62
Rights of Dissenting Infoseek Shareholders............................. 62
Rights of Dissenting Starwave Shareholders............................. 64
TERMS OF THE MERGERS..................................................... 66
Terms of the Mergers................................................... 66
Consideration in the Mergers........................................... 68
Representations and Warranties......................................... 69
Conduct of Business of Starwave Pending the Mergers.................... 69
Conduct of Infoseek California's Business Pending the Mergers.......... 71
Solicitation of Alternative Transactions............................... 71
Conditions to the Mergers.............................................. 73
Termination of the Reorganization Agreement............................ 74
Termination Fees....................................................... 77
Indemnification of Officers and Directors.............................. 78
Other Covenants........................................................ 78
Shareholder Agreements................................................. 79
DESCRIPTION OF RELATED AGREEMENTS........................................ 81
Equity and Governance Agreements....................................... 81
Licensing and Commercial Agreements.................................... 87
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.............. 91
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..... 95
INFOSEEK SELECTED CONSOLIDATED FINANCIAL DATA............................ 103
INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 105
INFOSEEK BUSINESS........................................................ 117
INFOSEEK MANAGEMENT...................................................... 125
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF INFOSEEK.. 129
STARWAVE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 131
STARWAVE BUSINESS........................................................ 142
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF
STARWAVE............................................................... 145
MANAGEMENT OF STARWAVE.................................................. 147
STARWAVE EXECUTIVE COMPENSATION......................................... 148
CERTAIN TRANSACTIONS OF STARWAVE........................................ 152
REASONS FOR INCORPORATION OF THE HOLDING COMPANY IN DELAWARE............ 154
Principal Reasons for Reincorporation................................ 154
No Change in the Name, Business, Management, Employee Benefit Plans
or Location of Principal Facilities of Infoseek..................... 155
Antitakeover Implications............................................ 155
COMPARISON OF CAPITAL STOCK............................................. 158
Description of Infoseek Delaware Capital Stock....................... 158
Description of Infoseek California Capital Stock..................... 158
Description of Starwave Capital Stock................................ 159
Comparison of Capital Stock of Infoseek California and Infoseek
Delaware............................................................ 160
Comparison of Capital Stock of Starwave and Infoseek Delaware........ 166
LEGAL MATTERS........................................................... 172
EXPERTS................................................................. 172
STARWAVE CORPORATION INDEX TO FINANCIAL STATEMENTS...................... F-1
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS........................ F-17
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS.................... F-26
QUANDO, INC. INDEX TO FINANCIAL STATEMENTS.............................. F-35
ANNEX A-1 Agreement and Plan of Reorganization, dated as of June 18,
1998, by and among Infoseek Delaware, Infoseek California,
Starwave and DEI............................................ A-1
ANNEX A-2 Agreement and Plan of Merger by and among Infoseek Delaware,
Infoseek California and Infoseek Merger Sub................. A-2-1
ANNEX A-3 Agreement and Plan of Merger by and among Infoseek Delaware,
Starwave, and Starwave Merger Sub........................... A-3-1
ANNEX B-1 Chapter 13 of the California General Corporation Law......... B-1-1
ANNEX B-2 Chapter 23B.13 of the Washington Business Corporation Act.... B-2-1
ANNEX C Opinion of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated................................................ C-1
ANNEX D-1 Amended and Restated Certificate of Incorporation of Infoseek
Delaware.................................................... D-1-1
ANNEX D-2 Bylaws of Infoseek Delaware.................................. D-2-1
</TABLE>
iii
<PAGE>
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains certain forward-looking
statements, including without limitation, statements with respect to the
expected financial and operating impact of the Mergers and with respect to the
planned New Portal Service (as defined under the caption "Summary") that
involve risks and uncertainties. For this purpose, the reasons for the Mergers
discussed under the caption "The Mergers and Related Transactions" and
statements about the expected impact of the Mergers on Infoseek's or
Starwave's business, operations and financial performance and condition,
accounting and tax treatment of the Mergers are forward-looking statements.
Further, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Forward-looking
statements made herein are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially. Without limiting the foregoing, the words "projects," "believes,"
"anticipates," "plans," "expects," "intends" and similar words or expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause results to differ materially from those
indicated by such forward-looking statements, including among others those
factors set forth in this Joint Proxy Statement/Prospectus under the caption
"Risk Factors." Neither Infoseek nor Starwave undertakes any obligation to
update any forward-looking statements.
To the extent that statements contained in a document incorporated or deemed
incorporated by reference herein are made by Infoseek California and refer to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and/or Section 21E of the Securities Act of
1934, as amended (the "Exchange Act"), such statements, to the extent
incorporated or deemed incorporated by reference in this Joint Proxy
Statement/Prospectus, shall not be deemed to be incorporated with such
reference to the safe harbor provisions of Section 27A of the Securities Act
and/or Section 21E of the Exchange Act.
AVAILABLE INFORMATION
Infoseek California is and at closing of the Mergers (as defined herein)
Infoseek Delaware will be subject to the information reporting requirements of
the Exchange Act, and in accordance therewith, file reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained by
mail from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC at the address http://www.sec.gov. Infoseek common stock is listed on
Nasdaq, and such reports, proxy statements and other information can also be
inspected at the offices of The Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Infoseek Delaware has filed with the SEC a Registration Statement on Form S-
4 (herein referred to, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement. Copies of the Registration
Statement and the exhibits and schedules thereto are available as described
above.
PROSPECTUS DELIVERY
UNTIL TWENTY FIVE DAYS FOLLOWING THIS OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Infoseek California
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and
June 30, 1998;
3. Current Report on Form 8-K filed on January 28, 1998;
4. Current Report on Form 8-K filed on May 22, 1998, as amended on August
10, 1998; and
5. The description of Infoseek common stock contained in the Registration
Statement on Form 8-A filed with the SEC on or about June 5, 1996.
All documents and reports filed by Infoseek California pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this Joint
Proxy Statement/Prospectus and the date of the Infoseek Shareholders Meeting
shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be part hereof from the dates of filing of such
documents and reports. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other documents filed as an
exhibit to the Registration Statement or incorporated by reference therein, or
attached as an annex hereto, each such statement being qualified in all
respects by such reference.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Infoseek California or Infoseek Delaware has
been supplied by Infoseek and all information relating to Starwave has been
supplied by Starwave.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
RELATING TO INFOSEEK CALIFORNIA THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE,
WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY ANY PERSON TO WHOM THIS JOINT
PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED FROM INFOSEEK CORPORATION, 1399
MOFFETT PARK DRIVE, SUNNYVALE, CALIFORNIA 94089, ATTENTION: INVESTOR
RELATIONS; TELEPHONE NUMBER: (408) 543-6000. IN ORDER TO ASSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE INFOSEEK SHAREHOLDERS MEETING, ANY SUCH
REQUEST SHOULD BE MADE PRIOR TO NOVEMBER 11, 1998.
----------------
TRADEMARKS
Infoseek(R), the Infoseek logo, Ultraseek(R) and Ultramatch(R) are among the
registered trademarks of Infoseek and Starwave(R), SportsZone(R) and Mr.
Showbiz(R) are among the registered trademarks of Starwave. Go Network(TM) is
a trademark of Disney. This Joint Proxy Statement/Prospectus also refers to
trademarks held by other corporations.
2
<PAGE>
SUMMARY
The following contains a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and the Annexes hereto. This summary
does not contain a complete statement of all material elements of the
Reorganization Agreement and the other agreements executed in connection with
the transaction described under "Description of Related Agreements" below (the
"Related Agreements") and the various transactions contemplated thereby,
including the Mergers (as defined below) and is subject to, and is qualified
by, the more detailed information appearing elsewhere in this Joint Proxy
Statement/Prospectus and in the information and documents annexed hereto or
attached as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
OVERVIEW OF MERGERS AND RELATED TRANSACTIONS
Infoseek California, Infoseek Delaware, Starwave and DEI entered into the
Reorganization Agreement on June 18, 1998. Pursuant to the Reorganization
Agreement, Infoseek is proposing to acquire Starwave, which is currently
approximately 91% owned by DEI (excluding shares underlying options outstanding
under Starwave stock option plans), and to establish a new holding company
structure which involves a reincorporation into Delaware, the result of which
would be that each of Starwave and Infoseek California would be wholly-owned
subsidiaries of Infoseek Delaware. Infoseek Delaware would thereafter be the
registered public company, the shares of which would be traded on Nasdaq and
would be held by the former shareholders of Infoseek California and Starwave.
Accordingly, the business of Infoseek Delaware will initially consist primarily
of holding the capital stock of Infoseek California and Starwave, and each of
Infoseek California and Starwave will continue to operate their current
businesses. In addition, Infoseek and Disney have proposed to establish a
strategic relationship concerning the development, launch and promotion of a
planned new Internet portal service to be named Go Network(TM) (the "New Portal
Service") that would combine certain content, promotion, brands and
technologies of Infoseek, Starwave and its joint ventures relating to ESPN
SportsZone, ABCNews.com, and Disney, and, as currently planned, would provide
for universal navigation, registration, community and commerce services across
the web sites comprising the service, including not only Infoseek and Starwave
sites but also ESPN SportsZone, ABCNews.com and certain Disney web sites.
The Boards of Directors of each of Infoseek California and Starwave have
unanimously approved the Reorganization Agreement, the Mergers and the several
transactions contemplated thereby and by the Related Agreements and have
unanimously recommended their approval by the shareholders of Infoseek
California and Starwave, respectively. Infoseek and Starwave believe that,
through the Mergers and the related transactions with Disney, including the
planned development, launch and promotion of the planned New Portal Service,
the combined companies will be better positioned to compete more effectively in
the rapidly developing and changing Internet market. Infoseek also believes
that an alliance with a major media company, such as Disney, with its strong
brand recognition and promotional capabilities, rich content assets and other
resources will better enable Infoseek to achieve its long-term strategic
objectives in an Internet market that Infoseek believes increasingly will
require portal services to integrate a more robust array of multimedia content
and services. As such, Infoseek believes that its future success in part will
depend upon its ability to leverage the promotional capabilities of Disney and
to effectively and timely integrate such content and services, including but
not limited to further advancements in search and directory and other
technologies and functionality, development of on-line communities,
implementation of electronic commerce, and provision of rich and diverse
multimedia content. Infoseek and Starwave believe that the planned New Portal
Service offers a potentially unique opportunity to address the emerging demands
of the Internet market, its users and advertisers. See "Risk Factors--Risks
Related to the Combined Companies, the Mergers and Related Transactions--Risks
Related to Development, Launch and Acceptance of Planned New Portal Service."
3
<PAGE>
The Mergers contemplated by the Reorganization Agreement are illustrated by
the first diagram below and the holding company structure of Infoseek following
the Mergers is illustrated by the second diagram below.
[DIAGRAM]
----------------------------------------
[DIAGRAM]
DESCRIPTION OF REORGANIZATION AGREEMENT AND RELATED AGREEMENTS
The Reorganization Agreement, among other things, provides for: (i) a
reincorporation transaction pursuant to an Agreement and Plan of Merger by and
among Infoseek California, Infoseek Delaware and Infoseek Merger Sub, whereby
Infoseek Merger Sub will be merged with and into Infoseek California and each
outstanding share of Infoseek California common stock will be converted into
the right to receive one share of Infoseek Delaware common stock (the "Infoseek
Merger"); and (ii) the acquisition of Starwave pursuant to an Agreement and
Plan of Merger by and among Infoseek Delaware, Starwave, and Starwave Merger
Sub, whereby Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the right to
receive approximately 0.26 shares of Infoseek Delaware common stock (the
"Starwave Merger"), subject to adjustment under certain circumstances. The
Exchange Ratio for the Starwave Merger is equal to the quotient obtained by
dividing: (x) 28,138,000 shares by (y) the aggregate number of shares
4
<PAGE>
of Starwave capital stock outstanding and issuable upon exercise of options,
warrants, or other rights to acquire Starwave capital stock as of the effective
time of the Starwave Merger. Based on the outstanding capitalization of
Starwave as of October 9, 1998, the applicable Exchange Ratio would be
approximately 0.26 shares as indicated above. Issuance of shares of Starwave
capital stock (not subject to outstanding options, warrants or other rights to
acquire Starwave capital stock) or the grant or issuance of additional options,
warrants or other rights to acquire Starwave capital stock subsequent to such
date will result in a proportional decrease in the Exchange Ratio based upon
the foregoing formula (except to the extent such issuances are offset by any
cancellations of outstanding stock options). Accordingly, in light of potential
adjustments in the Exchange Ratio and potential variations in the market price
of Infoseek common stock, Starwave shareholders cannot be certain of the exact
amount of consideration that they will receive upon consummation of the
Starwave Merger, and such consideration may be less than Starwave shareholders
may anticipate based on the Exchange Ratio and the information regarding
historical market prices of Infoseek common stock as set forth in this Joint
Proxy Statement/Prospectus. Starwave management anticipates that, prior to
consummation of the Mergers, options to acquire Starwave common stock will be
issued to new or current employees of Starwave in the ordinary course of
business consistent with past practice, which issuances are not expected to
have a material impact on the Exchange Ratio. Starwave management does not
currently anticipate any material increase in the outstanding shares of
Starwave capital stock prior to the consummation of the Mergers (other than
issuance of shares upon exercise of outstanding stock options). Should Starwave
issue additional capital stock (or rights to acquire such capital stock) in
excess of 10% of the total outstanding capital stock of Starwave as of October
9, 1998, shareholders of Infoseek and Starwave will receive a revised
solicitation relating to the transactions described herein. Pursuant to the
Reorganization Agreement, unless Infoseek otherwise consents, Starwave is
prohibited from redeeming shares of its capital stock or any options or other
rights to acquire its capital stock, which redemptions would have the effect of
increasing the Exchange Ratio. The Infoseek Merger and the Starwave Merger are
collectively referred to in this Joint Proxy Statement/Prospectus as the
"Mergers."
In light of Disney's ownership interest in Starwave, Disney will receive
approximately 23,200,000 shares of Infoseek common stock as a result of the
Starwave Merger based upon the Exchange Ratio applicable as of October 9, 1998.
In addition, as part of the strategic transaction, and conditioned upon and
subject to consummation of the proposed Mergers, Disney has agreed to purchase
pursuant to a Common Stock and Warrant Purchase Agreement (the "Securities
Purchase Agreement") an additional 2,642,000 unregistered shares of Infoseek
common stock at a price of $26.50 per share and a warrant, subject to vesting,
to purchase an additional 15,720,000 unregistered shares of Infoseek common
stock (the "Warrant") at certain times, at certain prices and on certain
conditions, in exchange for approximately $70 million in cash and a $139
million five-year promissory note. The Warrant vests, subject to certain
acceleration events, and becomes exercisable as to one-third of the shares
subject to the Warrant on each of the first three anniversaries of the
effective time of the proposed Mergers at an exercise price equal to 120% of
the average of the closing sale prices of Infoseek common stock on Nasdaq for
the thirty trading days prior to each such vesting date, subject to a $50.00
per share maximum exercise price. See "Description of Related Agreements--
Equity and Governance Agreements."
Based on the capitalization of Infoseek California and Starwave as of the
Record Date (as defined below), upon consummation of the Mergers and the
additional stock and warrant issuances described above, Disney and its
affiliates would hold approximately 43% of Infoseek Delaware's outstanding
common stock and would have the right to acquire through the Warrant
exercisable over time an additional 15,720,000 shares of Infoseek Delaware
common stock or, on an aggregate basis together with the shares owned by
Disney, approximately 50.1% of the outstanding Infoseek common stock on a
fully-diluted basis assuming exercise of all outstanding options, warrants and
other rights to acquire Infoseek common stock (including those to be assumed or
issued in connection with the Mergers). Subject to consummation of the Mergers,
Disney would also have certain contractual rights to maintain its initial
percentage stock and warrant ownership through direct purchases from Infoseek
in the event of dilutive issuances. Further, upon closing of the Mergers, the
Infoseek Board of Directors would be expanded from five to eight members, with
three Disney designees being appointed to the Board.
5
<PAGE>
In contemplation of the substantial ownership position that Disney would hold
in Infoseek upon completion of the Mergers and the other equity issuances
described above, Infoseek and Disney have entered into a governance agreement
(the "Governance Agreement") with respect to a number of matters. Under the
Governance Agreement, for a period of three years following consummation of the
Mergers, subject to earlier termination under certain circumstances, Disney has
agreed, among other things, to standstill provisions to not acquire over 49.9%
of Infoseek's outstanding voting stock, to not solicit proxies or act with
another party for purposes of voting or acquiring shares of Infoseek voting
stock, and to not transfer its Infoseek shares except under certain
circumstances. The Governance Agreement also provides, among other things, for
supermajority Board approvals with respect to certain matters and, together
with Infoseek Delaware's charter, during the standstill period restricts
Disney's ability to proceed with a tender offer for or merger with Infoseek in
certain cases without the approval of members of the Infoseek Board not
designated by Disney, and during and following the standstill period requires
any Disney tender offer for Infoseek to be conditioned upon a majority of
disinterested Infoseek shareholders tendering their shares. See "Description of
Related Agreements--Equity and Governance Agreements."
Infoseek and Disney have also entered into a number of licensing and
commercial agreements contemplating the development, launch and promotion of
the planned New Portal Service, which agreements are to be effective upon and
subject to the consummation of the proposed Mergers. The planned New Portal
Service would be based, in part, upon certain intellectual property owned by
Disney to be licensed to Infoseek pursuant to the terms of a royalty-bearing
license agreement (the "License Agreement"). While owned and operated by
Infoseek, the planned New Portal Service would also be subject to an advisory
committee (consisting of one Infoseek representative and one Disney
representative) for oversight of activities relating to the service. In
connection with the New Portal Service, Disney's wholly-owned subsidiary, ABC,
Inc. ("ABC") has agreed to provide, and Infoseek has agreed to purchase, $165
million in promotional support and activities over five years. As part of such
promotion, Disney has agreed to co-brand all ABCNews.com and ESPN SportsZone
owned non-traditional media promotion with promotions for the New Portal
Service. Disney has also agreed to integrate Infoseek's search and directory
technology into its own Internet-based services. See "Description of Related
Agreements--Licensing and Commercial Agreements."
In connection with and subject to consummation of the Starwave Merger, Disney
has also agreed to amend certain aspects of the partnership agreements between
Starwave Ventures, a Washington corporation and a wholly owned subsidiary of
Starwave ("Starwave Partner"), and ESPN Online Investments, Inc.
("ESPN Partner") and the partnership agreements between Starwave Partner and
DOL Online Investments, Inc. ("ABC Partner") relating primarily to ESPN
SportsZone and ABC News.com, respectively (such partnerships being hereinafter
referred to respectively as the "ESPN Joint Venture" and the "ABC News Joint
Venture" and, collectively, as the "Joint Ventures"). Starwave has also agreed
to act pursuant to representation agreements (the "ESPN Representation
Agreement" and the "ABC Representation Agreement," respectively), as the
representative of the ESPN Joint Venture and the ABCNews Joint Venture for the
sale of advertising services. See "Description of Related Agreements--Licensing
and Commercial Agreements".
THE COMPANIES
Infoseek California. Infoseek Corporation, a California corporation, provides
leading Internet search and navigation technology, products and services that
use the Web to connect its viewers' personal, work and community lives. As a
"connected" media company, Infoseek is able to segment viewers by interest
area, providing advertisers with focused and targeted audiences. The Infoseek
Service (as defined below) is a comprehensive Internet gateway that combines
search and navigation with directories of relevant information sources and
content sites, offers chat and instant messaging for communicating shared
interests and facilitates the purchase of related goods and services. The
mailing address of Infoseek California's principal executive offices is 1399
Moffett Park Drive, Sunnyvale, California 94089; its telephone number at that
address is (408) 543-6000. See "Infoseek Business."
6
<PAGE>
Starwave. Starwave Corporation, a Washington corporation, is a producer of
Internet-based online services in specific content areas with broad consumer
appeal. Starwave is recognized for its prominent role in sports, news and
entertainment services. Through its partnerships with Disney, Starwave produces
such services as ESPN SportsZone and ABC News.com, as well as additional news-
and sports-related services such as Mr. Showbiz, Wall of Sound, CelebSite,
MoneyScope, NBA.com, NFL.com, NASCAR Online and Outside Online. Starwave was
incorporated in 1991 under the laws of the State of Washington and has its
principal executive offices at 13810 S.E. Eastgate Way, Suite 400, Bellevue,
Washington 98005, and its telephone number at that address is (425) 957-2000.
See "Starwave Business."
Infoseek Delaware. Infoseek Corporation, a Delaware corporation, is currently
a wholly-owned subsidiary of Infoseek California and has been formed for the
purpose of effecting the reincorporation of Infoseek California in connection
with the Infoseek Merger and has not conducted business activities to date. As
a result of both Mergers, Starwave and Infoseek California will become wholly-
owned subsidiaries of Infoseek Delaware. Accordingly, the business of Infoseek
Delaware will consist primarily of holding the capital stock of Infoseek
California and Starwave. The mailing address and telephone number of Infoseek
Delaware's principal executive offices are the same as those of Infoseek
California. See "Reasons for Incorporation of the Holding Company in Delaware."
ICO Acquisition Corp. ICO Acquisition Corp. is a newly organized California
corporation formed solely for the purpose of effecting the Infoseek Merger and
is occasionally referred to herein as "Infoseek Merger Sub." The mailing
address and telephone number of ICO Acquisition Corp.'s offices are the same as
those of Infoseek California.
Starwave Acquisition Corp. Starwave Acquisition Corp. is a newly organized
Washington corporation formed solely for the purpose of effecting the Starwave
Merger and is occasionally referred to herein as "Starwave Merger Sub." The
mailing address and telephone number of Starwave Acquisition Corp.'s offices
are the same as those of Infoseek California.
DATE AND PLACE OF THE MEETINGS
A special meeting of the shareholders of Infoseek California (the "Infoseek
Shareholders Meeting") will be held on November 18, 1998, at 10:00 a.m., local
time, at the offices of Infoseek, 1399 Moffett Park Drive, Sunnyvale,
California 94089. See "Infoseek Shareholders Meeting."
A special meeting of the shareholders of Starwave (the "Starwave Shareholders
Meeting") will be held on November 18, 1998 at 10:00 a.m., local time, at the
Bellevue Hilton, located at 100-112th Avenue, N.E., Bellevue, Washington 98004.
See "Starwave Shareholders Meeting."
PURPOSE OF THE MEETINGS; THE MERGERS
The Infoseek Shareholders Meeting. At the Infoseek Shareholders Meeting, the
shareholders of Infoseek California will be asked to consider and vote upon the
following proposals, approval of both of which are conditions to the Mergers:
(1) approval and adoption of the Reorganization Agreement and approval of
a reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
Infoseek California, Infoseek Delaware and Infoseek Merger Sub, whereby
Infoseek Merger Sub will be merged with and into Infoseek California and
each outstanding share of Infoseek California common stock will be
converted into the right to receive one share of Infoseek Delaware common
stock, with the result that Infoseek California will become a wholly-owned
subsidiary of Infoseek Delaware; and
7
<PAGE>
(2) the issuance of 28,138,000 shares of Infoseek Delaware common stock
to the shareholders of Starwave in connection with the acquisition of
Starwave, as contemplated by the Reorganization Agreement, pursuant to an
Agreement and Plan of Merger by and among Infoseek Delaware, Starwave and
Starwave Merger Sub, whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
Delaware common stock, subject to adjustment as described herein, with the
result that Starwave will become a wholly-owned subsidiary of Infoseek
Delaware, and the issuance to Disney of 2,642,000 shares of Infoseek
Delaware common stock and a Warrant to purchase an additional 15,720,000
shares of Infoseek Delaware common stock pursuant to the Securities
Purchase Agreement (and the shares underlying such Warrant).
The Starwave Shareholders Meeting. At the Starwave Shareholders Meeting, the
shareholders of Starwave will be asked to consider and vote upon the following
proposal, approval of which is a condition to the Merger:
Approval and adoption of the Reorganization Agreement and the acquisition
of Starwave, pursuant to an Agreement and Plan of Merger contemplated by
the Reorganization Agreement by and among Infoseek Delaware, Starwave and
Starwave Merger Sub, whereby Starwave Merger Sub will be merged with and
into Starwave and each outstanding share of Starwave common stock will be
converted into the right to receive approximately 0.26 shares of Infoseek
Delaware common stock, subject to potential adjustment as described herein,
with the result that Starwave will become a wholly-owned subsidiary of
Infoseek Delaware.
No fractional shares of Infoseek Delaware common stock will be issued, and
cash will be paid in lieu of such fractional shares to the shareholders of
Starwave.
RECORD DATE
The close of business on October 9, 1998 is the record date for determination
of (1) holders of Infoseek California common stock entitled to vote at the
Infoseek Shareholders Meeting as well as (2) holders of Starwave common stock
entitled to vote at the Starwave Shareholders Meeting (the "Record Date").
INFOSEEK CALIFORNIA SHAREHOLDERS ENTITLED TO VOTE
As of October 9, 31,508,312 shares of Infoseek California common stock were
outstanding. As of such date the Infoseek California common stock was held by
approximately 570 holders of record. As of such date, directors and executive
officers of Infoseek California and their affiliates may be deemed to be
beneficial owners of shares of Infoseek California common stock representing
approximately 26% of the outstanding voting power of Infoseek California. In
connection with the Mergers, certain directors and officers of Infoseek
California, together holding approximately 22% of the outstanding voting power
of Infoseek California as of the Record Date, have agreed, among other things,
to vote their shares in favor of the Reorganization Agreement and the Mergers
and against any competing proposals, and, for a period of time, to vote their
shares in favor of the nominees to the Board of Directors presented by
management. See "Terms of the Mergers--Shareholder Agreements--Infoseek
California."
STARWAVE SHAREHOLDERS ENTITLED TO VOTE
As of October 9, 97,535,287 shares of Starwave common stock were outstanding.
As of such date, the Starwave common stock was held by approximately 280
holders of record. As of such date, directors and executive officers of
Starwave and their affiliates, including Disney, may be deemed to be beneficial
owners of approximately 94% of the outstanding shares of Starwave common stock.
In connection with the Mergers, certain directors and officers of Starwave and
their affiliates, including Disney, collectively holding approximately 94% of
the outstanding voting power of Starwave as of the Record Date, have agreed,
among other things, to vote
8
<PAGE>
their shares in favor of the Reorganization Agreement and the Starwave Merger
and against any competing proposals. See "Terms of the Mergers--Shareholder
Agreements--Starwave." Accordingly, holders of a number of shares of Starwave
common stock sufficient to approve the Reorganization Agreement and the
Starwave Merger have already agreed to vote in favor of the proposal.
VOTES REQUIRED
Infoseek California. Approval and adoption of the Reorganization Agreement
and approval of the Infoseek Merger will require the affirmative vote of the
holders of a majority of the voting shares of Infoseek California common stock
entitled to vote thereon. Because the issuance of Infoseek Delaware common
stock pursuant to the Starwave Merger and the issuance of Infoseek Delaware
common stock and the Warrant to Disney pursuant to the Securities Purchase
Agreement involve the issuance of Infoseek Delaware common stock in excess of
20% of the total number of shares of Infoseek California currently outstanding,
the National Association of Securities Dealers, Inc. (the "NASD") requires that
such transactions be approved by the affirmative vote of the holders of a
majority of the common stock present (in person or by proxy) at the Infoseek
Shareholders Meeting and entitled to vote thereon.
Starwave. Approval and adoption of the Reorganization Agreement and approval
of the Starwave Merger will require the affirmative vote of the holders of a
majority of the outstanding shares of Starwave common stock entitled to vote
thereon voting together without regard to class.
SOLICITATION OF PROXIES
The expenses of the respective solicitations (including mailing costs) for
the Infoseek Shareholders Meeting and the Starwave Shareholders Meeting will be
equally borne by Infoseek and Starwave, respectively, and Infoseek and Disney
will share equally the cost of the filing and printing of this Joint Proxy
Statement/Prospectus and the forms of proxy to the Infoseek shareholders and
the Starwave shareholders. In addition to solicitation by mail, directors,
officers and employees of Infoseek may solicit proxies by telephone, telegram
or otherwise. Such directors, officers and employees of Infoseek will not be
additionally compensated for such solicitation but may be reimbursed by
Infoseek for out-of-pocket expenses incurred in connection therewith. Infoseek
will request that brokerage firms, fiduciaries and other custodians forward
copies of the proxies and this Joint Proxy Statement/Prospectus to the
beneficial owners of shares of Infoseek California common stock held of record
by them and Infoseek will reimburse them for their reasonable expenses incurred
in forwarding such material. Infoseek has retained a proxy solicitation firm,
Morrow & Co., Inc. to aid it in the solicitation process for Infoseek
shareholders. Infoseek will pay fees of $17,500 to such firm, plus expenses,
with total costs anticipated to be approximately $100,000.
APPRAISAL RIGHTS OF DISSENTING INFOSEEK CALIFORNIA SHAREHOLDERS
Under Chapter 13 of the California General Corporation Law, Infoseek
California shareholders who vote against or abstain from voting on the Infoseek
Merger and file a demand for appraisal prior to the shareholder vote on the
Infoseek Merger have the right to obtain cash payment for the "fair value" of
their shares (exclusive of any appreciation or depreciation in anticipation of
the Starwave Merger); provided that holders of at least five percent of all
outstanding shares file demands for payment in accordance with the provisions
of Chapter 13. In order to exercise such rights, an Infoseek California
shareholder must comply with all the procedural requirements of Chapter 13, a
description of which is provided under "The Mergers and Related Transactions--
Rights of Dissenting Infoseek Shareholders," the full text of which is attached
to this Joint Proxy Statement/Prospectus as Annex B-1. Such "fair value" would
be determined in judicial proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Chapter 13 may result in loss
of such statutory appraisal rights. See "The Mergers and Related Transactions--
Rights of Dissenting Infoseek Shareholders."
9
<PAGE>
APPRAISAL RIGHTS OF DISSENTING STARWAVE SHAREHOLDERS
Under Chapter 23B.13 of the Washington Business Corporation Act, Starwave
shareholders who do not vote in favor of approval and adoption of the
Reorganization Agreement and approval of the Starwave Merger and who file a
written notice with Starwave prior to the shareholder vote on the Starwave
Merger have the right to obtain cash payment for the "fair value" of shares
(exclusive of any appreciation or depreciation in anticipation of the Starwave
Merger). In order to exercise such rights, a Starwave shareholder must comply
with all the procedural requirements of Chapter 23B.13, a description of which
is provided under "The Mergers and Related Transactions--Rights of Dissenting
Starwave Shareholders," and the full text of which is attached to this Joint
Proxy Statement/Prospectus as Annex B-2. Failure to take any of the steps
required under Chapter 23B.13 may result in loss of such statutory appraisal
rights. See "The Mergers and Related Transactions--Rights of Dissenting
Starwave Shareholders."
THE REORGANIZATION AGREEMENT
General. The Reorganization Agreement provides, among other things, for: (i)
the merger of Infoseek Merger Sub with and into Infoseek California, which will
result in Infoseek California, as the surviving corporation of the Infoseek
Merger, becoming a wholly owned subsidiary of Infoseek Delaware, and (ii) the
merger of Starwave Merger Sub with and into Starwave, which will result in
Starwave, as the surviving corporation of the Starwave Merger, becoming a
wholly owned subsidiary of Infoseek Delaware.
Conversion of Shares; Exchange Ratio. Upon consummation of the Mergers, each
outstanding share of Infoseek California common stock will be converted into
one share of Infoseek Delaware common stock, and each outstanding Starwave
share will be converted into the right to receive that number of shares of
Infoseek Delaware common stock equal to the Exchange Ratio. For a description
of Infoseek Delaware common stock, see "Comparison of Capital Stock--
Description of Infoseek Delaware Capital Stock." For summaries of the principal
differences between the rights of holders of Infoseek Delaware common stock, on
the one hand, and Infoseek California common stock and Starwave common stock,
on the other, see "Comparison of Capital Stock--Comparison of Capital Stock of
Infoseek California and Infoseek Delaware" and "--Comparison of Capital Stock
of Starwave and Infoseek Delaware."
No fractional shares of Infoseek Delaware common stock will be issued
pursuant to the Starwave Merger. In lieu of the issuance of any fractional
shares of Infoseek Delaware common stock, cash equal to the product of such
fractional share amount and the average closing sale price of Infoseek
California common stock on Nasdaq for the ten trading days prior to the closing
date of the Starwave Merger will be paid to holders in respect of any
fractional share of Infoseek Delaware common stock that would otherwise be
issuable.
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF INFOSEEK
CALIFORNIA COMMON STOCK (EXCEPT DISSENTING SHARES, IF ANY) SHALL, WITHOUT ANY
ACTION ON THE PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT AN EQUIVALENT
NUMBER OF SHARES OF INFOSEEK DELAWARE COMMON STOCK. HOLDERS OF INFOSEEK
CALIFORNIA COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING INFOSEEK
CALIFORNIA COMMON STOCK WITH THE ENCLOSED PROXY CARD. AS A RESULT, NO
CERTIFICATES REPRESENTING INFOSEEK CALIFORNIA COMMON STOCK WILL BE EXCHANGED IN
THE INFOSEEK MERGER.
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF STARWAVE
COMMON STOCK (EXCEPT DISSENTING SHARES, IF ANY) SHALL, WITHOUT ANY ACTION ON
THE PART OF THE HOLDER THEREOF, BE DEEMED TO REPRESENT THAT NUMBER OF SHARES OF
INFOSEEK DELAWARE COMMON STOCK EQUAL TO THE EXCHANGE RATIO MULTIPLIED BY THE
NUMBER OF SHARES REPRESENTED BY SUCH CERTIFICATE. HOLDERS OF STARWAVE COMMON
STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING STARWAVE COMMON
10
<PAGE>
STOCK WITH THE ENCLOSED PROXY CARD. IF THE TRANSACTION IS APPROVED, A LETTER OF
TRANSMITTAL WILL BE MAILED AFTER THE EFFECTIVE TIME TO EACH PERSON WHO WAS A
HOLDER OF OUTSTANDING SHARES OF STARWAVE COMMON STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME. STARWAVE SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING
STARWAVE COMMON STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN
ACCORDANCE WITH, THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL.
Conditions to the Mergers. The obligations of Infoseek California and
Starwave to consummate the Mergers are subject to the fulfillment of various
conditions, including, among others: (i) the requirement that no temporary
restraining order, preliminary or permanent injunction or other order issued by
a court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect; (ii) the
approval of the Reorganization Agreement and the Mergers by the shareholders of
Infoseek California and Starwave; (iii) listing of the Infoseek Delaware common
stock on Nasdaq; (iv) effectiveness of the Form S-4 Registration Statement of
which this Joint Proxy Statement/Prospectus is a part; and (v) effectiveness of
the Related Agreements described in "Description of Related Agreements" below.
See "Terms of the Mergers-- Conditions to the Mergers." Consummation of the
Mergers is also a condition to the several transactions contemplated by the
Securities Purchase Agreement and the Related Agreements.
Termination and Termination Fees. The Reorganization Agreement may be
terminated and the Mergers may be abandoned prior to the effective time either
before or after the approval by the shareholders of Infoseek California and
Starwave, or both, under the circumstances specified in the Reorganization
Agreement, including by mutual written agreement of Infoseek California and
Starwave and termination by either party if the Effective Time has not occurred
by December 31, 1998.
The Reorganization Agreement may also be terminated upon the occurrence of
certain circumstances, although such termination of the Reorganization
Agreement by Infoseek or Starwave in certain instances will result in payment
of the sum of $17 million (plus documented expenses up to $1.5 million) to the
other party. In addition, in certain circumstances the termination of the
Reorganization Agreement will give rise to the right of Disney to exercise one
or both of two options, consisting of the ability to obtain a nonexclusive
worldwide license, with certain rights to sublicense, to use the Infoseek
search technology and Infoseek communication technology in connection with the
development, operation and exploitation of Disney's and its affiliates' online
services, and the ability to have links to certain Disney online services
prominently placed within Infoseek's online services in exchange for an annual
fee to be paid by Disney. See "Terms of the Mergers--Termination of the
Reorganization Agreement" and "--Termination Fees."
STOCK OWNERSHIP FOLLOWING THE MERGERS AND RELATED TRANSACTIONS
Immediately following the Mergers and the consummation of the transactions
contemplated by the Securities Purchase Agreement, (i) the former holders of
Infoseek California common stock will collectively hold approximately 53% of
the issued and outstanding shares of Infoseek Delaware common stock; (ii) the
former holders of Starwave common stock, other than Disney, will collectively
hold approximately 4% of the issued and outstanding shares of Infoseek Delaware
common stock; and (iii) Disney will hold approximately 43% of the issued and
outstanding shares of Infoseek Delaware common stock, in each case on a primary
shares basis, based upon the capitalization of Infoseek California and Starwave
as of October 9, 1998. In addition, Disney will have the right to acquire
through the Warrant exercisable over time additional shares that, when
aggregated with those already owned by Disney, would result in Disney's
ownership of approximately 50.1% of outstanding Infoseek Delaware common stock
on a fully diluted basis assuming exercise of all outstanding options, warrants
and other rights to acquire Infoseek Delaware common stock.
11
<PAGE>
RECOMMENDATIONS; FAIRNESS OPINION
The Board of Directors of Infoseek California has unanimously approved the
Reorganization Agreement and the Related Agreements and unanimously recommends
that holders of Infoseek California common stock vote for the approval and
adoption of the Reorganization Agreement and approval of the Infoseek Merger
and the issuance of Infoseek Delaware common stock in the Starwave Merger. In
making its recommendation with respect to the Starwave Merger, the Infoseek
Board has considered, among other things, the opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Infoseek's financial advisor,
delivered orally on June 17, 1998 and in writing on June 18, 1998, to the
effect that the consummation of the Mergers and the transactions contemplated
by the Securities Purchase Agreement, the License Agreement and the Governance
Agreement, are fair to Infoseek and its shareholders from a financial point of
view.
The Board of Directors of Starwave has unanimously approved the
Reorganization Agreement and unanimously recommends that holders of Starwave
common stock vote for the approval and adoption of the Reorganization Agreement
and approval of the Starwave Merger. In making its recommendation, the Starwave
Board has not relied upon any written opinions of outside financial advisors.
A copy of the opinion of Merrill Lynch, which sets forth the assumptions
made, matters considered and scope of their review, is attached to this Joint
Proxy Statement/Prospectus as Annex C, and should be read in its entirety. The
Reorganization Agreement does not require that such opinion be updated prior to
the effective time. See "The Mergers and Related Transactions--Opinion of
Infoseek's Financial Advisor," which also contains a discussion of the fees to
be paid to Merrill Lynch. The fees to be paid to Merrill Lynch are generally
contingent upon the consummation of the Mergers.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission ("FTC"), the Starwave Merger and the transactions contemplated by
the Related Agreements cannot be consummated until notifications have been
given to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the specified waiting periods have expired or
terminated early. The specified waiting periods under the HSR Act for the
Starwave Merger and the transactions contemplated by the Related Agreements
were terminated early as of July 13, 1998. While the waiting periods were
terminated, any state or foreign governmental authority could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest. See "The Mergers and Related Transactions--Governmental and
Regulatory Matters."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the consummation of the Infoseek Merger that Infoseek
California receive an opinion from Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Infoseek, based upon reasonably requested
representation letters, that the Infoseek Merger will be treated as a
reorganization described in Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code") and/or, when taken together with the Starwave
Merger, as a transfer of property to Infoseek Delaware by holders of Infoseek
California common stock governed by Section 351 of the Code. It is also a
condition to the consummation of the Starwave Merger that DEI receive an
opinion from Dewey Ballantine LLP, based upon reasonably requested
representation letters, that the Starwave Merger will be treated as a
reorganization described in Section 368(a) of the Code and/or, when taken
together with the Infoseek Merger, as a transfer of property to Infoseek
Delaware by DEI governed by Section 351 of the Code. Accordingly, no gain or
loss will generally be recognized for federal income tax purposes by a
shareholder of Infoseek or Starwave upon the receipt of Infoseek Delaware
common stock in the Mergers (other than with respect to any cash received in
lieu of fractional shares). See "The Mergers and Related Transactions--Certain
Federal Income Tax Consequences."
12
<PAGE>
ANTICIPATED ACCOUNTING TREATMENT
The Starwave Merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the "purchase" method of accounting, the aggregate consideration paid by the
acquiring company, which is deemed to be Infoseek Delaware, is allocated to the
acquired assets and liabilities (in this instance, the business of Starwave)
based on the fair market values at the Effective Time with any excess being
treated as goodwill. Results of operations of Starwave, including the related
amortization of intangible assets and write-off of in-process research and
development associated with the Starwave Merger, will be included in the
results of operations of Infoseek Delaware subsequent to the Effective Time.
The conversion of Infoseek California common stock into shares of Infoseek
Delaware common stock will be treated as a reorganization with no change in the
recorded amount of Infoseek California's recorded assets and liabilities. The
financial statements of Infoseek California will be consolidated with the
financial statements of Infoseek Delaware.
ADDITIONS TO INFOSEEK'S BOARD OF DIRECTORS; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
In accordance with the terms of the Governance Agreement, three
representatives of Disney, one of whom currently serves on the Board of
Directors of Starwave, will become members of the Board of Directors of
Infoseek Delaware. The Infoseek Delaware Board of Directors will be comprised
of eight members, with the other five seats filled by current Infoseek
California directors. See "Infoseek Management." Starwave is currently in the
process of negotiating with certain of its executive officers (each of whom has
an employment agreement) regarding severance or retention arrangements in light
of their potential roles in the combined companies. Starwave does not
anticipate that any such arrangements or any failure to retain its executive
officers will have a material adverse effect on the business, financial
condition, operating results or prospects of the combined companies.
NASDAQ LISTING
Infoseek Delaware will apply for the listing of its common stock on Nasdaq
under the symbol "SEEK." It is a condition to the Mergers that the shares of
Infoseek Delaware common stock to be issued in connection with the Mergers
shall have been approved for listing on Nasdaq, subject only to official notice
of issuance.
STOCK OPTIONS
Pursuant to the Mergers, outstanding options or other rights to purchase
Infoseek or Starwave common stock will be treated as indicated below.
Upon the consummation of the Mergers, the stock option and employee stock
purchase plans of Infoseek California will be assumed and continued by Infoseek
Delaware. Shareholders should note that approval of the Infoseek Merger will
also constitute approval of the assumption of these plans by Infoseek Delaware.
Accordingly, each outstanding option or right to purchase shares of Infoseek
California common stock (each, an "Infoseek California Option") shall be
converted into an option to acquire the same number of shares of Infoseek
Delaware common stock and will continue to have, and be subject to, the same
terms and conditions (including vesting restrictions) as set forth in the stock
option or other agreement by which it is evidenced, except that each option or
right will become exercisable for Infoseek Delaware common stock rather than
Infoseek California common stock. See "Terms of the Mergers--Terms of the
Mergers--Infoseek California Stock Options."
Each outstanding option or right to purchase shares of Starwave common stock
(each, a "Starwave Option") shall be assumed by Infoseek Delaware and be
converted into an option or right to purchase that number of shares of Infoseek
Delaware common stock equal to the number of shares of Starwave common stock
subject to such Starwave Option immediately prior to the effective time of the
Starwave Merger multiplied by the Exchange Ratio, rounded down to the nearest
whole share, and the per share exercise price for the shares of Infoseek
Delaware common stock issuable upon exercise of such assumed Starwave Option
shall be equal to the quotient obtained by dividing the exercise price per
share of Starwave common stock at which such Starwave
13
<PAGE>
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. Such option or right to purchase
Infoseek Delaware common stock will otherwise continue to have, and be subject
to, the same terms and conditions (including vesting restrictions) set forth in
the Starwave option plan and/or the stock option or other agreement by which it
is evidenced. See "Terms of the Mergers--Terms of the Mergers--Starwave Stock
Options."
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND INFOSEEK DELAWARE'S CHARTER
DOCUMENTS
Upon consummation of the Mergers, the shareholders of Infoseek California and
Starwave will become shareholders of Infoseek Delaware, a corporation organized
under the laws of Delaware. Certain provisions of Delaware law applicable to
Infoseek Delaware may have the effect of delaying, deterring or preventing
changes in control or management of Infoseek Delaware. The charter documents of
Infoseek Delaware will contain certain additional provisions which may further
this effect. Infoseek Delaware will be subject to the provisions of Section 203
of the Delaware General Corporation Law, which restricts the corporation from
entering into certain "business combinations" with an "interested stockholder"
for a period of three years. An interested person is generally defined to mean
a person or entity that has acquired in excess of 15% of Infoseek Delaware's
voting stock without the approval of the Infoseek Delaware Board of Directors.
Infoseek Delaware has adopted a "poison pill" share purchase rights plan (the
"Rights Plan"). Pursuant to the Rights Plan, effective as of the closing of the
Mergers, each share of Infoseek Delaware common stock will have associated with
it certain rights to acquire shares of Infoseek Delaware's Series A
Participating Preferred Stock, par value $0.01 (the "Rights"). The Rights are
triggered and become exercisable upon the occurrence of either (i) the date of
a public announcement of the acquisition of 15% or more beneficial ownership of
Infoseek Delaware's common stock by a person or group (an "Acquiring Person"),
or (ii) ten business days after a public announcement of a tender or exchange
offer for 15% or more beneficial ownership of Infoseek Delaware's common stock
by an Acquiring Person. If the Rights are triggered because an Acquiring Person
beneficially owns 15% or more of Infoseek Delaware's Common Stock, each Right
will provide its holder, other than a holder who is an Acquiring Person, the
right to purchase that number of shares of Infoseek Delaware common stock
having a market value at the time equal to twice the exercise price, upon
payment of the exercise price of $150 per Right. In addition, in the event of
certain business combinations, the Rights permit the purchase of shares of
common stock of an acquiror at a 50% discount from the market price at the
time. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of Infoseek Delaware. For purposes of
the Rights Plan, Disney shall not be deemed to be an Acquiring Person, so long
as Disney has not breached the standstill provisions of the Governance
Agreement. In addition, the Infoseek Delaware Board will have authority to
issue up to 25 million shares of Preferred Stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of such
shares without any further vote or action by the shareholders and has initially
reserved 100,000 shares of Series A Participating Preferred Stock, par value
$.001 per share, for potential issuance pursuant to the exercise of Rights
under the Rights Plan. The issuance of such Preferred Stock could discourage an
unsolicited attempt to take over Infoseek Delaware. See "Comparison of Capital
Stock--Description of Infoseek Delaware Capital Stock", "Comparison of Capital
Stock--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware--Share Purchase Rights Plan" and "Comparison of Capital Stock--
Comparison of Capital Stock of Starwave and Infoseek Delaware."
MARKET PRICE INFORMATION
Infoseek California common stock is traded on Nasdaq under the symbol "SEEK."
On June 17, 1998, the last full trading day before announcement of the
execution and delivery of the Reorganization Agreement, the high and low sales
prices of Infoseek California common stock as reported on Nasdaq were $35 1/8
and $33 3/8 per share, respectively. On October 9, 1998, the high and low sales
prices of Infoseek California common stock as reported on Nasdaq were $20 1/8
and $17 7/8 per share, respectively. There can be no assurance as to the actual
price of Infoseek common stock prior to, at or at any time following the
effective time of, the Mergers. See "Market Price Information."
14
<PAGE>
SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL
INFORMATION AND COMPARATIVE PER SHARE DATA
The following tables present selected historical combined condensed financial
information and comparative per share data for Infoseek California and
Starwave. This information has been derived from their respective consolidated
financial statements and notes thereto, certain of which are incorporated by
reference or included in this Joint Proxy Statement/Prospectus. The audited
financial statements and notes thereto of Infoseek California for each of the
years ended and as of December 31, 1997, 1996 and 1995 and the unaudited
financial statements for the six months ended and as of June 30, 1998 and 1997
are incorporated by reference in this Joint Proxy Statement/Prospectus. The
audited financial statements and notes thereto of Starwave for the nine months
ended September 28, 1997, the fiscal years ended December 31, 1996 and 1995,
and the unaudited financial statements for the nine months ended June 28, 1998
and June 29, 1997 are included in this Joint Proxy Statement/Prospectus. The
audited financial statements and notes thereto of Infoseek California for the
year ended and as of December 31, 1994 and for the period from August 30, 1993
(Inception), to December 31, 1993 are not included in this Joint Proxy
Statement/Prospectus. The selected historical financial information of Infoseek
California for the six months ended June 30, 1998 and 1997 and of Starwave for
the nine months ended June 28, 1998 and June 29, 1997, for the nine months
ended September 30, 1996 and for the fiscal years ended December 31, 1994 and
1993 has been derived from the unaudited financial statements of Infoseek
California and Starwave, respectively, and, in the opinion of Infoseek
California's and Starwave's management, respectively, reflects all adjustments
necessary for the fair presentation of such unaudited interim financial
information.
INFOSEEK CALIFORNIA SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 30, 1993 SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, (INCEPTION) TO JUNE 30,
------------------------------------ DECEMBER 31, ------------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- --------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Total revenues......... $ 35,082 $ 15,095 $ 1,032 $ -- $-- $ 31,519 $ 14,026
Total costs and
expenses.............. 62,930 32,376 4,425 1,520 27 35,838 31,767
Operating loss......... (27,848) (17,281) (3,393) (1,520) (27) (4,319) (17,741)
Interest income, net... 1,286 1,343 97 10 -- 1,252 779
Net loss............... (26,562) (15,938) (3,296) (1,510) (27) (3,067) (16,962)
Basic and diluted net
loss per share (pro
forma in 1995)(2)..... $ (1.00) $ (0.72) $ (0.21) $ (0.10) $ (0.64)
Shares used in
computing basic and
diluted net loss per
share................. 26,627 22,120 15,535 30,058 26,329
BALANCE SHEET DATA (AT
END OF PERIOD)(1):
Total assets........... $ 51,489 $ 58,332 $ 5,123 $ 859 $318 $ 94,646
Total shareholders'
equity (deficit)...... 27,006 48,985 2,142 520 (27) 68,743
</TABLE>
- --------
(1) Infoseek's financial statements have been restated to reflect the
acquisition of WebChat Communications Inc., which has been accounted for
as a pooling-of-interests.
(2) The earnings per share amounts prior to 1997 and for the six months ended
June 30, 1997 have been restated to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share and Staff Accounting
Bulletin No. 98, Earnings per Share.
15
<PAGE>
STARWAVE SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------- ------------------------------------------- ------------------
SEPTEMBER 28, SEPTEMBER 30, JUNE 28, JUNE 29,
1997 1996 1996 1995 1994 1993 1998 1997
------------- ------------- -------- -------- ----------- ----------- -------- --------
TATEMENT OF OPERATIONS DATA(1):S (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $ 4,892 $ 4,583 $ 8,302 $ 1,111 $ -- $ -- $ 3,496 $ 7,960
Cost of online
services............. 7,185 11,046 18,170 6,577 -- -- 2,147 12,122
Total operating
expenses............. 12,906 22,893 34,645 17,525 7,469 4,895 4,814 23,049
Loss from joint
ventures............. (8,209) -- -- -- -- -- (9,073) (3,924)
Net other expense..... (1,350) (3,239) (5,333) ( 3,015) (6,079) (296) 793 (3,362)
Loss from continuing
operations........... (17,573) (21,549) (31,676) (19,429) (8,848) (4,942) (9,598) (22,375)
Loss from discontinued
operations........... -- (4,289) (4,289) (7,474) (4,700) (249) -- --
Net loss.............. (17,573) (25,838) (35,965) (26,903) (13,548) (5,191) (9,598) (22,375)
Basic and diluted net
loss per share from
continuing
operations........... $ (0.25) $ (.69) $ (0.99) $ (0.68) $ (0.50) $ (1.24) $ (0.10) $ (0.43)
Basic and diluted net
loss per share from
discontinued
operations........... $ -- $ (.14) $ (0.14) $ (0.27) $ (0.27) $ (0.06) $ -- $ --
Basic and diluted net
loss per share....... $ (0.25) $ (.83) $ (1.13) $ (0.95) $ (0.77) $ (1.30) $ (0.10) $ (0.43)
Shares used in
computing basic and
diluted net loss per
share................ 71,691 31,139 31,958 28,412 17,502 4,000 96,260 51,579
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets.......... $ 29,461 18,874 $ 9,713 $ 6,354 $ 5,955 $ 2,597 $18,789 $33,465
Loans from
shareholder.......... -- 76,388 84,888 51,025 22,950 7,950 -- --
Total shareholders'
equity (deficit)..... 23,614 (72,340) (82,456) (46,653) (19,751) (6,203) 14,409 32,375
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of web site
hosting, software development and research activities while revenue and
expenses associated with sites operated under contract with ESPN, ABC and
others were assumed by these Joint Ventures. As a result, periods prior to
and following April 1997 are not comparable.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
for Infoseek Delaware consists of the Unaudited Pro Forma Combined Condensed
Statements of Operations for the six months ended June 30, 1998 and for the
year ended December 31, 1997 and the Unaudited Pro Forma Combined Condensed
Balance Sheet as of June 30, 1998 (collectively, the "Pro Forma Statements").
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares and Infoseek Delaware's
acquisition of Infoseek California through a merger and exchange of shares. In
addition, conditioned upon and subject to consummation of the proposed Mergers,
Disney has agreed to purchase an additional 2,642,000 unregistered shares of
Infoseek Delaware common stock and a warrant to purchase an additional
15,720,000 unregistered shares of Infoseek Delaware common stock (the
"Warrant") in exchange for approximately $70 million in cash and a $139 million
five-year promissory note. The Warrant vests, subject to certain acceleration
events, and becomes exercisable as to one-third of the shares subject to the
Warrant on each of the first three anniversaries of the effective time of the
proposed Mergers at an exercise price equal to 120% of the average of the
closing sale prices of Infoseek common stock on Nasdaq for the thirty trading
days prior to each such vesting date, subject to a maximum $50.00 per share
exercise price. Further, ABC has agreed to provide, and Infoseek has agreed to
purchase over a 5 year period, $165 million in promotional support from ABC for
the planned New Portal Service. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended December 31, 1997 and the six months
ended June 30, 1998 reflect these transactions as if they had taken place on
January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance Sheet gives
effect to these transactions as if they had taken place on June 30, 1998.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando, Inc.,
an Oregon corporation ("Quando"), in exchange for approximately $17 million,
subject to adjustment, in shares of Infoseek common stock. The transaction is
subject to customary closing conditions, including shareholder approval by
Quando and is expected to close on or about the closing of the Mergers. The
Unaudited Pro Forma Combined Condensed Statements of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 reflect the
Quando acquisition as if it had taken place on January 1, 1997. The Unaudited
Pro Forma Combined Condensed Balance Sheet gives effect to the Quando
acquisition as if it had taken place on June 30, 1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Infoseek's historical results of operations for the year ended December 31,
1997 and the six months ended June 30, 1998 with Starwave's historical results
of operations for the year ended December 31, 1997 and the six months ended
June 28, 1998, and Quando's historical results of operations for the year ended
December 31, 1997 and the six months ended June 30, 1998, respectively. In
addition, the unaudited Pro Forma Combined Condensed Statements of Operations
include the impact of certain of the Related Agreements which become effective
with the Mergers. These agreements are described more fully in the notes to
these Pro Forma Combined Condensed Statements of Operations. See "Description
of Related Agreements--Licensing and Commercial Agreements." The Pro Forma
Statements are not necessarily indicative of what the actual financial results
would have been had the transaction taken place on January 1, 1997 or June 30,
1998 and do not purport to indicate the results of future operations.
The acquisition of Starwave pursuant to the Starwave Merger and Quando
pursuant to the Quando acquisition will be accounted for using the purchase
method of accounting. The Pro Forma Statements have been prepared on the basis
of assumptions described in the notes thereto and includes assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
Starwave based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the Pro
Forma Statements after valuations and other procedures to be performed after
the closing of the Starwave acquisition have been performed. Infoseek does not
expect that the final allocation of the purchase price will differ materially
from the preliminary allocations. In the opinion of Infoseek, all adjustments
necessary to present fairly such Pro Forma Statements have been made on the
proposed terms and structure of the Starwave acquisition.
17
<PAGE>
As a result of the Starwave Merger and the Quando acquisition, Infoseek
expects to incur one-time expenses, including a write-off related to in-process
research and development, currently estimated at $74.4 million and $9.4
million, respectively. In addition, Infoseek expects to incur costs of
integration of up to $5.0 million. The Pro Forma Statements do not include the
costs of integration as these costs will affect future operations and do not
qualify as liabilities in connection with a purchase business combination under
EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."
The Pro Forma Statements should be read in conjunction with the notes thereto
and the audited financial statements of Starwave and Quando, including the
notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus, and
the audited financial statements of Infoseek and the notes thereto, included in
Infoseek California's Current Report on Form 8-K filed on May 22, 1998, as
amended on August 10, 1998 and incorporated by reference in this Joint Proxy
Statement/Prospectus.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 57,517 $ 48,433
Total costs and expenses..................... 240,621 127,131
Operating loss............................... (183,104) (78,698)
Net loss..................................... (193,951) (83,341)
Basic and diluted net loss per share......... $ (3.35) $ (1.36)
Shares used in computing basic and diluted
net loss per share.......................... 57,928 61,359
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $1,070,892
Total stockholders' equity................... 969,770
Book value per share......................... 15.46
</TABLE>
18
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per share
data of Infoseek California, Starwave, and Quando, unaudited pro forma combined
condensed per share data of Infoseek Delaware and pro forma equivalent per
share data of Starwave. The data set forth below should be read in conjunction
with the Infoseek California and Starwave audited financial statements,
unaudited interim consolidated financial statements, and the Unaudited Pro
Forma Combined Condensed Financial Statements, including the notes thereto,
which are included and/or incorporated by reference in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Historical - Infoseek California
Basic and diluted net loss per share..... $ (1.00) $ (0.10)
Book value per share (1)................. $ 0.98 $ 2.19
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
OR AS OF OR AS OF
SEPTEMBER 28, 1997 JUNE 28, 1998
------------------ -----------------
<S> <C> <C>
Historical - Starwave
Basic and diluted net loss per share..... $ (0.25) $ (0.10)
Book value per share (1)................. $ 0.25 $ 0.15
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Historical - Quando
Basic and diluted net loss per share..... $(0.08) $(0.09)
Book value per share (1)................. $(0.08) $(0.15)
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 JUNE 30, 1998
------------------ -----------------
<S> <C> <C>
Pro forma combined net loss per share (3)
Pro forma combined net loss per Infoseek
Delaware share.......................... $ (3.35) $ (1.36)
Equivalent pro forma net loss per
Starwave share (2)...................... $ (0.87) $ (0.35)
Pro forma combined book value per share
(4)
Pro forma book value per Infoseek
Delaware share.......................... $ 15.46
Equivalent pro forma book value per
Starwave share (2)...................... $ 4.02
</TABLE>
- --------
(1) The historical book value per share is computed by dividing total
shareholders' equity by the number of shares of common and preferred stock
outstanding at the end of the period.
(2) The equivalent Starwave pro forma share amounts are calculated by
multiplying the combined pro forma per share amounts by the estimated
Exchange Ratio of 0.26 shares of Infoseek Delaware common stock for each
share of Starwave common stock.
(3) Pro forma combined net loss per share reflects Infoseek California's,
Starwave's, and Quando's net loss for the year ended December 31, 1997 and
the six months ended June 30, 1998 and is based upon (i) Infoseek's
weighted average common shares outstanding for the periods presented, (ii)
28,138,000 shares of Infoseek common stock assumed to be issued for all of
the outstanding shares of Starwave, (iii) 2,642,000 shares of Infoseek
Delaware common stock purchased by Disney and (iv) approximately 521,000
shares of Infoseek common stock assumed to be issued for all of the
outstanding shares of Quando.
(4) The pro forma combined book value per Infoseek Delaware shares is computed
by dividing total pro forma shareholders' equity by the number of shares of
common and preferred stock outstanding at the end of the period.
19
<PAGE>
MARKET PRICE INFORMATION
There is no established trading market for Starwave common stock. Infoseek
California's common stock has been traded on Nasdaq under the symbol "SEEK"
since June 11, 1996, the date of its initial public offering. Infoseek
Delaware common stock is not currently traded on a market, but is expected to
trade on Nasdaq under the symbol "SEEK" in place of Infoseek California upon
closing of the Mergers. The following table sets forth, for the periods
indicated, the high and low sales prices for Infoseek California common stock
as reported by Nasdaq:
<TABLE>
<CAPTION>
INFOSEEK CALIFORNIA
COMMON STOCK
---------------------
HIGH LOW
---------- ----------
<S> <C> <C>
1996 CALENDAR YEAR
Second Quarter (from June 11, 1996)..................... $ 16 1/2 $ 8 7/8
Third Quarter........................................... 10 5 1/4
Fourth Quarter.......................................... 11 1/2 7 3/8
1997 CALENDAR YEAR
First Quarter........................................... $ 11 $ 6 1/4
Second Quarter.......................................... 8 1/2 4 3/8
Third Quarter........................................... 9 11/16 4 11/16
Fourth Quarter.......................................... 14 1/2 7 1/8
1998 CALENDAR YEAR
First Quarter........................................... $ 22 7/8 $ 8 7/16
Second Quarter.......................................... 45 18 1/16
Third Quarter........................................... 39 5/8 14 7/8
Fourth Quarter (through October 9, 1998)................ 26 1/8 16 5/8
</TABLE>
As of October 9, 1998, Infoseek California estimates that there were
approximately 570 holders of record and over 53,369 beneficial owners of
Infoseek California common stock. As of October 9, 1998, there were
approximately 280 holders of record of Starwave common stock.
To date, Infoseek California and Infoseek Delaware have not declared or paid
dividends on their respective common stock. The Board of Directors of Infoseek
presently intends to retain all earnings for use in Infoseek's business and
therefore does not anticipate declaring or paying any cash dividends in the
foreseeable future. In addition, Infoseek's equipment term loan facility
restricts the payment of dividends when borrowings are outstanding. To date,
Starwave has not declared or paid dividends on its common stock. The Board of
Directors of Starwave presently intends to retain all earnings for use in
Starwave's business and therefore does not anticipate declaring or paying any
cash dividends in the foreseeable future.
The table below sets forth the high and low sales prices per share of
Infoseek California common stock on Nasdaq on June 17, 1998, the last full
trading date prior to the public announcement of the signing of the
Reorganization Agreement, and on October 9, 1998, the Record Date, together
with, in each case, the implied equivalent value of one share of Starwave
common stock on each such date assuming an Exchange Ratio of approximately
0.26.
<TABLE>
<CAPTION>
INFOSEEK APPROXIMATE
CALIFORNIA STARWAVE
COMMON STOCK EQUIVALENT(1)
--------------- -------------
HIGH LOW HIGH LOW
------- ------- ------ ------
<S> <C> <C> <C> <C>
June 17, 1998.................................. $35 1/8 $33 3/8 $9 1/8 $8 2/3
October 9, 1998................................ $20 1/8 $17 7/8 $5 1/5 $4 3/5
</TABLE>
- --------
(1) Based upon an Exchange Ratio of approximately 0.26, reflecting the
capitalization of Starwave as of October 9, 1998.
Because the number of shares of Infoseek to be issued to the holders of
Starwave common stock and in respect of outstanding options to acquire common
stock is fixed at 28,138,000, changes in the market price of Infoseek
California common stock will affect the dollar value of Infoseek Delaware
common stock to be received by shareholders of Starwave in the Starwave
Merger. Starwave shareholders are urged to obtain current market quotations
for Infoseek California common stock prior to the Starwave Shareholders
Meeting.
20
<PAGE>
RISK FACTORS
This Joint Proxy Statement/Prospectus contains forward-looking statements
that involve risks and uncertainties. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Joint Proxy
Statement/Prospectus. The following factors should be considered carefully in
evaluating whether to approve and adopt the Reorganization Agreement, and
approve the Mergers, the issuance of Infoseek Delaware common stock in
connection with the Starwave Merger and the issuance of Infoseek Delaware
common stock and the Warrant pursuant to the Securities Purchase Agreement at
the Infoseek Shareholders Meeting and the Starwave Shareholders Meeting. These
factors should be considered in conjunction with the other information
included or incorporated by reference in this Joint Proxy
Statement/Prospectus, including in conjunction with forward-looking statements
made herein. For periods prior to the Mergers, references to Infoseek shall be
deemed to refer to Infoseek California. For periods following the Mergers,
references to Infoseek should be considered to refer to Infoseek Delaware and
its subsidiaries, including Infoseek California and Starwave, unless the
context otherwise requires. As used in this section, unless the context
otherwise requires, "Starwave" refers to Starwave as well as that portion of
Starwave's business that is conducted through the Joint Ventures.
RISKS RELATED TO THE COMBINED COMPANIES, THE MERGERS AND RELATED TRANSACTIONS
Uncertainties Relating to Integration of Operations. Infoseek and Starwave
have entered into the Reorganization Agreement with the expectation that the
proposed Mergers will result in long-term strategic benefits. These
anticipated benefits will depend in part on whether the companies' respective
operations, including the Joint Ventures, can be integrated in an efficient
and effective manner and there can be no assurance that this will occur. The
combination of the companies will require, among other things, integration of
Infoseek's and Starwave's respective product and service offerings and
coordination of the companies' sales, marketing and research and development
efforts. There can be no assurance that the combined companies will be able to
take full advantage of the combined sales force's efforts. The different
geographic locations of the principal operations of each of Infoseek
California, Starwave and the Joint Ventures will also render such integration
more difficult. Further, the combined companies will have a substantially
expanded employee base which will require substantial dedication of management
and other resources. At June 30, 1998, Infoseek employed approximately 280
persons and Starwave employed approximately 330 persons, including employees
of Starwave related to the Joint Ventures. In addition, given the expanded
operations of the combined companies, the combined companies' business will be
increasingly influenced by its ability to retain and recruit qualified
management, engineering, and sales and marketing personnel. The failure to
effectively recruit and retain sufficient and qualified personnel for the
combined companies' operations would have a material adverse effect on the
business, results of operations, financial condition and prospects of the
combined companies. There is no assurance that the foregoing will be
accomplished smoothly or successfully. The integration of operations following
the Mergers will require the dedication of management resources, which may
distract attention from the day-to-day operations of the combined companies.
The inability of management to successfully integrate the operations of the
companies could have a material adverse effect upon the business, operating
results and financial condition of the combined companies.
Risks Related to Development, Launch and Acceptance of Planned New Portal
Service. Infoseek believes that development, launch and promotion of the New
Portal Service combining certain of the content, promotion, brands and
technologies of Infoseek, Starwave, ABCNews.com, ESPN SportsZone.com and
Disney, among other things, is a critical aspect of the combined companies'
efforts to attract and expand their Internet audience and to differentiate the
combined companies from their competitors and that the importance of this
strategy will increase due to the growing number of Internet sites and the
relatively low barriers to entry in providing Internet content. While Infoseek
currently plans to launch the New Portal Service by the end of calendar year
1998, there can be no assurance that the service can be successfully developed
and launched in such time frame and the New Portal Service, as initially
launched, may not have all of the functionality and services currently planned
for such service. The foregoing estimate of the timing of the launch of the
planned New Portal Service is a forward-looking statement that is subject to
risks and uncertainties. Actual results may vary materially as a result of a
21
<PAGE>
number of factors, including but not limited to those set forth below in this
paragraph, and under "--Uncertainties Related to Integration of Operations"
and "--Dependence on Joint Ventures and Third Party Relationships." If
consumers do not perceive the New Portal Service content and experience to be
of high quality, or if the combined companies introduce new Internet sites or
enter into new business ventures that are not favorably received by consumers,
the combined companies will be unsuccessful in expanding their Internet
audience. There can be no assurance that Infoseek and Starwave will be able to
successfully develop and launch the planned New Portal Service on a timely
basis, or at all, and the combined companies are dependent, in part, upon
Disney and the Joint Ventures for successful development and launch of the New
Portal Service. In addition, the New Portal Service will be promoted, in part,
by Disney and the quality and medium of such promotion will be in large part
at Disney's discretion. In this connection, Infoseek has agreed to purchase
$165 million of promotional services over a five year period from ABC for the
New Portal Service and there can be no assurance that Infoseek will be able to
offset the costs of these promotional activities through increased cash flows
from operations. Furthermore, in order to attract users to the planned New
Portal Service, and to promote and maintain awareness of the Go Network brand
in response to competitive pressures, the combined companies will be required
to increase their budget for Internet content and promotion and to increase
substantially their financial commitment to creating and maintaining a
distinct brand loyalty among consumers. If the combined companies are unable
to successfully develop, launch and promote the planned New Portal Service in
a timely manner, or if the combined companies incur excessive expenses in this
connection or in an attempt to improve the New Portal Service or promote and
maintain their brands, the combined companies' businesses, financial condition
and operating results will be materially adversely affected. The Go Network
name is a trademark of Disney that is the subject of a license agreement
between Disney and Infoseek, and Infoseek is dependent upon Disney to enforce
the intellectual property in such trademark against third parties and there
can be no assurance that Disney will take adequate steps to enforce such
intellectual property rights or that, if it takes such steps, it will prevail
in such enforcement. See "--Risks Related to Infoseek's Business--Intellectual
Property and Proprietary Rights." In addition, although under the
Reorganization Agreement Disney has agreed for a period of fifteen years
following the effective time of the Mergers or the earlier termination of the
License Agreement not to compete with Infoseek in the United States with
respect to a broadbased Internet portal service for narrowband delivery and
Disney and the ESPN Partner and ABCNews Partner (and their respective
affiliates) pursuant to the Joint Ventures have agreed not to develop or
commercialize narrowband sports- or general news-related products or services
in the United States or Canada, none of the licensing or commercial agreements
legally prohibits Disney from entering into strategic transactions with any of
Infoseek's competitors or from providing Disney content to Infoseek's
competitors, and Disney currently provides certain of its content, subject to
the restrictions noted above, to competitors of Infoseek and maintains a
number of web sites not expected to be linked to the New Portal Service. There
can be no assurance that Disney will not enter into any such agreements which,
if competitive to the planned New Portal Service, could have a material
adverse effect upon the success of the New Portal Service. See "Description of
Related Agreements--Licensing and Commercial Agreements."
Effect of Mergers and Planned Launch of New Portal Service on Service Users
and Customers. There can be no assurance that the present and potential
customers of Starwave and Infoseek will continue their current usage and
buying patterns without regard to the proposed Mergers and related
transactions between Infoseek and Disney. For example, there can be no
assurance that large media companies and certain other competitors of Disney
will elect to advertise or provide content to Infoseek's present Internet
service (the "Infoseek Service") or the New Portal Service. Any significant
delay or reduction in sales or orders could have an adverse effect on the
near-term business and results of operations of the combined companies. In
addition, there can be no assurance that the launch and promotion of the
planned New Portal Service will not result in potential confusion or a decline
in loyalty among users or customers of the Infoseek Service or the websites of
Starwave or the Joint Ventures.
Potential Ownership Control By Disney. Upon completion of the proposed
Mergers and related transactions by and between Infoseek and Disney, Disney
will own approximately 43% of the outstanding shares of Infoseek common stock
and warrants (generally vesting over a three-year period) to increase its
ownership to 50.1% with rights to maintain such percentage ownership as well
as its warrant ownership through purchases
22
<PAGE>
from Infoseek in the event of dilutive issuances. However, during a standstill
period of three years under the Governance Agreement (subject to early
termination under certain circumstances), Disney may not increase its
percentage ownership to more than 49.9%. As a result of its current and future
ownership stake, Disney may be able to exercise effective control over many
matters requiring stockholder approval, and has supermajority Board approval
rights for certain Infoseek transactions, including charter or bylaw
amendments, change of control transactions, sales of 15% or more of Infoseek's
assets, issuances of securities representing 15% or more of Infoseek's
outstanding shares or for consideration of $200 million or more, the
incurrence of indebtedness or cash expenditures of $200 million or more, or
any appointment of a new Chief Executive Officer. The Governance Agreement
also provides that so long as Disney maintains an ownership interest in
Infoseek of 25% or more, Disney will be entitled to have its nominees for
director submitted to a vote of stockholders of Infoseek in a number
(initially three of an expanded eight Board seats) sufficient to require the
approval of the Disney nominees for those transactions requiring supermajority
Board approval. Further, since the standstill provisions of the Governance
Agreement terminate on certain occurrences, including a third party tender
offer or a tender offer by Disney for all Infoseek shares, such termination
would permit Disney to acquire greater than 49.9% voting power prior to the
expiration of the three-year period. These provisions, as well as the terms of
Disney's license of certain intellectual property underlying the New Portal
Service that trigger termination of such license in the event a third party
acquires 25% or more of Infoseek's outstanding voting stock, may prevent or
discourage tender offers for Infoseek's common stock or changes in the control
of Infoseek unless the terms are approved by Disney, and thus may preclude any
person other than Disney from acquiring all or substantially all of the
outstanding shares of Infoseek common stock that Disney does not own following
completion of the Mergers and related transactions. See "Description of
Related Agreements--Equity and Governance Agreements" and "--Licensing and
Commercial Agreements."
Amortization of Goodwill and Increased Operating Expenditures Will Delay
Profitability of Combined Companies. Because the acquisition of Starwave will
be accounted for under the "purchase" method of accounting, the purchase price
will be allocated to the acquired assets and liabilities of Starwave. An in-
process research and development charge, preliminarily estimated to be
approximately $74.4 million, will be recorded in the quarter the Starwave
Merger is consummated. In addition, intangible assets related to developed
technology and assembled workforce are preliminarily estimated at
approximately $49.4 million and will be amortized over two years. Intangible
assets related to goodwill, Joint Ventures and other intangibles were
preliminarily estimated to be approximately $645.8 and $179.5 million,
respectively, which will be amortized over ten years. In addition, the
combined companies expect to incur increased operating expenditures associated
with the expanded operations of the combined companies' business and the
development, launch and promotion of the planned New Portal Service. As a
result, the combined companies' profitability is expected to be delayed beyond
the time frame in which Infoseek California or Starwave, as independent
entities, may have otherwise achieved profitability. Management currently
estimates that the combined companies would not achieve profitability until at
least 2002 and, excluding the amortization of goodwill and other intangibles
associated with the Starwave Merger, until at least 2000. The foregoing
estimates of the time period in which the combined companies would not achieve
profitability are forward-looking-statements that are subject to risks and
uncertainties. Actual results may vary materially as a result of a number of
factors, including but not limited to those set forth under "--Uncertainties
Relating to Integration of Operations," "--Risks Related to Development,
Launch and Acceptance of Planned New Portal Service," "--Dependence on Joint
Ventures and Third Party Relationships," and "--Risks of Acquisition
Strategy." See "Unaudited Pro Forma Combined Condensed Financial Statements."
Future Capital Needs; Uncertainty of Additional Financing. Infoseek
currently anticipates that its cash, cash equivalents, short-term investments,
available funds under its equipment term loan facility, approximately $70
million of cash proceeds and the Note in principal amount of $139 million from
the sale of Infoseek Delaware common stock and the Warrant to Disney in
connection with the Mergers, and cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working capital
and other cash requirements, assuming completion of the proposed Mergers,
through at least September 30, 1999. Thereafter, Infoseek may need to raise
additional funds. Infoseek may need to raise additional funds sooner, however,
in order to fund more rapid expansion, to develop new or enhance existing
services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
23
<PAGE>
raised through the issuance of equity or convertible debt securities, the
percentage ownership of the shareholders of Infoseek will be reduced,
shareholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the holders of Infoseek's
common stock. There can be no assurance that additional financing will be
available on terms favorable to Infoseek, or at all. If adequate funds are not
available or are not available on acceptable terms, Infoseek's ability to fund
its expansion, take advantage of acquisition opportunities, develop or enhance
services or products or respond to competitive pressures would be
significantly limited. Such limitation could have a material adverse effect on
Infoseek's business, results of operations, financial condition and prospects.
See "Infoseek Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Risk of Future Dilution Related to Disney's Right to Maintain its Ownership
Position. The issuance and sale of additional shares of Infoseek common stock
following the Mergers to Disney pursuant to Disney's contractual right to
maintain its percentage ownership of Infoseek common stock and, under certain
circumstances, to obtain additional warrants may have dilutive effects on
Infoseek's earnings per share and will result in share ownership dilution to
Infoseek stockholders. The shares acquired by Disney pursuant to its right to
maintain must be purchased by Disney at a price equal to the price paid in the
transaction giving rise to such right to maintain. See "Description of Related
Agreements--Equity and Governance Agreements."
Dependence on Joint Ventures and Third Party Relationships. The success of
the combined companies will be significantly influenced by the continuation
and integration of Starwave's joint ventures and third party relationships,
especially the ESPN Joint Venture and the ABCNews Joint Venture. The vast
majority of Starwave's economic value is derived from its ESPN SportsZone web
site, which is produced under its joint venture with the ESPN Partner, and its
ABCNews.com web site, which is produced under its joint venture with the ABC
Partner. On a pro forma basis for the twelve months ended December 31, 1997
and the six months ended June 30, 1998 (assuming that the Representation
Agreements had been in place during such periods), revenues of these Joint
Ventures would have represented 29% of the total corresponding period revenues
of the combined companies. The combined companies' future success will depend
to a large extent on their ability to maintain their relationships with
existing co-branding partners such as ESPN and ABC, and to establish
relationships with new partners for the development of co-branded Internet web
sites. A failure to maintain its relationships with existing co-branding
partners, or to develop new relationships, would significantly curtail the
combined companies' ability to maintain or create interactive services and
products that are attractive to users and advertisers, and could have a
material adverse effect on the combined companies' business, results of
operations and financial condition.
Risk of Inability to Achieve Revenue Minimums Under Representation
Agreements. Under the ESPN Representation Agreement and the ABC News
Representation Agreement, Starwave has agreed to act as the representative of
the ESPN Joint Venture and the ABCNews Joint Venture in the sale of
advertising and related services for such Joint Ventures. Pursuant to these
agreements, Starwave has agreed to make quarterly payments to the Joint
Ventures equal to the greater of (i) a guaranteed minimum amount or (ii)
revenues actually billed to third parties (whether or not collected) in the
performance of such services, in each case less Starwave's costs of providing
the services and a profit margin. There can be no assurance that Starwave will
be able to sell the guaranteed minimum amount in any quarterly period or be
able to collect the receivables resulting from such revenue related
activities, which could have a material adverse effect on the combined
companies' business, results of operations and financial condition. See
"Description of Related Agreements--Licensing and Commercial Agreements."
Exchange Ratio Does Not Adjust For Variations in Trading Price of Infoseek
California Common Stock. Under the terms of the Reorganization Agreement, the
shares of Starwave common stock issued and outstanding, as well as those
subject to outstanding options, warrants or other rights to purchase Starwave
common stock at the effective time will be converted into the right to receive
an aggregate of 28,138,000 shares of Infoseek common stock pursuant to the
Exchange Ratio. Thus, the Exchange Ratio does not adjust for fluctuations in
the price of Infoseek common stock on Nasdaq. Accordingly, the value of the
consideration to be received by shareholders of Starwave upon consummation of
the Starwave Merger will depend on the trading
24
<PAGE>
price of the Infoseek common stock on Nasdaq at and following the Effective
Time, which trading price is subject to substantial volatility. In addition,
Infoseek is the only entity that has obtained an opinion of a financial
advisor as to the fairness of the Mergers and the transactions contemplated by
the Securities Purchase Agreement, the Governance Agreement and the License
Agreement, and such opinion speaks only to the fairness, from a financial
point of view, to Infoseek and the shareholders of Infoseek. See "--Risks
Related to Infoseek's Business--Volatility of Stock Price" and "Market Price
Information."
Costs of Integration; Transaction Expenses. Infoseek estimates that it will
incur costs of $22.0 million associated with the Mergers, which will be
accounted for as part of the purchase price of the transactions. The $22.0
million includes approximately $5.0 million for liabilities related to
involuntary employee termination benefits (relocations) of Starwave employees
and $5.0 million for costs to exit other Starwave activities, primarily
operating leases of Starwave. The combined companies expect to incur
additional integration costs of up to $5.0 million. These costs will affect
future operations and do not qualify as liabilities in connection with a
purchase business combination under EITF 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination." There can be no assurance
that the combined companies will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the Starwave
Merger.
Dependence on Continued Growth in Use of the Internet. Future growth in the
combined companies' revenues will depend on the widespread acceptance and use
of the Internet and other interactive online platforms as a source of
information and entertainment and as a vehicle for commerce in goods and
services. Rapid growth in the use of and interest in the Internet is a recent
phenomenon, and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will
emerge to support the combined companies' businesses. Moreover, critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access, quality of service and acceptance
of advertising) remain unresolved and may negatively affect the growth of
Internet use or the attractiveness of the Internet for advertising and online
transactions. The Internet may not be accepted as a viable commercial medium
for a number of reasons, including potentially inadequate development of the
necessary network infrastructure, failure to develop or untimely development
of critical enabling technologies, or inadequate commercial support for
Internet-based advertising. To the extent that the Internet continues to
experience an increase in users, an increase in frequency of use or an
increase in the bandwidth requirements of users, there can be no assurance
that the Internet infrastructure will be able to support the demands placed
upon it. The widespread deployment of cable modems and other higher bandwidth
enabling technologies has to date experienced delays, and continuing delays in
the development and deployment of such technologies could slow the growth in
the use of the Internet. In addition, the Internet could lose its viability as
a commercial medium due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or as the result of increased government regulation. Changes in or
insufficient availability of telecommunications services to support the
Internet also could result in slower response times and could adversely affect
use of the Internet generally and of the combined companies' Internet services
in particular. In addition, corporations and other networks providing access
to the Internet may restrict access to certain sites or hours of usage, which
could limit access to and reduce traffic on the combined companies' services.
If use of the Internet does not continue to grow or grows more slowly than
expected, the Internet infrastructure does not effectively support growth that
may occur, or access to the Internet or the combined companies' services is
otherwise restricted, the combined companies' business, financial condition
and operating results would be materially adversely affected.
Risks of Acquisition Strategy. The combined companies believe that it may be
necessary to enter into joint ventures or other strategic relationships in
addition to those contemplated by the proposed Starwave Merger and the Related
Agreements, or to make acquisitions of complementary products, technologies or
businesses in order to remain competitive. The failure of Infoseek to execute
such a strategy may lead to decreased market share, viewer traffic or brand
loyalty, which may have a material adverse effect on Infoseek's business,
results of operations, financial condition and prospects. Pursuant to this
strategy, on July 24, 1998, Infoseek agreed to acquire Quando, an Internet
company with electronic commerce capabilities, to complement Infoseek's
existing technologies. Infoseek expects to account for the Quando acquisition
as a purchase transaction and expects to incur write-offs related to in-
process research and development of approximately $9.4 million in the quarter
ending December 31, 1998 in connection with the Quando acquisition. In
addition, intangible assets related to
25
<PAGE>
goodwill, developed technology and assembled workforce are preliminarily
estimated at approximately $12.6 million and will be amortized over two years.
In addition, acquisition transactions are accompanied by a number of risks,
including, among other things, the difficulty of integrating the operations
and personnel of the acquired companies, the potential disruption of the
combined companies' ongoing businesses, the inability of management to
maximize the financial and strategic position of the combined companies
through the successful incorporation of acquired technology or content and
rights into the combined companies' products and media properties, expenses
associated with the transactions, additional expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls, procedures and policies, the impairment of relationships
with employees and customers as a result of any integration of new management
personnel, and the potential unknown liabilities associated with acquired
businesses. There can be no assurance that the combined companies would be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions. In addition, no assurance can be given that
any other acquisitions will or will not occur, that if an acquisition does
occur it will not materially and adversely affect the combined companies or
that any such acquisition will be successful in enhancing the combined
companies' businesses. If the combined companies proceed with additional
significant acquisitions in which the consideration consists of cash, a
substantial portion of the combined companies' available cash could be used to
consummate the acquisitions. If the combined companies were to consummate one
or more acquisitions in which the consideration consisted of stock,
stockholders of Infoseek could suffer dilution of their interests in Infoseek.
In addition, following the Mergers and related transactions with Disney,
Infoseek may not (and, if Disney elects to obtain control when eligible to do
so, will not) be able to account for subsequent acquisitions as pooling- of-
interests and, as a result, may have to recognize significant goodwill related
to the acquisition of intangibles, the amortization of which would adversely
affect Infoseek's subsequent results of operations, and may incur charges for
acquired in-process technology in the period in which the acquisition occurs
that would adversely affect Infoseek's results of operations in such period.
Internet Security and Electronic Commerce Risks. Concerns over the security
of online transactions and the privacy of users may inhibit the growth of the
Internet generally, particularly as a means of conducting commercial
transactions. A party who is able to circumvent either of the combined
companies' security measures could misappropriate confidential or proprietary
information or cause interruptions in the combined companies' online
operations. The combined companies expect to expend significant capital and
resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches, but there can be no assurance that
the combined companies' efforts in this regard will be successful. To the
extent that activities of the combined companies or third party contractors
involve the storage and transmission of confidential or proprietary
information, such as computer software or credit card numbers, security
breaches could expose the combined companies to a risk of loss or litigation
and possible liability. There can be no assurance that contractual provisions
attempting to limit the combined companies' liability in such areas will be
successful or enforceable, or that other parties will accept such contractual
provisions as part of the combined companies' agreements. Neither Infoseek nor
Starwave currently maintains insurance against the foregoing risks (other than
standard business interruption and crime insurance, to the extent applicable).
To the extent that the combined companies derive a material portion of revenue
from electronic commerce in the future, the combined companies will evaluate
obtaining additional insurance for these risks. To the extent the combined
companies do not or are unable to obtain adequate insurance at such time,
security breaches into the combined companies' systems, if substantial or
repeated, could have a material adverse effect on the combined companies'
business, results of operations and financial condition.
Developing Market; Unproven Acceptance of Internet Advertising and of the
Combined Companies' Products and Services. The combined companies' future
success is highly dependent upon the increased use of the Internet and
intranets for information publication, distribution and commerce. The market
for the combined companies' products and services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants with products and services for use on the Internet and
intranets. Most of Infoseek's and Starwave's advertising customers have only
limited experience with the Internet as an advertising medium, have not yet
devoted a significant portion of their advertising expenditures to Internet-
based advertising,
26
<PAGE>
and may not find such advertising to be effective for promoting their products
and services relative to traditional print and broadcast media. No standards
have been widely accepted for the measurement of the effectiveness of Internet
based advertising, and there can be no assurance that such standards will
develop sufficiently to support the Internet as a significant advertising
medium. The Internet industry is young and has few proven products and
services. In particular, because the combined companies expect to derive
substantially all of their revenues in the foreseeable future from sales of
Internet advertising, the future success of the combined companies is highly
dependent on the development of the Internet as an advertising medium. If the
market fails to continue to develop, develops more slowly than expected or
becomes saturated with competitors, or if the combined companies' products and
services do not achieve or sustain acceptance by Internet users or
advertisers, the combined companies' business, results of operations,
financial condition and prospects would be materially adversely affected. The
combined companies believe that advertising sales in traditional media, such
as television, are generally lower in the first and third calendar quarters of
each year as compared with the respective preceding quarters and that
advertising expenditures fluctuate significantly with economic cycles.
Depending on the extent to which the Internet is accepted as an advertising
medium, seasonality and cyclicality in the level of advertising expenditures
generally could become more pronounced for this medium. Seasonality and
cyclicality in advertising expenditures generally, or with respect to
Internet-based advertising specifically, could have a material adverse effect
on the combined companies' business, financial condition and operating
results.
Government Regulation and Legal Uncertainties. Infoseek and Starwave are not
currently subject to direct regulation by any government agency, other than
regulations generally applicable to businesses, and there are currently few
laws or regulations directly applicable to access to or commerce on the
Internet. A number of legislative and regulatory proposals are under
consideration by federal, state and foreign governmental organizations, and it
is possible that a number of laws or regulations may be adopted with respect
to the Internet covering issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in
turn decrease the demand for the combined companies' products, increase the
combined companies' cost of doing business, or otherwise have an adverse
effect on the combined companies' business, results of operations, financial
condition and prospects. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, copyright, trade
secret, libel and personal privacy is uncertain and developing. Any such new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on the combined companies' business,
results of operations, financial condition and prospects.
Because materials may be downloaded by the online or Internet services
operated or facilitated by the combined companies and may be subsequently
distributed to others, there is a potential that claims will be made against
the combined companies for defamation, negligence, copyright or trademark
infringement, personal injury or other theories based on the nature, content,
publication and distribution of such materials. Such claims have been brought,
and sometimes successfully pursued, against online service providers in the
past. In addition, Infoseek or Starwave could be exposed to liability with
respect to the selection of listings that may be accessible through content
and materials that may appear in chat room, instant messaging, hosted web
pages or other services offered by Infoseek or Starwave. Such claims might
include, among others, that by hosting or providing hypertext links to web
sites operated by third parties, Infoseek or Starwave is liable for copyright
or trademark infringement or other wrongful actions by such third parties
through such web sites. It is also possible that if any information provided
through the combined companies' services, such as stock quotes, analyst
estimates or other trading information, contains errors, third parties could
make claims against the combined companies for losses incurred in reliance on
such information. The combined companies expect to offer web-based e-mail
services in the near future, which may expose the combined companies to
potential risks, such as liabilities or claims resulting from unsolicited e-
mail (spamming), lost or misdirected messages, illegal or fraudulent use of e-
mail, harassment or interruptions or delays in e-mail service.
From time to time, the combined companies will enter into agreements with
sponsors, content providers, service providers and merchants under which the
combined companies are entitled to receive a share of revenue from the
purchase of goods and services by users of the combined companies' online
properties. Such
27
<PAGE>
arrangements may expose the combined companies to additional legal risks and
uncertainties, including (without limitation) potential liabilities to
consumers of such products and services. Although Infoseek and Starwave carry
general liability insurance, such insurance may not cover potential claims of
this type or may not be adequate to indemnify the combined companies for all
liability that may be imposed.
Year 2000 Compliance. Infoseek and Starwave are aware of the issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "year 2000 problem" is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computer systems will
properly recognize date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.
Infoseek management has conducted a review of Infoseek's exposure to the
year 2000 problem, including working with computer systems and software
vendors to assure that they are prepared for the year 2000. Based on this
review and discussions with such vendors, Infoseek currently believes that its
internal systems are year 2000 compliant (with the exception of a single
system, which is scheduled to be replaced as part of a regular upgrade program
and is not material to Infoseek's operations). Infoseek does not expect to
further incur any significant operating expenses or invest in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave Management is conducting a review of Starwave's exposure to the
year 2000 problem, including working with computer system, data feed and
software vendors to assure that they are prepared for the year 2000. Based on
this review and discussions with such vendors, Starwave currently believes
that its internally developed systems are year 2000 compliant (with the
exception of two systems, which are scheduled to be replaced as part of a
regular upgrade program). Starwave does not expect to further incur any
significant operating expenses or significant investment in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave has also inventoried, and is in the process of contacting, third
party software and data feed vendors to assure their systems are year 2000
compliant.
Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Infoseek's and Starwave's vendors. Further, neither
Infoseek nor Starwave has investigated year 2000 compliance of third parties
who are not vendors of Infoseek or Starwave, respectively, and neither
Infoseek nor Starwave has control over such third parties' compliance. For
example, the failure of any site to which a link appears on the Infoseek
Service or a Starwave website could result in the loss of such link and
therefore reduce the breadth of services offered through links from the
Infoseek Service or the Starwave website, respectively, which may in turn
materially adversely affect the Infoseek Service or the Starwave website and
the value of user traffic and advertisers using such service or website. Any
failure of Infoseek, Starwave or their respective viewers, customers, linked
sites, advertisers or other third parties to be year 2000 compliant could
materially affect the business, results of operations, financial conditions
and prospects of Infoseek and/or Starwave.
RISKS RELATED TO STARWAVE'S BUSINESS
In evaluating Starwave's business, Infoseek and Starwave shareholders should
carefully consider the following risk factors in addition to those set forth
above under "Risks Related to the Combined Companies, the Mergers and Related
Transactions" and the other information set forth herein or incorporated
herein by reference.
Limited Operating History; Accumulated Deficit; Anticipated Losses. Starwave
was founded in December 1991 and first recognized revenues from Internet
products and services in the second quarter of 1995. Accordingly, Starwave has
an extremely limited operating history upon which an evaluation of Starwave
and its prospects can be based. Starwave's future success will depend on its
ability to increase revenues from its Internet
28
<PAGE>
businesses, which cannot be assured. Starwave's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
new and rapidly evolving market for Internet products, content and services.
To address these risks, Starwave must, among other things, effectively develop
and enhance its technology and respond to competitive developments. There can
be no assurance that Starwave will succeed in addressing such risks, and the
failure to do so could have a material adverse effect on Starwave's business,
financial condition and operating results. There can also be no assurance that
Starwave's revenues will increase or even continue at their current level or
that Starwave will achieve or maintain profitability or generate cash from
operations in future periods.
Since inception, Starwave has incurred significant losses and, as of June
28, 1998, had an accumulated deficit of $109.9 million. For the nine months
ended September 28, 1997 and the nine month period ending June 28, 1998,
Starwave recorded net operating losses of $17.6 million and $9.6 million,
respectively. It is anticipated that Starwave's cash requirements will
continue to be funded by Disney through the consummation of the Mergers and
thereafter will be funded by Infoseek. See "Starwave Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Unpredictability of Future Revenues; Potential Fluctuations in Operating
Results. As a result of Starwave's limited operating history and the emerging
nature of the markets in which it competes, Starwave is unable to accurately
forecast its revenues. Further, Starwave currently provides web site hosting
and other services, primarily to Disney and the Joint Ventures, the revenues
from which comprised 97% of Starwave's revenues for the nine months ended June
28, 1998. These services are provided under short-term contracts and there can
be no assurance that such contracts will be renewed. Starwave's current and
future expense levels, which are based largely on Starwave's expectations as
to future revenues, are to a large extent fixed. Starwave may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and a shortfall in actual revenues as compared to anticipated
revenues would have an immediate material adverse effect on Starwave's
business, financial condition and operating results.
Starwave's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside Starwave's control.
Factors that may adversely affect Starwave's quarterly operating results
include the continued rate of growth, usage and acceptance of the Internet by
users; the rate of acceptance of the Internet as an advertising medium; demand
for Starwave's products and services; the introduction and acceptance of new
or enhanced products or services by Starwave or by its competitors; Starwave's
ability to anticipate and effectively adapt to a developing market and to
rapidly changing technologies; Starwave's ability to effectively expand its
operations and manage such expansion; initiation, renewal terms or expiration
of significant contracts such as those that Starwave currently has with ABC
News, ESPN, the National Basketball Association (NBA) NASCAR, and the National
Football League (NFL); demand for Internet advertising; the seasonality
inherent in the content of certain of Starwave's sports services, such as
NFL.com and NBA.com, seasonal trends in both Internet use and advertising
placements; the addition or loss of advertising from specific advertisers;
advertising budgeting cycles of individual advertisers with respect to both
traditional media and digital media; the amount and timing of capital
expenditures and other costs relating to the expansion of Starwave's
operations; price competition or pricing changes in the industry; technical
difficulties or system downtime; guild problems, strikes or other work
disruptions involving the content of Starwave's services or Starwave's
creative personnel; general economic conditions and economic conditions
specific to the Internet and digital media. In addition, operating results may
be materially impacted by fluctuations in the number of consumers of the
products and services offered by Starwave's co-branding partners, such as any
material increase or decrease in the number of viewers of ESPN, or any
interruption of the schedule of games offered by the NFL or the NBA. Also,
Starwave may elect from time to time to make certain pricing, service or
marketing decisions, or acquisitions that could have a short-term material
adverse effect on Starwave's business, results of operations and financial
condition and may not generate the long-term benefits intended.
Risks of New Business Areas. The success of Starwave's business strategy
will depend to a significant extent on Starwave's ability to expand its
operations by enhancing its existing services and creating new sources of
revenue, including from subscription services and online transactions. There
can be no assurance that any of
29
<PAGE>
Starwave's new services will be developed in a cost effective or timely manner
or will achieve market acceptance or that the markets that do develop will be
sufficient to support profitable operations of Starwave. There can be no
assurance that Starwave will be able in the future to identify new subject
areas with comparable broad customer appeal, that Starwave will introduce new
Internet services to address such subject areas, or that such new services, if
introduced, will be successful or profitable. Absent such new developments,
Starwave may be unable to expand and diversify its Internet services business,
and its ability to increase revenues and to attain profitability in the future
may be inhibited.
Reliance on Advertising Revenues. The Joint Ventures derived 65% and 61% of
their aggregate revenues during the six months ended September 28, 1997 and
the nine months ended June 28, 1998, respectively, from the sale of
advertisements, and Starwave expects such dependence on advertising revenue to
continue for the foreseeable future. The Joint Ventures' current business
model, which is in large part dependent upon the generation of revenues
through the sale of advertising on the Internet and other digital media, is
unproven. The ability to generate significant advertising revenues in the
future will depend, among other things, on advertisers' acceptance of the
Internet as an attractive and sustainable medium, the development of a large
base of users of Starwave's products and services with demographic
characteristics attractive to advertisers, the successful expansion of
Starwave's advertising capabilities and advertising sales force, and strong
acceptance of Starwave's services by users. Advertising revenues to date have
been derived from a limited number of advertising customers, generally
pursuant to contracts with terms of three months or less. These contracts
generally guarantee a minimum of impressions (displays of the advertisement to
the user) per month. There can be no assurance that current advertisers will
continue to purchase advertising space and services from Starwave, that
sufficient impressions will be achieved or available, or that Starwave will be
able to successfully attract additional advertisers. In addition, advertisers
of consumer products, Starwave's target customers for advertising sales, have
not yet engaged in significant advertising on the Internet and may not do so
in the future. Moreover, there is intense competition among sellers of
advertising space on the Internet, as well as a variety of pricing models
offered by different vendors for a range of advertising services, and
therefore it is difficult to project future levels of advertising revenues or
to predict which pricing models will be adopted by the industry or individual
companies. Accordingly, there can be no assurance that Starwave will be
successful in generating significant future advertising revenues, and a
failure to do so will have a material adverse effect on Starwave's business,
results of operations and financial condition. See "Starwave Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence upon Third Party Distributors. Starwave has entered into a number
of third party distribution and promotional relationships and cross-promotion
agreements to help generate traffic on Starwave's Internet sites and
consequently generate revenues. These relationships include arrangements by
which certain of its services could be reached through "one-click" access from
one of the leading "web browser" software programs as well as other
arrangements by which Starwave's services may be accessed through web
browsers, search engines, and hyperlinks from other web sites. Starwave
generally does not have agreements with Internet site operators that provide
links to Starwave's services, and such operators may terminate such links at
any time without notice to Starwave. In addition, there can be no assurance
that the products or services of those companies that provide access or links
to Starwave's products or services, such as search engines and other Internet
site operators, will achieve market acceptance or commercial success.
Accordingly, the termination of any of the foregoing formal and informal
access arrangements may significantly reduce traffic on Starwave's Internet
sites, which would have a material adverse effect on Starwave's business,
results of operations and financial condition.
Technological Change; Dependence on Continued Technological Innovation. The
market for Internet products and services is characterized by technological
change, changing customer needs, frequent new product introductions and
evolving industry standards. These market characteristics are exacerbated by
the emerging nature of this market and the fact that many companies are
expected to introduce new Internet products and services in the near future.
Starwave's future success will depend in significant part on its ability to
continually and on a timely basis introduce new products, services and
technologies and to continue to improve the
30
<PAGE>
performance, features and reliability of Starwave's products and services in
response to both evolving demands of the marketplace and competitive product
offerings.
There can be no assurance that any new or proposed product or service will
attain market acceptance. Failure of Starwave to successfully design, develop,
test, market and introduce new and enhanced technologies and services, or the
failure of Starwave's recently introduced products and services to achieve
market acceptance could have a material adverse effect upon Starwave's
business, operating results and financial condition. There can be no assurance
that Starwave will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced
technologies, products and services, or that Starwave's new or recently
introduced products and services will adequately meet the requirements of the
marketplace and achieve significant market acceptance. Due to certain market
characteristics, including technological change, changing customer needs,
frequent new product and service introductions and evolving industry
standards, timeliness of introduction of these new products and services is
critical. Delays in the introduction of new products and services may result
in customer dissatisfaction and may delay or cause a loss of advertising
revenue. There can be no assurance that Starwave will be successful in
developing new products or services or improving existing products and
services that respond to technological changes or evolving industry standards,
that Starwave will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new or improved products
and services, or that its new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. In addition,
new or enhanced products and services introduced by Starwave may contain
undetected errors that require significant design modifications. This could
result in a loss of customer confidence and user support, thus adversely
affecting the use of Starwave's products and services, which in turn would
have a material adverse effect upon Starwave's business, results of operations
or financial condition. If Starwave is unable to develop and introduce new or
improved products or services in a timely manner in response to changing
market conditions or customer requirements, Starwave's business, operating
results and financial condition will be materially adversely affected. In
addition, if Starwave is unable to remain competitive with its competitors,
its business, operating results and financial condition may be materially
adversely affected as well.
A key element of Starwave's strategy is to continue to develop proprietary
technological innovations that allow it to enhance the user's interactive
experience and strengthen relationships with advertisers. Starwave believes
such technological leadership is required for Starwave to maintain its
competitive advantages. There can be no assurance that Starwave will be able
to conceive, develop, or acquire such technological innovations successfully
or that Starwave's competitors will not successfully implement features on
their digital media properties that are superior to those of Starwave's
interactive programming. Moreover, the costs associated with developing new
technology can be significant. There can be no assurance that these costs will
not have a material adverse effect on Starwave's business, financial
condition, and operating results. See "Starwave Business--Technology."
Competition. Competition among content providers is intense and is expected
to increase significantly in the future. Starwave's products and services
compete against a variety of firms that provide content through one or more
media, such as print, broadcast, cable television, radio, online services and
the Internet. As with any other content provider, Starwave competes generally
with other content providers for the time and attention of consumers and for
advertising revenues. To compete successfully, Starwave must provide
sufficiently compelling and popular interactive content to attract Internet
users and to support advertising intended to reach such users. In the sports
sector, for example, Starwave through the Joint Ventures competes with all
traditional media, including newspapers and magazines such as Sports
Illustrated, USA Today, The New York Times and The Washington Post, and with
radio and television networks that offer news and sports-related programming,
such as ABC, NBC, CBS, CNN and Fox. Each of these competitors also offers one
or more Internet sites with content designed to complement its newspapers or
magazines or television programming. If the Internet becomes a more attractive
source of content for consumers, these print and broadcast competitors may
offer services that are qualitatively superior to, and thus more compelling
and popular than, those online services offered by Starwave. In addition,
Starwave's existing co-branding partners may choose (subject to any
limitations contained in their agreements with Starwave) to offer competing
online services and products. See "--Dependence Upon Third Party
Distributors."
31
<PAGE>
Starwave also competes for advertising dollars and the time and attention of
Internet users with other Internet and online content and service providers,
including Web directories, search engines, shareware archives, sites that
offer original editorial content, commercial online services and sites
maintained by service providers. These competitors include Netscape, Excite,
Yahoo!, Lycos, AOL, Microsoft, SNAP!, PointCast, CBS Sportsline, CNNsi, Fox
Sports Online, MSNBC, Yahoo! Sports, MSNBC, CNN Interactive, Fox News Online,
E! Online, Entertainment Weekly/PathFinder, Hollywood Online, CNN Interactive-
ShowBiz, Bloomberg, Microsoft Investor, Quicken Financial Network, Reuters,
Dow Jones and CNNfn. The market for Internet content and services is new,
intensely competitive and rapidly evolving. There are minimal barriers to
entry, and current and new competitors can launch new sites at relatively low
cost. In addition, Starwave competes for the time and attention of users with
thousands of commercial and non-profit Internet sites operated by individuals,
corporations, governments and educational institutions. Existing and potential
competitors also include magazine and newspaper publishers, cable television
companies and startup ventures attracted to the digital media market.
Accordingly, Starwave expects competition to persist and intensify and the
number of competitors to increase significantly in the future. As Starwave
expands the scope of its interactive programming and services, it will compete
directly with a greater number of Internet sites, other interactive media and
other media companies. Because the operations and strategic plans of existing
and future competitors are undergoing rapid change, it is extremely difficult
for Starwave to anticipate which companies are likely to offer competitive
services in the future. There can be no assurance that Starwave's products and
services will compete successfully.
Starwave believes that the principal competitive factors in attracting users
include the quality of presentation, the integration of content in an
interactive format and the relevance, timeliness, depth and breadth of
information and services offered by Starwave. Access to real time data and
video and audio highlights of live events may become increasingly important in
differentiating sites and attracting users. With respect to attracting
advertisers, Starwave believes that the principal competitive factors include
the number of users accessing Starwave's interactive programming, the
demographics of such users, Starwave's ability to deliver focused advertising
and interactivity through its services, and the overall cost-effectiveness and
value of advertising offered by Starwave. Given the intense competition among
content providers on the Internet and other media, there can be no assurance
that Starwave will be able to compete successfully with respect to any of
these factors. If Starwave loses one or more significant advertising customers
or is forced to reduce advertising rates in order to retain customers, its
business, financial condition and operating results will be materially
adversely affected.
Dependence on Key Personnel; Managing Potential Growth. Starwave's
performance is substantially dependent on its ability to attract, retain and
motivate its key employees. The production of interactive programming for the
Internet and other digital media requires highly skilled writers and editors
and personnel with sophisticated technical expertise, and the number of such
personnel available is extremely limited. Competition for such personnel among
companies with operations involving computer technology and the Internet is
intense, and there can be no assurance that Starwave will be able to retain
its existing employees or that it will be able to attract, assimilate or
retain sufficiently qualified personnel in the future. In particular, Starwave
has encountered difficulties in attracting qualified software developers for
its Internet sites and related technologies, and there can be no assurance
that Starwave will be able to attract and retain such developers. The
inability to attract and retain the necessary technical, managerial, editorial
and sales personnel could have a material adverse effect on Starwave's
business, financial condition or operating results.
Starwave has rapidly and significantly expanded its operations and
anticipates that significant expansion of its operations will continue to be
required in order to address potential market opportunities. This rapid growth
has placed, and is expected to continue to place, a significant strain on
Starwave's management, operational and financial resources. From December 31,
1993 to June 30, 1998, Starwave grew from approximately 60 to approximately
330 employees. The increase in the number of employees and Starwave's market
diversification and product development activities have resulted in increased
responsibilities for Starwave's management. In order to manage the expected
growth of its operations, Starwave will be required to implement and improve
its operational systems, procedures and controls, on a timely basis, and to
train, manage and expand its growing employee base. Further, Starwave's
management will be required to successfully maintain relationships with
32
<PAGE>
various co-branding partners, advertising customers, advertising agencies,
Internet sites and services, Internet service providers and other third
parties and to maintain control over the operations and strategic direction of
Starwave in a rapidly changing environment. There can be no assurance that
Starwave's current personnel, systems, procedures and controls will be
adequate to support Starwave's future operations, that management will be able
to identify, hire, train, motivate or manage required personnel, or that
management will be able to successfully identify and exploit existing and
potential market opportunities. If Starwave is unable to manage growth
effectively, Starwave's business, financial condition and operating results
will be materially adversely affected.
Capacity Constraints and System Disruptions. A key element of Starwave's
strategy is to generate a high volume of traffic to its products and services.
Accordingly, the performance of Starwave's products and services is critical
to the reputation of Starwave and its branded services, its ability to attract
advertisers to Starwave's services, and market acceptance of these products
and services. Any system failure that causes interruptions or that increases
response time of Starwave's services would result in less traffic to
Starwave's services and, if sustained or repeated, would reduce the
attractiveness of Starwave's products and services to advertisers and
customers. In addition, an increase in the number of users simultaneously
accessing Starwave's services could strain the capacity of the software,
hardware or telecommunications lines deployed by Starwave, which could lead to
slower response times or system failures. As the number of Internet sites and
users of interactive content increase, there can be no assurance that
Starwave's services and systems will be able to scale appropriately or
efficiently. Starwave is also dependent upon software companies and Internet
and online service providers that facilitate user access to its services, and
users have experienced and may in the future experience difficulties due to
third party system or software failures or incompatibilities not within
Starwave's control. Starwave is also dependent on third party hardware
suppliers for prompt delivery, installation and service of the servers and
other equipment and services used to provide its products and services. Any
disruption in the Internet access and service provided by Starwave or its
service providers could have a material adverse effect upon Starwave's
business, results of operations and financial condition.
The process of managing advertising within large, high traffic Internet
sites such as Starwave's is an increasingly important and complex task.
Starwave relies on internal advertising inventory management and analysis
systems to provide enhanced internal reporting and customer feedback on
advertising. To the extent that any extended failure of Starwave's advertising
management system results in incorrect advertising insertions, Starwave may be
exposed to "make good" obligations with its advertising customers, which, by
displacing advertising inventory, could have a material adverse effect on
Starwave's business, results of operations and financial condition.
In addition, Starwave's operation depends upon its ability to maintain and
protect its computer systems, which are currently located in Bellevue and
Seattle, Washington. These systems are vulnerable to damage from fire, floods,
earthquakes, wind storms, lightning, electrical and telecommunications
failures, break-ins and similar events. Although Starwave does maintain
insurance against fire, floods, wind storms and earthquakes, there can be no
assurance that the amount of coverage would be adequate in any particular
case. Starwave has developed fault-tolerant system capacity as well as
disaster recovery plans, but there can be no assurance that Starwave will have
implemented such capacity and plans at the time of a natural disaster or other
system or widespread telecommunications failure or that such capacity and
plans will prove adequate to the need. Despite the implementation of network
security measures by Starwave, its servers are also vulnerable to computer
viruses, break-ins and similar disruptive problems. Computer viruses, break-
ins or other problems caused by third parties could lead to interruptions,
delays in or cessation of service to users of Starwave's products and
services. The occurrence of any of these events, particularly if sustained in
duration or repeated, could have a material adverse effect on Starwave's
business, results of operations and financial condition.
Dependence on Intellectual Property Rights; Risks of Infringement. Starwave
relies on patent, trade secret and copyright laws to protect its proprietary
technologies, but there can be no assurance that such laws will provide
sufficient protection to Starwave, that others will not develop technologies
that are similar or superior to
33
<PAGE>
Starwave's or that third parties will not copy or otherwise obtain and use
Starwave's technologies without authorization. Starwave has filed patent
applications with respect to certain of its software products and innovative
online technologies, but there can be no assurance that patents will issue
with respect to such applications, that any issued patents will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide a competitive advantage for Starwave. Starwave's success and
ability to compete is also dependent in part on the protection of its original
interactive content and on the goodwill associated with its trademarks, trade
names, service marks and other proprietary rights. A substantial amount of
uncertainty exists concerning the application of copyright and trademark laws
to the Internet and other digital media, and there can be no assurance that
existing laws will provide adequate protection for Starwave's original content
or its Internet addresses (commonly referred to as "domain names"). After
giving effect to the Mergers, Starwave's proprietary technologies may receive
greater exposure in international markets. Effective patent, copyright,
trademark and trade secret protection may be unavailable or limited in certain
of such markets. Starwave has filed applications to register a number of its
trademarks and service marks, including the name "Starwave" and the related
"swirling" logo, but registrations have only been granted to date in selected
cases, and there can be no assurance that Starwave will be able to secure
additional or pending registrations. Starwave has also invested significant
resources in acquiring Internet domain names for existing and potential
Internet sites. There can be no assurance, however, that Starwave will be
entitled to use such names under applicable trademark and similar laws or that
other desired domain names will be available. Furthermore, policing
unauthorized use of Starwave's proprietary technology and other intellectual
property rights could entail significant expenses and could prove difficult or
impossible, particularly given the global nature of the Internet, the ease of
digital copying and the fact that the laws of other countries may afford
Starwave little or no effective protection of its intellectual property.
There can be no assurance that third parties will not bring claims of
copyright or trademark infringement against Starwave on the basis of non-news
use or otherwise. Starwave has from time to time received informal notices
from copyright and trademark holders regarding Starwave use of music and
images in Starwave's interactive programming. In addition, there can be no
assurance that third parties will not claim that Starwave's use of certain
technologies or methods violates a patent. The number of patents issued
covering interactive programming, Internet programming and techniques, and
electronic commerce is increasing, and there are already several patent
holders asserting claims that, if upheld, could substantially hinder evolution
or otherwise increase operating costs of the digital media marketplace and
particularly the ability to create viable destination services. Starwave
anticipates an increase in patent infringement claims involving interactive
programming and Internet-related technologies as the number of products and
competitors in this market grows and as related patents are issued,
particularly in the areas of real time or "streaming" audio and video, online
commerce and "digital cash," and other technologies that may be considered to
be critical to long-term success in this marketplace. Further, there can be no
assurance that third parties will not claim that Starwave has misappropriated
their creative ideas or formats or otherwise infringed upon their proprietary
rights in connection with its interactive programming and the content of its
services. Any claims of infringement, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
require Starwave to enter into costly royalty or licensing arrangements or
prevent Starwave from using important technologies or methods, any of which
could have a material adverse effect on Starwave's business, financial
condition or operating results.
RISKS RELATED TO INFOSEEK'S BUSINESS
In evaluating Infoseek's business, Starwave shareholders should carefully
consider the following risk factors in addition to those set forth under
"Risks Related to the Combined Companies, the Mergers and Related
Transactions" and the other information set forth herein or incorporated
herein by reference.
Limited Operating History; Historical Losses; Anticipation of Continued
Losses. Infoseek's limited operating history makes it difficult to manage
operations and predict future operating results. Infoseek has incurred
significant net losses since inception and expects to continue to incur
significant losses on a quarterly and annual basis in 1998 and may do so in
subsequent fiscal periods. As of June 30, 1998, Infoseek had an accumulated
deficit of $51,097,000. Infoseek and its prospects must be considered in light
of the risks, costs and
34
<PAGE>
difficulties frequently encountered by companies in their early stage of
development, particularly companies in the new and rapidly evolving Internet
market. There can be no assurance that Infoseek will be able to address any of
these challenges. Although Infoseek has experienced significant revenue growth
in 1997 and the first half of 1998, there can be no assurance that this growth
rate will be sustained or that revenues will continue to grow or that Infoseek
will achieve profitability. In 1997 and the first half of 1998, Infoseek
significantly increased its operating expenses as a result of a substantial
increase in its sales and marketing efforts, development of new distribution
channels, expansion of its customer support capabilities and to fund greater
levels of research and development. Further increases in operating expenses
are planned during fiscal 1998. To the extent that any such expenses are not
timely followed by increased revenues, Infoseek's business, results of
operations, financial condition and prospects would be materially adversely
affected.
Relationship with Netscape; Reliance on Third Party Sources of Traffic and
Advertising Sales. Infoseek relies in part on third party sources of traffic
to its web site, including Netscape and Microsoft, among others, pursuant to
contractual arrangements which generally have terms of one year or less. For
the year ended December 31, 1997 and the six months ended June 30, 1998,
approximately 46% and 31% of the aggregate page views on Infoseek's web site
were generated by traffic derived from third party sources. Since March 1995,
Infoseek has been a featured provider of navigational services on the Web page
of Netscape. In 1996 and 1997 and during the first half of 1998, approximately
65%, 33% and 18%, respectively, of all page views served on the Infoseek
Service came from traffic attributable to the Netscape web page. As of June 1,
1998, Infoseek entered into a one-year agreement with Netscape with terms that
provide for Infoseek to pay, based upon the level of impressions delivered, up
to an aggregate of $12,500,000 in cash to be one of the six non-exclusive
premier providers of navigational services (along with Excite, Netscape,
Lycos, Alta Vista, and LookSmart). Under terms of the agreement, which expires
May 31, 1999, Infoseek will receive 15% of premier provider rotations--the
pages served to visitors who have not selected a preferred provider. The
payments to Netscape are being recognized ratably over the term of the
agreement. Infoseek also has an agreement with Microsoft to become one of five
premier providers of search and navigational services on Microsoft's network
of Internet products and services. Under the agreement with Microsoft which
expires in September 1999, Infoseek is obligated to pay an aggregate of
$10,675,000 for a guaranteed minimum number of impressions on both Microsoft's
Internet Explorer search feature and Microsoft's website. Infoseek will also
pay, based on the number of impressions delivered, for additional impressions
on both Internet Explorer and Microsoft's website, up to a maximum of
$18,000,000. The accounting treatment for the Microsoft agreement is under
review by the Securities and Exchange Commission and will result in either
amortizing the $10,675,000 obligation over the one-year term of the agreement,
or expensing $7.0 million to $8.0 million in the quarter ended December 31,
1998, the quarter when the service is launched. At the end of the agreement
term, there can be no assurance that these or other similar agreements can or
will be renewed on terms satisfactory to Infoseek. If Infoseek is unable to
renew these or other similar agreements on favorable terms or is otherwise
unable to develop viable alternative distribution channels to Netscape or
Microsoft or is otherwise unable to offset a reduction in traffic from these
or other third party sources, advertising revenues would be adversely
affected, resulting in Infoseek's business, results of operations, financial
condition and prospects being materially and adversely affected. In addition,
Infoseek recently entered into an agreement with WebTV Networks, Inc.
("WebTV") pursuant to which Infoseek will be the exclusive provider of search
and directory services to WebTV. Under this two year agreement, Infoseek is
responsible for managing advertising sales for all of WebTV's search traffic
and the substantial majority of WebTV's current non-search traffic. Pursuant
to the agreement, Infoseek is obligated to make cash payments to WebTV
totalling $26 million, with $15 million of such amount being payable in
advance for the first five quarters during which the agreement is in effect
and the remaining $11 million being payable ratably over the last three
quarters of the agreement term. Such payments by Infoseek are subject to
reimbursement in the event that WebTV is unable to deliver a minimum of 4.5
billion impressions over the life of the agreement. Infoseek is to receive all
of the revenue generated from such advertising sales up to a pre-determined
amount that is in excess of Infoseek's total payment obligations to WebTV
under the agreement, with allocations of such revenue between Infoseek and
WebTV being made beyond this pre-determined amount. There can be no assurance
that Infoseek will be able to sell the available advertising inventory of
WebTV under this agreement or be able to collect the receivables resulting
from such advertising sales, which could have a
35
<PAGE>
material adverse effect on Infoseek's business, results of operations and
financial condition. See "Infoseek Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Potential Fluctuations in Future Results. As a result of Infoseek's limited
operating history as well as the recent emergence of both the Internet and
intranet markets addressed by Infoseek, Infoseek has neither internal nor
industry-based historical financial data for any significant period of time
upon which to project revenues or base planned operating expenses. Infoseek
expects that its results of operations may also fluctuate significantly in the
future as a result of a variety of factors, including: the continued rate of
growth, usage and acceptance of the Internet and intranets as information
media; the rate of acceptance of the Internet as an advertising medium and a
channel of commerce; demand for Infoseek's products and services; the
advertising budgeting cycles of individual advertisers; the introduction and
acceptance of new, enhanced or alternative products or services by Infoseek or
by its competitors; Infoseek's ability to anticipate and effectively adapt to
a developing market and to rapidly changing technologies; Infoseek's ability
to attract, retain and motivate qualified personnel; initiation,
implementation, amendment, renewal or expiration of significant contracts with
Borders Group, Inc. ("Borders OnLine"), Microsoft, Netscape and others;
pricing changes by Infoseek or its competitors; specific economic conditions
in the Internet and intranet markets; general economic conditions; and other
factors. Substantially all of Infoseek's revenues have been generated from the
sale of advertising, and Infoseek expects to continue to derive substantially
all of its revenues from selling advertising and related products for the
foreseeable future. Moreover, most of Infoseek's contracts with advertising
customers have terms of three months or less. Advertising revenues are tightly
related to the amount of traffic on Infoseek's web site, which is inherently
unpredictable. Accordingly, future sales and operating results are difficult
to forecast. Infoseek's expense levels are based, in part, on its expectations
as to future revenues and, to a significant extent, are not expected to
decrease, at least in the short term. Infoseek may not be able to adjust
spending in a timely manner to compensate for any future revenue shortfall.
Accordingly, any significant shortfall in relation to Infoseek's expectations
would have an immediate material adverse impact on Infoseek's business,
results of operations, financial condition and prospects.
In addition, Infoseek may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a short-term
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects and which may not generate the long-term
benefits intended. From time to time, Infoseek has entered into and may
continue to enter into strategic relationships with companies for cross
service advertising, such as Infoseek's relationship with United Parcel
Service of America, Inc. ("UPS"). Infoseek's revenues have in the past been,
and may in the future continue to be, partially dependent on its relationship
with its strategic partners. Such strategic relationships have and may
continue to include substantial one-time or up front payments from Infoseek's
partners. Accordingly, Infoseek believes that its quarterly revenues are
likely to vary significantly in the future, that period-to-period comparisons
are not necessarily meaningful and that such comparisons should not
necessarily be relied upon as an indication of Infoseek's future performance.
Due to the foregoing factors, it is likely that in future periods, Infoseek's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of Infoseek's common stock would likely be
materially adversely affected.
Risks Associated with Brand Development. Infoseek believes that establishing
and maintaining the Infoseek brand is a critical aspect of its efforts to
attract and expand its audience and that the importance of brand recognition
will increase due to the growing number of Internet sites and the relatively
low barriers to entry. Promotion and enhancement of the Infoseek brand will
depend largely on Infoseek's success in providing high-quality products and
services and in designing and implementing effective media promotions, which
success cannot be assured. In order to attract and retain Internet users and
to promote and maintain the Infoseek brand in response to competitive
pressures, Infoseek believes it is necessary to increase substantially its
financial commitment to creating and maintaining a distinct brand loyalty
among consumers. If Infoseek is unable to provide high-quality products and
services, design and implement effective media promotions or otherwise fails
to promote and maintain its brand, or if Infoseek incurs excessive expenses in
an attempt to improve its products and services or promote and maintain its
brand, Infoseek's business, results of operations, financial condition and
prospects would be materially and adversely affected.
36
<PAGE>
Intense Competition. The market for Internet and intranet products and
services is highly competitive, and Infoseek expects that competition will
continue to intensify. The market for Internet and intranet search and
navigational services has only recently begun to develop, and Infoseek cannot
predict with any certainty how competition will affect Infoseek, its
competitors or its customers. Infoseek also believes that the Internet market
increasingly will require portal services to integrate a more robust array of
multimedia content and services. As such, Infoseek believes that its future
success in part will depend upon its ability to effectively and timely
integrate such content and services, including but not limited to further
advancements in search and directory and other technologies and functionality,
development of on-line communities, implementation of electronic commerce and
provision of rich and diverse multimedia content. There can be no assurance
that Infoseek will be able to compete successfully or that the competitive
pressures faced by Infoseek, including those listed below, will not have a
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects. Infoseek believes it faces numerous
competitive risks, including the following:
Competition from Consolidated Internet Products. A number of companies
offering Internet products and services, including direct competitors of
Infoseek, recently have begun to integrate multiple features within the
products and services they offer to consumers. Integration of Internet
products and services is occurring through development of competing
products and through acquisitions of, or entering into joint ventures
and/or licensing arrangements involving, competitors of Infoseek. For
example, Netscape has recently announced that it has signed a two-year
strategic partnership with Excite to build out content based channels
jointly for Netscape's Web site and to create co-branded search, thereby
competing directly with Infoseek. The Web browser offered by Microsoft,
another widely-used browser and substantial source of traffic for Infoseek,
may incorporate and promote information search and retrieval capabilities
in future releases or upgrades that could make it more difficult for
Internet viewers to find and use Infoseek's products and services.
Microsoft recently licensed products and services from Inktomi Corporation
("Inktomi"), a direct competitor of Infoseek, and has announced that it
will feature and promote Inktomi services in the Microsoft Network and
other Microsoft online properties. Infoseek expects that such search
services may be tightly integrated into the Microsoft operating system, the
Internet Explorer browser and other software applications, and that
Microsoft will promote such services within the Microsoft Network or
through other Microsoft-affiliated end- user services such as MSNBC or
WebTV. In addition, entities that sponsor or maintain high-traffic Web
sites or that provide an initial point of entry for Internet viewers,
currently offer and can be expected to consider further development,
acquisition or licensing of Internet search and navigation functions
competitive with those offered by Infoseek, or could take actions that make
it more difficult for viewers to find and use Infoseek's products and
services. For example, AOL is currently a significant shareholder of Excite
and offers Excite's WebCrawler and NetFind as the exclusive Internet search
and retrieval services for use by AOL's subscribers. Continued or increased
competition from such consolidations, integration and strategic
relationships involving competitors of Infoseek could have a material
adverse effect on Infoseek's business, results of operations, financial
condition and prospects.
Competition from existing search and navigational competitors. Many
companies currently offer directly competitive products or services
addressing Web search and navigation, including DEC/AltaVista, Excite,
HotBot, Inktomi, Lycos, CNET and Yahoo! In addition, Infoseek's Ultraseek
Server product competes directly with intranet products and services
offered by companies such as DEC/AltaVista, Lycos, Open Text and Verity.
The Web browsers currently offered by Netscape and Microsoft, which are the
two most widely-used browsers, incorporate prominent search buttons and
similar features, such as features based on "push" technologies, that
direct search traffic to competing services, including those that may be
developed or licensed by Microsoft or Netscape in enhancements or later
versions of these or other products. Many of Infoseek's existing
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical, marketing and distribution
resources than Infoseek.
Competition from Internet and other advertising media. Infoseek also
competes with online services, other Web site operators and advertising
networks, as well as traditional media such as television, radio and print
for a share of advertisers' total advertising budgets. Additionally, a
large number of Web sites and online services (including, among others, the
Microsoft Network, MSNBC, AOL and other Web navigation companies such as
Excite, Lycos and Yahoo!) offer informational and community features, such
as news,
37
<PAGE>
stock quotes, sports coverage, yellow pages and e-mail listings, weather
news, chat services and bulletin board listings that are competitive with
the services currently offered or proposed to be offered by Infoseek.
Moreover, Infoseek believes that the number of companies selling Web-based
advertising and the available inventory of advertising space have recently
increased substantially. Accordingly, Infoseek may face increased pricing
pressure for the sale of advertisements and reductions in Infoseek's
advertising revenues.
Low barriers to entry for new search and navigational companies. Infoseek
believes that the costs associated with developing technologies, products
and services that compete with those offered by Infoseek are relatively
low. As a result, as the market for Internet and intranet search and
navigational products develops, other companies may be expected to offer
similar products and services and directly and indirectly compete with
Infoseek for advertising revenues.
Reliance on Advertising Revenues. Infoseek has derived a substantial
majority of its revenues to date from the sale of advertisements and expects
to continue its dependence on advertising and related products, including
channel sponsorships and, to a lesser extent, the sale of the Ultramatch
advertising management system and the Ultraseek Server intranet product.
Infoseek's current business model of generating revenues through the sale of
advertising on the Internet, which is highly dependent on the amount of
traffic on Infoseek's web site, is relatively unproven. The Internet as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media. In
addition, most of Infoseek's current advertising customers have limited or no
experience using the Internet as an advertising medium, have not devoted a
significant portion of their advertising expenditures to such advertising and
may not find such advertising to be effective for promoting their products and
services relative to advertising in traditional media. There can be no
assurance that current advertisers will continue to purchase advertising space
and services from Infoseek or that sufficient impressions will be achieved or
available, or that Infoseek will be able to successfully attract additional
advertisers. Furthermore, with the rapid growth of available inventory on the
Internet and the intense competition among sellers of advertising space, it is
difficult to project future levels of advertising revenues and pricing models
that will be adopted by the industry or individual companies. In addition, the
ability to quickly develop new business models which will generate additional
revenue sources may be vital for Infoseek to remain competitive in its
marketplace. Accordingly, there can be no assurance that Infoseek will be
successful in generating significant future advertising revenues or other
source of revenues; failure to do so could have a material adverse effect on
Infoseek's business, results of operations, financial condition and prospects.
Technological Change and New Products and Services. The market for Internet
products and services is characterized by rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards. These market characteristics are exacerbated by the emerging nature
of this market and the fact that many companies are expected to introduce new
Internet products and services in the near future. Infoseek's future success
will depend on its ability to continually and, on a timely basis, introduce
new products, services and technologies and to continue to improve the
performance, features and reliability of Infoseek's products and services in
response to both evolving demands of the marketplace and competitive product
offerings.
In the fourth quarter of 1997, Infoseek released a new version of its
service which currently features 18 "channels," designed to bring together
topical information, services, products and communities on the Web. The new
service provides additional opportunities for revenue from the sale of channel
sponsorships as well as provides an opportunity for Infoseek to share in a
portion of the revenue facilitated by its viewers with these channel sponsors.
Continued market acceptance of this new version and successful conclusion of
sponsorship arrangements are integral to Infoseek's competitiveness and
viability. Most of Infoseek's additional channel sponsorship and partnership
arrangements are dependent on an increasing level of viewer traffic. If
Infoseek is unable to renew its relationship with Netscape, or if viewer
traffic is otherwise materially adversely affected, Infoseek may be unable to
retain its channel sponsorship and partnership arrangements. In addition,
there can be no assurance that this new sponsorship service or any other new
or proposed product or service will attain market acceptance, experience
technological sustainability or be free of errors that require significant
design
38
<PAGE>
modifications or that the business model to generate revenues will be
successful. Failure of Infoseek to successfully design, develop, test, market
and introduce other new and enhanced technologies and services, or any
enhancements of Infoseek's current search technology, or the failure of
Infoseek's recently introduced products and services to achieve market
acceptance could have a material adverse effect upon Infoseek's business,
results of operations, financial condition and prospects.
Due to rapid technological change, changing customer needs, frequent new
product and service introductions and evolving industry standards, timeliness
of introduction of these new products and services is critical. Delays in the
introduction of new products and services may result in customer
dissatisfaction and may delay or cause a loss of advertising revenue. There
can be no assurance that Infoseek will be successful in developing new
products or services or improving existing products and services that respond
to technological changes or evolving industry standards, that Infoseek will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new or improved products and
services, or that its new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. If Infoseek is
unable to develop and introduce new or improved products or services in a
timely manner in response to changing market conditions or customer
requirements, Infoseek's business, results of operations, financial condition
and prospects could be materially adversely affected.
Management of Growth. Infoseek has recently experienced and may continue to
experience rapid growth, which has placed, and could continue to place, a
significant strain on Infoseek's limited personnel and other resources.
Competition for engineering, sales and marketing personnel is intense, and
there can be no assurance that Infoseek will be successful in attracting and
retaining such personnel or that Infoseek will be able to manage such growth
effectively. To succeed, Infoseek will need to continue to implement and
improve its operational, financial and management information systems and to
hire, train, motivate and manage its employees. In particular, Infoseek has
experienced difficulty in hiring and retaining the personnel necessary to
support the growth of Infoseek's business. The failure of Infoseek to
successfully manage any of these issues would have a material adverse effect
on Infoseek's business, results of operations, financial condition and
prospects. Infoseek's ability to manage its growth will require a significant
investment in and upgrade to its existing internal management information
systems to support increased accounting and other management related
functions, and a new advertising inventory management analysis system to
provide enhanced internal reporting and customer feedback on advertising.
These system upgrades and replacements will impact almost all phases of
Infoseek's operations (i.e. planning, advertising implementation and
management, finance and accounting). These systems are currently scheduled to
become operational by the second half of 1998. There can be no assurance that
Infoseek will not experience problems, delays or unanticipated additional
costs in implementing these systems or in the use of its existing system that
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects, particularly in the period or
periods in which these systems are brought online.
Capacity Constraints and System Failure; Advertising Management System. A
key element of Infoseek's strategy is to generate a high volume of traffic to
its products and services. Accordingly, the performance of Infoseek's products
and services is critical to Infoseek's reputation, its ability to attract
advertisers to Infoseek's web sites and market acceptance of these products
and services. Any system failure that causes interruptions or that increases
response time of Infoseek's products and services would result in less traffic
to Infoseek's web sites and, if sustained or repeated, would reduce the
attractiveness of Infoseek's products and services to advertisers and
customers. In addition, an increase in the volume of searches conducted
through Infoseek's products and services could strain the capacity of the
software, hardware or telecommunications lines deployed by Infoseek, which
could lead to slower response time or system failures. If traffic to
Infoseek's web site continues to increase, there can be no assurance that
Infoseek's products, services and systems will be able to scale appropriately.
Infoseek is also dependent upon web browser companies and Internet and online
service providers for access to its products and services, and viewers have
experienced and may in the future experience difficulties due to system or
software failures or incompatibilities not within Infoseek's control. Infoseek
is also dependent on hardware suppliers for prompt delivery, installation and
service of servers and other equipment and services used to provide its
products and services. Any disruption in the Internet access and service
provided
39
<PAGE>
by Infoseek or its service providers could have a material adverse effect upon
Infoseek's business, results of operations, financial condition and prospects.
The process of managing advertising within large, high traffic web sites
such as Infoseek's is an increasingly important and complex task. Infoseek is
in the process of converting from an internally developed advertising
inventory management analysis system to provide enhanced internal reporting
and customer feedback on advertising to a system being developed by
NetGravity. Infoseek currently anticipates that this new advertising
management system will be installed and become operational in the second half
of 1998. To the extent that Infoseek encounters material difficulties in
bringing, or is unable to bring, this new system online, Infoseek will need to
acquire an alternative solution from a third party vendor or devote sufficient
resources to enhance its current internally developed system. Any extended
failure of, or material difficulties encountered in connection with,
Infoseek's advertising management system may expose Infoseek to "make good"
obligations with its advertising customers, which, by displacing advertising
inventory would, among other consequences, reduce revenue and would have a
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects.
In addition, Infoseek's operation depends upon its ability to maintain and
protect its computer systems, all of which are located at Infoseek's principal
offices in Sunnyvale, California. This system is vulnerable to damage from
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. Although Infoseek maintains insurance against fires,
floods, earthquakes and general business interruptions, there can be no
assurance the the amount of coverage will be adequate in any particular case.
Infoseek does not currently have a disaster recovery plan in effect and does
not have redundant systems for its service at an alternate site. Despite the
implementation of network security measures by Infoseek, its servers are also
vulnerable to computer viruses, break-ins and similar disruptive problems.
Computer viruses, break-ins or other problems caused by third parties could
lead to interruptions, delays in or temporary cessation of service to users of
Infoseek's products and services. The occurrence of any of these events would
have a material adverse effect on Infoseek's business, results of operations,
financial condition and prospects.
Risks Associated with International Expansion. As part of its business
strategy, Infoseek has begun to seek additional opportunities to expand its
products and services into international markets. Infoseek believes that such
expansion is important to Infoseek's ability to continue to grow and to market
its products and services. In marketing its products and services
internationally, however, Infoseek faces new competitors. In addition,
Infoseek's success in entering international markets is dependent upon
Infoseek's ability to create localized versions of its products and services.
There can be no assurance that Infoseek will be successful in creating
localized versions of its products and services or marketing or distributing
its products abroad or that, if Infoseek is successful, its international
revenues will be adequate to offset the expense of establishing and
maintaining international operations. To date, Infoseek has limited experience
in marketing and distributing its products and services internationally. In
addition to the uncertainty as to Infoseek's ability to establish an
international presence, there are certain difficulties and risks inherent in
doing business on an international level, such as compliance with regulatory
requirements and changes in these requirements, export restrictions, export
controls relating to technology, tariffs and other trade barriers, protection
of intellectual property rights, difficulties in staffing and managing
international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates and potentially adverse tax consequences. In the event that in the
future the combined companies derive a material portion of their revenues from
international operations, the risks of fluctuations in currency exchange rates
will be increased. In such event and at such time, the combined companies will
evaluate whether to engage in a hedging strategy to minimize the risks of such
currency fluctuations. There can be no assurance that one or more of such
factors would not have a material adverse effect on any international
operations established by Infoseek and, consequently, on Infoseek's business,
results of operations, financial condition and prospects.
Dependence on Key Personnel. Infoseek's performance is substantially
dependent on the services of the members of its senior management team, as
well as its ability to retain and motivate its officers and key
40
<PAGE>
employees. In addition, Infoseek has recently hired, and plans to continue to
hire, a number of engineers to design and implement improvements to the
integration of content with its search engine technology, which Infoseek
believes will be a significant factor in its future ability to compete
favorably with other navigational guides. Infoseek's future performance
depends in significant part upon the contributions of its senior management
personnel, including its Chairman Steven Kirsch, who is integrally involved in
Infoseek's research and development efforts. Although Infoseek provides
incentives such as salary, benefits and option grants (which are typically
subject to vesting over four years) to attract and retain qualified employees,
the loss of services of any of Infoseek's officers or other key employees
would have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Volatility of Stock Price. The price of Infoseek's common stock has been and
may continue to be subject to wide fluctuations in response to a number of
events and factors such as quarterly variations in results of operations,
announcements of new technological innovations or new products and media
properties by Infoseek or its competitors, changes in financial estimates and
recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable to Infoseek,
and news relating to trends in Infoseek's markets. In addition, the stock
market in general, and the market prices for Internet-related companies in
particular, have experienced extreme volatility that often has been unrelated
to the operating performance of such companies. These broad market and
industry fluctuations may adversely affect the price of Infoseek's common
stock, regardless of Infoseek's operating performance.
Intellectual Property and Proprietary Rights. Infoseek's success depends
significantly upon its proprietary technology. Infoseek currently relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights.
Infoseek seeks to protect its software, documentation and other written
materials under trade secret, patent and copyright laws, which afford only
limited protection. Infoseek holds two United States patents and currently has
10 United States patent applications pending and six foreign patent
applications pending. There can be no assurance that the pending applications
will be approved, or that if issued, such patents will not be challenged, and
if such challenges are brought, that such patents will not be invalidated.
There can be no assurance that Infoseek will develop proprietary products or
technologies that are patentable, that any issued patent will provide Infoseek
with any competitive advantages or will not be challenged by third parties, or
that the patents of others will not have a material adverse effect on Infoseek
ability to do business. Infoseek has registered and applied for registration
for certain service marks and trademarks, and will continue to evaluate the
registration of additional service marks and trademarks, as appropriate.
Infoseek generally enters into confidentiality agreements with its employees
and with its consultants and customers. Litigation may be necessary to protect
Infoseek's proprietary technology. Any such litigation may be time-consuming
and costly. Despite Infoseek's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Infoseek's products or
services or to obtain and use information that Infoseek regards as
proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that Infoseek's means of protecting its proprietary
rights will be adequate or that Infoseek's competitors will not independently
develop similar technology or duplicate Infoseek's products or design around
patents issued to Infoseek or other intellectual property rights of Infoseek.
There have been substantial amounts of litigation in the computer industry
regarding intellectual property rights. There can be no assurance that third
parties will not in the future claim infringement by Infoseek with respect to
current or future products, patents, copyrights, trademarks or other
proprietary rights, that Infoseek will counterclaim against any such parties
in such actions or that if Infoseek makes claims against third parties with
respect thereto, that any such party will not counterclaim against Infoseek in
such actions. For example, Infoseek is aware of a U.S. patent recently issued
to Carnegie Mellon related to Web spider technology that has been licensed to
Lycos and is currently utilized in the Lycos search engine. While Infoseek
currently believes, based on a preliminary review of such issued patent and
consultation with its patent counsel, that the technologies employed by
Infoseek in the Infoseek Service do not infringe the Carnegie Mellon patent,
there can be no assurance that Infoseek would prevail if Lycos or Carnegie
Mellon claimed Infoseek infringed such patent. Any
41
<PAGE>
such claims or counterclaims could be time-consuming, result in costly
litigation, cause product release delays, require Infoseek to redesign its
products or require Infoseek to enter into royalty or licensing agreements,
any of which could have a material adverse effect upon Infoseek's business,
results of operations, financial condition and prospects. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
Infoseek or at all.
Termination Fees, Options. If the Reorganization Agreement is terminated
under certain circumstances, Infoseek California would be required to pay
Starwave a fee of $17 million plus expenses. In addition, if the
Reorganization Agreement is terminated under circumstances in which Infoseek
California is required to pay a termination fee to Starwave, then Disney shall
have the right to exercise one or both of two options. The first option
includes the right to obtain a nonexclusive, worldwide license for five years,
with certain rights to sublicense, to use Infoseek search and communication
technology in connection with the development, operation and exploitation of
Disney's and its affiliates' online services, in exchange for an annual fee.
The second option would enable Disney to have prominent placement for links of
certain online services of Disney and its affiliates on Infoseek's Internet
Service for a term of five years, and prominent placement of content of Disney
and its affiliates within Infoseek's Internet services in exchange for an
annual fee. Exercise of one or both of the options could have the effect of
discouraging certain third parties from entering into strategic licensing or
other transactions with Infoseek California, including a business combination
or acquisition. See "Terms of the Mergers--Termination Fees."
42
<PAGE>
INFOSEEK SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF INFOSEEK SHAREHOLDERS MEETING
The Infoseek California Shareholders Meeting will be held at the offices of
Infoseek California located at 1399 Moffett Park Drive, Sunnyvale, California
94089, on November 18, 1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the Infoseek California Shareholders Meeting is to vote upon
proposals to (i) approve and adopt the Reorganization Agreement and approve
the Infoseek Merger and (ii) approve the issuance of 28,138,000 shares of
Infoseek Delaware common stock in connection with the Starwave Merger, and the
issuance to Disney of 2,642,000 shares of Infoseek Delaware common stock and
the Warrant to acquire 15,720,000 shares of Infoseek Delaware common stock
pursuant to the Securities Purchase Agreement, as required under the NASD
rules because the issuance would be in excess of 20% of Infoseek common stock.
Approval of the Infoseek Merger will also constitute approval of (i) the
Infoseek Merger Agreement, the Amended and Restated Certificate of
Incorporation and the Bylaws of Infoseek Delaware and (ii) the assumption of
Infoseek California's employee benefit plans and stock option and employee
stock purchase plans by Infoseek Delaware.
RECORD DATE AND OUTSTANDING SHARES
The record date for the Infoseek Shareholders Meeting is the close of
business on October 9, 1998. Only holders of record of Infoseek California
common stock on the Record Date are entitled to notice of, and to vote at, the
Infoseek California Shareholders Meeting. As of October 9, there were
approximately 570 shareholders of record holding an aggregate of approximately
31,508,312 shares of Infoseek California common stock.
This Joint Proxy Statement/Prospectus is being mailed on or about October
14, 1998 to all shareholders of record of Infoseek California as of the record
date.
VOTE REQUIRED
Pursuant to the CGCL, approval and adoption of the Reorganization Agreement
and approval of the Infoseek Merger requires the affirmative vote of the
holders of a majority of shares of Infoseek California common stock
outstanding on the Record Date. Pursuant to the rules of NASD, approval of the
issuance of 28,138,000 shares of Infoseek Delaware common stock in connection
with the Starwave Merger, and the issuance to Disney of 2,642,000 shares of
Infoseek Delaware common stock and the Warrant to acquire 15,720,000 shares of
Infoseek Delaware common stock pursuant to the Securities Purchase Agreement
requires the affirmative vote of the holders of a majority of shares of
Infoseek common stock, present in person or represented by proxy, at the
Infoseek Shareholders Meeting. Each holder of record of Infoseek California
common stock on the Record Date will be entitled to cast one vote per share on
the proposals to be acted upon at the Infoseek California Shareholders
Meeting. As of the Record Date, the directors and executive officers of
Infoseek California and their affiliates may be deemed to hold approximately
25% of the outstanding shares of Infoseek California common stock. See
"Security Ownership of Management and Principal Shareholders of Infoseek."
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Infoseek California Common Stock entitled to vote at the
Infoseek Shareholders Meeting is necessary to constitute a quorum for the
transaction of business. Abstentions and non-votes will be counted for
purposes of determining a quorum. For purposes of obtaining the required vote
of a majority of the outstanding shares of Infoseek California common stock
for approval and adoption of the Reorganization Agreement and approval of the
Infoseek Merger, the effect of an abstention and the effect of a non-vote are
the same as that of a vote against the proposal. For purposes of obtaining the
required vote of a majority of shares of Infoseek California common stock
present in person or by proxy at the Infoseek Shareholders Meeting,
abstentions and non-votes will have no effect on the proposal. If no
43
<PAGE>
instructions are indicated in the proxies, such shares of Infoseek California
common stock shall be voted in favor of both proposals.
Certain executive officers, directors and principal shareholders of Infoseek
California (who as of the record date owned in the aggregate approximately 22%
of the outstanding shares of Infoseek California common stock) have entered
into agreements with Disney which obligates each such holder to vote all
shares of Infoseek California common stock held by such holder in favor of the
proposal to approve and adopt the Reorganization Agreement and approve the
Starwave Merger and in favor of the issuance of Infoseek Delaware common stock
in connection with the Starwave Merger and the issuance of shares of Infoseek
Delaware common stock and the Warrant pursuant to the Securities Purchase
Agreement. See "Terms of the Mergers--Shareholder Agreements--Infoseek
California."
PROXIES
Each of the persons named as a proxy is an executive officer of Infoseek
California. All shares of Infoseek common stock that are entitled to vote and
are represented at the Infoseek Shareholders Meeting by properly executed
proxies received prior to or at the Infoseek Shareholders Meeting and not duly
and timely revoked will be voted at the Infoseek Shareholders Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted to approve and adopt
the Reorganization Agreement and to approve the Merger.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a
shareholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Secretary of Infoseek California, or
by attending the meeting and voting in person. Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to
Infoseek California at 1399 Moffett Park Drive, Sunnyvale, California 94089,
Attention: Secretary, or hand-delivered to the Secretary of Infoseek
California, in each case at or before the taking of the vote at the Infoseek
Shareholders Meeting.
RECOMMENDATION OF INFOSEEK BOARD OF DIRECTORS
After careful consideration, the Infoseek California Board has unanimously
approved the Reorganization Agreement and the transactions contemplated
thereby and has determined that the Mergers are fair to, and in the best
interests of, Infoseek California and its shareholders. AFTER CAREFUL
CONSIDERATION, THE INFOSEEK CALIFORNIA BOARD UNANIMOUSLY RECOMMENDS A VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND APPROVAL OF
THE INFOSEEK MERGER AND THE ISSUANCE OF SHARES OF INFOSEEK DELAWARE COMMON
STOCK PURSUANT TO THE STARWAVE MERGER AND THE ISSUANCE OF SHARES OF INFOSEEK
DELAWARE COMMON STOCK AND THE WARRANT PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT. See "The Mergers and Related Transactions--Background of the
Mergers and Related Transactions" and "--Recommendation of Infoseek Board of
Directors and Reasons for the Mergers."
44
<PAGE>
STARWAVE SHAREHOLDERS MEETING
DATE, TIME AND PLACE OF STARWAVE SHAREHOLDERS MEETING
The Starwave Shareholders Meeting will be held at the Bellevue Hilton,
located at 100-112th Avenue N.E., Bellevue, Washington 98004, on November 18,
1998 at 10:00 a.m. local time.
PURPOSE
The purpose of the Starwave Shareholders Meeting is to vote upon a proposal
to approve and adopt the Reorganization Agreement and approve the Starwave
Merger.
RECORD DATE AND OUTSTANDING SHARES
The Record Date for the Starwave Shareholders Meeting is the close of
business on October 9, 1998. Only holders of record of Starwave common stock
on the Record Date are entitled to notice of, and to vote at, the Starwave
Shareholders Meeting. As of October 9, 1998, there were approximately 280
shareholders of record holding an aggregate of 97,535,287 shares of Starwave
common stock.
This Joint Proxy Statement/Prospectus is being mailed on or about October
14, 1998 to all shareholders of record of Starwave as of the record date.
VOTE REQUIRED
Pursuant to the Washington Business Corporation Act ("WBCA") and the
Starwave Articles of Incorporation, the affirmative vote of the holders of a
majority of the voting shares of Starwave common stock outstanding as of the
record date voting together without regard to class is required to approve and
adopt the Reorganization Agreement and approve the Starwave Merger. Each
holder of record of Starwave common stock on the Record Date will be entitled
to cast one vote per share on the proposal to be acted upon at the Starwave
Shareholders Meeting. As of the record date, the directors and executive
officers of Starwave and their affiliates (including Disney) may be deemed to
be beneficial owners of approximately 94% of the outstanding shares of
Starwave common stock. See "Security Ownership of Management and Principal
Shareholders of Starwave."
The presence, in person or by proxy, of at least a majority of the
outstanding shares of Starwave common stock entitled to vote at the Starwave
Shareholders Meeting is necessary to constitute a quorum for the transaction
of business. Abstentions will be counted for purposes of determining a quorum.
For purposes of obtaining the required vote of a majority of the outstanding
shares of Starwave common stock for approval and adoption of the
Reorganization Agreement and approval of the Starwave Merger, the effect of an
abstention and the effect of a non-vote are the same as that of a vote against
the proposal. If no instructions are included in the proxies, such shares of
Starwave common stock will be voted in favor of the Proposal.
Certain executive officers and directors of Starwave and their affiliates
(including Disney) (who as of the record date collectively owned in the
aggregate approximately 94% of the outstanding shares of Starwave common
stock) have entered into agreements with Infoseek Delaware which obligates
each such holder to vote all shares of Starwave common stock held by such
holder in favor of the proposal to approve and adopt the Reorganization
Agreement and approve the Starwave Merger. Accordingly, holders of shares of
Starwave common stock sufficient to approve the Reorganization Agreement and
the Starwave Merger have already agreed to vote in favor of such transaction.
PROXIES
All shares of Starwave common stock that are entitled to vote and are
represented at the Starwave Shareholders Meeting by properly executed proxies
received prior to or at the Starwave Shareholders Meeting and not duly and
timely revoked will be voted at the Starwave Shareholders Meeting in
accordance with the
45
<PAGE>
instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted to approve and adopt the Reorganization Agreement
and to approve the Starwave Merger.
Execution of a proxy does not in any way affect a shareholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a
shareholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Secretary of Starwave, or by
attending the meeting and voting in person. Any written notice of revocation
or subsequent proxy should be sent so as to be delivered to Starwave at 13810
S.E. Eastgate Way, Suite 400, Bellevue, Washington 98005, Attention:
Secretary, or hand-delivered to the Secretary of Starwave, in each case at or
before the taking of the vote at the Starwave Shareholders Meeting.
RECOMMENDATION OF STARWAVE BOARD OF DIRECTORS
The Starwave Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Starwave
Merger is fair to, and in the best interests of, Starwave and its
shareholders. THE STARWAVE BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE
STARWAVE MERGER. See "The Mergers and Related Transactions--Background of the
Mergers and Related Transactions," "--Recommendation of Starwave Board of
Directors and Reasons for the Starwave Merger."
46
<PAGE>
THE MERGERS AND RELATED TRANSACTIONS
Other than statements of historical fact, the statements made in this
section, including statements as to the benefits expected to result from the
Mergers and in respect of the planned New Portal Service and as to future
financial performance, including certain estimates thereof utilized in certain
analyses described under "--Opinion of Infoseek's Financial Advisor," are
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
in "Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
BACKGROUND OF THE MERGERS AND RELATED AGREEMENTS
On February 10, 1998, certain members of management of Infoseek, Disney and
Starwave met in New York City to discuss the potential opportunities for the
companies to establish one or more commercial relationships for Internet-
based, online services. Representatives of the companies met again in Burbank,
California on February 17 to further discuss potential collaborative
commercial opportunities and Infoseek management reviewed with representatives
of Disney and Starwave certain aspects of Infoseek's strategic direction and
recent operating results.
On February 24, 1998, members of management of the companies again met in
Burbank to further discuss potential commercial opportunities, and Disney and
Starwave management reviewed with Infoseek certain aspects of Disney's online
strategy and Starwave's business and recent operating results. In addition, at
this meeting, Disney management indicated that Disney had an interest in
pursuing an acquisition transaction with Infoseek and not merely a potential
commercial relationship; however, no proposed structure or other terms were
discussed at such meeting. During the month of February 1998, Infoseek and
Disney also entered into a mutually binding confidentiality letter agreement
(the "Confidentiality Agreement") and, pursuant to the Confidentiality
Agreement, the parties began exchanging certain financial, operational and
other information. Representatives of the parties next met on March 2, 1998 in
San Francisco, which meeting was also attended by a representative of
Infoseek's financial advisor, Merrill Lynch. During this meeting, the parties
focused on the possibility of a transaction in which Disney would acquire all
or substantially all of Infoseek's outstanding capital stock. These
discussions covered a variety of subjects pertaining to the business,
operations, financial condition, strategies and prospects of Infoseek.
On March 3, 1998 at a previously scheduled meeting of the Infoseek Board,
management of Infoseek reported on its preliminary discussions with Disney
regarding a possible business combination and reviewed with the Board a number
of the aspects of such a potential transaction, including the strategic
potential of a combination with Disney given its substantial brand recognition
and media presence, and the potential implications of such a combination for
Infoseek to further advance its strategic objectives in the Internet market.
Infoseek management noted that discussions were at an early stage and that no
terms nor definitive structure had been agreed to between the parties.
Management also discussed with the Infoseek Board certain other strategic
opportunities that were under discussion with certain other parties and the
status of such discussions. The Infoseek Board authorized and instructed
management to continue to explore the possibility of a business combination
with Disney, in addition to further developing other potential strategic
opportunities.
During an approximate one week period following the March 2, 1998 meeting,
the parties continued their internal examinations of a potential combination
transaction and certain members of management of Disney and Infoseek met in
New York City to further discuss a potential transaction. These discussions
focused on how the organizations of Disney's online businesses and Infoseek
might be integrated, but the parties were unable to arrive at mutually
agreeable terms with respect to a combination transaction. The parties held no
further substantive discussions regarding a potential combination transaction
or commercial relationship for the remainder of the month of March.
During the month of April 1998, representatives of Infoseek, Disney and
Starwave resumed their discussions, now focusing for the first time on the
potential sale of a minority interest in Infoseek to Disney,
47
<PAGE>
with the potential to acquire a majority interest through a warrant mechanism.
During these negotiations, at a meeting held on April 1, 1998 among certain
members of management of Disney and Infoseek as well as representatives of
Merrill Lynch, Infoseek's financial advisor, in Sunnyvale, California, the
parties first discussed the possibility of Infoseek's acquisition of Starwave.
Following this initial meeting in April, the parties continued their internal
review of the potential synergies of an Infoseek acquisition of Starwave and
potential stock and warrant investments by Disney in Infoseek.
On April 10, 1998 the Infoseek Board held a meeting to further review with
management the status of ongoing discussions with Disney. At this meeting,
management reviewed with the Infoseek Board the potential strategic synergies
of a combination transaction with Starwave, with its interests in the ESPN
Joint Venture and the ABC News Joint Venture, and the opportunity to develop
and launch a new Internet portal service combining the technologies, brands
and content of Infoseek, Starwave, the Joint Ventures and Disney. Infoseek
management and its financial and legal advisors also reviewed other potential
terms of a Disney minority investment in Infoseek with the potential to
acquire a majority interest through a warrant mechanism, subject to vesting
over time. The Infoseek Board directed management, along with its financial
and legal advisors, to further develop the terms of such a potential
transaction, including but not limited to the structure of a potential
acquisition of Starwave, the terms of a minority investment by Disney in
Infoseek, issues related to Disney's condition that any such transaction
include the ability to obtain a majority ownership position in Infoseek over
time, potential mechanisms for affording the minority shareholders of Infoseek
the opportunity to continue to participate in the long term strategic
opportunities of Infoseek in the event Disney acquired a majority ownership
position in Infoseek, and the development of the concept of a new Internet
portal service.
On April 14, 1998, representatives of Infoseek and Disney met in San Mateo,
California to further outline the potential strategic aspects and structural
terms of a transaction and to develop the parameters for a new Internet portal
service. The parties subsequently met in Burbank on April 24, 1998, which
meeting was also attended by representatives of Merrill Lynch and Wilson
Sonsini Goodrich & Rosati, legal counsel to Infoseek, to further discuss the
potential terms of a strategic transaction. In addition, on April 28, 1998, by
telephone conference call representatives of Infoseek provided Disney with
indicative terms of a potential transaction involving an acquisition of
Starwave, the issuance of stock and warrants to Disney and a strategic
transaction to develop, launch and promote a new Internet portal service.
On May 1, 1998, pursuant to a Shareholders Agreement dated as of April 17,
1997 among Starwave, its founder, Paul Allen, and DEI, and based on
discussions between Disney and Mr. Allen that began in early February 1998,
DEI acquired the remaining shares of Starwave common stock owned by Mr. Allen,
thereby increasing DEI's percentage ownership of Starwave's outstanding
capital stock from approximately 41% to approximately 91%.
During May 1998, Infoseek, Starwave and Disney continued to exchange
information pursuant to the Confidentiality Agreement and exchanged comments
on and further negotiated potential terms of a transaction on May 4, May 5,
May 10, May 12, May 14, May 15, May 19 and May 22, pursuant to conference
calls between representatives of Disney and Infoseek, including financial and
legal advisors. Certain members of management of Disney and Infoseek, as well
as their financial and legal advisors, also held a meeting on May 26 in
Burbank to further negotiate potential terms of a proposed transaction.
On the evening of May 26, 1998, the Infoseek Board of Directors held a
meeting to further review with members of Infoseek management and its
financial and legal advisors the status of negotiations with Disney and the
several proposed terms and conditions of such a transaction, as well as the
timing and several areas of further negotiation. Infoseek management also
reviewed with the Infoseek Board several other strategic opportunities
currently being reviewed or under discussion by Infoseek with certain other
parties, including certain opportunities for Infoseek to acquire other
complementary businesses. The Infoseek Board further directed management, in
consultation with Infoseek's financial and legal advisors, to continue to
further develop such opportunities.
48
<PAGE>
During the course of several conference calls and meetings among the parties
in May 1998, the parties began to narrow the range of outstanding issues with
respect to a proposed acquisition of Starwave and the related arrangements
between Infoseek and Disney. Given the substantial progress made in the course
of these discussions, the parties began to prepare drafts of definitive
documents pertaining to the proposed Starwave Merger and the related equity,
governance, licensing and commercial arrangements between Infoseek and Disney
and during the weekend of May 30-31, 1998, the parties first exchanged these
draft documents.
Beginning during the week of June 1, 1998, in response to legal and business
due diligence document requests from the other party, each of Infoseek, Disney
and Starwave made available various documentation regarding Infoseek, Starwave
and the Joint Ventures. Throughout the ensuing 17-day period prior to the
announcement of the execution and delivery of the Reorganization Agreement,
various financial, legal, accounting and management representatives of
Infoseek, Disney, and Starwave conducted additional due diligence. In
addition, commencing on June 3, 1998 and continuing throughout the ensuing 15-
day period prior to the announcement of the execution and delivery of the
Reorganization Agreement, representatives of Disney, Starwave and Infoseek,
and their legal and financial advisors, conducted a series of conference calls
and meetings in Burbank, California, focusing on the financial, structural,
legal and other terms of the proposed Starwave Merger and the related equity,
governance, licensing and commercial arrangements between Infoseek and Disney.
On June 5, 1998, the Infoseek Board met to further review with management of
Infoseek and its financial and legal advisors the status of the legal and
business due diligence investigation and the progress of negotiations with
Disney since the May 26 Board meeting. The material issues subject to ongoing
negotiation were reviewed with the Board and the Board further directed
Infoseek management, along with its financial and legal advisors, to continue
to negotiate the proposed Reorganization Agreement and the Related Agreements
with Disney and Starwave.
A special meeting of the Board of Directors of Infoseek was held on June 13,
1998 pursuant to which Infoseek management and its financial, accounting and
legal advisors reviewed with the Board the proposed terms and conditions of
the Starwave Merger and the related equity, governance, licensing and
commercial agreements between Infoseek and Disney based, in part, on materials
previously circulated to the Board, including drafts of the Reorganization
Agreement and the Related Agreements. This review and the related discussions
among members of the Infoseek Board, management and financial and legal
advisors included, among other things, the status of discussions and
negotiations to date and the material open issues in respect of such
negotiations, a review of the material terms of the Reorganization Agreement
and the Related Agreements, and the tax and accounting treatment of the
proposed Mergers and several transactions contemplated by the Related
Agreements. Management of Infoseek also reviewed with the Infoseek Board the
proposed Delaware holding company structure of Infoseek on a going-forward
basis following the proposed Mergers, as well as certain aspects of the
operations of Starwave and the Joint Ventures. Infoseek management, along with
its legal and financial advisors, also reviewed with the Board certain of the
proposed closing conditions to the Reorganization Agreement, as well as the
proposed termination rights and termination fees and related license and
service options. Representatives of Merrill Lynch also reviewed with the
Infoseek Board an overview of the various aspects of the transaction
consideration and a preliminary analysis of certain valuation metrics
applicable to the proposed transactions based on materials previously
distributed to the Board. The Board authorized and directed Infoseek
management, in consultation with its financial and legal advisors, to continue
to negotiate the terms of the proposed Starwave Merger and the related equity,
governance, licensing and commercial agreements proposed to be entered into
between Infoseek and Disney.
A special meeting of the Board of Directors of Starwave was held on June 13,
1998. At the meeting, the Starwave Board reviewed the proposed acquisition of
Starwave by Infoseek pursuant to the Reorganization Agreement, with the
assistance of legal counsel. The presentations to and discussions by the
Starwave Board included, among other things, (i) a review of certain
discussions conducted to date among representatives of Disney, Infoseek and
Starwave, (ii) a presentation of the then-current status of the negotiations
regarding the material terms of the Reorganization Agreement and related
transactions, including the Exchange Ratio, closing conditions and termination
rights and fees, and (iii) various other legal, financial and accounting
matters pertaining to the proposed Mergers. Prior to the meeting, the Starwave
Board was provided a draft of the Reorganization
49
<PAGE>
Agreement. Following discussion, the Starwave Board, by unanimous vote,
approved the Reorganization Agreement and the transactions contemplated
thereby and recommended that the Reorganization Agreement be approved by
Starwave's shareholders. In addition, the Starwave Board also unanimously
confirmed their approval of the grant of approximately 1.1 million employee
stock options to specific Starwave employees, which options had been
previously approved by the Starwave Board during a December 1997 meeting,
subject to management's final recommendations regarding the allocation of the
options among Starwave employees.
By unanimous written consent dated June 16, 1998, the Board of Directors of
DEI, which is the wholly owned subsidiary of Disney that is the majority
shareholder of Starwave and a party to the Reorganization Agreement, approved
the Reorganization Agreement and the transactions contemplated thereby and
related thereto.
Following these meetings of each of the Boards of Directors of Starwave and
Infoseek, the financial, legal, accounting and management representatives of
Infoseek, Disney, and Starwave continued to negotiate the terms of the
Reorganization Agreement, the Starwave Merger and the Related Agreements at
Disney's offices in Burbank.
The Infoseek Board held a meeting on June 17, 1998 at which Infoseek
management, along with its financial, legal and accounting advisors, reviewed
the terms of the proposed definitive Reorganization Agreement and the Related
Agreements based on the materials previously circulated to the Infoseek Board.
These presentations to and discussions with and among members of the Infoseek
Board included, among other things, the overall objectives of the proposed
Starwave Merger and the related equity, licensing and commercial arrangements
with Disney, the standstill, right to maintain and other aspects of the
proposed Governance Agreement, terms of the equity investment by Disney in
Infoseek and the related warrant structure, the strategic opportunity
presented by and operational issues associated with the development, launch
and promotion of the New Portal Service, and the risks associated therewith,
and the corporate structure, tax and accounting treatment of the proposed
Mergers and transactions contemplated by the Related Agreements. In addition,
representatives of Merrill Lynch made a presentation to the Infoseek Board
regarding the terms, structure and valuation aspects of the proposed Starwave
Merger, the related proposed equity investments by Disney in Infoseek, and the
licensing and commercial arrangements proposed to be entered into between
Infoseek and Disney in connection with the planned development, launch and
promotion of the New Portal Service. This presentation included a discussion
of the several analyses described under "--Opinion of Infoseek's Financial
Advisor" below. After these presentations and discussions, Merrill Lynch
rendered its oral opinion, subsequently confirmed in writing on June 18, 1998,
that consummation of the Mergers and the transactions contemplated by the
Securities Purchase Agreement, the Governance Agreement and the License
Agreement are fair to Infoseek and its shareholders from a financial point of
view. Following such presentations and discussions, the meeting of the Board
of Directors of Infoseek was adjourned until the morning of June 18, 1998. The
meeting of the Board of Directors of Infoseek was reconvened on June 18, 1998,
prior to opening of trading on Nasdaq, at which point Infoseek management and
its legal advisors again reviewed with the Board the material final proposed
terms of the Reorganization Agreement, the Mergers and the Related Agreements.
Following this review, the Infoseek Board voted unanimously to approve the
final terms of the Reorganization Agreement, the Mergers and the Related
Agreements between Infoseek and Disney and certain of their respective
affiliates in connection therewith.
Following these approvals of the Reorganization Agreement and the
transactions contemplated thereby and related thereto by the Boards of
Directors of Infoseek, DEI and Starwave, on June 18, 1998, representatives of
Infoseek, DEI and Starwave executed the Reorganization Agreement and the
Related Agreements and publicly announced the proposed transaction.
RECOMMENDATION OF INFOSEEK BOARD OF DIRECTORS AND REASONS FOR THE MERGERS
At its June 18, 1998 meeting, the Infoseek Board of Directors (the "Infoseek
Board") unanimously approved the Reorganization Agreement and the transactions
contemplated thereby, the Securities Purchase Agreement and the transactions
contemplated thereby, the Governance Agreement and the several license and
commercial agreements further described below under "Description of Related
Agreements." Infoseek's Board of Directors unanimously recommends that the
Infoseek shareholders vote in favor of (i) approval and adoption
50
<PAGE>
of the Reorganization Agreement and the Infoseek Merger, and (ii) the issuance
of shares of Infoseek Delaware common stock to the shareholders and
optionholders of Starwave in connection with the Starwave Merger, and the
issuance of shares of Infoseek Delaware common stock and the Warrant to Disney
pursuant to the Securities Purchase Agreement. In reaching its conclusion to
approve these several agreements and related transactions and to recommend
them to the shareholders of Infoseek, the Board of Directors of Infoseek
considered, among other things, the following factors (although the Infoseek
Board did not consider it practical to, nor did it attempt to, quantify or
otherwise assign relative weight to such factors in reaching its decision):
. Management's analysis of the financial performance and condition, assets,
business and prospects of Starwave and Infoseek, including, but not limited
to, information with respect to the respective recent revenues and earnings
performance, page views and other operating metrics of both entities. The
Infoseek Board also considered: (i) the detailed financial analyses, pro
forma and other information with respect to the Starwave, Infoseek and the
Mergers and the related transactions presented by Merrill Lynch, financial
advisor to Infoseek as more fully described below under "--Opinion of
Infoseek's Financial Advisor," (ii) Infoseek management's as well as the
Infoseek Board's own knowledge of Starwave, Infoseek and their respective
businesses, and (iii) the current financial and business climate of
Internet companies.
. The opportunity presented by the Starwave Merger and the Related
Agreements, in particular the licensing and commercial agreements with
Starwave and Disney to develop, launch and promote the planned New Portal
Service combining the search and directory technologies and services of
Infoseek with the Starwave web design and publishing technology and
expertise, as well as Starwave's joint venture relationships with the
prominent Internet websites of ESPN SportsZone and ABCNews.com and others,
as well as Disney's rich content and brand recognition which would assist
Infoseek in achieving its strategic objectives in an Internet market that
Infoseek believes increasingly will require an Internet portal service to
integrate a more robust array of multimedia content and services. In this
context, the Board also considered Disney's commitment to provide
promotional support to the New Portal Service for five years after its
launch and Disney's representation on Infoseek's Board of Directors
following the Mergers.
. The potential effect on Infoseek shareholders of Infoseek continuing as a
stand-alone entity without entering into a significant alliance with a
major media company, such as Disney, and in such context the potential
effect on Infoseek of acquiring the significant revenues, page views and
brand recognition associated with the ESPN SportsZone and ABCNews.com
websites that are the subject of the Joint Ventures with subsidiaries of
each of ESPN and ABC. In this regard, among other things, the Infoseek
Board considered Infoseek's position relative to a number of its search and
directory competitors in establishing the Infoseek Service as a premier
Internet portal site, and Infoseek's relative success and ability to
continue to generate consumer and advertiser loyalty to and brand
recognition of Infoseek products and services. The Infoseek Board also
considered the view of Infoseek's management that the Internet market
increasingly will require an Internet portal service to integrate a more
robust array of multimedia content and services, including but not limited
to further advancements in search and directory and other technologies and
functionality, development of on-line "communities," implementation of
electronic commerce, provision of rich and diverse multimedia content and
the offering of other products and services, and that Infoseek's future
success, in part, would depend upon its ability to effectively accomplish
such integration in a timely fashion.
. The complementary nature of Starwave and Infoseek's technology, resources
and business and customer relationships, and the greater financial,
personnel, sales, marketing and distribution resources the Mergers would
afford Infoseek, offering it the potential to accelerate its growth
strategy and to compete more effectively in the Internet market. In
addition, the support that Disney would afford the combined companies in
respect of the development, launch and promotion of the planned New Portal
Service that would increase the potential for its successful development,
launch and market acceptance.
. The ownership position of Disney following consummation of the Starwave
Merger and the related transactions, and the several standstill, voting and
other terms afforded the other Infoseek shareholders in light of Disney's
substantial ownership position in Infoseek following consummation of the
Mergers and the related transactions, that are designed to enable the other
Infoseek shareholders to continue to participate
51
<PAGE>
in the potential for growth of the combined company following the Mergers.
See "Description of Related Agreements--Equity and Governance Agreements."
. The strategic opportunities available to Infoseek within the Internet
industry and the likelihood of future consolidation and/or strategic
alliances in the Internet industry. In this connection the Board also
considered the strategic benefit of an alliance with a major media company,
such as Disney, capable of developing content and brands and providing
promotional opportunities and expertise not commonly found at Infoseek's
primary Internet competitors. The Board also considered in this context the
potential for establishing a substantial strategic alliance with other
large media companies and certain other entities based, in part, upon
discussions with such parties by Infoseek management.
In addition to the factors set forth above, in the course of its
deliberations concerning the Reorganization Agreement, the Mergers and the
Related Agreements, the Infoseek Board consulted with Infoseek's management,
as well as its financial, legal and accounting advisors, and reviewed a number
of other factors relevant to the Mergers and related transactions, including
(i) reports from Infoseek's management and legal, accounting and financial
advisors on specific terms of the Reorganization Agreement and the other
Related Agreements described below under "Description of Related Agreements,"
and the legal and business due diligence examination of Starwave conducted by
Infoseek management, and its legal, financial and accounting advisors; (ii)
information concerning the financial performance, business operations and
prospects of Infoseek California presented at meetings of the Infoseek Board,
including among other things, Infoseek's recent and historical stock and
earnings performance; (iii) Infoseek management's belief that the management
styles and corporate cultures of the two companies would be complementary; (v)
the expected tax and accounting treatment of the Mergers; (vi) the terms and
conditions of shareholder agreements entered into by Disney and certain
Starwave executives pursuant to which such parties agreed to vote in favor of
the Reorganization Agreement and the Starwave Merger, thereby substantially
enhancing the likelihood of consummation of the transactions; (vii) the
proposed Delaware holding company structure that will result from the Infoseek
Merger as described under "Reasons for Incorporation of the Holding Company in
Delaware"; (viii) an assessment of the financial fairness of the Starwave
Merger, the stock and warrant issuance to Disney and commercial, promotional
and licensing arrangements to the holders of Infoseek California common stock;
and (ix) the fact that the Reorganization Agreement would permit the Infoseek
Board to terminate the agreement under certain circumstances.
The Infoseek Board also considered a number of potentially negative factors
in its deliberations concerning the Reorganization Agreement, the Mergers and
the Related Agreements, including (i) the possibility of management and
employee disruption associated with the Mergers and the implications of
disruptive aspects of the transactions on retaining key technical and
management personnel; (ii) the delays in Infoseek's achieving operating
profitability associated with the goodwill amortization and increased
operating expense structure of the combined companies that will result from
effectuation of the Mergers and related transactions; (iii) the risks
associated with obtaining necessary regulatory and shareholder approvals of
the Mergers and the related stock issuances; (iv) the possibility that the
Starwave Merger and the resulting relationship with Disney might adversely
affect Infoseek's relationship with certain of its customers, including other
large media companies; (v) the possibility of a decline in the value of
Infoseek common stock; (vi) the risk that the potential benefits of the
Mergers might not be realized; (vii) the risk that the planned New Portal
Service may not be successfully developed, launched and promoted by Infoseek
in a timely fashion and the partial dependence upon Disney and the Joint
Ventures in this regard; (viii) the relative complexity of the several
transactions contemplated by the Reorganization Agreement and the Related
Agreements; (ix) the increased resources that may be required to manage the
larger operations of the combined companies, with a substantially increased
employee base in diverse geographic locations; and the other risks described
under "Risk Factors--Risks Related to the Combined Companies, the Mergers and
Related Transactions." The Infoseek Board concluded, however, that the
potential benefits of the transaction to Infoseek and its shareholders
outweighed the risks associated with the foregoing factors.
The foregoing discussion of the information and factors considered by the
Infoseek Board in connection with its evaluation of the Reorganization
Agreement, the Mergers and the Related Agreements is not intended to be
exhaustive but is intended to include the material factors considered by the
directors.
52
<PAGE>
FOR THE REASONS DESCRIBED ABOVE, THE INFOSEEK BOARD UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF INFOSEEK COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND THE INFOSEEK MERGER AND THE ISSUANCE OF
SHARES PURSUANT TO THE STARWAVE MERGER, AND THE ISSUANCE OF SHARES OF INFOSEEK
DELAWARE COMMON STOCK AND THE WARRANT TO DISNEY PURSUANT TO THE SECURITIES
PURCHASE AGREEMENT.
RECOMMENDATION OF STARWAVE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
On June 13, 1998, the Starwave Board, by unanimous vote, approved the
Reorganization Agreement and the Starwave Merger as being in the best
interests of Starwave and its shareholders and decided to recommend approval
and adoption of the Reorganization Agreement and the Starwave Merger to
Starwave shareholders. In reaching its conclusion, the Starwave Board
considered, among other things, the following factors:
. The value to Starwave shareholders of the continuation of Starwave as an
independent entity versus a strategic combination with Infoseek pursuant to
the Starwave Merger, which included consideration of, among other things,
(i) the current status of the Internet industry, (ii) the strategic options
available to Starwave within the Internet industry, (iii) the likelihood of
future consolidation and/or strategic alliances in the Internet industry,
(iv) the opportunity to combine with Infoseek and Disney to develop, launch
and promote the planned New Portal Service, (v) the potentially enhanced
ability of Starwave to recruit and retain key technical personnel in the
Internet market through a combination with a publicly traded Internet
company, and (vi) the respective businesses, management, operations,
assets, financial condition and prospects of each of Starwave and Infoseek
and the strategic opportunities available through a combination of the two
entities;
. The implied equity value of Starwave under the terms of the Reorganization
Agreement, as indicated by the Exchange Ratio and historical market prices
of Infoseek common stock, in relation to the implied equity value of
Starwave as indicated by recent transactions in Starwave common stock,
including Disney's acquisition of a majority interest in Starwave pursuant
to transactions consummated in April 1997 and May 1998;
. The advantages to Starwave shareholders (as Infoseek shareholders following
the Starwave Merger) of the strategic alliance between Infoseek and Disney
upon consummation of the Starwave Merger, including (i) licensing and
promotional agreements between Infoseek and Disney, through which Infoseek
would benefit from the strength of Disney's creative content and brand
recognition, and (ii) Disney's representation on the Infoseek Board and
participation in the development of certain Infoseek products, through
which Infoseek would benefit from the expertise of Disney's management;
. The terms and conditions of the Reorganization Agreement and related
transactions and agreements, including the Exchange Ratio, closing
conditions, termination rights, termination fees, the conversion of
Starwave stock options into Infoseek stock options on a basis consistent
with the Exchange Ratio (but with all other terms, including vesting,
remaining unchanged), and the transferability of Infoseek Delaware common
stock to be received by Starwave shareholders other than Disney pursuant to
the Starwave Merger in light of the registration of such common stock under
the Securities Act;
. The terms and conditions of shareholder agreements entered into by Disney,
certain Starwave executives and certain Infoseek executives (including
Infoseek's Chairman and largest shareholder, Steven T. Kirsch), pursuant to
which such parties agreed to vote in favor of the Mergers, thereby
significantly enhancing the likelihood of the consummation of the Mergers;
and
. The fact that the Starwave Merger is conditioned upon DEI's receipt of an
opinion of special counsel that the Starwave Merger will be treated as a
reorganization as described in Section 368(a) of the Code and/or, when
taken together with the Infoseek Merger as a transfer of property by DEI
governed by Section 351 of the Code.
The foregoing list of the factors considered by the Starwave Board is not
intended to be exhaustive, but includes the material factors considered by the
Board. In reaching its determination to approve the
53
<PAGE>
Reorganization Agreement and the transactions contemplated thereby, the
Starwave Board did not assign any relative or specific weights to the various
factors considered by it nor did it specifically characterize any factor as
positive or negative, and individual directors may have given different
weights to different factors and may have viewed certain factors more
positively or negatively than others.
FOR THE REASONS DESCRIBED ABOVE, THE STARWAVE BOARD UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF STARWAVE COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND THE STARWAVE MERGER.
OPINION OF INFOSEEK'S FINANCIAL ADVISOR
Infoseek retained Merrill Lynch to act as its financial advisor with respect
to the Mergers and the transactions contemplated by the Securities Purchase
Agreement, the Governance Agreement and the License Agreement (collectively,
the "Transaction"). In connection with such engagement, Infoseek requested
that Merrill Lynch evaluate the fairness, from a financial point of view, of
the Transaction to Infoseek and its shareholders. At the meeting of Infoseek's
Board on June 17, 1998, Merrill Lynch rendered its oral opinion to the Board
of Directors of Infoseek, subsequently confirmed in writing on June 18, 1998
(the "Merrill Lynch Opinion") to the effect that, as of such date and based
upon the assumptions made, matters considered and limits of such review, as
set forth in such opinion, the Transaction was fair, from a financial point of
view, to Infoseek and the shareholders of Infoseek.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW
UNDERTAKEN BY MERRILL LYNCH IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT AND
IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE MERRILL LYNCH
OPINION SET FORTH HEREIN IS QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE
MERRILL LYNCH OPINION. SHAREHOLDERS OF INFOSEEK ARE URGED TO READ THE MERRILL
LYNCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS ADDRESSED TO
INFOSEEK'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE TRANSACTION. THE TERMS OF THE TRANSACTION WERE DETERMINED
ON THE BASIS OF NEGOTIATIONS BETWEEN INFOSEEK AND DISNEY. THE MERRILL LYNCH
OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY INFOSEEK TO
ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE, NOR SHOULD IT BE CONSTRUED
AS, A RECOMMENDATION TO ANY SHAREHOLDER OF INFOSEEK AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE INFOSEEK SHAREHOLDERS MEETING.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other things:
(i) reviewed certain publicly available business and financial information
relating to Infoseek that Merrill Lynch deemed to be relevant; (ii) reviewed
certain information, including financial forecasts, relating to the business,
earnings, cash flow, assets, liabilities and prospects of Infoseek and
Starwave furnished to it by Infoseek and Disney, respectively; (iii) conducted
discussions with members of senior management and representatives of Infoseek
and Disney concerning the matters described in clauses (i) and (ii) above, as
well as Infoseek's and Starwave's respective businesses and prospects before
and after giving effect to the Transaction; (iv) reviewed the market prices
and valuation multiples for Infoseek common stock and compared it with those
of certain publicly traded companies that Merrill Lynch deemed relevant; (v)
reviewed the results of operations of Infoseek and Starwave and compared them
with those of certain publicly traded companies that Merrill Lynch deemed to
be relevant; (vi) compared the proposed financial terms of the Transaction
with the financial terms of certain other transactions that Merrill Lynch
deemed to be relevant; (vii) participated in certain discussions and
negotiations among representatives of Infoseek and Disney and their legal
advisors; (viii) reviewed the potential pro forma impact of the Transaction;
(ix) reviewed drafts of the Reorganization Agreement, the Securities Purchase
Agreement, the Warrant, the Note, the Governance Agreement and the License
Agreement; and (x) reviewed such other financial studies and analyses and took
into account such other matters as Merrill Lynch deemed necessary, including
its assessment of general economic, market and monetary conditions.
54
<PAGE>
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly
available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertaking an independent
evaluation or appraisal of any of the assets or liabilities of Infoseek or
Starwave and Merrill Lynch has not been furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct
any physical inspection of the properties or facilities of Infoseek or
Starwave, and has participated in discussions with a limited number of members
of senior management of Starwave. With respect to the financial forecast
information furnished to or discussed with Merrill Lynch by Infoseek, Starwave
or Disney, including financial forecast information developed by Infoseek
taking into account the Transaction, including the planned New Portal Service,
Merrill Lynch did not assume any responsibility for independently verifying
such financial forecast information and assumed that such information had been
reasonably prepared and reflected the best then available estimates and
judgment of Infoseek's or Disney's management as to the expected future
financial performance of Infoseek or Starwave, as the case may be. In
addition, Merrill Lynch assumed that the Mergers would qualify as tax-free
reorganizations and/or tax-free exchanges for U.S. federal income tax purposes
and that immediately following the closing of the Mergers, Infoseek Delaware
would be entitled to properly report, in accordance with GAAP, the activities
of itself, its subsidiaries and the ESPN Joint Venture and ABCNews Joint
Venture under the Representation Agreements described under a "Description of
Related Agreements--Licensing and Commercial Agreements--ABCNews
Representation Agreement" and "Licensing and Commercial Agreements--ESPN
Representation Agreement" as revenue in Infoseek Delaware's publicly disclosed
consolidated financial statements. Merrill Lynch also assumed that the final
forms of each of the Reorganization Agreement, the Securities Purchase
Agreement, the Warrant, the Note, the Governance Agreement and the licensing
and commercial agreements would be substantially similar to the drafts
provided to Merrill Lynch.
The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Under its engagement by Infoseek, Merrill Lynch has no obligation to update
the Merrill Lynch Opinion to take into account events occurring subsequent to
the date that the Merrill Lynch Opinion was delivered to Infoseek's Board of
Directors. As a result, circumstances could develop prior to consummation of
the Mergers that, if known at the time Merrill Lynch rendered its opinion,
would have altered such opinion. Merrill Lynch assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Transaction, including the Mergers, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits
of the Transaction, including the Mergers. In arriving at its opinion, Merrill
Lynch was not authorized to solicit, and did not solicit, third party
indications of interest for the acquisition of all or any part of Infoseek.
Merrill Lynch expresses no opinion as to the price at which Infoseek
California common stock or Infoseek Delaware common stock will trade following
the announcement or consummation of the Transaction.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of Infoseek, Starwave and Disney, and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Merrill Lynch are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future. The Merrill Lynch
Opinion does not present a discussion of the relative merits of the
Transaction as compared with any other business plan or opportunity that might
be presented to Infoseek, or the effect of any other arrangement in which
Infoseek might engage.
At the meeting of Infoseek Board held on June 17, 1998, Merrill Lynch
presented certain financial analyses accompanied by written materials in
connection with the delivery of the oral Merrill Lynch Opinion at that meeting
and the written Merrill Lynch Opinion on June 18, 1998. The following is a
summary of the material financial and comparative analyses performed by
Merrill Lynch in arriving at the Merrill Lynch Opinion.
55
<PAGE>
Valuation of the Consideration Received by Infoseek
Valuation of Joint Ventures and Portal Revenues. Merrill Lynch analyzed the
value of the Joint Ventures and the value of the incremental revenues to be
realized by Infoseek and Starwave from the planned New Portal Service (the
"Portal Revenues") utilizing publicly traded comparable companies and
discounted projected cash flows.
Based on projected revenues for the ESPN Joint Venture which were prepared
by management of Infoseek, Merrill Lynch calculated the value of Starwave's
interest in the ESPN Joint Venture's projected earnings as a combination of
(i) multiples of estimated calendar year 1998 revenues of 14.3x to 15.8x, 1999
revenues of 7.5x to 8.3x and 2000 revenues of 5.1x to 5.6x, (ii) the value per
estimated unique visitor of the ESPN Joint Venture during March 1998 of
$194.00--$214.40, (iii) the value per estimated average daily page views of
the ESPN Joint Venture during the first quarter of calendar year 1998 of
$107.00--$118.30 and (iv) discounted cash flow analysis (i.e., an analysis of
the present value for the projected unlevered free cash flows and terminal
value for the periods and at the discount rates indicated) assuming a 50%-75%
probability of renewal with ESPN and a terminal value multiple of 30x to 40x
of fiscal year 2007 net income and a discount rate range of between 20% and
30%. Based on the foregoing, Merrill Lynch calculated a range of value for
Starwave's interest in the ESPN Joint Venture on a stand alone basis of
between $375 million and $500 million.
Based on projected revenues for the ABCNews Joint Venture prepared by
management of Infoseek, Merrill Lynch calculated the value of Starwave's
interest in the ABCNews Joint Venture's projected earnings as a combination of
(i) multiples of estimated calendar year 1998 revenues of 9.5x to 12.7x and
1999 revenues of 5.0x to 6.7x, (ii) the value per estimated unique visitor of
the ABCNews Joint Venture during March 1998 of $57.50--$76.70, (iii) the value
per estimated average daily page views of the ABCNews Joint Venture during the
first quarter of calendar year 1998 of $82.20--$109.50 and (iv) discounted
cash flow analysis assuming a 50%-75% probability of renewal with ABC and a
terminal value multiple of 30x to 40x of fiscal year 2007 net income and a
discount rate range of between 20% and 30%. Based on the foregoing, Merrill
Lynch calculated a range of value for Starwave's interest in the ABCNews Joint
Venture of between $60 million and $100 million.
Based on pro forma projected Portal Revenues after giving effect to the
Transaction which were prepared by management of Infoseek, Merrill Lynch
calculated a value based upon multiples (derived from publicly traded
comparable companies) of estimated calendar year 1999 Portal Revenues of 14.0x
to 15.0x, 2000 Portal Revenues of 9.0x to 10.0x and 2001 Portal Revenues of
9.0x to 10.0x (with the revenues for such year discounted back one additional
year to counterbalance use of a higher multiple). Merrill Lynch applied these
multiples in two scenarios, the first of which included assumptions leading to
Portal Revenues equalling a 15% increase in Infoseek consolidated pro forma
revenues and the second of which included assumptions leading to a 19%
increase in Infoseek consolidated revenues. Merrill Lynch also valued the
Portal Revenues using discounted cash flow analysis giving effect to the
Transaction, for the fiscal years 1999 through 2006, inclusive based upon
forecasts prepared by Infoseek's management assuming a terminal value multiple
of 35x to 45x of fiscal year 2007 net income and a discount rate range of
between 25% and 35%. Based on the foregoing, Merrill Lynch calculated a range
of value for the Portal Revenues of between $300 million and $350 million.
Accordingly, Merrill Lynch's analysis indicated that the total value of the
Portal Revenues and the Joint Ventures was calculated to be between $735
million and $950 million.
Comparable Transaction Analysis. Merrill Lynch reviewed five selected
strategic transactions in the technology and bioscience/healthcare industries
in which the investor did not obtain immediate control of the board of
directors of the company issuing the securities (the "Transaction
Comparables"). The Transaction Comparables reviewed, in reverse chronological
order of announcement date, were: (i) the original investment by Samsung
Electronics in AST Research Inc.; (ii) the investment by Zeneca Group PLC in
Salick Health Care, Inc.; (ii) the investment by Rhone-Poulenc Rorer Inc. in
Applied Immune Sciences, Inc.; (iv) the investment by American Home Products
Corporation in Genetics Institute, Inc.; and (v) the investment by Roche
Holding Ltd in Genentech, Inc.
56
<PAGE>
For each of the Transaction Comparables, Merrill Lynch calculated the
implied premium/(discount) of the price paid per share of common stock to the
issuing company's stock prices on the day before the announcement of the
respective transactions. These premiums were then adjusted to reflect the
implied premium attributable to the entire shareholder base. This analysis
yielded a range of premiums of 3% to 26%, and mean and medium premiums of 17%
and 18%, respectively. Merrill Lynch calculated ranges of implied
premiums/(discounts) of the price paid per share of common stock for the
shares issued in the Transaction, implying a range of prices per share paid
based upon the range of valuations for the Portal Revenues and the Joint
Ventures outlined above plus $25 to $50 million of other Starwave assets, as
compared to (i) Infoseek's closing stock price for June 12, 1998, (ii) the
average of Infoseek's closing stock price for the five trading days ended June
12, 1998, (iii) the average of Infoseek's closing stock price for the ten
trading days ending June 12, 1998, and (iv) Infoseek's closing stock price for
June 8, 1998. Those ranges on the adjusted basis were (4.5%) to 7.6%, 0.5% to
12.6%, 3.2% to 15.3% and 5.3% to 17.4%, respectively.
No transaction utilized in the comparable transaction analysis was identical
to the Transaction. Accordingly, an analysis of the results of the foregoing
transactions is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies included in the comparable transaction
analysis and other factors that could affect the offer value and the
transaction consideration.
Contribution Analysis. Merrill Lynch observed that, after giving effect to
the issuance of Infoseek common stock in the Transaction, but excluding the
shares issuable pursuant to the Warrant, Disney and the other shareholders of
Starwave would receive 48.0% of Infoseek's common stock on a primary basis and
46.0% on a fully diluted basis (excluding the Warrant). Merrill Lynch analyzed
the relative contributions of Infoseek, the Portal Revenues, the Joint
Ventures and certain other Starwave assets to the revenues of the combined
entity. Using certain revenue scenarios provided by Infoseek and Disney,
Merrill Lynch observed that for fiscal years 1999, 2000 and 2001,
respectively, the Portal Revenues, the Joint Ventures and certain other
Starwave assets would contribute 42.5% to 46.8%, 42.9% to 54.2%, and 41.0% to
57.3%, respectively, of the combined entity's total revenue.
Pro Forma Analysis. Merrill Lynch analyzed certain pro forma effects to
revenues, discounted cash flow and earnings per share resulting from the
Transaction.
Utilizing pro forma projected revenues for Infoseek after giving effect to
the Transaction which were prepared by management of Infoseek, Merrill Lynch
calculated Infoseek's total enterprise value (defined as market value of
common equity plus total debt less cash) as a multiple of (i) estimated fiscal
year 1999 revenues of 10.0x to 14.0x and (ii) estimated page views for the
fourth quarter of fiscal year 1999 of 30.0x to 50.0x. Utilizing these total
enterprise values, based upon 65.3 million shares of Infoseek common stock
outstanding and assuming $140 million of cash less total debt, after giving
effect to the Transaction, Merrill Lynch calculated a range of implied values
per share of Infoseek common stock of $29.47 to $40.40 and $32.43 to $53.08,
based upon the range of 1999 revenue multiples and the range of 1999 page view
multiples, respectively.
Merrill Lynch analyzed certain pro forma earnings effects for fiscal years
1999 through 2001 resulting from the Transaction using two sets of forecasts
prepared by Infoseek management. In addition, Merrill Lynch analyzed pro forma
earnings effects within two scenarios relating to the Transaction, the first
involving an in-process research and development ("IPRD") write-off of 20% and
goodwill amortization over a period of two years ("Scenario One"), and the
second involving an IPRD write-off of 50% and goodwill amortization over a
period of seven years ("Scenario Two").
The analyses described in the preceding paragraph indicated that the
Transaction would be dilutive on a pro forma accounting basis in all cases for
fiscal years 1999, 2000 and 2001, except for fiscal year 2001 under Scenario
One using the more moderate growth forecast. On a pro forma basis, excluding
certain non-cash and extraordinary charges, the Transaction would be dilutive
in all cases except for fiscal year 2001 under Scenario One and Scenario Two
using the more moderate growth forecast.
57
<PAGE>
Merrill Lynch performed discounted cash flow analysis of Infoseek giving
effect to the Transaction, for the years 1999 through 2000, based upon
forecasts prepared by Infoseek's management. Utilizing these forecasts,
Merrill Lynch calculated a range of equity values per share for Infoseek based
upon the sum of the discounted net present value of Infoseek's two-year stream
of projected unlevered free cash flows plus the discounted net present value
of the terminal value based on a range of multiples of its projected fiscal
year 2001 revenues, less debt net of cash. Assuming discount rates from 25% to
35% and terminal value multiples of fiscal year 2001 revenues ranging from
9.0x to 11.0x, Merrill Lynch calculated a range of implied equity per share
values for Infoseek's common stock (after giving event to the Transaction) of
$38.38 to $54.03.
Valuation of the Consideration Offered by Infoseek
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
First Call, an industry service provider of earnings estimates based on an
average of earnings estimates published by various investment banking firms
("First Call"), Merrill Lynch compared certain financial and operating
information and ratios for Infoseek with the corresponding financial and
operating information for a group of three publicly traded online media
companies, Excite, Inc., Lycos, Inc. and Yahoo! Inc. (the "Comparable
Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Comparable Companies: total enterprise value (defined as market value of
common equity plus value of total debt less cash) as a multiple of (i)
estimated 1999 revenues of 8.0x to 10.0x, (ii) estimated page views (a widely
quoted operating statistic for Internet companies used to measure site traffic
that is regarded as an indication of the revenue potential of the advertising
space sold by such companies) for the first quarter of 1998 of 45.0x to 50.0x,
(iii) estimated page views (excluding Netscape traffic) for the first quarter
of 1998 of 50.0x to 60.0x, (iv) estimated unique visitors during March 1998 of
65.0x to 85.0x, and (v) estimated 1999 earnings per share of common stock of
80.0x to 110.0x.
Applying the above ranges of multiples derived from the Comparable
Companies' information analyzed by Merrill Lynch, Merrill Lynch calculated
implied per share equity values of Infoseek ranging from $25.92 to $31.90,
$30.90 to $34.11, $26.08 to $30.90, $26.90 to $34.56, and $22.40 to $30.80,
based upon the range of 1999 revenue multiples, 1998 first quarter page view
multiples, page views excluding Netscape multiples, March 1998 unique visitor
multiples and 1999 earnings multiples, respectively.
None of the Comparable Companies is identical to Infoseek. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be
limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could
affect the public trading value of the Comparable Companies, as well as that
of Infoseek.
Discounted Cash Flow Analysis. Merrill Lynch also performed discounted cash
flow analyses of Infoseek without the Transaction for the years 1999 through
2000, based upon various forecasts prepared by Infoseek's management.
Utilizing these forecasts, Merrill Lynch calculated a range of equity per
share values for Infoseek based upon the sum of the discounted net present
value of Infoseek's two-year stream of projected unlevered free cash flows
plus the discounted net present value of the terminal value based on a range
of multiples of its projected fiscal year 2001 unlevered earnings, less debt
net of cash. Assuming discount rates ranging from 20% to 25% and terminal
value multiples of calendar year 2001 unlevered earnings ranging from 32.5.x
to 37.5x, Merrill Lynch calculated a range of implied equity per share values
for Infoseek common stock of $11.31 to $37.50.
Other Consideration Exchanged
Valuation of the Purchase of Shares and Warrant. As part of the
Transaction, Disney will pay approximately $70 million for 2,642,000 shares
of Infoseek's common stock. Merrill Lynch developed a range of values for
the Warrant, on a per share basis and in the aggregate, based upon a price
of $30.125
58
<PAGE>
per share for Infoseek's common stock and various other assumptions. On a
per share basis the value of the Warrant ranged from $6.47 per share to
$11.64 per share and the aggregate value of the Warrant ranged from $101.8
million to $183.1 million. Merrill Lynch also performed discounted cash
flow analyses with respect to the expected payments to be received by
Infoseek from the Note. Applying a discount rate range of between 5.5% and
7.5%, the implied value of the Note ranges, on a per share basis, from
$8.62 to $9.07, and ranges, on an aggregate basis, from $135.5 million to
$142.6 million.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial or summary description. In arriving at its
opinion, Merrill Lynch did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create a misleading view of the processes
underlying its analyses set forth in its opinion. Merrill Lynch believes that
none of the analyses failed to support the Merrill Lynch Opinion.
Infoseek's Board of Directors selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the
Transaction. Merrill Lynch is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions
and for other purposes and has substantial experience in transactions similar
to the Transaction.
Pursuant to a letter agreement, Infoseek has agreed to pay Merrill Lynch (i)
a fee of $50,000 payable on the date of the letter agreement; and (ii) if the
Transaction is consummated, a transaction fee of 0.75% of the value of
Infoseek immediately prior to the consummation of the Transaction. The amount
referred to in the preceding clause (i) would be credited against the payment
under clause (ii). In addition, Infoseek has agreed to reimburse Merrill Lynch
for its reasonable out-of-pocket expenses (including reasonable fees and
expenses of its legal counsel), subject to certain limitations, incurred in
connection with its engagement, and to indemnify Merrill Lynch and certain
related persons against certain liabilities arising out of or in conjunction
with its rendering of services under its engagement, including certain
liabilities under the federal securities laws.
Merrill Lynch has in the past provided financial advisory and financing
services to Infoseek and Disney (in the last two years acting as the lead
underwriter for the issuance of 3,450,000 shares of Infoseek's common stock in
February 1998), and may continue to do so, and has received, and may receive,
customary fees for the rendering of such services. In the ordinary course of
its business, Merrill Lynch may actively trade the securities and commercial
paper of Infoseek and Disney for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities and loans.
ADDITIONS TO INFOSEEK'S BOARD OF DIRECTORS; INTERESTS OF CERTAIN PERSONS IN
THE MERGERS
In accordance with the terms of the Governance Agreement, three
representatives of Disney, one of whom currently serves on the Board of
Directors of Starwave, will become members of the Board of Directors of
Infoseek. The Infoseek Delaware Board will be comprised of eight members, with
the other five seats filled by current Infoseek California directors. See
"Infoseek Management."
In connection with the Mergers, Starwave is currently in the process of
negotiating with certain of its executive officers regarding severance or
retention arrangements in light of their potential roles in the combined
companies. See "Starwave Executive Compensation--Starwave Employment
Agreements." Although Starwave is currently unable to predict the final terms
of these arrangements, Starwave currently anticipates that its Chief Executive
Officer, Michael B. Slade, and its Chief Operating Officer, Curt D. Blake,
will terminate their employment with Starwave concurrently with the
consummation of the Mergers or shortly thereafter in accordance with severance
arrangements to be entered into with each such executive, and that Starwave's
59
<PAGE>
President, Patrick J. Naughton, and its Vice President, Technical Operations,
David Chamberlain, will continue their employment with the combined companies
in accordance with new or amended employment agreements. However, there can be
no assurance in this regard. Starwave does not anticipate that any such
arrangements or any failure to retain its executive officers will have a
material adverse effect on the business, financial condition, operating
results or prospects of the combined companies. Further, the Mergers are not
conditioned upon consummation or effectiveness of any of these arrangements or
the retention or termination of any of these officers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, special counsel to Disney, the
material federal income tax consequences of the Starwave Merger to holders of
Starwave common stock who, pursuant to the Starwave Merger, exchange their
Starwave common stock solely for Infoseek Delaware common stock, and in the
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
to Infoseek, the material federal income tax consequences of the Infoseek
Merger to holders of Infoseek California common stock who, pursuant to the
Infoseek Merger, exchange their Infoseek California common stock solely for
Infoseek Delaware common stock, are as described below. Consummation of the
Starwave Merger is conditioned upon the receipt by DEI of an opinion of Dewey
Ballantine LLP, based upon reasonably requested representation letters and
dated the closing date, to the effect that the Starwave Merger will be treated
as a reorganization described in Section 368(a) of the Code and/or, when taken
together with the Infoseek Merger, as a transfer of property to Infoseek
Delaware by DEI governed by Section 351 of the Code. The portions of the
discussion below under "--Treatment of Holders of Starwave Common Stock" and
"--Cash In Lieu of Fractional Shares" assume that the Starwave Merger will be
treated in accordance with the opinion of Dewey Ballantine LLP described in
the preceding sentence and that the representations made in connection
therewith will be true. Consummation of the Infoseek Merger is conditioned
upon the receipt by Infoseek California of an opinion of Wilson Sonsini
Goodrich & Rosati, based upon reasonably requested representation letters and
dated the closing date, to the effect that the Infoseek Merger will be treated
for federal income tax purposes as a reorganization described in Section
368(a) of the Code and/or, when taken together with the Starwave Merger, as a
transfer of property to Infoseek Delaware by holders of Infoseek California
common stock governed by Section 351 of the Code. The portion of the
discussion below under "Treatment of Holders of Infoseek California Common
Stock" assumes that the Infoseek Merger will be treated in accordance with the
opinion of Wilson Sonsini Goodrich & Rosati described in the preceding
sentence and that the representations made in connection therewith will be
true.
The discussion below and the opinions of Dewey Ballantine LLP and Wilson
Sonsini Goodrich & Rosati are based upon current provisions of the Code,
currently applicable Treasury regulations, and judicial and administrative
decisions and rulings. There can be no assurance that the Internal Revenue
Service (the "IRS") will not take a contrary view, and no ruling from the IRS
has been or will be sought. Future legislative, judicial or administrative
changes or interpretations could alter or modify the statements and
conclusions set forth herein, and any such changes or interpretations could be
retroactive and could affect the tax consequences to the shareholders of
Starwave and Infoseek California.
The discussion below and the opinions of Dewey Ballantine LLP and Wilson
Sonsini Goodrich & Rosati do not purport to deal with all aspects of federal
income taxation that may affect particular shareholders in light of their
individual circumstances, and is not intended for shareholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, stockholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction,
stockholders who do not hold their stock as capital assets and stockholders
who have acquired their stock upon the exercise of employee options or
otherwise as compensation). In addition, the discussion below and the opinions
do not consider the effect of any applicable state, local or foreign tax laws.
Treatment of Holders of Starwave Common Stock. Except as discussed below
under "--Cash in Lieu of Fractional Shares," a holder of Starwave common stock
who, pursuant to the Starwave Merger, exchanges Starwave common stock for
Infoseek Delaware common stock will not recognize gain or loss upon such
exchange. Such holder's tax basis in the Infoseek Delaware common stock
received pursuant to the Starwave
60
<PAGE>
Merger will be equal to its tax basis in the Starwave common stock surrendered
(excluding any portion of its tax basis allocated to fractional shares), and
its holding period for the Infoseek Delaware common stock will include its
holding period for the Starwave common stock surrendered.
Treatment of Holders of Infoseek California Common Stock. A holder of
Infoseek California common stock who, pursuant to the Infoseek Merger,
exchanges Infoseek California common stock for Infoseek Delaware common stock
will not recognize gain or loss upon such exchange. Such holder's tax basis in
the Infoseek Delaware common stock received pursuant to the Infoseek Merger
will be equal to its tax basis in the Infoseek California common stock
surrendered, and its holding period for the Infoseek Delaware common stock
will include its holding period for the Infoseek California common stock
surrendered.
Cash in Lieu of Fractional Shares. A Starwave shareholder who receives cash
in lieu of fractional shares of Infoseek Delaware common stock will be treated
as having received such fractional shares pursuant to the Starwave Merger and
then as having exchanged such fractional shares for cash in a redemption by
Infoseek Delaware. Any gain or loss attributable to fractional shares
generally should be capital gain or loss. The amount of such gain or loss will
be equal to the difference between the portion of the holder's tax basis in
the stock surrendered in the Starwave Merger that is allocated to its
fractional share and the cash received in lieu thereof. Any such capital gain
or loss should constitute long-term capital gain or loss if the stock has been
held by the holder for more than one year at the Effective Time.
Reporting Requirements and Backup Withholding. Each shareholder of Starwave
and Infoseek California receiving Infoseek Delaware common stock as a result
of the Mergers will be required to retain certain records and file with its
federal income tax return a statement setting forth certain facts relating to
the Mergers.
Backup withholding at the rate of 31% may apply with respect to certain cash
payments unless the recipient (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder who does not
provide Infoseek Delaware with its correct taxpayer identification number may
be subject to penalties imposed by the IRS. Any amounts withheld under the
backup withholding rules may be allowed as a refund or a credit against the
stockholder's federal income tax liability provided that certain required
information is furnished to the IRS.
Infoseek Delaware will report to shareholders of Infoseek Delaware and to
the IRS the amount of "reportable payments" and any amount withheld with
respect to Infoseek Delaware common stock during each calendar year.
THE FOREGOING GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
IS NOT TAX ADVICE AND MAY NOT APPLY TO ALL SHAREHOLDERS OF STARWAVE AND
INFOSEEK. ACCORDINGLY, EACH SHAREHOLDER OF STARWAVE AND INFOSEEK IS URGED TO
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGERS, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR FOREIGN TAX
LAWS.
GOVERNMENTAL AND REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Mergers and the transactions contemplated by the Related Agreements cannot be
consummated until notifications have been given to the FTC and the Antitrust
Division and the specified waiting periods have expired or terminated early.
The notifications required under the HSR Act were furnished to the FTC and the
Antitrust Division by Infoseek, Disney and Starwave and the specified waiting
periods under the HSR Act for the Mergers and related transactions were
terminated early as of July 13, 1998. Notwithstanding the termination of the
applicable waiting periods under the HSR Act, the Antitrust Division, the FTC
or any state or foreign governmental authority could take such action
61
<PAGE>
under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Mergers and the transactions contemplated by the Related Agreements or seeking
divestiture of portions of the businesses of Infoseek or Starwave. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, Infoseek and Starwave believe that
the Mergers and the transactions contemplated by the Related Agreements will
be effected in compliance with federal and state antitrust laws. However,
there can be no assurance that a challenge to the consummation of the Mergers
on antitrust grounds will not be made or that, if such a challenge were made,
Infoseek, Disney and Starwave would prevail.
ACCOUNTING TREATMENT
The Starwave Merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Under
the "purchase" method of accounting, the aggregate consideration paid by the
acquiring company, which is deemed to be Infoseek Delaware, is allocated to
the acquired assets and liabilities (in this instance, of the business of
Starwave) based on the fair market values at the effective time with any
excess being treated as goodwill. Results of operations of Starwave, including
the related amortization of intangible assets and write-off of in-process
research and development associated with the Starwave Merger, will be included
in the results of operations of Infoseek Delaware subsequent to the effective
time. The conversion of Infoseek California common stock into shares of
Infoseek Delaware common stock will be treated as a reorganization with no
change in the recorded amount of Infoseek California's recorded assets and
liabilities. The financial statements of Infoseek California will be
consolidated with the financial statements of Infoseek Delaware.
STOCK EXCHANGE LISTING
It is a condition to the Mergers that the shares of Infoseek Delaware common
stock to be issued pursuant to the Reorganization Agreement be approved for
listing on Nasdaq. Infoseek Delaware will seek to obtain such listing on
Nasdaq prior to consummation of the Mergers.
RIGHTS OF DISSENTING INFOSEEK SHAREHOLDERS
If the Mergers are consummated, holders of Infoseek California common stock
who have properly exercised dissenters' rights in connection with the Infoseek
Merger under Sections 1300-1312 ("Chapter 13") of the CGCL will have the right
to receive such consideration as may be determined to be due with respect to
Dissenting Infoseek Shares (as defined below) pursuant to the laws of the
State of California; provided demands for such consideration are properly
filed at or before the Infoseek Shareholders Meeting with respect to five
percent (5%) or more of the outstanding shares of Infoseek California common
stock.
The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions, and Infoseek California shareholders
are urged to read the full text of Chapter 13, a copy of which is attached to
this Joint Proxy Statement/Prospectus as Annex B-1.
If the Infoseek Merger is approved by the required vote of the holders of
Infoseek California common stock and is not abandoned or terminated, each
holder of shares of Infoseek California common stock who votes against the
Infoseek Merger and who follows the procedures set forth in Chapter 13 will be
entitled to have his or her shares of Infoseek California common stock
purchased by Infoseek California for cash at their fair market value, so long
as demands for such consideration are properly filed at or before the Infoseek
Shareholders Meeting with respect to five percent (5%) or more of the
outstanding shares of Infoseek California common stock. The fair market value
of shares of Infoseek California common stock will be determined as of the day
before the first announcement of the terms of the Infoseek Merger, excluding
any appreciation or depreciation resulting as a consequence of the Infoseek
Merger, but adjusted for any stock split, reverse stock split or share
dividend that becomes effective thereafter. The shares of Infoseek California
common stock with respect to
62
<PAGE>
which holders have perfected their purchase demand in accordance with Chapter
13 and have not effectively withdrawn or lost such rights are referred to as
the "Dissenting Infoseek Shares."
Within 10 days after approval of the Infoseek Merger by Infoseek
California's shareholders, Infoseek California must, if demands for appraisal
have been properly filed by the holders of five percent (5%) or more of the
outstanding shares of Infoseek California common stock, mail a notice of such
approval (the "Approval Notice") to all Infoseek shareholders who have voted
against the approval of the Infoseek Merger and followed the procedures set
forth in Chapter 13, together with a statement of the price determined by
Infoseek California to represent the fair market value of the applicable
Dissenting Infoseek Shares (determined in accordance with the immediately
preceding paragraph), a brief description of the procedures to be followed in
order for the Infoseek shareholder to pursue his or her dissenters' rights,
and a copy of Sections 1300-1304 of the CGCL. The statement of price by
Infoseek California constitutes an offer by Infoseek California to purchase
all Dissenting Infoseek Shares at the stated amount.
A shareholder of Infoseek California electing to exercise dissenters' rights
must, within the time period provided in Section 1301(b) of the CGCL, demand
in writing from Infoseek California the purchase of his or her shares of
Infoseek California common stock and payment to the shareholder at their fair
market value. An Infoseek holder who elects to exercise dissenters' rights
should mail or deliver his or her written demand to Infoseek California at
1399 Moffett Park Drive, Sunnyvale, California 94089, Attention: Andrew E.
Newton, Vice President, General Counsel and Secretary. The demand should
specify the holder's name and mailing address and the number of shares of
Infoseek California common stock held of record by such shareholder and state
that such holder is demanding purchase of his or her shares and payment of
their fair market value, and must also contain a statement as to what the
shareholder claims to be the fair market value of such shares as of the day
before the first announcement of the terms of the proposed Infoseek Merger.
Such statement of the fair market value of the shares of Infoseek California
common stock constitutes an offer by the shareholder to sell the Dissenting
Infoseek Shares held by such shareholder at that price.
Within the time period provided in Section 1302 of the CGCL, the Infoseek
shareholder must also submit the certificates representing the Dissenting
Infoseek Shares to Infoseek California for endorsement as Dissenting Infoseek
Shares.
If Infoseek California and the Infoseek California shareholder agree that
the shares are Dissenting Infoseek Shares and agree upon the purchase price of
the shares, the dissenting shareholder is entitled to the agreed-upon price
with interest thereon at the legal rate on judgments from the date of such
agreement. Payment for the Dissenting Infoseek Shares must be made within 30
days after the later of the date of such agreement or the date on which all
statutory and contractual conditions to the Infoseek Merger are satisfied, and
is subject to surrender to Infoseek California of the certificates
representing the Dissenting Infoseek Shares.
If Infoseek California denies that the shares are Dissenting Infoseek Shares
or if Infoseek California and the shareholder fail to agree upon the fair
market value of the shares of Infoseek California common stock, then within
the time period provided in Section 1304(a) of the CGCL, any shareholder who
has made a valid written purchase demand and who has not voted in favor of
approval and adoption of the Reorganization Agreement and the Infoseek Merger
may file a complaint in the superior court of the proper county requesting a
determination as to whether the shares are Dissenting Infoseek Shares or as to
the fair market value of such holder's shares of Infoseek California common
stock or both, or may intervene in any pending action brought by any other
Infoseek California shareholder. If the fair market value of the Dissenting
Infoseek Shares is at issue, the court may appoint one or more impartial
appraisers to determine the fair market value of such Dissenting Infoseek
Shares.
Except as expressly limited by Chapter 13 of the CGCL, holders of Dissenting
Infoseek Shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A holder of Dissenting Infoseek Shares may not withdraw a demand
for payment unless Infoseek California consents thereto.
63
<PAGE>
Dissenting Infoseek Shares lose their status as Dissenting Infoseek Shares,
and dissenting shareholders cease to be entitled to require Infoseek
California to purchase their shares if: (a) the Infoseek Merger is abandoned;
(b) the shares are transferred prior to their submission to Infoseek
California for the required endorsement; (c) the dissenting Infoseek
California shareholder and Infoseek California do not agree upon the status of
the shares as Dissenting Infoseek Shares or do not agree on the purchase
price, but neither Infoseek California nor the shareholder files a complaint
or intervenes in a pending action within six months after mailing of the
Approval Notice; or (d) with Infoseek California's consent, the holder
delivers to Infoseek California a written withdrawal of such holder's demand
for purchase of his or her shares.
INFOSEEK CALIFORNIA SHAREHOLDERS WILL HAVE NO APPRAISAL RIGHTS UNLESS
DEMANDS FOR APPRAISAL AND PAYMENT ARE RECEIVED AT OR PRIOR TO THE DATE OF THE
INFOSEEK SHAREHOLDERS MEETING FROM HOLDERS OF 5% OR MORE OF THE OUTSTANDING
SHARES OF INFOSEEK COMMON STOCK.
RIGHTS OF DISSENTING STARWAVE SHAREHOLDERS
If the Starwave Merger is consummated, holders of Starwave common stock who
have properly exercised dissenters' rights under Chapter 23B.13 of the
Washington Business Corporation Act ("Chapter 23B.13") will have the right to
receive such consideration as may be determined to be due with respect to
Dissenting Starwave Shares (as defined below) pursuant to the laws of the
State of Washington.
The following summary of the provisions of Chapter 23B.13 is not intended to
be a complete statement of such provisions, and Starwave shareholders are
urged to read the full text of Chapter 23B.13, a copy of which is attached to
this Joint Proxy Statement/Prospectus as Annex B-2.
If the Starwave Merger is approved by the required vote of the holders of
Starwave common stock and is not abandoned or terminated, each holder of
shares of Starwave common stock who (i) has given prior notice to Starwave of
his or her intent to demand payment for his or her shares if the Starwave
Merger is consummated and (ii) does not vote in favor of the Starwave Merger
(a "Dissenting Starwave Shareholder") will be entitled to have his or her
shares of Starwave common stock purchased by Starwave for cash at "fair
value." The fair value of shares of Starwave common stock will be determined
as of the day immediately prior to the Effective Time, excluding any
appreciation or depreciation resulting as a consequence of the Starwave Merger
(unless such exclusion would be inequitable). The shares of Starwave common
stock with respect to which holders have perfected their payment demand rights
in accordance with Chapter 23B.13 and have not effectively withdrawn or lost
such rights are referred to as the "Dissenting Starwave Shares."
Within 10 days after the Effective Time of the Starwave Merger, Starwave
must deliver to all Dissenting Starwave Shareholders a notice containing (i) a
brief description of the procedures to be followed in order for such
Dissenting Starwave Shareholders to exercise their dissenters' rights, (ii)
the deadline for payment demand (30 to 60 days after notice is delivered to
shareholders) and (iii) a copy of Chapter 23B.13.
A Dissenting Starwave Shareholder must, within the time period required,
demand in writing from Starwave payment for his or her Dissenting Starwave
Shares. A Starwave shareholder who elects to exercise dissenters' rights
should mail or deliver his or her written demand to Starwave at 13810 S.E.
Eastgate Way, Suite 400, Bellevue, Washington 98005, attention: Corporate
Secretary. The payment demand must certify whether or not such Dissenting
Starwave Shareholder acquired beneficial ownership of his or her Dissenting
Starwave Shares before the date of the first announcement to the news media or
to Starwave shareholders of the terms of the Starwave Merger. Within the time
period required, a Dissenting Starwave Shareholder must also deposit with
Starwave the certificates representing the Dissenting Starwave Shares.
Within 30 days after the later of the Effective Time or the date a written
payment demand from a Dissenting Starwave Shareholder is received by Starwave,
and subject to surrender to Starwave of the certificates representing such
Dissenting Starwave Shareholder's Dissenting Starwave Shares, Starwave will be
required to
64
<PAGE>
pay to such Dissenting Starwave Shareholder the fair value of the Dissenting
Starwave Shares. Starwave will also be required to deliver to such Dissenting
Starwave Shareholder certain of its financial statements, together with an
explanation of how Starwave determined the fair value of the Dissenting
Starwave Shares and any interest accrued thereon, a statement of the
dissenter's right to demand payment if the dissenter is dissatisfied with
Starwave's calculation of the fair value of the Dissenting Starwave Shares,
and a copy of Chapter 23B.13. However, Starwave need not make timely payments
to Dissenting Starwave Shareholders who only own Starwave shares acquired
after the date of the announcement of the Merger. Instead, Starwave may
condition its payment for such shares on acceptance by the Dissenting Starwave
Shareholder of such payment as full satisfaction of the Dissenting Starwave
Shareholder's payment demand.
If a Dissenting Starwave Shareholder believes that the amount paid by
Starwave for Dissenting Starwave Shares is less than the fair value of such
shares or that any interest due thereon was calculated incorrectly, such
Dissenting Starwave Shareholder may notify Starwave in writing of such
Dissenting Starwave Shareholder's own estimate of the fair value of the
Dissenting Starwave Shares and any interest due thereon and demand payment
therefor by Starwave. Such notice must be provided to Starwave within 30 days
after Starwave makes or offers payment for the Dissenting Starwave Shares as
described above. If Starwave declines to pay the Dissenting Starwave
Shareholder's estimated fair value, Starwave must commence a court proceeding
within 60 days of the payment demand and petition the court to determine the
fair value of the Dissenting Starwave Shares and any interest due thereon.
Holders of Dissenting Starwave Shares continue to have all the rights and
privileges incident to such shares until the Effective Time. Starwave may
restrict the transfer of uncertificated Dissenting Starwave Shares from the
date any payment demand is received by Starwave for such shares until the
Effective Time.
STARWAVE SHAREHOLDERS WILL HAVE NO DISSENTERS' RIGHTS UNLESS NOTICE OF
INTENT TO DEMAND PAYMENT IS RECEIVED BY STARWAVE BEFORE THE SHAREHOLDER VOTE
AT THE STARWAVE SHAREHOLDERS MEETING.
65
<PAGE>
TERMS OF THE MERGERS
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE REORGANIZATION
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A-1 TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING IS
NOT A COMPLETE STATEMENT OF ALL PROVISIONS OF THE REORGANIZATION AGREEMENT.
STATEMENTS MADE IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH RESPECT TO THE
TERMS OF THE REORGANIZATION AGREEMENT ARE QUALIFIED BY REFERENCE TO THE MORE
DETAILED INFORMATION SET FORTH IN THE REORGANIZATION AGREEMENT.
TERMS OF THE MERGERS
The Mergers
At the Effective Time (as defined below), and subject to and upon the terms
and conditions of the Reorganization Agreement, each of Infoseek Merger Sub
and Starwave Merger Sub will be merged with and into each of Infoseek
California and Starwave, respectively, with Infoseek California and Starwave
each continuing as surviving corporations and as wholly-owned subsidiaries of
Infoseek Delaware.
Effective Time
Subject to the provisions of the Reorganization Agreement, the parties shall
cause the Mergers to be consummated by filing a Certificate of Merger with the
Secretary of State of the State of California in accordance with the relevant
provisions of California law and the filing of Articles of Merger with the
Secretary of State of the State of Washington, each as soon as practicable on
or after the Closing Date (the later of such filings, or such further later
time as may be specified in the Certificate and Articles of Merger being the
"Effective Time" of the Mergers). The closing of the Mergers (the "Closing")
shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Infoseek, on the first business day after
satisfaction or waiver of the conditions set forth in the Reorganization
Agreement or at such other date, time and location as the parties may agree.
The Closing is currently anticipated to occur on or about November 18, 1998.
Directors and Officers
At the Effective Time, (i) the current directors of Infoseek Delaware, who
are also the current directors of Infoseek California, will continue to serve
on the Infoseek Delaware and Infoseek California Boards, along with an
additional three new representatives of Disney on the Infoseek Delaware Board;
(ii) the directors of Infoseek Merger Sub shall become the directors of
Infoseek California; (iii) the officers of Infoseek Delaware, who are the
current officers of Infoseek California, will remain as the officers of both
entities; (iv) the directors of Starwave Merger Sub shall become the directors
of Starwave; and (v) the officers of Starwave will continue in their current
positions, in each case until their successors are duly elected or appointed
in accordance with applicable law.
Manner and Basis for Converting Infoseek California Shares
At the Effective Time, by virtue of the Infoseek Merger, each issued and
outstanding share of Infoseek California common stock will be automatically
converted into the right to receive one share of Infoseek Delaware common
stock.
Manner and Basis for Converting Starwave Shares
At the Effective Time, by virtue of the Starwave Merger, each issued and
outstanding share of Starwave common stock will be automatically converted
into the right to receive a fraction of a share of Infoseek Delaware common
stock equal to the Exchange Ratio (as defined below). Each share of Starwave
common stock owned by Starwave, or any direct or indirect wholly-owned
subsidiary of Starwave immediately prior to the Effective Time, will be
canceled and extinguished without any conversion thereof.
66
<PAGE>
The "Exchange Ratio," as defined in the Reorganization Agreement, is equal
to the quotient obtained by dividing (i) 28,138,000 by (ii) the sum of: (x)
the aggregate number of shares of Starwave common stock outstanding and (y)
the aggregate number of shares of Starwave common stock subject to all issued
and outstanding options, warrants, and other rights to acquire Starwave
capital stock outstanding as of the Effective Time. Based on the outstanding
capitalization of Starwave as of October 9, 1998, the applicable Exchange
Ratio would be approximately 0.26 shares. Issuance of shares of Starwave
capital stock (not subject to outstanding options, warrants or other rights to
acquire Starwave capital stock) or the grant or issuance of additional
options, warrants or other rights to acquire Starwave capital stock subsequent
to such date will result in a proportional decrease in the Exchange Ratio
based upon the foregoing formula (except to the extent such issuances are
offset by any cancellations of outstanding stock options). Accordingly, in
light of potential adjustments in the Exchange Ratio and potential variations
in the market price of Infoseek common stock, Starwave shareholders cannot be
certain of the exact amount of consideration that they will receive upon
consummation of the Starwave Merger, and such consideration may be less than
Starwave shareholders may anticipate based on the Exchange Ratio and the
information regarding historical market prices of Infoseek common stock as set
forth in this Joint Proxy Statement/Prospectus. Starwave management
anticipates that, prior to consummation of the Mergers, options to acquire
Starwave common stock will be issued to new or current employees of Starwave
in the ordinary course of business consistent with past practice, which
issuances are not expected to have a material impact on the Exchange Ratio.
Starwave management does not currently anticipate any material increase in the
outstanding shares of Starwave capital stock prior to the consummation of the
Mergers (other than issuance of shares upon exercise of outstanding stock
options). Should Starwave issue additional capital stock (or rights to acquire
such capital stock) in excess of 10% of the total outstanding capital stock of
Starwave as of October 9, 1998, shareholders of Infoseek and Starwave will
receive a revised solicitation relating to the transactions described herein.
Pursuant to the Reorganization Agreement, unless Infoseek otherwise consents,
Starwave is prohibited from redeeming shares of its capital stock or any
options or other rights to acquire its capital stock, which redemptions would
have the effect of increasing the Exchange Ratio.
According to the terms of the Reorganization Agreement, the Exchange Ratio
will be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Infoseek Delaware common stock or Infoseek
California common stock), reorganization, recapitalization, reclassification
or other like change with respect to Infoseek Delaware common stock or
Infoseek California common stock occurring or having a record date on or after
the date of the Reorganization Agreement and prior to the Effective Time.
Infoseek California Stock Options
At the Effective Time, each outstanding option or right to purchase shares
of Infoseek California common stock (each, an "Infoseek California Option")
shall be converted into an option to acquire the same number of shares of
Infoseek Delaware common stock and will continue to have, and be subject to,
the same terms and conditions (including vesting restrictions) as set forth in
the stock option agreement by which it is evidenced, except that each option
will become exercisable for Infoseek Delaware common stock rather than
Infoseek California common stock.
Starwave Stock Options
At the Effective Time, each outstanding option or right to purchase shares
of Starwave common stock (each, a "Starwave Option") shall be assumed by
Infoseek Delaware and be converted into an option to purchase that number of
shares of Infoseek Delaware common stock equal to the number of shares
Starwave common stock subject to such Starwave Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole share and the per share exercise price for the shares of Infoseek
Delaware common stock issuable upon exercise of such assumed Starwave Option
shall be equal to the quotient obtained by dividing the exercise price per
share of Starwave common stock at which such Starwave Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to
the nearest whole
67
<PAGE>
cent. Such option to purchase Infoseek Delaware common stock will otherwise
continue to have, and be subject to, the same terms and conditions (including
vesting restrictions) set forth in the Starwave option plan and/or the stock
option agreement by which it is evidenced.
Exchange Agent and Procedures
No certificates will be exchanged in the Infoseek Merger. Consequently,
holders of Infoseek California common stock should not surrender or seek to
exchange their stock certificates. Rather, following the Effective Time, each
certificate representing shares of Infoseek California common stock shall
automatically be deemed to represent an equal number of shares of Infoseek
Delaware common stock and, upon any transfer of such shares, Infoseek Delaware
shall cause to be issued certificates representing shares of Infoseek Delaware
common stock. Promptly after the Effective Time, Infoseek Delaware, acting
through Boston Equiserve L.P. as its exchange agent (the "Exchange Agent"),
will deliver to each holder of record of Starwave common stock, as of the
Effective Time, a letter of transmittal with instructions to be used by such
holder in surrendering such certificates in exchange for certificates
representing shares of Infoseek Delaware common stock. CERTIFICATES SHOULD NOT
BE SURRENDERED BY THE HOLDERS OF STARWAVE COMMON STOCK UNTIL SUCH HOLDERS
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN
ACCORDANCE WITH THE TERMS OF SUCH LETTER OF TRANSMITTAL.
Fractional Shares
Fractional shares of Infoseek Delaware common stock will not be issued in
the Mergers. Instead, each shareholder of Starwave common stock who would
otherwise be entitled to a fractional share will receive cash in lieu thereof,
calculated on the basis of the average closing price of Infoseek California
common stock for the ten most recent trading days ending on the trading day
immediately prior to the Effective Time as reported on the Nasdaq National
Market.
Form S-8 Filing
Infoseek Delaware has agreed to file with the SEC, within 30 days after the
Effective Time, a registration statement on Form S-8 to register shares of
Infoseek Delaware common stock issuable as the result of the exercise of
options assumed in the Mergers.
CONSIDERATION IN THE MERGERS
The Infoseek Merger
Each share of Infoseek California common stock issued and outstanding at the
Effective Time shall be converted into one share of Infoseek Delaware stock
without any action on the part of the holder thereof (the "Infoseek Merger
Consideration").
The Starwave Merger
Upon surrender of a certificate representing Starwave common stock for
cancellation to the Exchange Agent together with a letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such certificate will be entitled to receive
in exchange therefor (i) certificates evidencing that number of whole shares
of Infoseek Delaware common stock which such holder has a right to receive in
the Starwave Merger, (ii) any dividends or other distributions on shares of
Infoseek Delaware common stock which such holder is entitled to receive, and
(iii) cash in lieu of fractional shares of Infoseek Delaware common stock
(each of (i), (ii) and (iii) being hereinafter referred to as the "Starwave
Merger Consideration"), and the certificate representing Starwave common stock
so surrendered shall therewith be canceled. In the event of a transfer of
ownership of shares of Starwave common stock which is not registered in the
transfer records of Starwave as of the Effective Time, the Starwave Merger
Consideration may be issued and paid to the transferee if the certificate
evidencing such shares of Starwave common stock is presented to the
68
<PAGE>
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and evidence that any applicable stock transfer taxes have been
paid.
Lost, Stolen or Destroyed Certificates. In the event any certificates
representing shares of Starwave common stock have been lost, stolen or
destroyed, the Exchange Agent will issue shares of Infoseek Delaware common
stock in exchange for such lost, stolen or destroyed certificates upon the
making of an affidavit of that fact by the owner of such certificates and, at
the request of Infoseek Delaware, upon delivery of a bond in such a sums as
Infoseek Delaware may reasonably direct as indemnity against any claim that
may be made against Infoseek Delaware or the Exchange Agent with respect to
the certificates alleged to have been lost, stolen or destroyed.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains customary representations and
warranties made by Starwave and Disney, in favor of Infoseek California and
Infoseek Delaware and made by Infoseek California, in favor of Disney and
Starwave, relating, among other things, to the following matters: (i) due
organization and good standing; (ii) ownership of subsidiaries; (iii) the
capital structure of each company; (iv) the authorization, execution, delivery
and enforceability of the Reorganization Agreement and related agreements; (v)
the absence of conflict with, default under or violation of agreements and
laws, and the holding of permits necessary for the conduct of business; (vi)
the compliance of the Mergers with charters, bylaws and the law; (vii) the
absence of certain material defaults or violations; (viii) the filing of
certain documents with the Commission; (ix) the accuracy of financial
statements; (x) litigation matters; (xi) tax matters; (xii) ownership of
intellectual property; (xiii) compliance with environmental regulations; and
(xiv) employee benefit plans. The representations and warranties of Infoseek
California terminate as of the Effective Time; the representations and
warranties of Starwave and Disney survive the Effective Time for a period of
18 months (with an exception for tax matters, which survive until 60 days
following the expiration of the applicable statute of limitations), and Disney
has an indemnification obligation with respect thereto, subject to certain
limitations.
CONDUCT OF BUSINESS OF STARWAVE PENDING THE MERGERS
Pursuant to the Reorganization Agreement, other than as contemplated by the
Reorganization Agreement or the Related Agreements, each of Disney and
Starwave have agreed that, during the period from the date of the
Reorganization Agreement and continuing until the earlier of the termination
of the Reorganization Agreement pursuant to its terms or the Effective Time,
subject to certain exceptions, and except to the extent that Infoseek Delaware
or Infoseek California consents in writing, Starwave and the subsidiaries of
Starwave will carry on their business in the usual, regular and ordinary
course, in substantially the same manner conducted prior to the date of the
Reorganization Agreement, pay their debts and taxes when due, unless such
debts or taxes are the subject of a dispute that Starwave is actively seeking
to resolve, pay or perform other obligations when due, (unless such
obligations are the subject of a dispute that Starwave is actively seeking to
resolve) and to the extent consistent with such businesses, use their
reasonable efforts consistent with past practices and policies (i) to preserve
intact the present business organization of Starwave and the subsidiaries of
Starwave, (ii) to keep available the services of their present officers and
key employees and (iii) to preserve their relationships with customers,
suppliers, distributors, licensors, licensees and others with which each has
business dealings, all with the goal of preserving the goodwill and ongoing
business of Starwave and its subsidiaries at the Effective Time; provided,
however, that neither Starwave nor Disney shall be deemed in breach of the
conduct of business covenants because of the attrition, if any, among the
Starwave employees which may occur as a result of the transactions
contemplated by the Reorganization Agreement, so long as each of Starwave and
Disney use all reasonable efforts to retain such employees at Starwave.
Except as expressly contemplated by the Reorganization Agreement, neither
Starwave nor any of its subsidiaries, which, for purposes of the
Reorganization Agreement, includes the Joint Ventures, shall, without the
prior written consent of Infoseek Delaware or Infoseek California: (1) other
than in the ordinary course of business, consistent with past practices, sell
or enter into any material license agreement with respect to any of the
material intellectual property of Starwave or its subsidiaries with any person
or entity, or buy or enter into
69
<PAGE>
any material license agreement with respect to the intellectual property of
any person or entity; (2) other than in the ordinary course of business,
consistent with past practices, sell or transfer to any person or entity any
material rights to the intellectual property of Starwave; (3) other than in
the ordinary course of business, consistent with past practices, enter into or
materially amend any contract pursuant to which any other party is granted
marketing or distribution rights of any type or scope with respect to any
material products or technology of Starwave or any of Starwave's subsidiaries,
it being understood that the granting of exclusive rights to any third party
shall not be considered practices in the ordinary course of business; (4)
materially amend or otherwise materially modify (or agree to do so), except in
the ordinary course of business, or intentionally violate the terms of, any of
the material contracts of Starwave; (5) settle any litigation for an amount in
excess of $100,000 in any single case; (6) declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of the Starwave capital stock or any other equity
interests, as applicable, or split, combine or reclassify any of the Starwave
capital stock or issue or authorize the issuance of any other securities or
any other equity interests of Starwave, as applicable, in respect of, in lieu
of or in substitution for shares of capital stock of Starwave or any other
equity interests, as applicable, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of the capital stock of Starwave or any of
Starwave's subsidiaries or other equity interests as applicable, of any
subsidiary of Starwave (or options, warrants or other rights exercisable
therefor); (7) other than Starwave's issuance of approximately 1,100,000
options to employees of Starwave in accordance with the resolutions of
Starwave's Board adopted on June 13, 1998 and any other grants of options to
purchase Starwave common stock (with an exercise price equal to fair market
value of the Starwave common stock at the date of option grant) granted to
employees in the ordinary course of business consistent with past practices,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or any other equity interests, as applicable, or securities
convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue or
purchase any such shares or any other equity interests of Starwave or any of
the subsidiaries of Starwave, as applicable, or other convertible securities
of Starwave or any of the subsidiaries of Starwave; (8) cause or permit any
amendments to the Starwave Articles of Incorporation or Bylaws, or any
amendments to Starwave's other organizational documents; (9) acquire or agree
to acquire by merging or consolidating with, or by purchasing any assets or
equity securities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or except in the ordinary course otherwise acquire or agree to acquire any
assets, in each case involving an investment in excess of $100,000,
individually or $500,000 in the aggregate; (10) without limiting any other
provisions of clause (1) above, sell, lease, license or otherwise dispose of
any of Starwave's properties or assets, except in the ordinary course of
business and consistent with past practices, and except in the case of
properties or assets of less than $100,000 individually or $500,000 in the
aggregate; (11) except for advances and short-term loans provided by Disney or
affiliates of Disney to fund operating losses incurred in the ordinary course
of business consistent with past practice (whether evidenced by a written
instrument (which Starwave may execute at any time) or only reflected on the
financial statements (including without limitation the balance sheet provided
to Infoseek Delaware by Starwave at the closing, if then outstanding) and
books and records of Starwave) incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others except for obligations not exceeding
$100,000 individually or $500,000 in the aggregate; (12) grant any loans to
others or purchase debt securities of others or materially amend the terms of
any outstanding loan agreement to others; (13) grant any severance, retention,
or termination pay (i) to any director or officer or (ii) to any other
employee of Starwave or its subsidiaries, except in each case payments made
pursuant to certain standard written agreements outstanding as of the date of
the Reorganization Agreement or payments not exceeding $250,000 in the
aggregate after the date of the Reorganization Agreement; (14) adopt or enter
into any employee plan or agreement, pay or agree to pay any special bonus or
special remuneration to any director or employee, or increase the salaries or
wage rates of any Starwave employees other than routine increases and
promotions in the ordinary course of business, consistent with past practices;
(15) revalue any of Starwave's assets with a value in excess of $100,000
individually or $500,000 in the aggregate, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (16) except with
respect to taxes owed by Starwave or any subsidiaries of Starwave, pay,
discharge or satisfy, in an amount in excess of $100,000 (in any one case) or
$500,000 (in the aggregate),
70
<PAGE>
any claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities; (17) except with respect to
tax returns to be filed by Starwave or any of its subsidiaries for the taxable
year ending September 30, 1997, (i) make or change any material election in
respect of taxes relating to the operations of Starwave and its subsidiaries,
or, (ii) adopt or change any accounting method in respect of taxes except as
required by law; (18) other than in the ordinary course of business consistent
with past practice, enter into any strategic alliance; (19) accelerate the
vesting schedule of any of the outstanding Starwave Options or capital stock
of Starwave; or (20) hire any material number of employees or terminate any of
Starwave's key employees, or encourage employees to resign. In addition,
Starwave has agreed not to take any action that would prevent Starwave from
performing any of the covenants Starwave has agreed to in the Reorganization
Agreement.
CONDUCT OF INFOSEEK CALIFORNIA'S BUSINESS PENDING THE MERGERS
Other than as contemplated by the Reorganization Agreement and the Related
Agreements, Infoseek California has agreed to conduct the business of Infoseek
California in accordance with the terms and conditions as described in the
Governance Agreement entered into of even date with the Reorganization
Agreement. Except as otherwise contemplated by the Reorganization Agreement,
the Related Agreements and the other agreements by and between the parties
entered into as of the date of the Reorganization Agreement, and the several
transactions contemplated thereby, during the period from the date of the
Reorganization Agreement and continuing until the earlier of the termination
of the Reorganization Agreement or the Effective Time, Infoseek California has
agreed (except to the extent that Starwave shall otherwise have previously
consented in writing), to carry on Infoseek California's business (including
the business of the subsidiaries of Infoseek California) in the usual, regular
and ordinary course in substantially the same manner as theretofore conducted,
to pay the debts and taxes of Infoseek California (and the subsidiaries of
Infoseek California) when due (unless such debts and taxes are the subject of
a dispute that Infoseek California is actively seeking to resolve), to pay or
perform other obligations when due (unless such obligations are the subject of
a dispute that Infoseek California is actively seeking to resolve), and, to
the extent consistent with such businesses, use their reasonable efforts
consistent with past practice and policies to preserve intact Infoseek
California's (including its subsidiaries) present business organizations, keep
available the services of Infoseek California's (including its subsidiaries)
present officers and key employees and preserve Infoseek and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
the goodwill and ongoing businesses of Infoseek California and its
subsidiaries at the Effective Time.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
From and after the date of the Reorganization Agreement, Starwave and Disney
have agreed that each shall not, and shall not authorize or permit any of
their respective parent corporations, subsidiaries or officers, directors,
employees, accountants, counsel, investment bankers, financial advisors and
other representatives (collectively, their "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined herein) in respect of
Starwave or any of its subsidiaries, from any person or entity, or engage in
any discussion or negotiations relating thereto or enter into any agreement
with any person providing for or contemplating any such Acquisition Proposal;
provided, however, that notwithstanding any other provision of the
Reorganization Agreement, (1) Starwave and Disney may comply with applicable
securities laws and regulations and (2) after either (x) Infoseek California
delivers 24 hours prior notice to Starwave that Infoseek California (a)
intends to deliver confidential information to a third party and/or (b)
intends to enter into discussions or negotiations with a third party, and
prior to the time Starwave's stockholders shall have voted to approve the
Reorganization Agreement, or (y) the occurrence of any of the events described
in clauses (vii)(a), (b) or (c) described in "--Termination of the
Reorganization Agreement," Starwave may:
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Starwave or its Representatives after the date of the Reorganization
Agreement) seeks to initiate such discussions or negotiations, and may
furnish such third party information
71
<PAGE>
concerning Starwave and its business, properties and assets if and only to
the extent that (1)(a) the third party has first made an Acquisition
Proposal to acquire at least 65% of the consolidated assets or outstanding
voting power of Starwave that is financially superior to the Mergers and
the transactions contemplated in connection with the Mergers and not
subject to any financing condition, as determined in good faith in each
case by Starwave's board of directors after consultation with its financial
advisors (a "Starwave Superior Proposal") and (b) Starwave's board of
directors shall conclude in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that such
action is consistent with its fiduciary duties under applicable law, and
(2) prior to furnishing such information to or entering into discussions or
negotiations with such person or entity, Starwave provides the required
notice and receives from such person or entity an executed confidentiality
agreement in reasonably customary form on terms not materially more
favorable to such person or entity than the terms contained in the
Confidentiality Agreement between the parties; and/or
(ii) recommend to the Starwave shareholders that they accept a Starwave
Superior Proposal from a third party, provided that the required conditions
set forth in subsection (i)(1) and (i)(2) above have been satisfied and,
prior to entering into a definitive agreement providing for a Starwave
Superior Proposal, the Reorganization Agreement is terminated pursuant to
the terms and conditions governing such termination as described in
subsections (ix) or (x) of "--Termination of the Reorganization Agreement."
From and after the date of the Reorganization Agreement, Infoseek California
has agreed that it shall not, and shall not authorize or permit any of its
subsidiaries or officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, its "Representatives") to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing non-public information)
or take any other action to facilitate knowingly any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) in respect of Infoseek California or
any of its subsidiaries, from any person or entity, or engage in any
discussion or negotiations relating thereto or enter into any agreement with
any person providing for or contemplating any such Acquisition Proposal;
provided, however, that notwithstanding any other provision of the
Reorganization Agreement, (1) Infoseek California may comply with applicable
securities laws and regulations, including without limitation the Exchange Act
(and Rule 14(e-2) promulgated under the Exchange Act with regard to a tender
or exchange offer), and (2) prior to the time its shareholders shall have
voted to approve the Reorganization Agreement, Infoseek California may:
(x) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Infoseek California or its Representatives after the date of the
Reorganization Agreement) seeks to initiate such discussions or
negotiations, and may furnish such third party information concerning
Infoseek California and its business, properties and assets if and only to
the extent that: (1)(a) the third party has first made an Acquisition
Proposal to acquire at least 65% of the consolidated assets or outstanding
voting power of Infoseek California's securities that is financially
superior to the Mergers and the transactions contemplated in connection
with the Mergers and not subject to any financing condition, as determined
in good faith in each case by Infoseek California's Board of Directors
after consultation with its financial advisors (an "Infoseek Superior
Proposal"), and (b) Infoseek California's Board of Directors shall conclude
in good faith, after considering applicable provisions of state law, after
consultation with outside counsel that such action is necessary for the
Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law, and (2) prior to furnishing such information to or
entering into discussions or negotiations with such person or entity,
Infoseek California provides the notice described in the first paragraph of
this Section relating to the required notice in the event that Infoseek
California either delivers confidential information to a third party and/or
enters into discussions or negotiations with a third party, and receives
from such person or entity an executed confidentiality agreement in
reasonably customary form on terms not materially more favorable to such
person or entity than the terms contained in the Confidentiality Agreement
currently in place between Infoseek California and Disney; and/or
(y) recommend to its stockholders that they accept an Infoseek Superior
Proposal from a third party, provided that the conditions set forth in
(x)(1) and (x)(2) above have been satisfied and, prior to entering into a
72
<PAGE>
definitive agreement providing for an Infoseek Superior Proposal, the
Reorganization Agreement is terminated pursuant to subsections (vii) or
(viii) of the section titled "--Termination of the Reorganization
Agreement."
As used in the Reorganization Agreement, "Acquisition Proposal" means:
(i) a bona fide proposal or offer (other than by another party to the
Reorganization Agreement) for a tender or exchange offer for the securities
of Starwave or Infoseek California, as the case may be, or (ii) a bona fide
proposal or offer (other than by another party hereto) for a merger,
consolidation or other business communication involving an acquisition of
Starwave or Infoseek California, as the case may be, or any material
subsidiary of Starwave or Infoseek California, as the case may be, or
(iii) any proposal to acquire in any manner a substantial equity interest
in or a substantial portion of the assets of Starwave or Infoseek
California, as the case may be, or any material subsidiary of Starwave or
Infoseek California, as the case may be.
CONDITIONS TO THE MERGERS
The obligations of each party to the Reorganization Agreement to effect the
Mergers and otherwise consummate the transactions contemplated by the
Reorganization Agreement are subject to the satisfaction at or prior to the
Effective Time of the following conditions: (i) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Mergers shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Mergers, which makes the consummation of the Mergers illegal, and all
waiting periods under the HSR Act relating to the Starwave Merger and the
transactions contemplated by the Securities Purchase Agreement will have
expired or terminated early; (ii) the Reorganization Agreement shall have been
approved and adopted, and the Mergers shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of Infoseek
California and Starwave; (iii) the shares of Infoseek Delaware to be issued in
the Mergers to the shareholders of Infoseek California and Starwave shall have
been approved for listing (subject to notice of issuance) on Nasdaq; (iv) the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with
respect to the Registration Statement and no similar proceeding in respect of
this Joint Proxy Statement/Prospectus shall have been initiated or threatened
in writing by the SEC; and (v) the Related Agreements executed on the date of
the Reorganization Agreement shall be in full force and effect as of the
Effective Time.
In addition to the foregoing conditions, the obligation of Starwave and
Disney to consummate the Mergers is subject to the satisfaction at or prior to
the Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by Starwave and Disney: (i) DEI shall have
received the opinion of Dewey Ballantine LLP, special counsel to Disney, based
upon reasonably requested representation letters of Disney, Infoseek and their
officers, directors, and employees dated the Closing Date, which opinion shall
be reasonably satisfactory to Disney, to the effect that the Starwave Merger
will be treated as a reorganization described in section 368(a) of the Code
and/or, when taken together with the Infoseek Merger, will be treated as a
transfer of property to Infoseek Delaware by DEI governed by section 351 of
the Code; (ii) the representations and warranties of Infoseek in the
Reorganization Agreement shall be true and correct in all material respects on
and as of the Effective Time as though such representations and warranties
were made on and as of such time, except for such inaccuracies as individually
or in the aggregate would not have a Material Adverse Effect (as defined
below) on Infoseek California, and each of Infoseek California and Infoseek
Delaware shall have performed and complied in all material respects with all
covenants and obligations of the Reorganization Agreement required to be
performed and complied with by them as of the Effective Time; (iii) no
Material Adverse Effect with respect to Infoseek California shall have
occurred since the date of the Reorganization Agreement and no events or
circumstances have occurred since the date of the Reorganization Agreement
that would have a Material Adverse Effect on Infoseek California (except for
any Material Adverse Effect that shall
73
<PAGE>
have been cured without such cure resulting or reasonably being expected to
result in a Material Adverse Effect on Infoseek California; and (iv) each of
Starwave and Disney shall have been provided with a certificate executed on
behalf of Infoseek California by its President and Chief Executive Officer to
the effect that, as of the Effective Time, the conditions set forth in the
Reorganization Agreement have been met. For purposes of the Reorganization
Agreement as a whole, "Material Adverse Effect" means any change, event or
effect that is materially adverse to the business, assets (including
intangible assets), financial condition, or results of operations of the
entity referred to, together with its subsidiaries, taken as a whole. For
purposes of the closing conditions, it shall also be deemed a "Material
Adverse Effect" on Infoseek California or Starwave, as the case may be, if
there shall be in effect a preliminary injunction or permanent injunction
issued by a court of competent jurisdiction against Infoseek California or
Starwave, as the case may be, preventing Infoseek California or Starwave, as
the case may be, from generally using or materially limiting the ability of
Infoseek California or Starwave, as the case may be, to generally use
intellectual property that is both material to and necessary for the conduct
of Infoseek California's or Starwave's business, as the case may be, as
currently conducted (taken as a whole), and the prior pendency of a temporary
restraining order in respect of such intellectual property which is no longer
in effect shall be deemed not to be a "Material Adverse Effect" on Infoseek
California or Starwave, as the case may be, for purposes of the Reorganization
Agreement.
Further, the obligations of Infoseek to consummate and effect the Mergers
are subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, exclusively
by Infoseek California or Infoseek Delaware; (i) Infoseek California shall
have received the opinion of Wilson Sonsini Goodrich & Rosati, counsel to
Infoseek, based upon reasonably requested representation letters of Disney,
Infoseek and their officers, directors, and employees dated the Closing Date,
which opinion shall be reasonably satisfactory to Infoseek California, to the
effect that the Infoseek Merger will be treated as a reorganization described
in section 368(a) of the Code and/or, when taken together with the Starwave
Merger, as a transfer of property to Infoseek Delaware by holders of Infoseek
California common stock governed by section 351 of the Code; (ii) the
representations and warranties of Starwave and Disney in the Reorganization
Agreement shall be true and correct in all material respects on and as of the
Effective Time as though such representations and warranties were made on and
as of the Effective Time, except for such inaccuracies as individually or in
the aggregate would not have a Material Adverse Effect on Starwave, and each
of Starwave and Disney shall have performed and complied in all material
respects with all covenants and obligations of the Reorganization Agreement
required to be performed and complied with by them as of the Effective Time;
(iii) no Material Adverse Effect with respect to Starwave has occurred since
the date of the Reorganization Agreement and no events or circumstances have
occurred since the date of the Reorganization Agreement that would have a
Material Adverse Effect on Starwave (except for any Material Adverse Effect
that shall have been cured without such cure resulting or reasonably being
expected to result in a Material Adverse Effect on Starwave; (iv) any and all
consents, waivers, assignments and approvals as provided for in the
Reorganization Agreement (other than those whose failure to obtain,
individually or in the aggregate, would not have a Material Adverse Effect on
Starwave or Infoseek Delaware) shall have been obtained; (v) Infoseek
California shall have been provided with a certificate executed on behalf of
Disney by its Chief Financial Officer and executed on behalf of Starwave by
its President and Chief Executive Officer to the effect that, as of the
Effective Time the conditions set forth in the Reorganization Agreement have
been met; (vi) Infoseek California shall have received from Disney and
Starwave on or prior to the Closing Date the closing balance sheet of
Starwave, certified as to correctness by Disney and Starwave; and (vii) Disney
shall have delivered to Infoseek Delaware an amount equal to the shortfall, if
any, between the estimated net worth of Starwave (defined as the total
consolidated assets of Starwave minus total consolidated liabilities, each
determined in accordance with generally accepted accounting principles) and $5
million.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated and the
Mergers abandoned at any time prior to the Effective Time:
(i) By mutual consent of Infoseek California, Disney, and Starwave.
74
<PAGE>
(ii) By Infoseek California or Starwave if: (a) the Effective Time has not
occurred by December 31, 1998; provided, however, that the right to terminate
the Reorganization Agreement under this clause shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Mergers to occur on or before such date and such action
or failure to act constitutes a material breach of the Reorganization
Agreement; (b) there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Mergers; or (c) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Mergers by any governmental body that would make
consummation of the Mergers illegal.
(iii) By Infoseek California or Starwave if (a) the Infoseek California
Shareholders Meeting (including any adjournments or postponements thereof)
shall have been held and completed and Infoseek California's shareholders
shall have taken a final vote on the matters required to be voted on at the
Infoseek Shareholders Meeting as set forth herein in the section entitled
"Infoseek Shareholders Meeting--Purpose" and (b) such matters shall not have
been approved at such meeting by the required Infoseek California shareholder
vote (provided, further, that the right to terminate the Reorganization
Agreement under this clause shall not be available to Infoseek California or
Starwave where the failure to obtain the required Infoseek California
shareholder vote shall have been caused by the action or failure to act of
such party and such action or failure to act constitutes a material breach by
such party of the Reorganization Agreement).
(iv) By Infoseek California or Starwave if there shall be any governmental
action taken, or any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Mergers by any governmental body, which
would: (a) prohibit Infoseek Delaware's ownership or operation of any material
portion of the business of Starwave or (b) compel Infoseek Delaware or
Starwave to dispose of or hold separate all or a material portion of the
business or assets of Starwave or Infoseek Delaware as a result of the
Mergers.
(v) By Infoseek California if it is not in material breach of its
obligations under the Reorganization Agreement and there has been a breach of
any representation, warranty or covenant contained in the Reorganization
Agreement on the part of Starwave or Disney, or if any representation or
warranty on the part of Starwave or Disney shall have become untrue, in either
case such that the condition relating to the accuracy of all representations
and warranties of Starwave and Disney as of the Effective Time would not be
satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue and such inaccuracy in such
representation or warranty or breach shall not have been cured within thirty
(30) calendar days after written notice to Starwave and Disney; provided,
however, that, no cure period shall be required for a breach which by its
nature cannot be cured.
(vi) By Starwave or Disney if neither Starwave nor Disney is in material
breach of their respective obligations under the Reorganization Agreement and
there has been a breach of any representation, warranty or covenant contained
in the Reorganization Agreement on the part of Infoseek California, or if any
representation or warranty of Infoseek California shall have become untrue, in
either case such that the condition regarding the accuracy of Infoseek's
representations and warranties and compliance with all covenants and
obligations of the Reorganization Agreement would not be satisfied as of the
time of such breach or as of the time such representation or warranty shall
have become untrue and such inaccuracy in such representations and warranties
or such breach shall not have been cured within thirty (30) calendar days
after written notice to Infoseek California; provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured.
(vii) By Starwave, prior to obtaining the required vote of the shareholders
of Infoseek California as provided in the Reorganization Agreement and after
receipt by Infoseek California of an Acquisition Proposal for Infoseek
California, if (a) by the end of the third business day following (but not
including) the day Starwave notifies Infoseek California that it wishes the
Board of Directors of Infoseek California to publicly reaffirm its
recommendation to stockholders of Infoseek California to vote for the Mergers,
the Board of Directors of Infoseek California fails to so publicly reaffirm;
or (b) by the later of the end of (A) the tenth business day following the
public announcement of an Acquisition Proposal for Infoseek California or (B)
the third business day following (but not including) the day Starwave notifies
Infoseek California that it wishes the Board of
75
<PAGE>
Directors of Infoseek California to publicly reject such publicly announced
Acquisition Proposal, the Board of Directors of Infoseek California fails to
publicly reject such Acquisition Proposal; or (c) the Board of Directors of
Infoseek California shall have changed its recommendation to its shareholders
to vote in favor of approval of the transactions contemplated by the
Reorganization Agreement.
(viii) By Infoseek California, prior to obtaining the required vote of the
shareholders of Infoseek California as provided in the Reorganization
Agreement upon five days' prior notice to Starwave (the "Infoseek California
Superior Proposal Notice"), if, as a result of an Infoseek Superior Proposal
by a party other than Starwave or any affiliates of Starwave, the Board of
Directors of Infoseek California determines in good faith, after considering
applicable provisions of state law, after consultation with outside counsel
that acceptance of the Infoseek California Superior Proposal is necessary for
the Board of Directors of Infoseek California to act in a manner consistent
with its fiduciary duties under applicable law; provided, however, that the
Board of Directors of Infoseek California, in making any such determination,
shall have considered all concessions which have then been offered by Starwave
(it being understood that prior to any such termination Infoseek California
shall, and shall cause its respective financial and legal advisors to,
negotiate with Starwave to make such adjustments in the terms and conditions
of the Reorganization Agreement in favor of Infoseek California as would
induce Infoseek California to proceed with a transaction with Starwave rather
than consummation of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under the foregoing Subsection (viii), Infoseek California must
pay to Starwave in immediately available funds the fees and expenses set forth
in the section herein titled "--Termination Fees." In addition, Infoseek
California has agreed that it shall not terminate the Reorganization Agreement
pursuant to the foregoing subsection (viii) at any time prior to 180 days
after the date of the Reorganization Agreement nor at any time prior to five
days after Starwave's receipt of an Infoseek California Superior Proposal
Notice in respect of the Infoseek Superior Proposal to be accepted.
(ix) By Infoseek California, prior to obtaining the required shareholder
vote of the shareholders of Infoseek California in accordance with the section
titled "Infoseek Shareholders Meeting--Purpose" and after receipt by Starwave
of an Acquisition Proposal for Starwave, if (a) by the end of the third
business day following (but not including) the day Infoseek California
notifies Starwave that it wishes the Board of Directors of Starwave to
publicly reaffirm its recommendation to stockholders of Starwave to vote for
the Mergers, the Board of Directors of Starwave fails to so publicly reaffirm;
or (b) by the later of the end of (A) the tenth business day following the
public announcement of an Acquisition Proposal for Starwave or (B) the third
business day following (but not including) the day Infoseek California
notifies Starwave that it wishes the Board of Directors of Starwave to
publicly reject such publicly announced Acquisition Proposal, the Board of
Directors of Starwave fails to publicly reject such Acquisition Proposal; or
(c) the Board of Directors of Starwave shall have changed its recommendation
to its shareholders to vote in favor of approval of the transactions
contemplated by the Reorganization Agreement.
(x) By Starwave, prior to obtaining the required vote of the shareholders of
Starwave, upon five days' prior notice to Infoseek California (the "Starwave
Superior Proposal Notice"), if, as a result of a Starwave Superior Proposal by
a party other than Infoseek California or any of its Affiliates, the Board of
Directors of Starwave determines in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that
acceptance of the Starwave Superior Proposal is consistent with its fiduciary
duties under applicable law; provided, however, that the Board of Directors of
Starwave, in making any such determination, shall have considered all
concessions which have then been offered by Infoseek California (it being
understood that prior to any such termination Starwave shall, and shall cause
its respective financial and legal advisors to, negotiate with Infoseek
California to make such adjustments in the terms and conditions of the
Reorganization Agreement in favor of Starwave as would induce Starwave to
proceed with a transaction with Infoseek California rather than consummation
of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under subsection (x) above, Starwave must pay to Infoseek
California in immediately available funds the fees required to be paid
76
<PAGE>
pursuant to the section herein "--Termination Fees." In addition, Starwave
agrees that it shall not terminate the Reorganization Agreement pursuant to
subsection (x) above any time prior to 180 days after the date of the
Reorganization Agreement nor at any time prior to five days after Infoseek
California's receipt of a Starwave Superior Proposal Notice in respect of the
Starwave Superior Proposal to be accepted.
(xi) By Starwave, provided that neither it nor Disney is in breach of the
Reorganization Agreement, in the event that the Registration Statement has not
been declared effective by the SEC on or prior to the day that is 60 calendar
days following the day, if any, Infoseek California receives initial written
comments from the SEC in respect of the disclosures set forth therein (tolled
for any period of Federal government strike or extraordinary shutdown that
affects the SEC).
(xii) By Starwave, provided that neither it nor Disney is in breach of the
Reorganization Agreement, if there shall be in effect a preliminary injunction
or permanent injunction issued by a court of competent jurisdiction against
Infoseek California preventing Infoseek California from generally using or
materially limiting the ability of Infoseek California to generally use
intellectual property that is both material to and necessary for the conduct
of Infoseek's business as currently conducted (taken as a whole).
(xiii) By Infoseek California, provided that it is not in breach of the
Reorganization Agreement, if there shall be in effect a preliminary injunction
or permanent injunction issued by a court of competent jurisdiction against
Starwave preventing Starwave from generally using or materially limiting the
ability of Starwave to generally use intellectual property that is both
material to and necessary for the conduct of Starwave's business as currently
conducted (taken as a whole).
TERMINATION FEES
If the Reorganization Agreement is terminated by (i) Starwave as a result of
Infoseek's breach of the non- solicitation covenant, or (ii) by Starwave
pursuant to its rights under subsection (vii) of "--Termination of the
Reorganization Agreement," or (iii) by Infoseek pursuant to its rights under
subsection (viii) of "--Termination of the Reorganization Agreement," Infoseek
shall pay to Starwave a fee of $17 million, plus the amount of any documented
out-of-pocket expenses incurred by Starwave and its affiliates in connection
with the negotiation and preparation of the Reorganization Agreement and the
Related Agreements and any other ancillary agreements executed and delivered
in connection with the transactions contemplated thereby (including fees of
counsel and accountants) up to the date of such termination up to a maximum
aggregate of $1.5 million (collectively, "Expenses") in cash minus any amounts
as may have been previously paid by such party in termination fees.
If (i) the Reorganization Agreement is terminated by a party pursuant to
clause (iii) under "--Termination of the Reorganization Agreement" following a
failure of the shareholders of Infoseek California to grant the necessary
approvals of the Mergers and related transactions; (ii) prior to such meeting
of the shareholders of Infoseek California (and following the date of the
Reorganization Agreement), there shall have been publicly announced an
Acquisition Proposal involving Infoseek California (whether or not such
Acquisition Proposal shall have been rejected or shall have been withdrawn
prior to the time of such termination or of the shareholders' meeting); and
(iii) within 12 months of any such termination pursuant to such clause (iii),
Infoseek California becomes a majority-owned subsidiary of the offeror of such
Acquisition Proposal or an affiliate thereof or accepts a written offer to
consummate or consummates an Acquisition Proposal with such offeror or
affiliate thereof which would result in the acquisition of 50% or more of the
voting power of Infoseek California (a "Majority Acquisition Proposal"), then
Infoseek California, upon the signing of a definitive agreement relating to
such Majority Acquisition Proposal, or, if no such agreement is signed then at
the closing (and as a condition of the closing) of Infoseek California
becoming such a subsidiary or of such Majority Acquisition Proposal, shall pay
to Starwave a fee of $17 million plus Expenses, minus any amounts as may have
been previously paid by such party in termination fees.
If the Reorganization Agreement is terminated by (i) Infoseek California as
a result of a Starwave breach of the non-solicitation covenants, or (ii) by
Infoseek California pursuant to its rights under subsection (ix) of
77
<PAGE>
"--Termination of the Reorganization Agreement," or (iii) by Starwave pursuant
to its rights under subsection (x) of "--Termination of the Reorganization
Agreement," Starwave shall pay to Infoseek California a fee of $17 million,
plus Expenses minus any amount as may have been previously paid by Starwave in
termination fees.
In addition, under a separate Licensing and Services Option Agreement
between Disney and Infoseek, if the Reorganization Agreement is terminated
under circumstances in which Infoseek California is required to pay a
termination fee to Starwave, then Disney shall have the right to exercise one
or both of two options. The first option includes the right to obtain a
nonexclusive, worldwide license for five years, with certain rights to
sublicense, to use Infoseek search and communication technology in connection
with the development, operation and exploitation of Disney's and its
affiliates' online services. Upon the exercise of this option, Disney has
agreed to pay Infoseek an annual fee for the license and an additional annual
fee for the right to receive updates to the licensed technology. The second
option would enable Disney to have prominent placement for links of certain
online services of Disney and its affiliates on Infoseek's Internet Services
for a term of five years, and prominent placement of content of Disney and its
affiliates within Infoseek's Internet services in exchange for an annual fee.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Infoseek Delaware will indemnify each director of Infoseek California and
Starwave as of the Effective Time (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the fullest extent permitted under
applicable law. Such rights are in addition to rights that an Indemnified
Party may have under the charter, bylaws and other similar organizational
documents of Infoseek California, Starwave or any of their subsidiaries or
applicable law. Such rights are also contingent upon the occurrence of, and
will survive consummation of the transactions contemplated by the
Reorganization Agreement and are expressly intended to benefit each
Indemnified Party. DEI has agreed to indemnify and hold Infoseek Delaware and
each of its subsidiaries harmless, and reimburse Infoseek Delaware upon demand
for any and all amounts paid to or on behalf of an Indemnified Party who was,
at the date of the Reorganization Agreement, or following the date of the
Reorganization Agreement at any time prior to the Effective Time, a director
of Starwave, other than Michael Slade.
OTHER COVENANTS
The Reorganization Agreement also contains various other covenants and
agreements that are customary in transactions of this nature. Among other
things, Infoseek California and Starwave have agreed to prepare and cause to
be filed with the SEC this Joint Proxy Statement/Prospectus for the
solicitation of approval of the respective shareholders of Infoseek California
and Starwave of the Reorganization Agreement, the Mergers and the transactions
contemplated by the Reorganization Agreement. Infoseek California has also
agreed to prepare and cause to be filed with the SEC the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, with
respect to those shares of Infoseek Delaware common stock issuable in the
Mergers. Each of Infoseek Delaware, Infoseek California and DEI has agreed to
comply with applicable law and the rules and regulations promulgated by the
SEC, to respond promptly to any comments of the SEC or its staff and to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC, and Infoseek
California has agreed to use all reasonable efforts to cause this Joint Proxy
Statement/Prospectus to be mailed to Infoseek California's shareholders and
Starwave's shareholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act; provided, however,
that if any of the Representation Agreements is duly terminated prior to the
Effective Time by Infoseek California, Infoseek California shall have the
unilateral right, exercisable in its sole discretion, to elect not to submit
the Reorganization Agreement and the transactions contemplated thereby to a
vote of Infoseek California's shareholders without being deemed in breach of
any obligation under the Reorganization Agreement and without payment of any
fees or penalties thereunder (provided that Infoseek California shall
otherwise remain subject to the terms and conditions of the Reorganization
Agreement, including, without limitation, the termination fee provisions
thereof), and Starwave may terminate the Reorganization Agreement. Each of the
78
<PAGE>
parties to the Reorganization Agreement has also agreed to promptly furnish to
the other party all information concerning itself, its shareholders and its
affiliates that may be required or reasonably requested in connection with any
action contemplated by the foregoing provisions. If any event related to
Infoseek Delaware, Infoseek California, DEI or Starwave occurs or if Infoseek
Delaware, Infoseek California, DEI or Starwave becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Registration Statement or the Joint Proxy Statement/Prospectus, then Infoseek
Delaware, Infoseek California, DEI or Starwave, as applicable, shall inform
the other thereof and shall cooperate with each other in filing such amendment
or supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of Infoseek California and Starwave.
SHAREHOLDER AGREEMENTS
Starwave
Each of DEI, Michael B. Slade, Curt Blake, Patrick Naughton and Thomas L.
Phillips, Jr. (together, the "Starwave Shareholders"), shareholders of
Starwave and together owning approximately 94% of the voting power of Starwave
as of the record date, has entered into a Shareholder Agreement with Infoseek
Delaware and Infoseek California (the "Starwave Shareholder Agreement")
pursuant to which such shareholders of Starwave have agreed, among other
things, to: (i) vote in favor of the Starwave Merger and the Reorganization
Agreement; (ii) vote against any other merger agreement, merger,
consolidation, asset sale, joint venture or similar transaction; (iii) vote
against any amendment to the Starwave Articles of Incorporation or Bylaws or
other proposal or transaction involving Starwave or its subsidiaries which
would impede, frustrate, prevent, nullify or result in a breach of any
covenant, representation or warranty or any other obligation of Starwave
regarding the Starwave Merger, the Reorganization Agreement, or any of the
transactions otherwise contemplated by the Reorganization Agreement or the
Starwave Shareholder Agreement; (iv) not grant any proxy or powers of attorney
with respect to the Starwave shares held by him or it; or (v) not sell,
transfer or other dispose of the Starwave shares held by it or him. The
obligations under the Starwave Shareholder Agreement are binding on
transferees and Starwave shares received pursuant to, among other things,
stock splits, stock dividends, and reorganizations or similar events. The
Starwave Shareholder Agreements expire on the earlier of (i) 180 days from the
date of the Shareholder Agreement and (ii) the Effective Time, and (iii)
termination of the Reorganization Agreement, other than, in the case of
Starwave shareholders other than DEI, pursuant to a termination due to a
Starwave Superior Proposal (as defined in the Reorganization Agreement)
received by Starwave. See "--Solicitation of Alternative Transactions" and "--
Termination of the Reorganization Agreement".
In connection with the covenants set forth above, each Starwave Shareholder
also granted to Harry M. Motro and Leslie E. Wright, as officers of Infoseek
California and Infoseek Delaware, an irrevocable proxy to vote such
shareholder's shares in favor of the Mergers and the Reorganization Agreement.
Infoseek California
Each of Steven T. Kirsch, Harry M. Motro, Andrew E. Newton and Leslie E.
Wright (the "Infoseek Shareholders"), each a shareholder of Infoseek
California and together owning approximately 22% of the voting power of
Infoseek California as of the Record Date, have entered into a Shareholder
Agreement with Disney (the "Infoseek Shareholder Agreement") pursuant to which
such Infoseek Shareholders have agreed, among other things, to: (i) vote in
favor of the Infoseek Merger and the Reorganization Agreement; (ii) not grant
any proxy or powers of attorney with respect to the Infoseek Shares held by
him or it; or (iii) not sell, transfer or otherwise dispose of the Infoseek
Shares held by such Infoseek Shareholder. The obligations under the Infoseek
Shareholder Agreement are binding on transferees and shares received pursuant
to, among other things, stock splits, stock dividends, and reorganizations or
similar events. The Infoseek Shareholder Agreements terminate on the earlier
of (i) 120 days from the date of the Shareholder Agreement, (ii) the Effective
Time or (iii) termination of the Reorganization Agreement, other than pursuant
to a termination due to an Infoseek Superior Proposal received by Infoseek
California. See "--Solicitation of Alternative Transactions" and "--
Termination of the Reorganization Agreement". Each of the Infoseek
Shareholders has also agreed, until
79
<PAGE>
the termination of the Standstill Period (as defined in the Governance
Agreement described below), even in the event of a termination of the other
provisions of the Shareholder Agreements, to vote shares beneficially owned by
such Infoseek Shareholder in favor Disney's nominees to the Infoseek Delaware
Board of Directors.
In connection with the covenants set forth above, such Infoseek Shareholders
also granted to Thomas O. Staggs and Laurence J. Shapiro, as officers of
Disney, an irrevocable proxy to vote such Infoseek Shareholders' shares in
favor of the Infoseek Merger and the Reorganization Agreement.
80
<PAGE>
DESCRIPTION OF RELATED AGREEMENTS
The several equity, governance, commercial and licensing agreements
summarized below have been entered into by and among Infoseek and Disney and
certain of their respective affiliates, and are to be effective upon and
subject to the consummation of the Mergers, although certain provisions of the
Governance Agreement described below are currently effective. It is a
condition to consummation of the Mergers that these agreements be in full
force and effect.
Each of the following summaries is not intended to be exhaustive and each is
qualified by the full text of the respective Related Agreements, each of which
has been filed as an exhibit to the Registration Statement on Form S-4 of
which this Joint Proxy Statement/Prospectus is a part.
EQUITY AND GOVERNANCE AGREEMENTS
Common Stock and Warrant Purchase Agreement
Infoseek Delaware and Disney entered into a Common Stock and Warrant
Purchase Agreement (the "Securities Purchase Agreement") concurrently with the
signing of the Reorganization Agreement. Under the terms of the Securities
Purchase Agreement, Infoseek Delaware has agreed to issue and sell, and Disney
has agreed to purchase concurrently with the consummation of the Mergers,
2,642,000 shares of Infoseek Delaware common stock (the "Sale Shares"), at a
price of $26.50 per share, and a warrant (as described further below, the
"Warrant") to purchase 15,720,000 shares of Infoseek Delaware common stock, at
certain times, at certain prices and on certain conditions, in exchange for
cash in the amount of $70,013,000.00 (the "Cash Consideration") and a note (as
described further below, the "Note") in the principal amount of $139,000,000.
The Sale Shares and the Warrant will be "restricted securities" as defined in
the Securities Act.
Warrant
The Warrant is exercisable to purchase 15,720,000 shares of Infoseek
Delaware common stock, subject to the following restrictions. The shares
subject to the Warrant vest and become exercisable as to one-third of the
shares subject to the Warrant upon each of the first, second, and third
anniversaries of the consummation of the Mergers. In the event of a Standstill
Termination Event (as defined in the Governance Agreement described below),
any unvested shares vest and become exercisable immediately.
The exercise price for each share of common stock of Infoseek Delaware under
the Warrant is equal to (i) 120% of the closing sale prices on Nasdaq (or
another national market) for the thirty trading days prior to the time such
share vests and becomes exercisable or (ii) if not traded on market, by
unanimous determination of the Infoseek Board or if the Infoseek Board cannot
agree, through an appraisal mechanism, subject to, in each case, a maximum per
share exercise price of $50.00.
The Warrant is transferrable only to 80% or greater subsidiaries of Disney.
The Warrant does not entitle the holder to any rights as a stockholder prior
to exercise. However, the Warrant and the shares underlying the Warrant are
subject to the Governance Agreement described below. Any shares issuable upon
exercise of the Warrant are entitled to the registration rights contained in
the Registration Rights Agreement described below.
Note
The Note, in principal amount of $139,000,000, bears interest at a rate of
6.5% per annum, which rate was determined on the basis of arms' length
negotiations between the parties and approximated Disney's then average cost
of capital. The Note is repayable in twenty quarterly principal installments
of $6,950,000 together with interest thereon, beginning on the three month
anniversary of the consummation of the Mergers. The Note (together with
accrued and unpaid interest) may be repaid in whole or in part without premium
or penalty at any time.
Registration Rights Agreement
Pursuant to the Registration Rights Agreement among Infoseek and Disney, to
be executed upon consummation of the Mergers, Infoseek Delaware will be
obligated to register, at its expense, under the
81
<PAGE>
Securities Act, Infoseek Delaware common stock held by Disney, 80% or greater
subsidiaries of Disney or Disney stockholders following a pro rata
distribution of Infoseek shares to such stockholders in certain circumstances.
Upon a request to register shares with an anticipated total offering price
of $10,000,000, Infoseek Delaware is obligated to file, on not more than two
occasions, a registration statement with respect to such shares within 45 days
at Infoseek Delaware's own expense, and use best efforts to cause such
registration to be declared effective, subject to certain limitations and
conditions. Such registration shall be on a form mutually agreed by the
parties, but may be pursuant to a shelf registration if Infoseek is eligible,
upon Disney's request. The obligation to register such shares pursuant to the
Registration Rights Agreement begins three years after the consummation of the
Mergers or upon the earlier termination of the Standstill Period (as defined
in the Governance Agreement).
If Infoseek Delaware proposes to register any of its securities under the
Securities Act either for its own account or for the account of others (except
in connection with employee benefit plans, mergers or stock issuable upon
conversion of convertible securities), Disney and others with registration
rights are entitled to notice of the registration, and are entitled to include
Infoseek Delaware shares therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in the registration, subject to Disney's shares receiving priority
over all other parties (other than Infoseek Delaware) exercising registration
rights in connection with the offering.
Governance Agreement
Disney and Infoseek have also entered into a Governance Agreement which
provides for the following:
Disney's Standstill Restrictions. Pursuant to the Governance Agreement,
during the Standstill Period (as defined below), none of Disney, any affiliate
(as defined under the Exchange Act) of Disney or any group (as defined under
Rule 13d-3 of the Exchange Act, a "13D Group") of which Disney or any of its
affiliates is a member, shall directly or indirectly, acquire or beneficially
own voting stock or authorize or make a tender offer, exchange offer or other
offer therefor, if the effect of such acquisition would be to increase the
percentage of total current voting power represented by all shares of voting
stock of Infoseek beneficially owned by Disney to more than 49.9% of total
current voting power of Infoseek voting stock then outstanding, provided that,
the foregoing shall not prohibit Disney and/or any of its affiliates from
making a tender offer for 100% of the Infoseek shares of voting stock it does
not own during the Standstill Period so long as such tender offer has been
approved by a majority of Infoseek disinterested directors and is conditioned
upon a majority of the shares of voting stock held by disinterested
shareholders being tendered and not withdrawn with respect to such offer (a
"Disney Tender Offer"). Following the Standstill Period, Disney, its
affiliates or any 13D Group of which Disney or any of its affiliates is a
member shall be entitled to commence a tender or exchange offer to purchase or
exchange for cash or other consideration any Infoseek voting stock provided
that such offer is conditioned upon and not consummated unless a majority of
the shares of voting stock held by disinterested shareholders are tendered and
not withdrawn with respect to such tender or exchange offer.
As defined in the Governance Agreement, the following terms are defined as
follows: "Standstill Period" means the period beginning June 18, 1998 and
ending on the occurrence of a Standstill Termination Event; "Standstill
Reinstatement Event" means the occurrence of either of the following prior to
the third anniversary of the Closing: (i) withdrawal or termination of a Third
Party Tender Offer at any time during which a Disney Tender Offer is not then
pending or (ii) withdrawal, termination, or material alteration of a Disney
Tender Offer other than an increase in price; "Standstill Revised Limit" means
the percentage of the total current voting power represented by all shares of
Infoseek voting stock held by Disney as of the occurrence of a Standstill
Reinstatement Event; and "Standstill Termination Event" means the earliest to
occur of the following: (i) the third anniversary of the Closing, (ii) a
change in control of Infoseek, (iii) a third party tender offer to acquire 25%
or more of the then total current voting power of Infoseek, (iv) a Disney
Tender Offer, or (v) any person who is not Disney or an affiliate of Disney or
13D Group of which Disney or an affiliate of Disney is a member
82
<PAGE>
has acquired any Infoseek voting stock which results in such person or 13D
Group owning or having the right to acquire more than 25% of the total current
voting power of Infoseek unless such acquisition of shares by such person or
13D Group was approved by Infoseek's Board of Directors pursuant to a 75%
supermajority Infoseek Board approval, provided however, that upon a
Standstill Reinstatement Event, the Standstill Termination Event shall be
deemed not to have occurred and the Standstill Period shall be deemed to be
reinstated, and provided further that, upon a Standstill Reinstatement Event,
if the Standstill Revised Limit is greater than the Standstill Limit, then the
Standstill Revised Limit and not the Standstill Limit shall thereafter be
deemed the Standstill Limit.
Disney's Transfer Restrictions. Unless Disney beneficially owns less than 5%
of the total current voting power of Infoseek or until Disney owns at least
90% of the total current voting power of Infoseek, Disney shall not, directly
or indirectly, sell, transfer, pledge, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise dispose of, any shares of
Infoseek voting stock or non-voting convertible securities of Infoseek except:
(i) to Infoseek; (ii) to an 80% owned subsidiary of Disney (a "Disney
Controlled Corporation"); (iii) after the Standstill Period, pursuant to a
bona fide firmly underwritten public offering (which underwriter or
underwriters of such offering shall include, if requested, an underwriter
selected by a majority of the disinterested directors of Infoseek) registered
under the Securities Act; (iv) after the Standstill Period, pursuant to a
rights offering, dividend or other pro rata distribution to the stockholders
of Disney; (v) after the Standstill Period, pursuant to Rule 144 promulgated
under the Securities Act, in a brokers' transaction (as defined under Rule
144); (vi) after the Standstill Period, in private placement transactions
exempt from the registration requirements of the Securities Act; (vii) in
response to a bona fide public tender offer or exchange offer subject to
Regulation 14D or Rule 13e-3 promulgated under the Exchange Act for cash or
other consideration which is made by or on behalf of Infoseek; or (viii) in
response to a third party tender offer, with certain limitations.
In addition, except in the case of a bona fide offer or proposal that, if
consummated, would result in a Change in Control of Infoseek (in which event
the following restrictions would terminate), unless Disney beneficially owns
less than 5% of the total current voting power of Infoseek or until Disney
owns at least 90% of the total current voting power of Infoseek, Disney has
agreed (i) not to transfer any of Infoseek voting stock shares acquired upon
exercise of any Warrants for a one year period after the date of the
acquisition of such shares except to a Disney Controlled Corporation or upon
the occurrence of a third party tender offer and (ii) not to transfer any
Warrants except to a Disney Controlled Corporation.
No transferee of Infoseek voting stock or non-voting convertible securities
sold, transferred or otherwise disposed of by Disney as permitted by the
Governance Agreement shall be bound (other than a Disney Controlled
Corporation) by the terms thereof, nor shall such transferee (other than a
Disney Controlled Corporation) be entitled, in any manner whatsoever, to any
rights afforded Disney under the Governance Agreement.
Infoseek's Right of First Refusal. Unless Disney beneficially owns shares
representing less than 5% of the total current voting power of Infoseek or
until Disney owns at least 90% of the total current voting power of Infoseek,
prior to Disney effecting any sale, transfer or other disposition of Infoseek
shares or non-voting convertible securities in connection with a private
placement transaction which directly or indirectly would result in the
transfer to any single person or 13D Group of 5% or more of the total current
voting power of Infoseek, then Infoseek shall have a first refusal right to
purchase all such shares or non-voting convertible securities. Infoseek may
assign this right of first refusal to any other person or persons except
certain competitors of Disney.
Disney's Voting Obligations. Disney shall take such action as may be
required so that all shares of Infoseek voting stock beneficially owned by
Disney are voted for or cast in favor of: (i) during the Standstill Period,
nominees to the Board of Directors of Infoseek in accordance with the
Governance Agreement and the joint recommendations of the management of
Infoseek and a majority of the disinterested directors of Infoseek, (ii)
increases in the authorized capital stock of Infoseek and amendments to stock
option plans and employee stock purchase plans, in each case approved by
Infoseek's Board of Directors, and (iii) all matters approved by a majority of
Disney's nominees to the Infoseek Board of Directors.
83
<PAGE>
Unless otherwise approved by a majority of the disinterested directors of
Infoseek (as further described under "Board Representation Rights" below),
during the Standstill Period, on all matters submitted to the vote, written
consent or approval of the holders of Infoseek voting stock other than those
matters set forth in the preceding paragraph, Disney shall take such action as
may be required so that all shares of Infoseek voting stock beneficially owned
by Disney which are in excess of the number of shares representing 43% of the
total current voting power of Infoseek are voted or cast on all matters
submitted to a vote, consent or other approval of the shareholders of Infoseek
on each such matter in the same proportion as the votes cast by the voting
stock held by the disinterested shareholders of Infoseek with respect to such
matters.
Except for the foregoing, nothing in the Governance Agreement precludes
Disney from voting shares of Infoseek voting stock which it beneficially owns
in such manner as Disney determines, in its sole discretion, on any matter
presented to stockholders for a vote, consent or other approval; provided,
however, that, in no event shall Disney exercise dissenter's rights under
applicable law in connection with any merger, consolidation or other
reorganization which is approved by Infoseek's Board of Directors and which is
intended to qualify for pooling-of-interests accounting treatment (to be
reflected in a comfort letter from a nationally recognized accounting firm in
customary form).
Infoseek's Repurchase Right. If at any time there is a change in control of
Disney and Disney does not then beneficially own Infoseek shares representing
a majority of the then total current voting power of Infoseek, then Infoseek
shall have the right to purchase all, but not less than all, of the Infoseek
shares and the Warrants then owned by Disney and its affiliates, at any time
not to exceed sixty (60) days after Disney informs Infoseek in writing of such
change in control of Disney, provided that, not later than 10 business days
after receipt of such notice, Infoseek notifies Disney in writing of its
intent to exercise the right of repurchase such securities. The purchase price
per share of such shares shall be the fair market value thereof as of the date
of occurrence of the change in control of Disney and the purchase price for
any Warrants shall be the purchase price of such Warrants paid by Disney to
Infoseek for such Warrants. Infoseek may not assign its right of repurchase
except to an 80% controlled subsidiary.
Disney's Rights to Maintain. During the Standstill Period, provided that
Disney beneficially owns at least 10% of the Total Outstanding Company Equity
(as defined below), if the percentage interest of Disney in the Total
Outstanding Company Equity is or would be reduced at any time as a result of
an issuance of new Infoseek securities, Disney shall have the right to
purchase for cash Disney's Pro Rata Portion (as defined below), in whole or in
part, at an aggregate purchase price equal to the product of the price per
share at which such new securities were or will be sold in such issuance
multiplied by Disney's Pro Rata Portion or any part thereof (the "Purchase
Price"). As defined in the Governance Agreement, "Disney's Pro Rata Portion"
means either (i) in the case of any issuances of new securities for cash
consideration in connection with a financing transaction, 43% of the number of
new securities, or (ii) in the case of any issuance of new securities in
connection with an acquisition transaction, that number of new securities that
would equal 43% after the issuance to Disney; and "Total Outstanding Company
Equity" means the total number of shares of outstanding capital stock of
Infoseek, on a fully diluted basis assuming the conversion, exchange or
exercise of all outstanding securities, whether vested or unvested,
convertible, exchangeable or exercisable into or for Company common stock.
In addition, upon any issuance of new Infoseek securities, and only if (i)
Disney purchases at least 15% of Disney's Pro Rata Portion of such issuance
from Infoseek or in the open market, or (ii) during the Standstill Period,
Disney owns at least 35% of the Total Outstanding Company Equity, or (iii)
after the Standstill Period, Disney owns at least 30% of the Total Outstanding
Company Equity, then Disney shall also have the right to purchase for cash a
Warrant exercisable for such number of Infoseek's new securities, either (a)
in the event of an issuance of new securities in connection with a financing
transaction, equal to 15% of the new securities, or (b) in the event of an
issuance of new securities in connection with an acquisition transaction,
equal to 15% of the new securities plus that number of new securities of
Disney's Pro Rata Portion actually purchased by Disney (either (a) or (b) as
applicable, the "Warrant Coverage"). Any such Warrant shall be in the form of
the Warrants purchased by Disney pursuant to the Securities Purchase Agreement
described above under "--Common Stock and Warrant Purchase Agreement" provided
however, that any such Warrants so purchased shall be fully vested
84
<PAGE>
and exercisable, and the per share exercise price for such new securities
underlying such Warrant shall be equal to the price per share at which such
new securities were sold in such issuance of such new securities by Infoseek.
Disney's purchase price for any such Warrant shall be an amount in cash
determined to be the fair market value of such Warrants by (a) mutual
agreement of Infoseek and Disney or (b) an investment bank mutually agreed
upon by Infoseek and Disney (based on a Black-Scholes option pricing model)
(the "Warrant Price").
Additionally, Disney may, at any time and from time to time, in lieu of
purchasing Disney's Pro Rata Portion or any part thereof from Infoseek in
connection with an acquisition transaction, purchase on the open- market such
number of shares of voting stock as have the equivalent equity interest as
Disney's Pro Rata Portion. Such open market purchases would entitle Disney to
purchase Warrant Coverage if such purchases are made within 60 days after
receipt by Disney of notice of such issuance from Infoseek. Disney may
purchase shares of voting stock both from Infoseek and in the open market, in
its discretion, in connection with any equity issuance, subject to the
Standstill Limit during the Standstill Period.
Board Representation Rights. The Governance Agreement provides that as a
condition to consummation of the Mergers, the Bylaws of Infoseek shall
authorize an eight (8) member Board of Directors of Infoseek, and the three
persons designated by Disney pursuant to the Reorganization Agreement shall
have been elected to Infoseek's Board of Directors. Thereafter, so long as
Disney beneficially owns at least 10% of Infoseek's total current voting
power, Infoseek shall include in the slate of nominees recommended by
Infoseek's management to shareholders for election as directors at any special
or annual meeting of shareholders of Infoseek and shall use its best efforts
in all other respects to cause the election of, that number of persons
designated by Disney equal to the greater of (i) one, or (ii) that number
determined by multiplying the then number of members of the Board of Directors
by the percentage of total current voting power of Infoseek then owned by
Disney. If such calculation results in a whole number plus a fraction, Disney
shall only be permitted to designate such whole number of persons; provided
however, that if Disney beneficially owns more than 25% of the total current
voting power of Infoseek and Disney is not entitled pursuant to the foregoing
calculation to appoint more than 25% of the members of the Board of Directors,
then such fraction shall be rounded up to the next nearest whole number for
purposes of determining the number of Disney designees on Infoseek's Board of
Directors. At any time during the Standstill Period, Disney shall not be
entitled, and Disney agrees not to cast votes for Disney designees for the
Infoseek Board of Directors in excess of the lesser of (i) the number of
directors which Disney is entitled to elect under the preceding terms of the
Governance Agreement or (ii) 49.9% of the members of the Board of Directors.
During the Standstill Period, in the event that the number of Disney designees
for the Infoseek Board of Directors exceeds the number of designees that
Disney is entitled to designate (the "Excess Directors"), Disney shall cause
that number of Excess Directors to resign and not stand for reelection in
connection with any special or annual meeting of shareholders of Infoseek.
Also see "The Mergers and Related Transactions--Additions to Infoseek's Board
of Directors; Interests of Certain Persons in the Mergers."
Events Requiring Supermajority Board Approval. Pursuant to the Governance
Agreement, until Disney's percentage beneficial ownership of the Total
Outstanding Company Equity falls below 10%, Infoseek shall not effectuate any
Event Requiring Supermajority Board Approval without first having obtained a
75% supermajority Infoseek Board approval. As defined in the Governance
Agreement, an "Event Requiring Supermajority Board Approval" means (i) any
amendment of Infoseek's Bylaws or Infoseek's Certificate of Incorporation,
(ii) a change in control of Infoseek or any subsidiary of Infoseek, (iii) a
sale of more than 15% of the total assets of Infoseek or any subsidiary of
Infoseek, (iv) issuances of securities of Infoseek representing 15% or more of
the total current voting power, (v) the sale or issuance of any securities of
Infoseek for consideration of $200 million or more, (vi) transactions
involving expenditures of cash by Infoseek or any subsidiary or incurrence of
indebtedness by Infoseek or any subsidiary, in either case, in excess of $200
million, or (vii) appointment of a new Chief Executive Officer of Infoseek;
provided that, during the period prior to the consummation of the Mergers, the
amount of consideration set forth in clauses (v) and (vi) above is deemed to
be $25 million.
Events Requiring Disinterested Board Approval. Pursuant to the Governance
Agreement and the Infoseek Delaware Certificate of Incorporation, until such
time as Disney owns 90% or more of Infoseek's total current voting stock,
neither Infoseek nor Disney shall effectuate an Event Requiring Disinterested
Board Approval
85
<PAGE>
without first having obtained Disinterested Board Approval with respect to
such event. As defined in the Governance Agreement, "Disinterested Board
Approval" means the affirmative vote or written consent of a majority of the
Disinterested Directors duly obtained in accordance with the applicable
provisions of Infoseek's bylaws and applicable law; "Disinterested Director"
means, during the Standstill Period, a member of the Board of Directors of
Infoseek who is not a Disney Director and, after the Standstill Period, a
member of the Board of Directors of Infoseek who is an Independent Director;
"Event Requiring Disinterested Board Approval" means: (i) any amendment to
Infoseek's Bylaws or Certificate of Incorporation, (ii) any transaction
between Infoseek (or any affiliate of Infoseek) and Disney (or any affiliate
of Disney), which (a) requires payments by any party in excess of $5 million
or (b) contemplates a term equal to or in excess of three years, (iii)
adoption of a "poison pill" share purchase rights plan by Infoseek, or any
amendment of, or redemption, or exchange of rights issued pursuant to any such
plan, provided that, such plan excludes from the definition of "Acquiring
Person" therein Disney and wholly owned (direct or indirect) subsidiaries of
Disney so long as neither Disney nor any Disney affiliate has breached
Disney's standstill restrictions described above and so long as Disney
beneficially owns at least 5% of the total current voting power of Infoseek,
(iv) any transfer of any Infoseek shares or non-voting convertible securities
by Disney to an Infoseek Competitor in a private placement (as opposed to a
public offering), (v) during the Standstill Period, any transfer of 25% or
more of Infoseek voting stock by Disney in a private placement (as opposed to
a public offering) to any single person or 13D Group, (vi) commencing a tender
offer or exchange offer by Disney or any affiliate of Disney (or any 13D Group
that includes Disney or any affiliate of Disney) to purchase or exchange for
cash or other consideration any Infoseek voting stock, except for a Disney
Tender Offer made (a) during a Third Party Tender Offer, or (b) following a
Standstill Termination Event so long as the cause of the Standstill
Termination Event was not a Disney Tender Offer, (vii) during the Standstill
Period, Disney's solicitation of proxies with respect to any Infoseek voting
stock or becoming a "participant" in any "election contest" (as such terms are
used in Rule 14(a)-11 of Regulation 14A promulgated under the Exchange Act)
relating to the election of directors of Infoseek, (viii) any termination by
Disney of the License Agreement (described below) between Disney and Infoseek
(a) as a result of Infoseek's failure to use commercially reasonable efforts
to meet certain spending requests for the New Portal Service, at any time
after a majority of the members of Infoseek's Board of Directors are Disney
Directors, (b) as a result of the acquisition by any person or group of 25% or
more of the voting power of Infoseek thereof if the event that causes Disney
to have such termination right is (y) a transfer by Disney of Infoseek shares
(other than a transfer pursuant to a third party tender offer) or (z) after a
majority of the members of Infoseek's Board of Directors are Disney designees,
an issuance of shares by Infoseek which results in a third party owning 25% or
more of the total current voting power of Infoseek, or (c) as a result of the
bankruptcy or receivership of Infoseek if the event that causes such
termination right is that Disney, in its capacity as a shareholder (and not as
a creditor) of Infoseek, has applied for or actively supported the appointment
of a receiver for Infoseek and such receiver has been appointed, (ix) a
transfer by Disney of Infoseek shares which results in a third party owning
25% or more of the total current voting power of Infoseek (other than a
transfer pursuant to third party tender offer), (x) during the Standstill
Period, or after the Standstill Period, unless Disney owns 50% or more of the
total current voting power of Infoseek, any of items (i) through (iv) set
forth as an Event Requiring Disinterested Shareholder Approval as described
below, (xi) any dissolution or liquidation of Infoseek, (xii) voluntary filing
of a petition for bankruptcy or receivership by Infoseek, or the failure to
oppose any other person's petition for bankruptcy or any other person's action
to appoint a receiver of Infoseek, or (xiii) any amendment, modification or
waiver (including a termination other than in accordance with the various
termination provisions contained in the Governance Agreement) of any of the
provisions of the Governance Agreement;
Events Requiring Disinterested Shareholder Approval. Pursuant to the
Governance Agreement and Infoseek Delaware's Certificate of Incorporation,
until such time as Disney owns 90% or more of the total current voting power
of Infoseek, neither Infoseek nor Disney (including any affiliate of such
party) shall effectuate an Event Requiring Disinterested Shareholder Approval
without first having obtained Disinterested Shareholder Approval with respect
to such event; provided however, that Disinterested Shareholder Approval shall
not be required, if on the record date for such approval of such Event
Requiring Disinterested Shareholder Approval, Disney beneficially owns less
than 25% of the total current voting power of Infoseek. As defined in the
Governance Agreement, "Disinterested Shareholder" means any shareholder of
Infoseek who is not Disney or
86
<PAGE>
an affiliate of Disney or a member of a 13D Group in which Disney or an
affiliate of Disney is also a member; "Disinterested Shareholder Approval"
means the affirmative vote or written consent of greater than 50% of the total
current voting power of Infoseek held by all Disinterested Shareholders;
"Event Requiring Disinterested Shareholder Approval" means: (i) the amendment
of any portion of Infoseek's charter that effectuates therein the provisions
requiring Disinterested Board Approval and Disinterested Shareholder Approval,
(ii) a sale or disposition of all or substantially all of Infoseek's assets,
(iii) the issuance of securities of Infoseek representing 20% or more of (a)
Infoseek's then Total Outstanding Company Equity or (b) Infoseek's then total
current voting power or (iv) a merger, consolidation, or other reorganization
of Infoseek with or into Disney or any affiliate of Disney.
First Offer Agreement
Pursuant to a letter agreement between Steven T. Kirsch, Infoseek's Chairman
and a principal shareholder of Infoseek, and Disney, Mr. Kirsch has agreed
that if, following the Effective Time of the Mergers and prior to the fourth
anniversary thereof, he elects to transfer (other than to family members or
for estate planning or charitable purposes) shares of Infoseek common stock
with an aggregate value of $1,000,000 or more, then he will first offer to
sell such shares to Disney, and Disney will have the right to purchase all
(but not less than all) of such shares, at the same purchase price offered to
Mr. Kirsch by the third party.
LICENSING AND COMMERCIAL AGREEMENTS
License Agreement
Pursuant to a License Agreement between Disney and Infoseek, Disney has
agreed to grant to Infoseek a worldwide license to utilize the trademarks,
service marks and World Wide Web addresses and domain names associated with
the New Portal Service and the copyrights in the user interface design of the
New Portal Service in connection with the development, operation and
exploitation of the New Portal Service. The license will be exclusive to
Infoseek and any other use of the licensed intellectual property is subject to
Infoseek's approval (which approval may not be unreasonably withheld for uses
that do not compete with Infoseek). Infoseek has agreed to pay Disney a
royalty equal to one percent (1%) of Infoseek's revenues other than Infoseek
revenues derived from Infoseek's software sales and services. Such royalties
are not earned or paid until the end of any Infoseek fiscal year in which
Infoseek has positive earnings before interest, taxes and amortization (EBITA)
as defined and royalty payments in any year will not exceed fifteen percent
(15%) of Infoseek's EBITA in such year. Disney has agreed to pay Infoseek
royalties based on a specified percentage of the revenues received by Disney
attributable to other licenses and uses of the licensed intellectual property
by Disney or its licensees.
The license may be terminated by Disney only upon occurrence of the
following events: (i) acquisition by any person or group (other than Disney)
of more than 25% of the voting equity of Infoseek; (ii) Infoseek's failure to
use commercially reasonable efforts to meet certain spending requirements for
the New Portal Service, as set forth in a mutually agreed upon business plan,
provided that these termination rights expire in ten years or earlier if
certain conditions are met; or (iii) bankruptcy or receivership of Infoseek.
Subject to adjustment by unanimous vote of the two member advisory committee
established pursuant to the Product Management Agreement described below,
these spending requirements for the New Portal Service for the first three
years are $40.5 million, $58.3 million and $64.8 million, respectively.
Thereafter such requirements are to be set by unanimous vote of the advisory
committee, provided that, if no amount is agreed to by the advisory committee,
such amount shall be based on the prior year's spending requirement as
adjusted for projected growth based on changes in the consumer price index or
certain other metrics. The amounts spent by Infoseek on the purchase of
promotional services under the Promotional Services Agreement described below
apply towards these spending requirements. Disney's ability to trigger these
termination rights will be limited by the Governance Agreement. If Disney
terminates the license, Infoseek will grant to Disney a worldwide,
nonexclusive, royalty-free license, with certain rights to sublicense, to use
Infoseek technology in connection with the development and operation of the
New Portal Service, with rights to obtain updates to the licensed technology
at most favored nation prices for five years after any such termination.
87
<PAGE>
Product Management Agreement
Under a Product Management Agreement, Disney and Infoseek have agreed to
establish an advisory committee (consisting of one Infoseek representative and
one Disney representative) for the overall management of the New Portal
Service to be developed and launched by Infoseek as well as to coordinate the
overall relationship between Disney and Infoseek. While decisions of the
advisory committee generally will be required to be unanimous, the Disney
representative will have tie-breaking authority over branding issues and
marketing plan formulation, as well as content and advertising standards, and
the Infoseek representative will have tie-breaking authority over product
development, operation, production, distribution, advertising sales, execution
of the marketing plan and day-to-day operations of the service. Under this
agreement, Disney and Infoseek have also each agreed to provide certain
prominent positioning for and links to Disney content and Infoseek search and
directory services within Infoseek and Disney's respective online services.
Promotional Services Agreement
Pursuant to a Promotional Services Agreement, ABC has agreed to provide, and
Infoseek has agreed to purchase, $165,000,000 in promotional services over a
five-year period for the New Portal Service, consisting of both traditional
and non-traditional opportunities. In addition, this agreement requires Disney
to co-brand all ABCNews.com and ESPN SportsZone nontraditional media
promotions with promotions for the New Portal Service. Infoseek will have the
right to renew the Promotional Services Agreement, other than with respect to
the co-branding requirement at the end of its initial five year term, for a
subsequent five year term. The obligations under the Promotional Services
Agreement are not conditioned on the success of the planned New Portal
Service. The purchases of promotional services by Infoseek under the
Promotional Services Agreement apply towards the spending requirements
discussed under "--License Agreement" above.
Amended and Restated ESPN Joint Venture
Starwave Partner and ESPN Partner have amended and restated the existing
ESPN Joint Venture between Starwave Partner and ESPN Partner for the
development, production and exploitation of narrowband products incorporating
and containing amateur or professional sports content, news and information
owned or controlled by ESPN Enterprises, Inc. or its affiliates (collectively
"ESPN"). The financial participation provisions of the Amended and Restated
ESPN Joint Venture remained substantially unchanged from the original ESPN
Joint Venture, with Starwave Partner and ESPN Partner each receiving a
quarterly allocation of fifty percent of the joint venture's net income (with
corresponding levels of funding commitments based on estimated cash expenses
and capital expenditures for such period) in years during which there is net
income, and with Starwave Partner allocated sixty percent of the net losses
and ESPN Partner allocated forty percent of the net losses (with corresponding
levels of funding commitments based on estimated cash expenses and capital
expenditures for such period) in loss years. The amended and restated ESPN
Joint Venture includes a mechanism for adjusting each partner's profit
participation in the event that a partner fails to make any funding commitment
cash contribution.
The amended and restated ESPN Joint Venture incorporates certain exclusivity
provisions with respect to the activities of Starwave Partner and ESPN
Partner. ESPN Partner and Starwave Partner have each agreed that neither ESPN
Partner nor Starwave Partner, as the case may be, nor any of their respective
affiliates would, during the term of the ESPN Joint Venture, in the U.S. or
Canada, develop, distribute, produce, exploit, market, promote on-air, provide
services of any nature or provide a license or permit a third party to utilize
any of their respective intellectual property rights with respect to
narrowband products containing professional or amateur sports content, news or
information. This exclusivity will not apply, however, to the parties'
activities associated with the development, expansion and commercialization of
sports components of the planned New Portal Service, nor will such exclusivity
apply to Starwave Partner or its affiliates' activities associated with search
or directory products, services, components or other search or directory
subject matter.
The amended and restated ESPN Joint Venture has a ten year term (from the
Effective Time) and can only be terminated by ESPN Partner or Starwave Partner
if (i) a party to the amended and restated ESPN Joint Venture or Infoseek
California is subject to a bankruptcy or similar proceeding, (ii) Starwave
Partner willfully and
88
<PAGE>
repeatedly misuses the trademarks or service marks of ESPN in material breach
of the agreement and repeatedly fails to cure such misuses, or (iii) the other
partner's profit participation is equal to or less than twenty-five percent
and the ESPN Joint Venture sustains either eight consecutive net loss fiscal
quarters or ten total net loss fiscal quarters. Upon expiration or
termination, ESPN Partner will be entitled to receive in-kind distribution of
editorial-related content assets and Starwave Partner will be entitled to
receive in-kind distribution of all technology assets and substantially all
other assets of the ESPN Joint Venture.
Amended and Restated ESPN/Starwave Management and Services Agreement
ESPN, Starwave and the ESPN Joint Venture have also entered into an Amended
and Restated ESPN/Starwave Management and Services Agreement to provide for
provision by ESPN of ESPN content and electronic commerce services for the
narrowband sports products developed pursuant to the amended and restated ESPN
Joint Venture and provision by Starwave of hosting services and technology
development and maintenance services in connection with such narrowband sports
products.
ESPN Representation Agreement
Under the ESPN Representation Agreement, Starwave has agreed to act as the
exclusive representative of the ESPN Joint Venture in the sale of advertising
for the ESPN SportsZone internet service and other internet services that are
owned and/or operated by the ESPN Joint Venture, such as NFL.com, NASCAR
Online and NBA.com. For the exclusive right to provide these services,
Starwave has agreed to make quarterly payments to the ESPN Joint Venture equal
to the greater of (i) a guaranteed minimum amount or (ii) advertising revenues
actually billed to third parties in the performance of the services (whether
or not collected), in each case less Starwave's costs of providing the
services and a profit margin.
Amended and Restated ABCNews Joint Venture
Starwave Partner, ABC Partner and Disney have amended and restated the
existing ABCNews Joint Venture among the parties for the development,
production and exploitation of narrowband products containing broad national,
international and local news content. The financial participation provisions
of the Amended and Restated ABCNews Joint Venture remained substantially
unchanged from the original ABCNews Joint Venture, with Starwave Partner and
ABC Partner to each receive a quarterly allocation of fifty percent of the
joint venture's net income (with corresponding levels of funding commitments
based on estimated cash expenses and capital expenditures for such period) in
years in which there is net income, and with Starwave Partner allocated sixty
percent of the net losses and ABC Partner allocated forty percent of the net
losses (with corresponding levels of funding commitments based on estimated
cash expenses and capital expenditures for such period) in loss years. The
amended and restated ABCNews Joint Venture includes a mechanism for adjusting
each partner's profit participation in the event that a partner fails to make
any funding commitment cash contribution.
The amended and restated ABCNews Joint Venture incorporates certain
exclusivity provisions with respect to the activities of Starwave Partner and
ABC Partner. ABC Partner and Starwave Partner each agreed that neither ABC
Partner nor Starwave Partner, as the case may be, nor any of their respective
affiliates would, during the term of the ABCNews Joint Venture, in the U.S. or
Canada, develop, distribute, produce, exploit, market or promote on-air
(subject to ABC's current agreement with America Online), or provide services
of any nature or provide a license or permit a third party to utilize any of
their respective intellectual property rights with respect to narrowband
products dedicated primarily to national and international news, other than
narrowband products dedicated primarily to entertainment or personal finance
news. This exclusivity does not apply, however, to the parties' activities
associated with the development, expansion and commercialization of news
components of the planned New Portal Service, nor does such exclusivity apply
to Starwave Partner or its affiliates' activities associated with search or
directory products, services, components or other search or directory subject
matter.
The amended and restated ABCNews Joint Venture has a ten year term (from the
Effective Time) and can only be terminated by ABC Partner or Starwave Partner
if (i) a party to the agreement or Infoseek is subject to a
89
<PAGE>
bankruptcy or similar proceeding, (ii) Starwave Partner willfully and
repeatedly misuses the trademarks or service marks of ABC or its affiliates in
material breach of the agreement and repeatedly fails to cure such misuses, or
(iii) the other partner's profit participation is equal to or less than
twenty-five percent and the ABCNews Joint Venture sustains either eight
consecutive net loss fiscal quarters or ten total net loss fiscal quarters.
Upon expiration or termination, ABC Partner will be entitled to receive in-
kind distribution of editorial-related content assets and Starwave Partner
will be entitled to receive in-kind distribution of all technology assets and
substantially all other assets of the ABCNews Joint Venture.
Amended and Restated ABC News/Starwave Management and Services Agreement
ABC, Starwave and the ABCNews Joint Venture have entered into an Amended and
Restated ABC News/Starwave Management and Services Agreement to provide for
provision by ABC of ABC content and electronic commerce services for the
narrowband news products developed pursuant to the amended and restated
ABCNews Joint Venture and provision by Starwave of hosting services and
technology development and maintenance services in connection with such
narrowband news products.
ABCNews Representation Agreement
Under the ABC News Representation Agreement, Starwave has agreed to act as
the exclusive representative of the ABCNews Joint Venture in the sale of
advertising services for the ABCNews.com Internet service and other internet
services that are owned and/or operated by the ABCNews Joint Venture such as
Mr. Showbiz, Celebsite, and Wall of Sound. For the exclusive right to provide
these services, Starwave has agreed to make quarterly payments to the ABCNews
Joint Venture equal to the greater of (i) a guaranteed minimum amount or (ii)
advertising revenues actually billed to third parties in the performance of
the services (whether or not collected), in each case less Starwave's costs of
providing the services and a profit margin.
90
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information
for Infoseek Delaware consists of the Unaudited Pro Forma Combined Condensed
Statements of Operations for the year ended December 31, 1997, and for the six
months ended June 30, 1998 and the Unaudited Pro Forma Combined Condensed
Balance Sheet as of June 30, 1998 (collectively, the "Pro Forma Statements").
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares and Infoseek Delaware's
acquisition of Infoseek California through a merger and exchange of shares. In
addition, the Pro Forma Statements give effect, conditioned upon and subject
to consummation of the proposed Mergers, to Disney's purchase of an additional
2,642,000 unregistered shares of Infoseek Delaware common stock and a warrant,
subject to vesting, to purchase an additional 15,720,000 unregistered shares
of Infoseek common stock (the "Warrant") in exchange for approximately $70.0
million in cash and $139.0 million in a five-year promissory note. The
Unaudited Pro Forma Combined Condensed Statement of Operations for the year
ended December 31, 1997 and the six months ended June 30, 1998 reflect these
transactions as if they had taken place on January 1, 1997. The Unaudited Pro
Forma Combined Condensed Balance Sheet gives effect to these transactions as
if they had taken place on June 30, 1998.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17.0 million, subject to adjustment, in shares of
Infoseek's common stock. The transaction is subject to customary closing
conditions, including shareholder approval by Quando, and is expected to close
on or about the closing of the Mergers. The Unaudited Pro Forma Combined
Condensed Statements of Operations for the year ended December 31, 1997 and
the six months ended June 30, 1998 reflect this transaction as if it had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to the Quando acquisition as if it had taken place on June
30, 1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Infoseek California's historical results of operations for the year ended
December 31, 1997 and the six months ended June 30, 1998 with Starwave's
historical results for the year ended December 31, 1997 and the six months
ended June 28, 1998 and Quando's historical results of operations for the year
ended December 31, 1997 and the six months ended June 30, 1998, respectively.
In addition, the Unaudited Pro Forma Combined Condensed Statements of
Operations include the impact of certain of the Related Agreements which
become effective with the Mergers. These agreements are described more fully
in the notes to these Unaudited Pro Forma Combined Condensed Statements of
Operations. See "Description of Related Agreements--Licensing and Commercial
Agreements." The Pro Forma Statements are not necessarily indicative of what
the actual financial results would have been had the transactions taken place
on January 1, 1997 or June 30, 1998 and do not purport to indicate the results
of future operations.
The Starwave Merger and the Quando acquisition will be accounted for using
the purchase method of accounting. The Pro Forma Statements have been prepared
on the basis of assumptions described in the notes thereto.
As a result of the Starwave Merger and the Quando acquisition, Infoseek
Delaware expects to incur write-offs related to in-process research and
development, currently estimated at $74.4 million and $9.4 million,
respectively. The Pro Forma Combined Condensed Balance Sheet includes the
effect of the write-off related to in-process research and development;
however, the Pro Forma Combined Condensed Statement of Operations does not
reflect these charges. The charges related to in-process research and
development will be reflected in Infoseek Delaware's consolidated financial
statements when the Starwave Merger and the Quando acquisition are
consummated. In addition, Infoseek expects to incur costs of integration
estimated at up to $5.0 million, subsequent to when the Starwave Merger and
the Quando acquisition are consummated. The Pro Forma Statements do not
include the costs of integration, as these costs will affect future operations
and do not qualify as liabilities in connection with a purchase business
combination under EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."
91
<PAGE>
The Pro Forma Statements should be read in conjunction with the related
notes included in this document and the audited financial statements of
Starwave and Quando, including the notes thereto, included elsewhere in this
Joint Proxy Statement/Prospectus, and the audited financial statements of
Infoseek California and the notes thereto, included in Infoseek California's
Current Report on Form 8-K/A, as amended, filed on May 22, 1998 and amended on
August 10, 1998 and incorporated by reference in this Joint Proxy
Statement/Prospectus.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- -------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 35,082 $ 5,811 $ 256 $ 16,368 (3) $ 57,517
Costs and expenses:
Hosting, content and
website costs(10)..... 6,319 7,667 1 13,790 (3) 26,398
2,455 (3)
(3,834)(4)
Amortization of
intangibles related to
hosting, content and
website costs......... -- -- -- 37,066 (8) 41,588
4,522 (18)
Research and
development........... 7,900 1,840 161 995 (8) 10,947
51 (18)
Sales and marketing.... 34,320 1,598 12 2,907 (8) 75,675
3,834 (4)
33,000 (11)
4 (18)
General and
administrative........ 7,042 3,188 419 1,683 (8) 12,466
134 (18)
Goodwill amortization.. -- -- -- 64,581 (8) 66,198
1,617 (18)
Restructuring and other
charges............... 7,349 -- -- -- 7,349
-------- -------- ----- --------- ---------
Total costs and
expenses................ 62,930 14,293 593 162,805 240,621
-------- -------- ----- --------- ---------
Operating loss........... (27,848) (8,482) (337) (146,437) (183,104)
Loss from Joint
Ventures................ -- (10,932) -- (74) (3) (11,006)
Other income (expense),
net..................... 1,286 (1,111) (16) -- 159
-------- -------- ----- --------- ---------
Net loss................. $(26,562) $(20,525) $(353) $(146,511) $(193,951)
======== ======== ===== ========= =========
Basic and diluted net
loss per share.......... $ (1.00) $ (3.35)
Shares used in computing
basic and diluted net
loss per share.......... 26,627 31,301 57,928
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
92
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................... $31,519 $ 2,576 $ 89 $ 14,249 (3) $ 48,433
Costs and expenses:
Hosting, content and
website costs (10)........ 4,678 1,665 2 12,005 (3) 19,654
2,137 (3)
(833)(4)
Amortization of intangibles
related to hosting,
content and website
costs..................... -- -- -- 17,500 (8) 20,794
1,033 (8)
2,261 (18)
Research and development... 4,797 612 185 497 (8) 6,117
26 (18)
Sales and marketing........ 22,440 32 -- 1,454 (8) 41,261
833 (4)
16,500 (11)
2 (18)
General and
administrative............ 3,923 1,117 257 842 (8) 6,206
67 (18)
Goodwill amortization...... -- -- -- 32,290 (8) 33,099
809 (18)
------- ------- ----- -------- --------
Total operating expenses... 35,838 3,426 444 87,423 127,131
------- ------- ----- -------- --------
Operating loss............... (4,319) (850) (355) (73,174) (78,698)
Loss from Joint Ventures..... -- (6,350) -- (64)(3) (6,414)
Interest income (expense),
net......................... 1,252 555 (36) -- 1,771
------- ------- ----- -------- --------
Net loss..................... $(3,067) $(6,645) $(391) $(73,238) $(83,341)
======= ======= ===== ======== ========
Basic and diluted net loss
per share................... $ (0.10) $ (1.36)
Shares used in computing
basic and diluted net loss
per share................... 30,058 31,301 61,359
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
93
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
INFOSEEK STARWAVE QUANDO PRO FORMA
ACTUAL ACTUAL ACTUAL ADJUSTMENTS TOTAL
-------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 668 $ 2,543 $ -- $ 70,013 (2) $ 73,224
Short-term
investments.......... 66,664 -- -- -- 66,664
Accounts receivable,
net.................. 8,759 1,229 33 -- 10,021
Receivables from
related parties...... -- 615 -- -- 615
Other current assets.. 730 404 -- -- 1,134
-------- --------- ------- --------- ----------
Total current
assets............. 76,821 4,791 33 70,013 151,658
Property and equipment,
net.................... 13,987 4,059 47 18,093
Developed technology.... -- -- -- 34,100 (1) 43,143
9,043 (13)
Assembled workforce..... -- -- -- 15,300 (1) 15,677
377 (13)
Deposits and other
assets................. 3,838 -- 4 -- 3,842
Goodwill................ -- -- -- 645,806 (1) 649,040
3,234 (13)
Joint Venture
relationships.......... -- 9,939 179,500 (1) 189,439
-------- --------- ------- --------- ----------
Total assets........ $ 94,646 $ 18,789 $ 84 $ 957,373 $1,070,892
======== ========= ======= ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 3,485 $ 1,015 $ 370 $ -- $ 4,870
Accrued payroll and
related expenses..... 2,024 1,828 -- -- 3,852
Accrued liabilities to
service providers.... 5,107 -- -- -- 5,107
Other accrued
liabilities.......... 3,902 691 -- 22,000 (5) 27,593
1,000 (14)
Due to affiliates..... -- 303 -- -- 303
Deferred revenue...... 4,794 543 -- -- 5,337
Short-term
obligations.......... 3,183 -- 107 -- 3,290
-------- --------- ------- --------- ----------
Total current
liabilities........ 22,495 4,380 477 23,000 50,352
Deferred tax liability.. -- -- -- 43,681 (9) 46,915
3,234 (19)
Long-term obligations... 3,408 -- 447 -- 3,855
Shareholders' equity:
Convertible preferred
stock................ -- -- 822 (822)(15) --
Common stock.......... 120,460 128,393 160 978,454 (6) 1,244,307
16,840 (16)
Accumulated deficit... (51,097) (109,861) (1,822) 35,461 (7) (134,917)
(7,598)(17)
Deferred
compensation......... (490) (4,123) -- 4,123 (12) (490)
Notes receivable from
shareholders......... (130) -- -- (139,000)(2) (139,130)
-------- --------- ------- --------- ----------
Total shareholders'
equity............. 68,743 14,409 (840) 887,458 969,770
-------- --------- ------- --------- ----------
Total liabilities
and shareholders'
equity............. $ 94,646 $ 18,789 $ 84 $ 957,373 $1,070,892
======== ========= ======= ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
94
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30,
1998
The Pro Forma Statements give effect to Infoseek Delaware's acquisition of
Starwave through a merger and exchange of shares. In addition, conditioned
upon and subject to consummation of the proposed Merger, Disney has agreed to
purchase an additional 2,642,000 unregistered shares of Infoseek Delaware
common stock and a warrant, subject to vesting, to purchase an additional
15,720,000 unregistered shares of Infoseek Delaware common stock (the
"Warrant") in exchange for approximately $70.0 million in cash and a $139.0
million five-year promissory note. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 reflect these transactions as if they had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to these transactions as if they had taken place on June
30, 1998.
In addition, the unaudited Pro Forma Combined Condensed Statements of
Operations include the effect of certain of the Related Agreements that become
effective upon consummation of the Mergers. Under the Representation
Agreements, Starwave will contract for, and have exclusive rights to sell, all
advertising and other related items of the Joint Ventures. Starwave guarantees
its performance through minimum revenue commitments and is at risk if its
subsequent collection of the related receivables is insufficient to cover such
commitments. These Representation Agreements will result in Starwave
recognizing revenue for the sale of the advertising and of related items and a
corresponding representation fee for amounts due to the Joint Ventures. In
addition, under a five year Promotional Services Agreement, Infoseek has
committed to spend $165.0 million to promote the New Portal Service. These
costs are reflected, on a straight-line basis, in the Pro Forma Statements as
increased sales and marketing expenses. See "Description of Related
Agreements--Licensing and Commercial Agreements."
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17.0 million, subject to adjustment, in shares of
Infoseek common stock. The transaction is subject to customary closing
conditions, including shareholder approval by Quando, and is expected to close
on or about the closing of the Mergers. The Unaudited Pro Forma Condensed
Statements of Operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 reflect the Quando acquisition as if it had taken
place on January 1, 1997. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to this transaction as of it had taken place on June 30,
1998.
The Starwave Merger and the Quando acquisition will be accounted for using
the purchase method of accounting. The Pro Forma Statements have been prepared
on the basis of assumptions described in the notes thereto and include
assumptions relating to the allocation of the consideration paid for the
assets and liabilities of Starwave and Quando based on preliminary estimates
of their fair value. The actual allocation of such consideration may differ
from that reflected in the Pro Forma Statements after valuations and other
procedures to be performed after the closing of the Starwave Merger and the
Quando acquisition have been completed. Infoseek does not expect that the
final allocation of the purchase price will differ materially from the
preliminary allocations. In the opinion of Infoseek's management, all
adjustments necessary to present fairly such Pro Forma Statements have been
made on the proposed terms and structure of the Starwave Merger and the Quando
acquisition.
As a result of the Starwave Merger and the Quando acquisition, Infoseek
Delaware expects to incur write-offs related to in-process research and
development, currently estimated at $74.4 million and $9.4 million,
respectively. The Pro Forma Combined Condensed Balance Sheet includes the
effect of the write-off related to in-process research and development;
however, the Pro Forma Combined Condensed Statement of Operations does not
reflect these charges. The charges related to in-process research and
development will be reflected in Infoseek's consolidated financial statements
when the Starwave Merger and the Quando acquisition are consummated. In
addition, Infoseek expects to incur costs of integration estimated at up to
$5.0 million, subsequent to when the Starwave Merger and the Quando
acquisition are consummated. The Pro Forma Statements do not include the costs
of integration as they will affect future operations.
95
<PAGE>
The Pro Forma Statements are not necessarily indicative of what the actual
financial results would have been had the transactions taken place on January
1, 1997 or June 30, 1998 and do not purport to indicate the results of future
operations.
The Unaudited Pro Forma Statements give effect to the following pro forma
adjustments:
1. In accordance with the Reorganization Agreement, (i) Infoseek Merger Sub
will merge with and into Infoseek California, Infoseek California will become
a wholly-owned subsidiary of Infoseek Delaware, and all outstanding shares of
common stock of Infoseek California will be converted into shares of the
common stock of Infoseek Delaware, at the rate of one share of Infoseek
Delaware common stock for each share of Infoseek California common stock, and
(ii) Starwave Merger Sub will merge with and into Starwave, Starwave will
become a wholly-owned subsidiary of Infoseek Delaware, and all outstanding
shares of common stock of Starwave will be converted into that number of
shares of common stock of Infoseek Delaware, in accordance with the Exchange
Ratio. The Exchange Ratio is equal to the quotient obtained by dividing
28,138,000 by the sum of (a) the aggregate number of total outstanding
Starwave shares and (b) the aggregate number of shares of Starwave common
stock subject to Starwave's options outstanding at the Effective Time of the
Starwave Merger.
The Starwave Merger will be accounted for using the purchase method of
accounting. The purchase price was based on $32.42 per share, which is the
average of the market price before and immediately after the announcement of
the Reorganization Agreement.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
STARWAVE INFOSEEK FAIR VALUE
SHARES SHARES (IN THOUSANDS)
----------- ---------- --------------
<S> <C> <C> <C>
Shares................................. 97,185,390 25,511,922 $827,096
Stock Options.......................... 10,003,812 2,626,078 70,738
----------- ---------- --------
Totals............................... 107,189,202 28,138,000 $897,834
=========== ========== ========
</TABLE>
The Starwave shares were first converted to Infoseek Delaware equivalent
shares by taking the number of Starwave shares divided by the Exchange Ratio
of approximately 3.8094 Starwave shares for each Infoseek Delaware share.
The fair value of "shares" was calculated by taking the fair value of the
stock ($32.42 per share) times the number of Infoseek Delaware shares to be
acquired.
With respect to stock options exchanged as part of the Starwave Merger, all
vested Starwave options exchanged for vested Infoseek Delaware options are
included as part of the purchase price based on their fair value. Any unvested
Starwave options issued in exchange for unvested Infoseek Delaware options are
also included as part of the purchase price based on their fair value.
The fair value of the stock was calculated by taking the options to purchase
Infoseek Delaware shares (2,626,078 options) times the fair value of the stock
($32.42 per share) less the proceeds which will be received from the
optionholder upon exercise (approximately $14.4 million).
96
<PAGE>
The Pro Forma Statements have been prepared on the basis of assumptions
described in the notes thereto and includes assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
Starwave based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the Pro
Forma Statements after valuations and other procedures to be performed after
the closing of the Starwave Merger have been completed. Below is a table of
the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost
Estimated purchase price........... $897,834
Acquisition expenses............... 22,000
--------
Total Estimated Acquisition
Cost............................ $919,834
========
Purchase Price Allocation
Historical net book value of
Starwave at June 30, 1998......... $ 14,409
Intangible assets acquired:
Joint Venture relationships (ESPN
Joint Venture and ABC News Joint
Venture).......................... 179,500 10 $ 17,950
Developed technology............... 34,100 2 17,050
Assembled workforce................ 15,300 2 7,650
In-process technology.............. 74,400
Goodwill........................... 645,806 10 64,581
Deferred tax liability............. (43,681)
--------
Total............................ $919,834
========
</TABLE>
Tangible assets of Starwave acquired in the Starwave Merger principally
include cash, fixed assets and investments in the affiliates (i.e., the Joint
Ventures). Liabilities of Starwave assumed in the Starwave Merger principally
include accounts payable, accrued payroll and other current liabilities.
To determine the value of the developed technology and the investment in the
Joint Ventures, the expected future cash flow attributable to all existing
technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future
markets, and assessments of the life cycle stage of the technology. The
analysis resulted in a valuation of approximately $34.1 million for developed
technology which had reached technological feasibility and therefore was
capitalizable. The developed technology is being amortized on a straight line
basis over a two year period. The fair value of the Joint Venture
relationships was determined to be $179.5 million, which is being amortized on
a straight line basis over the life of the Joint Venture agreements (10
years).
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee. The analysis determined a
valuation of approximately $15.3 million for the assembled workforce. The
asset is being amortized on a straight-line basis over a two year period.
The preliminary goodwill allocation is $645.8 million, which is being
amortized on a straight line basis concurrent with the life of the Joint
Venture relationships (10 years).
The projects identified as in-process technology at Starwave are those that
will be underway at the time of the Starwave Merger and would, after
consummation of the Starwave Merger, require additional effort to establish
technological feasibility. These projects have identifiable technological risk
factors which indicate that even though successful completion is expected, it
is not assured. If an identified project is not successfully completed, there
is no alternative future use for the project and the expected future income
will not be realized.
97
<PAGE>
The estimated amount of the in-process research and development charge
represents a preliminary estimate which could materially differ from the
actual results that will be experienced by Infoseek, as final values will not
be established until after the closing of the Starwave Merger.
The in-process technology to be acquired from Starwave in the transaction
consists primarily of technology related to the planned New Portal Service and
to replacement and enhancement of Starwave's core technology. Development of
the New Portal Service started in July 1998, following the announcement of the
Starwave Merger. An initial, limited version of the New Portal Service is
expected to be introduced in the fourth calendar quarter of 1998, subject to
consummation of the Mergers. The majority of the functionality planned for the
New Portal Service is not possible with Starwave's current architecture and
design. As a result, Starwave has shifted a substantial portion of its
development efforts toward redesigning its core technologies. These efforts
have been undertaken since July 1998 to integrate the existing content and
build a new infrastructure and new features. These will include the ability
for an individual to tailor content (such as types of news, sports teams,
etc.) to their own interests, and universal registration, which will track
user preferences and personal profiles (such as name, address, billing
information, etc.) across all the elements of the New Portal Service. This
should provide users with a better experience by enabling them to find what
they want and, if desired, make purchases on-line from any site within the New
Portal Service without having to re-input personal information. Infoseek
believes these are key features of the New Portal Service, which will be
composed of sites belonging to different entities including Infoseek, Disney,
and the Joint Ventures. Infoseek estimates that costs incurred to complete the
projects in-process as of the date of closing will be $7.5 million, of which
approximately $3.75 million will be spent in calendar 1998, with the remaining
$3.75 million spent in calendar 1999. There can be no assurance that actual
costs will not exceed these estimates.
Infoseek expects that the in-process technology will be successfully
developed, and that initial benefits from these projects will begin in the
quarter ending December 31, 1998, with the introduction of the initial version
of the New Portal Service. The full functionality intended for the planned New
Portal Service will not be supported at introduction, requiring a gradual
introduction of new features over the next several months or more following
the initial launch. Notwithstanding Infoseek's expectation that the in-process
technology will be successfully developed, there remain significant technical
challenges which must be resolved in order to implement many of the intended
features of the planned New Portal Service and to complete the in-process
technology. While Infoseek currently plans to launch the planned New Portal
Service in accordance with the schedule outlined above, there can be no
assurance that the service can be successfully developed and launched within
such schedule. If the combined companies are unable to successfully develop,
launch and promote the planned New Portal Service in a timely manner, or if
the combined companies incur excessive expenses in this connection or in an
attempt to improve the planned New Portal Service or promote and maintain
their brands, the combined companies' businesses, financial condition and
operating results will be materially adversely affected.
2. Under the terms of the Securities Purchase Agreement, Infoseek Delaware
has agreed to issue and sell, and Disney has agreed to purchase, 2,642,000
unregistered shares of common stock of Infoseek, at a price of $26.50 per
share, and a Warrant to purchase 15,720,000 shares of common stock of Infoseek
Delaware, subject to certain vesting restrictions on its exercisability, at
certain prices and on certain conditions, in exchange for cash in the amount
of $70.0 million and a note in principal amount of $139.0 million (subject to
and conditioned upon closing of the Mergers).
At the closing, Infoseek Delaware will deliver a Warrant to Disney to
purchase 15,720,000 shares of Infoseek Delaware common stock. The shares
subject to the Warrant vest and become exercisable 33 1/3% at each of the
first, second and third anniversaries of the closing. The exercise price for
each share of common stock of Infoseek Delaware subject to the Warrant shall
be equal to (i) 120% of the average closing sales price of Infoseek common
stock (as quoted on Nasdaq or another national market) for the thirty trading
days prior to the time such shares vest and become exercisable or (ii) if not
traded on any market, the fair market value thereof as determined by unanimous
determination of the Infoseek Board of Directors or if the Infoseek Directors
cannot agree, through an appraisal mechanism, subject to a maximum, in each
case, of $50.00 (subject to adjustment).
98
<PAGE>
At the closing, Disney shall deliver a promissory note in principal amount
of $139.0 million payable to Infoseek. The promissory note bears interest on
the principal amount outstanding at a rate of 6.5% per annum. The promissory
note is repayable in twenty quarterly principal installments, beginning on the
three month anniversary of the closing, of $6.9 million, with the final
payment due on the five year anniversary of the closing. The promissory note
(together with accrued and unpaid interest) may be repaid in whole or in part
without premium or penalty at any time. See "Description of Related
Agreements--Equity and Governance Agreements."
3. Under each of the ESPN Representation Agreement by and among Infoseek,
Starwave and the ESPN Joint Venture, and the ABC Representation Agreement by
and among Infoseek, Starwave and the ABC News Joint Venture, each entered into
in conjunction with the Mergers, Starwave is engaged by the Joint Ventures on
an exclusive basis in the sale of advertising and other items as designated or
approved by the Joint Ventures and to provide additional services, if any, as
the Joint Ventures may request (collectively the "Services"). Activities with
respect to the sale of advertising on the Internet services and other related
items includes the negotiation, execution, renewal, amendment, modification or
termination of advertising and other related contracts. Starwave guarantees to
the Joint Ventures a minimum quarterly payment equal to the number of
projected page views, multiplied by 80%, multiplied by the minimum revenue
rate (the "Guaranteed Minimum Payment"). The minimum revenue rate is based on
the average ad revenue rate per page view of the publicly traded internet
companies involved in activities comparable to those of the Joint Ventures.
Starwave will recognize revenue on the sale of advertising and other related
items of the Joint Ventures due to its obligations under the Representation
Agreements. Starwave bears the risk of loss, if it fails to bill and collect
amounts sufficient to cover its contractual Guaranteed Minimum Payments. The
pro forma adjustment reflects (i) 100% of each of the Joint Ventures' revenues
as Starwave made substantially all sales on behalf of the Joint Ventures for
the year ended December 31, 1997 and the six months ended June 30, 1998, as
the Joint Ventures did not maintain a sales organization and (ii) the
assumption that the Representation Agreements were entered into January 1,
1997. The Representation Agreements are expected to have a continuing impact
on Starwave, although the amount of revenue Starwave will recognize will vary
in future periods.
Under the Representation Agreements, Starwave pays the Joint Ventures for
the right to render services the greater of (i) the Guaranteed Minimum Payment
or (ii) actual revenues billed to third parties for services, in each case
less only Starwave's actual and reasonably allocated costs of providing the
services and a profit margin of 5% of such costs ("Representation Rights
Fees"). The obligations of Starwave to pay the Representation Rights Fees are
unconditional. Starwave is required to pay the Joint Ventures regardless of
whether Starwave is able to collect the related outstanding receivables. The
pro forma adjustment for the Representation Rights Fee is the Joint Venture
revenues less allocated costs of 15% of revenue, plus a 5% profit margin on
allocated costs. In addition, a pro forma adjustment has been made for
additional costs Starwave would have incurred that were historically incurred
by the Joint Ventures.
Each of the Joint Ventures is accounted for under the equity method due to
neither Infoseek nor Starwave having a majority voting interest. The other
partners to these Joint Ventures, subsidiaries of ESPN and ABC, are
subsidiaries of Disney. A pro forma adjustment has been made to Starwave's
allocated (60%) losses from the Joint Ventures. This pro forma adjustment was
due to the Joint Ventures decreased revenues partially offset by decreased
costs under the Representation Agreement. See "Description of Related
Agreements--Licensing and Commercial Agreements."
4. The pro forma adjustment is to reclassify certain hosting, content and
website costs of Starwave to sales and marketing expense to conform to
Infoseek's presentation.
5. The pro forma adjustment to "Other Accrued Liabilities" reflects the
accrual of acquisition costs arising from the Mergers, estimated to be
approximately $22.0 million. The $22.0 million includes approximately $5.0
million for liabilities related to involuntary employee termination benefits
(relocations) of Starwave employees and $5.0 million for costs to exit other
Starwave activities, primarily operating leases of Starwave.
99
<PAGE>
6. The pro forma adjustment to "common stock" reflects the elimination of
Starwave's common stock ($128.4 million) and the impact of the issuance of
Infoseek Delaware common stock ($897.8 million) in connection with the
Starwave Merger, and the issuance of stock and warrants to Disney for cash and
a note receivable ($70.0 million and $139.0 million, respectively).
7. The pro forma adjustment to "Accumulated Deficit" reflects the
elimination of Starwave's accumulated deficit ($109.9 million) and the in-
process technology charge ($74.4 million).
8. The pro forma adjustment is for the amortization of goodwill, developed
technology, Infoseek's interest in the Joint Ventures and assembled workforce.
9. Goodwill has been increased and deferred tax liabilities have been
recorded in the amount of $43.7 million to reflect the net tax effect of
book/tax basis differences in the acquired intangibles, excluding goodwill and
in-process research and development. Deferred tax assets have been realized
based on the projected reversal of taxable temporary differences and have been
netted against deferred tax liabilities for purposes of allocating the
purchase price.
10. Under a License Agreement entered into by and between DEI and Infoseek,
DEI has agreed to grant to Infoseek a worldwide license to exploit the
trademarks and World Wide Web addresses associated with the planned New Portal
Service and Infoseek has agreed to pay DEI royalties. Royalties are calculated
as one percent (1%) of Infoseek's revenues other than revenues derived from
software sales and services. Royalties under the License Agreement will not be
earned nor paid until the end of any Infoseek fiscal year in which Infoseek
has positive earnings before interest, taxes, and amortization (EBITA) as
defined and royalty payments in any year will not exceed 15% of EBITA in such
year as defined. See "Description of Related Agreements--Licensing and
Commercial Agreements." The Unaudited Pro Forma Combined Condensed Statement
of Operations does not include a pro forma adjustment for royalties under the
License Agreement as Infoseek would not be EBITA positive on a pro forma
basis. The components of the pro forma EBITA are shown below (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Net loss................................................ $(83,341) $(193,951)
Interest expense........................................ 413 2,782
Pro Forma Amortization of Intangibles:
Goodwill .............................................. 33,099 66,198
Developed technology................................... 10,786 21,572
Assembled workforce.................................... 3,919 7,839
Joint Venture relationships............................ 8,975 17,950
-------- ---------
EBITA................................................... $(26,149) $ (77,610)
======== =========
</TABLE>
11. Under a Promotional Services Agreement, ABC has agreed to provide, and
Infoseek has agreed to purchase $165.0 million in promotional services over a
five-year period for the planned New Portal Service. The Unaudited Pro Forma
Combined Condensed Statement of Operations includes an adjustment to reflect
recognition of expense under this agreement, on a straight-line basis, for
promotional services for the planned New Portal Service. See "Description of
Related Agreements--Licensing and Commercial Agreements."
12. The pro forma adjustment is to eliminate deferred compensation related
to Starwave stock options.
13. The Quando acquisition will be accounted for using the purchase method
of accounting. The purchase price is $17.0 million, subject to adjustment, in
shares of Infoseek's common stock. The Pro Forma Statements have been prepared
on the basis of assumptions described herein and include assumptions relating
to the allocation of the consideration paid for the assets and liabilities of
Quando based upon preliminary estimates of fair value. The actual allocation
of such consideration may differ from that reflected in the Pro Forma
Statements after valuations and other procedures to be performed after the
closing of the Quando acquisition have been
100
<PAGE>
completed. Below is a table of the estimated acquisition cost, purchase price
allocation and annual amortization of the intangible assets acquired (in
thousands):
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost
Estimated Purchase Price................. $17,000
Acquisition Expenses..................... 1,000
-------
Total Estimated Acquisition Cost........ $18,000
=======
Purchase Price Allocation.................
Historical net book value of Quando at
June 30, 1998........................... $ (840)
Intangible assets acquired:..............
Developed Technology..................... 9,043 2 $4,522
Assembled Workforce...................... 377 2 189
In-Process Technology.................... 9,420
Goodwill................................. 3,234 2 1,617
Deferred Tax Liability................... (3,234)
-------
Total................................... $18,000
=======
</TABLE>
Tangible assets of Quando to be acquired principally include cash and
accounts receivable. Liabilities of Quando assumed in the Quando acquisition
principally include accounts payable and short and long-term obligations.
To determine the value of the developed technology, the expected future cash
flow attributed to all existing technology was discounted, taking into account
risks related to the characteristics and applications of the technology,
existing and future markets, and assessments of the life cycle stage of
technology. The analysis resulted in a valuation of approximately $9.0 million
for developed technology which had reached technological feasibility and
therefore was capitalizable. The developed technology is being amortized on a
straight line basis over a two year period.
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting and hiring costs and
training costs for each category of employee. The analysis yielded a valuation
of approximately $0.4 million for the assembled workforce. The asset is being
amortized on a straight line basis over a two year period.
The preliminary goodwill allocation is $3.2 million. Amortization of
goodwill is based on amortization over two years due to the rapid pace of
technological development of the Internet.
The projects identified as in-process technology at Quando are those that
will be underway at the time of the acquisition of Quando and would, after
consummation of the acquisition, require additional effort to establish
technological feasibility. These projects have identifiable technological risk
factors which indicate that even though successful completion is expected, it
is not assured. The estimated amount of the in-process research and
development charge represents a preliminary estimate which could materially
differ from the actual results that will be experienced by Infoseek, as final
values will not be established until after the closing of the acquisition of
Quando.
In-process technology acquired in the transaction consists primarily of
major additions to and replacement of core technology, which is related to
Infoseek's planned development of on-line shopping and other new features. The
majority of the intended functionality of these new features is not supported
by Quando's current technology. As a result, Quando has shifted substantially
all of its new development efforts toward developing the necessary technology.
Examples of the types of intended new capabilities include the ability to
gather
101
<PAGE>
information from dynamically generated web pages and the development of
technology to manage detailed attributes of items offered for sale on-line.
Infoseek estimates that the completion of projects in-process as of the date
of closing will cost approximately $1.0 million of which approximately $0.4
million will be spent in calendar 1998, with the remaining $0.6 million spent
in calendar 1999.
Infoseek expects that the in-process technology will be successfully
developed, and that initial benefits from these projects will begin in
November 1998, with a gradual introduction of new features over approximately
the nine months following the close. Notwithstanding Infoseek's expectation
that the in-process technology will be successfully developed, there remain
significant technical challenges that must be resolved in order to complete
the in-process technology.
14. The pro forma adjustment to "Other Accrued Liabilities" reflects the
accrual of acquisition costs arising from the Quando acquisition, estimated to
be approximately $1.0 million.
15. The pro forma adjustment to "Convertible Preferred Stock" reflects the
elimination of Quando's convertible preferred stock ($0.8 million).
16. The pro forma adjustment to "Common Stock" reflects the elimination of
Quando's common stock ($0.2 million), and the impact of the issuance of
Infoseek Common Stock ($17.0 million).
17. The pro forma adjustment to "Accumulated Deficit" reflects the
elimination of Quando's accumulated deficit ($1.8 million) and the in-process
technology charge ($9.4 million).
18. The pro forma adjustment is for the amortization of goodwill, developed
technology and assembled workforce.
19. Goodwill has been increased and deferred tax liabilities have been
recorded in the amount of $3.2 million to reflect the net tax effect of
book/tax basis differences in the acquired intangibles, excluding goodwill and
in-process research and development. Deferred tax assets have been realized
based on the projected reversal of taxable temporary differences and have been
netted against deferred tax liabilities for purposes of allocating the
purchase price.
102
<PAGE>
INFOSEEK SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of operations data for the years ended December
31, 1997, 1996, 1995, 1994 and for the period from August 30, 1993 (inception)
to December 31, 1993 and the consolidated balance sheet data as of December
31, 1997, 1996, 1995, 1994 and 1993 have been derived from the consolidated
financial statements of Infoseek which have been audited by Ernst & Young LLP,
independent auditors. The consolidated statements of operations data for the
six months ended June 30, 1998 and 1997 and the consolidated balance sheet
data at June 30, 1998 are derived from unaudited financial statements of
Infoseek and contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of results to be expected
for the full fiscal year. The data set forth below should be read in
conjunction with the consolidated financial statements of Infoseek, including
the rates thereto, and with "Infoseek's Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
AUGUST 30, 1993 ENDED
YEARS ENDED DECEMBER 31, (INCEPTION) TO JUNE 30,
------------------------------------ DECEMBER 31, -----------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- --------------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(3):
Total revenues.............. $ 35,082 $ 15,095 $ 1,032 $ -- $ -- $31,519 $ 14,026
Costs and expenses:
Hosting, content and
website costs............ 6,319 3,194 614 -- -- 4,678 2,830
Research and
development.............. 7,900 4,550 1,175 1,063 8 4,797 4,102
Sales and marketing....... 34,320 20,455 1,488 97 -- 22,440 14,191
General and
administrative........... 7,042 4,177 1,148 360 19 3,923 3,295
Restructuring and other
charges(1)............... 7,349 -- -- -- -- -- 7,349
-------- -------- ------- ------- ----- ------- --------
Total costs and
expenses............. 62,930 32,376 4,425 1,520 27 35,838 31,767
-------- -------- ------- ------- ----- ------- --------
Operating loss.............. (27,848) (17,281) (3,393) (1,520) (27) (4,319) (17,741)
Interest income, net........ 1,286 1,343 97 10 -- 1,252 779
-------- -------- ------- ------- ----- ------- --------
Net loss.................... $(26,562) $(15,938) $(3,296) $(1,510) $ (27) $(3,067) $(16,962)
======== ======== ======= ======= ===== ======= ========
Basic and diluted net loss
per share (pro forma in
1995)(2)................... $ (1.00) $ (0.72) $ (0.21) $ (0.10) $ (0.64)
======== ======== ======= ======= ========
Shares used in computing
basic and diluted net loss
per share.................. 26,627 22,120 15,535 30,058 26,329
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- -----------
1997 1996 1995 1994 1993 1998
------- ------- ------ ---- ---- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(3):
Cash, cash equivalents and
short-term investments......... $31,439 $46,653 $1,626 $568 $177 $67,332
Working capital (deficit)....... 19,018 41,997 93 458 (99) 54,326
Total assets.................... 51,489 58,332 5,123 859 318 94,646
Long-term obligations........... 4,493 1,892 838 210 -- 3,408
Total shareholders' equity
(deficit)...................... 27,006 48,985 2,142 520 (27) 68,743
</TABLE>
- --------
(1) During the second quarter of 1997, Infoseek recorded restructuring and
other charges of approximately $7,400,000 related to the discontinuance of
certain business arrangements that were determined to be non-strategic and
to management changes.
(2) The earnings per share amounts prior to 1997 and for the six months ended
June 30, 1997 have been restated as required to comply with Statement of
Financial Accounting Standards No. 128, Earnings per Share and Staff
Accounting Bulletin No. 98, Earnings per Share.
(3) Infoseek's financial statements have been restated to reflect the
acquisition of WebChat Communications, Inc., which has been accounted for
as a pooling-of-interests.
104
<PAGE>
INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements subject to risks and
uncertainties. Actual results could differ materially from those projected in
the forward- looking statements as a result of the factors set forth in "Risk
Factors" beginning on page 21 of this Joint Proxy Statement/Prospectus,
including those entitled "--Risks Related to Infoseek's Business--Limited
Operating History; Historical Losses; Anticipation of Continued Losses," "--
Potential Fluctuations in Future Results," "--Reliance on Advertising
Revenues," "--Intense Competition," "--Relationship With Netscape; Reliance on
Third Party Sources of Traffic," "--Capacity Constraints and System Failure;
Advertising Management System" and "--Technological Change and New Products
and Services."
OVERVIEW
Infoseek was formed in August 1993 to develop and provide Internet and world
wide web search and navigational services. From inception to March 31, 1995,
Infoseek's operations were limited and consisted primarily of start-up
activities, including recruiting personnel, raising capital, research and
development, and the negotiation and execution of an agreement to license an
information retrieval search engine.
Infoseek introduced its first products and services in 1995. Through the
second quarter of 1997, Infoseek's strategic focus was on developing its
capabilities as an Internet search and navigation service. In response to
rapid growth and a change in the Internet search and navigation market,
Infoseek's Board of Directors, in the second quarter of 1997, hired a new
Chief Executive Officer, Harry Motro, to evolve the strategic vision of
Infoseek while continuing to leverage Infoseek's core strength in search and
navigation. Mr. Motro and founder Steven Kirsch recruited a number of new
members to the executive management team to execute Infoseek's strategy of
building Infoseek brand awareness; creating a richer viewer experience;
maximizing value for Infoseek's advertisers; providing intranet search
products; and enhancing Infoseek's search and navigation service. In June
1997, Infoseek took a restructuring charge of approximately $7,400,000 related
to the discontinuance of certain non-strategic business arrangements and
management changes.
In October 1997, Infoseek launched an enhanced version of the Infoseek
Service, with easy to navigate "channels" (now numbering 18) that integrate
search results with relevant information, services, products and communities
on the Internet. The new Infoseek Service provides Infoseek with a platform
for creating content and marketing partnerships that enrich the viewer's
experience while enabling advertisers, sponsors and partners to more
effectively target viewers.
Infoseek's second quarter 1998 revenues of approximately $17,066,000
represent a 119% increase as compared to the second quarter 1997 revenues of
approximately $7,786,000. Infoseek's average daily page views (a widely quoted
operating statistic for Internet companies used to measure site traffic that
is regarded as an indication of the revenue potential of the advertising space
sold by such companies) increased 13% in June 1998 as compared to December
1997 and averaged 20 million during the month of June 1998. Compared to June
1997, Infoseek's average daily page views increased 143% in June 1998. Through
June 1998, Infoseek derived a substantial majority of its revenues from the
sale of advertisements on its Web pages. Advertising revenues accounted for
approximately 89% of total revenues during the second quarter of 1998 compared
with 94% during the second quarter of 1997. For the six months ended June 30,
1998, advertising revenues accounted for approximately 89% of the total
revenues compared with 95% for the same period of 1997. Most of Infoseek's
contracts with advertising customers have terms of three months or less, with
options to cancel at any time.
Beginning with the October 1997 launch of the enhanced version of the
Infoseek Service, Infoseek began to sell channel sponsorships to advertisers,
sponsors and partners. Through the second quarter 1998, Infoseek entered into
various sponsor and partnership agreements covering certain topics within 12
of Infoseek's 18 channels, including an exclusive relationship with Borders
OnLine, Inc. for the sale of books. The duration of Infoseek's sponsorship and
partnership agreements range from two months to three years and revenues are
105
<PAGE>
generally recognized ratably over the term of the agreements, provided that
minimum impressions are met, and are included in advertising revenues.
Beginning in early 1997, Infoseek began to license its Ultraseek Server
product to corporate customers for use on their intranets and public Web
sites. Such licensing revenues represented approximately 11% of total revenues
for both the three and six month periods ended June 30, 1998. For the three
and six month periods ended June 30, 1997, licensing revenues represented
approximately 6% and 5%, respectively. Gross margins from licensing Ultraseek
and advertising revenues are not materially different; thus a change in the
level of this licensing business (either an increase or a decrease in the
relative percentage of revenue) is not expected to have a material effect on
Infoseek's gross margin or profit margin in the future.
Infoseek's significant growth and limited operating history in a rapidly
evolving industry make it difficult to manage operations and predict future
operating results. Infoseek has incurred significant net losses since
inception and expects to continue to incur significant losses on a quarterly
and annual basis in 1998 and in subsequent fiscal periods. As of June 30,
1998, Infoseek had an accumulated deficit of $51,097,000. Infoseek and its
prospects must be considered in light of the risks, costs and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in the new and rapidly evolving Internet market. There
can be no assurance that Infoseek will be able to address any of these
challenges. Although Infoseek has experienced significant revenue growth in
1997 and in the first half of 1998, there can be no assurance that this growth
rate will be sustained or that revenues will continue to grow or that Infoseek
will achieve profitability. In 1997 and in the first half of 1998, Infoseek
significantly increased its operating expenses as a result of a substantial
increase in its sales and marketing operation, development of new distribution
channels, broadening of its customer support capabilities and funding of
greater levels of research and development. Further increases in operating
expenses are planned during the second half of 1998. To the extent that any
such expenses are not timely followed by increased revenues, Infoseek's
business, results of operations, financial condition and prospects would be
materially adversely affected.
As a result of Infoseek's limited operating history as well as the recent
emergence of both the Internet and intranet markets addressed by Infoseek,
Infoseek has neither internal nor industry-based historical financial data for
any significant period of time upon which to project revenues or to base
planned operating expenses. Infoseek expects that its results of operations
may also fluctuate significantly in the future as a result of a variety of
factors, including: the continued rate of growth, usage and acceptance of the
Internet and intranets as information media; the rate of acceptance of the
Internet as an advertising medium and a channel of commerce; demand for
Infoseek's products and services; the advertising budgeting cycles of
individual advertisers; the introduction and acceptance of new, enhanced or
alternative products or services by Infoseek or by its competitors; Infoseek's
ability to anticipate and effectively adapt to a developing market and to
rapidly changing technologies; Infoseek's ability to attract, retain and
motivate qualified personnel; initiation, implementation, renewal or
expiration of significant contracts with Borders OnLine, Inc., Microsoft,
Netscape and others; pricing changes by Infoseek or its competitors; specific
economic conditions in the Internet and intranet markets; general economic
conditions; and other factors. Substantially all of Infoseek's revenues have
been generated from the sale of advertising, and Infoseek expects to continue
to derive substantially all of its revenues from selling advertising and
related products for the foreseeable future. Moreover, most of Infoseek's
contracts with advertising customers have terms of three months or less.
Advertising revenues are tightly related to the amount of traffic on
Infoseek's Web site, which is seasonal and inherently unpredictable.
Accordingly, future sales and operating results are difficult to forecast. In
addition, Infoseek has relied on the purchase of traffic from Netscape,
Microsoft and others as a significant portion of Infoseek's total traffic. As
previously discussed, Infoseek entered into its agreement with Netscape in
June 1998. Under the new agreement Infoseek is purchasing 15% of Netscape's
available search traffic, which traffic has decreased from 35% during the
previous 12 months. The decline in Infoseek's average daily page views from 22
million in March 1998 to 20 million in June 1998 is due in large part to a
drop in traffic sourced from Netscape which decreased from 20% to 13% of
Infoseek's total traffic during the same period. While Infoseek believes that
it now has a better balance in the sources of its traffic, as Netscape
comprises only 13% of total traffic and Microsoft is providing 8% of total
traffic in the month of June, 1998, if total traffic
106
<PAGE>
does not resume growth during the quarter ending September 30, 1998, it could
result in an immediate material adverse impact on Infoseek's business, results
of operations, financial condition and prospects.
Infoseek's expense levels are based, in part, on its expectations as to
future revenues and, to a significant extent, are relatively fixed at least in
the short term. Infoseek may not be able to adjust spending in a timely manner
to compensate for any future revenue shortfall. Accordingly, any significant
shortfall in relation to Infoseek's expectations would have an immediate
material adverse impact on Infoseek's business, results of operations,
financial condition and prospects.
In addition, Infoseek may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a short-term
material adverse effect on Infoseek's business, results of operations,
financial condition and prospects and which may not generate the long-term
benefits intended. From time to time, Infoseek has entered into and may
continue to enter into strategic relationships with companies for cross
service advertising, such as Infoseek's relationship with United Parcel
Service of America, Inc. ("UPS"). Infoseek's revenues have in the past been,
and may in the future continue to be partially dependent on, its relationship
with its strategic partners. Such strategic relationships have and may
continue to include substantial one-time or up front payments from Infoseek's
partners. Accordingly, Infoseek believes that its quarterly revenues are
likely to vary significantly in the future, that period-to-period comparisons
are not necessarily meaningful and that such comparisons should not
necessarily be relied upon as an indication of Infoseek's future performance.
Due to the foregoing factors, it is likely that in future periods, Infoseek's
operating results may be below the expectations of public market analysts and
investors. In such event, the trading price of Infoseek's common stock would
likely be materially adversely affected. See "Risk Factors--Risks Related to
Infoseek's Business--Limited Operating History; Historical Losses;
Anticipation of Continued Losses," "--Potential Fluctuations in Future
Results," "--Relationship With Netscape; Reliance on Third Party Sources of
Traffic" and "Risk Factors--Risks Related to the Combined Companies, the
Mergers and Related Transactions--Developing Market; Unproven Acceptance of
Internet Advertising and of Infoseek's Products and Services."
On April 17, 1998, Infoseek acquired WebChat Communications, Inc.
("WebChat") in a tax-free reorganization in which a wholly owned subsidiary of
Infoseek was merged directly into WebChat. Infoseek has exchanged
approximately 316,000 shares of its common stock for the outstanding common
and preferred shares of WebChat and has reserved approximately 11,000 shares
of Infoseek common stock for WebChat options assumed by Infoseek. The exchange
ratio was 0.03 shares of common stock of Infoseek for each share of the common
and preferred stock of WebChat. WebChat merger related costs, which were not
significant, were expensed in the second quarter of 1998. The WebChat merger
has been accounted for under the pooling-of-interests method.
On July 24, 1998, Infoseek entered into an agreement to acquire Quando in
exchange for approximately $17 million, subject to adjustment, in shares of
Infoseek Common Stock. Quando creates and licenses regularly-updated
customized directories, including shopping guides, event guides, content
directories, audio clip libraries, review guides, and data for website rating
guides. The transaction is subject to customary closing conditions, including
shareholder approval by Quando, and is expected to close on or about the
closing of the Mergers. Infoseek expects to account for the Quando acquisition
as a purchase transaction and expects to incur write-offs related to in-
process research and development of approximately $9.4 million in the quarter
ending December 31, 1998 in connection with this transaction. In addition,
intangible assets related to goodwill, developed technology and assembled
workforce are preliminarily estimated at approximately $12.6 million and will
be amortized over two years. In addition, these acquisitions and the Starwave
Merger involve risks and uncertainties, including those discussed under "Risk
Factors--Risks Related to the Combined Companies, The Mergers and Related
Transactions--Risks of Acquisition Strategy."
In addition, on August 28, 1998 Infoseek entered into an agreement with
WebTV pursuant to which Infoseek will be the exclusive provider of search and
directory services to WebTV. Under this two year agreement, Infoseek is
responsible for managing advertising sales for all of WebTV's search traffic
and the substantial majority of WebTV's current non-search traffic. Pursuant
to the agreement, Infoseek is obligated to
107
<PAGE>
make cash payments to WebTV totalling $26 million, with $15 million of such
amount being payable in advance for the first five quarters during which the
agreement is in effect and the remaining $11 million being payable ratably
over the last three quarters of the agreement term. Such payments by Infoseek
are subject to reimbursement in the event that WebTV is unable to deliver a
minimum of 4.5 billion impressions over the life of the agreement. Infoseek is
to receive all of the revenue generated from such advertising sales up to a
pre-determined amount that is in excess of Infoseek's total payment
obligations to WebTV under the agreement, with allocations of such revenue
between Infoseek and WebTV being made beyond this pre-determined amount. There
can be no assurance that Infoseek will be able to sell the available
advertising inventory of WebTV under this agreement or be able to collect the
receivables resulting from such advertising sales, which could have a material
adverse effect on Infoseek's business, results of operations and financial
condition.
Because the proposed acquisition of Starwave will be accounted for under the
"purchase" method of accounting, the purchase price will be allocated to the
acquired assets and liabilities of Starwave. An in-process research and
development charge, preliminarily estimated to be approximately $74.4 million,
will be recorded in the quarter the Starwave Merger is consummated. In
addition, intangible assets related to developed technology and assembled
workforce are preliminarily estimated at approximately $49.4 million and will
be amortized over two years. Intangible assets related to goodwill and the
Joint Ventures were preliminarily estimated to be approximately $645.8 and
$179.5 million, respectively, which will be amortized over ten years. In
addition, the combined companies expect to incur increased operating
expenditures associated with the expanded operations of the combined
companies' business and the development, launch and promotion of the planned
New Portal Service. In this regard, Infoseek has agreed to use commercially
reasonable efforts to meet certain spending requirements for the planned New
Portal Service pursuant to the terms of the License Agreement between Infoseek
and Disney related to the New Portal Service. Subject to adjustment by
unanimous vote of the two member advisory committee established pursuant to
the Product Management Agreement between Infoseek and Disney, these spending
requirements for the New Portal Service for the first three years are $40.5
million, $58.3 million and $64.8 million, respectively. Thereafter such
requirements are to be set by unanimous vote of the advisory committee,
provided that, if no amount is agreed to by the advisory committee, such
amount shall be based on the prior year's spending requirement as adjusted for
projected growth based upon changes in the consumer price index or certain
other metrics. In addition, pursuant to the Promotional Services Agreement,
Infoseek has agreed to purchase $165 million in promotional services over a
five-year period for the New Portal Service. The amounts spent on the purchase
of promotional services under the Promotional Services Agreement apply towards
the spending requirements under the License Agreement. See "Description of
Related Agreements--Licensing and Commercial Agreements." As a result, the
combined companies' profitability is expected to be delayed beyond the time
frame in which Infoseek California or Starwave, as independent entities, may
have otherwise achieved profitability. Management currently estimates that the
combined companies would not achieve profitability until at least 2002 and,
excluding the amortization of goodwill and other intangibles associated with
the Starwave Merger, until at least 2000. The foregoing estimates of the time
period in which the combined companies would not achieve profitability are
forward-looking-statements that are subject to risks and uncertainties. Actual
results may vary materially as a result of a number of factors, including but
not limited to those set forth under "Risk Factors--Risks Related to the
Combined Companies, the Mergers and Related Transactions--Uncertainties
Relating to Integration of Operations," "--Risks Related to Development,
Launch and Acceptance of Planned New Portal Service," "--Dependence on Joint
Ventures and Third Party Relationships," and "--Risks of Acquisition
Strategy." See "Unaudited Pro Forma Combined Condensed Financial Statements."
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1998 and 1997
Total Revenue
For the three months ended June 30, 1998 and 1997, total revenues were
$17,066,000, and $7,786,000, respectively. For the six months ended June 30,
1998 and 1997, total revenues were $31,519,000 and $14,026,000, respectively.
108
<PAGE>
During the second quarter and through the first six months of 1998 and 1997,
Infoseek derived a substantial majority of its revenues from the sale of
advertisements on its Web pages. Advertising revenues in the three months
ended June 30, 1998 and 1997 were $15,269,000 and $7,325,000, respectively,
representing 89% and 94% of total revenues in such periods. For the six months
ended June 30, 1998 and 1997, advertising revenues were $28,052,000 and
$13,334,000, respectively, representing 89% and 95% of total revenues in the
periods. The growth in advertising revenues is attributable to the increased
use of the Internet for information publication, distribution and commerce
coupled with the development and acceptance of the Internet as an advertising
medium and increased viewer traffic on the Infoseek Service. Infoseek expects
to continue to derive a substantial majority of its revenues for the
foreseeable future from selling advertising space on its web sites.
Advertising revenues are derived principally from short-term advertising
contracts in which Infoseek guarantees a minimum number of impressions
(displays of an advertisement to the viewer) for a fixed fee. Advertising
revenues are recognized ratably over the term of the contract during which
services are provided and are stated net of customer discounts. To the extent
minimum guaranteed impressions are not met, Infoseek defers recognition of the
corresponding revenue until the remaining guaranteed impression levels are
achieved. Deferred revenue is comprised of billings in excess of recognized
revenue related to advertising contracts.
Also included in advertising revenues is the exchange by Infoseek of
advertising space on Infoseek's web sites for reciprocal advertising space or
traffic in other media publications or other web sites or receipt of
applicable goods and services. Revenues from these exchange transactions are
recorded as advertising revenues at the estimated fair value of the goods and
services received and are recognized when both Infoseek's advertisements and
reciprocal advertisements are run or applicable goods or services are
received. Although such revenues have not exceeded 10% of total revenues in
any period to date, Infoseek believes these exchange transactions are of
value, particularly in the marketing of the Infoseek brand, and expects to
continue to engage in these transactions in the future.
In late 1997, Infoseek released a new version of its service which now
features 18 "channels," designed to bring together topical information,
services, products and communities on the web. The new service provides
additional opportunities for revenue from the sale of channel sponsorships and
in some circumstances enables Infoseek to share in a portion of the revenue
generated by its viewers with these channel sponsors. Revenue generated by
channel sponsors is included in advertising revenues and is recognized on a
straight line basis over the terms of the agreements provided that minimum
impressions are met.
The balance of total revenues was derived from the licensing of the
Ultraseek Server product to businesses for internal use in their intranets,
extranets or public sites. This licensing revenue represented approximately
11% and 6% of total revenue for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997, licensing
revenue represented approximately 11% and 5%, respectively.
Infoseek's current business model is to generate revenues through the sale
of advertising on the Internet. There can be no assurance that current
advertisers will continue to purchase advertising space and services from
Infoseek or that Infoseek will be able to successfully attract additional
advertisers.
Costs and Expenses
Infoseek's operating expenses have increased in absolute dollars during the
second quarter and first half of 1998 compared to the second quarter and first
half of 1997 as Infoseek has expanded its business and the marketing of its
services and products. Infoseek expects operating expenses to continue to
increase in dollar amount in the future as Infoseek continues to expand its
business.
Infoseek recorded aggregate deferred compensation of $5,666,000 in
connection with certain stock options granted through 1997. The amortization
of such deferred compensation is being charged to operations over the vesting
periods of the options, which are typically four years. For the three months
ended June 30, 1998 and 1997, Infoseek amortized $97,000 and $61,000,
respectively, related to stock options. For the six months ended June 30, 1998
and 1997, Infoseek amortized $193,000 and $337,000, respectively. The
amortization of this deferred compensation will continue to have an adverse
effect on Infoseek's results of operations through 1999.
109
<PAGE>
Hosting, Content and Website Costs
For the three months ended June 30, 1998 and 1997, hosting, content and
website costs were $2,524,000, and $1,533,000, respectively. For the six
months ended June 30, 1998 and 1997, hosting, content and website costs were
$4,678,000 and $2,830,000, respectively. Hosting, content and website costs
consist primarily of costs associated with the enhancement, maintenance and
support of Infoseek's web sites, including telecommunications costs and
equipment depreciation. Hosting, content and website costs also includes costs
associated with the licensing of certain third-party technologies. Hosting,
content and website costs increased in the three and six months ended June 30,
1998 and 1997 as Infoseek added additional equipment and personnel to support
its web sites and as royalties due to certain third parties increased.
Infoseek expects its hosting, content and website costs will continue to
increase in absolute dollars and possibly as a percentage of revenues as it
upgrades equipment and maintenance and support personnel and adds content
partners to meet the growing demands for web services.
Research and Development
For the three months ended June 30, 1998 and 1997 research and development
expenses were $2,667,000 and $2,374,000, respectively. For the six months
ended June 30, 1998 and 1997, research and development expenses were
$4,797,000 and $4,102,000, respectively. Research and development expenses
consist principally of personnel costs, consulting and equipment depreciation.
Costs related to research, design and development of products and services
have been charged to research and development expense as incurred.
The increase in research and development expenses for the three and six
months ended June 30, 1998 over the comparable periods in 1997 was primarily
the result of on-going enhancements to the Infoseek Service and the
development and implementation of new technology and products. Infoseek
believes that a significant level of product development expenses is required
to continue to remain competitive in its industry. Accordingly, Infoseek
anticipates that it will continue to devote substantial resources to product
development and that these costs are expected to continue to increase in
dollar amount in future periods.
Sales and Marketing
For the three months ended June 30, 1998 and 1997 sales and marketing
expenses were $11,863,000, and $7,541,000, respectively. For the six months
ended June 30, 1998 and 1997, sales and marketing expenses were $22,440,000
and $14,191,000, respectively. Sales and marketing expenses consist primarily
of compensation of sales and marketing personnel, advertising and promotional
expenses.
Sales and marketing expenses for the three month and six month periods ended
June 30, 1998 and 1997 included payments made to Netscape pursuant to an
arrangement for the listing of Infoseek's service on the Netscape web page. As
of March 31, 1998, Infoseek's agreement with Netscape provided for payments up
to an aggregate of $12,500,000 in cash and reciprocal advertising ($10,000,000
in cash and $2,500,000 in reciprocal advertising) to be one of four non-
exclusive premiere providers of navigational services (along with Excite,
Lycos, and Yahoo!). The Netscape arrangement expired on April 30, 1998, but
was subsequently extended through May 31, 1998. The payments to Netscape were
being recognized ratably over the term of the agreement. During the three
month periods ended June 30, 1998 and 1997, Infoseek recognized $833,000 and
$1,666,000, respectively, of sales and marketing expenses related to this
agreement. During the six month periods ended June 30, 1998 and 1997, Infoseek
recognized $3,333,000 and $2,916,000, respectively, of sales and marketing
expenses related to this agreement. As of June 30, 1998, Infoseek has
approximately $3,722,000 of cash commitment remaining in connection with this
agreement, which is included in accrued liabilities to service providers.
As of June 1, 1998, Infoseek entered into a one-year agreement with Netscape
with terms that provide for Infoseek to pay, based on impressions delivered,
up to an aggregate of $12,500,000 in cash to be one of the six non-exclusive
premier providers of navigational services (along with Excite, Netscape,
Lycos, Alta Vista, and
110
<PAGE>
LookSmart). Under terms of the agreement, which expires May 31, 1999, Infoseek
will receive 15% of premiere provider rotations- the pages served to visitors
who have not selected a preferred provider. The payments to Netscape are being
recognized ratably over the term of the agreement. During the three month
period ended June 30, 1998, Infoseek recognized $1,385,000 of sales and
marketing expense related to this agreement which is included in accrued
liabilities to service providers. As of June 30, 1998, Infoseek has a cash
commitment ranging from a minimum of $4,150,000 to a maximum of $12,500,000
depending on the level of traffic delivered by Netscape in connection with
this agreement.
In addition, in July 1997, Infoseek entered into an agreement with Netscape
whereby it was designated as a premier provider of international search and
navigational guide services for the Netscape Net Search Program for 10
Netscape local Web sites. Infoseek's agreement with Netscape provides for
payments of up to a maximum aggregate of $1,219,000 in cash and reciprocal
advertising over the one-year term of the agreement. During the three and six
months ended June 30, 1998, Infoseek recognized sales and marketing expenses
of approximately $100,000 and $200,000, respectively, under this agreement as
a component of sales and marketing expense (none for the three and six months
ended June 30, 1997).
Infoseek also had an agreement with Microsoft to provide navigational
services on certain Microsoft web sites through which Infoseek also received
traffic. In exchange for such traffic, Infoseek had made available to
Microsoft advertising space on the Infoseek Service free of charge. On
September 16, 1998, Infoseek terminated its existing agreement with Microsoft
and entered into a new agreement with Microsoft to become one of five premier
providers of search and navigation services on Microsoft's network of Internet
products and services. Under the terms of the new Microsoft agreement which
expires in September 1999, Infoseek is obligated to pay an aggregate of
$10,675,000 for a guaranteed minimum number of impressions on both Microsoft's
Internet Explorer search feature and Microsoft's website. Infoseek will also
pay, based on the number of impressions delivered, for additional impressions
on both Internet Explorer and Microsoft's website, up to a maximum of
$18,000,000. The accounting treatment for the Microsoft agreement is under
review by the Securities and Exchange Commission and will result in either
amortizing the $10,675,000 obligation over the one-year term of the agreement,
or expensing $7.0 million to $8.0 million in the quarter ended December 31,
1998, the quarter when the service is launched.
At the end of the terms of the respective agreements with Netscape and
Microsoft, there can be no assurance that these agreements with Netscape and
Microsoft or other similar agreements can or will be renewed on terms
satisfactory to Infoseek. If Infoseek is unable to renew these or other
similar agreements on favorable terms or is otherwise unable to develop viable
alternative distribution channels to Netscape and Microsoft or is otherwise
unable to offset a reduction in traffic from these or other third party
sources, advertising revenues would be adversely affected, resulting in
Infoseek's business, results of operations, financial condition and prospects
being materially and adversely affected. See "Risk Factors--Risks Related To
Infoseek's Business--Relationship with Netscape; Reliance on Third Party
Sources of Traffic."
The increase in sales and marketing expenses for the six months ended June
30, 1998 over 1997 was also the result of hiring additional sales and
marketing personnel and an increase in promotional and advertising activity
including advertising campaigns in both 1998 and 1997, including television.
Infoseek expects to increase the amount of promotional and advertising
expenses and anticipates hiring additional sales representatives in future
periods.
General and Administrative
For the three months ended June 30, 1998 and 1997 general and administrative
expenses were $2,061,000, and $1,825,000, respectively. For the six months
ended June 30, 1998 and 1997, general and administrative expenses were
$3,923,000 and $3,295,000, respectively. General and administrative expenses
consist primarily of compensation of administrative and executive personnel,
facility costs and fees for professional services.
The increase in general and administrative expenses for the three months and
six months ended June 30, 1998 over the comparable periods in 1997 was the
result of hiring additional administrative and executive staff
111
<PAGE>
and adding infrastructure to manage the expansion of the business. Infoseek
anticipates that its general and administrative expenses will continue to
increase in dollar amount as Infoseek continues to expand its administrative
and executive staff.
In connection with the Mergers and the Related Transactions, Infoseek has
incurred direct costs of approximately $1,000,000 as of June 30, 1998 and
estimates that it will incur costs of approximately $22.0 million associated
with the Mergers, which will be accounted for as part of the purchase price of
the transactions. The $22.0 million includes approximately $5.0 million for
liabilities related to involuntary employee termination benefits (relocations)
of Starwave employees and $5.0 million for costs to exit other Starwave
activities, primarily operating leases of Starwave. The combined companies
expect to incur additional integration costs of up to $5.0 million. These
costs will affect future operations and do not qualify as liabilities in
connection with a purchase business combination under EITF 95-3, "Recognition
of Liabilities in Connection with a Purchase Business Combination." There can
be no assurance that the combined companies will not incur additional material
charges in subsequent quarters to reflect additional costs associated with the
Mergers or other transactions. See "Risk Factors--Risks Relating to the
Combined Companies, the Mergers and Related Transactions--Amortization of
Goodwill and Increased Operating Costs Will Delay Profitability of Combined
Companies," "--Costs of Integration; Transaction Expenses," and "--Risks of
Acquisition Strategy."
Restructuring and Other Charges
During the second quarter of 1997, Infoseek recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to the discontinuance of certain business arrangements which were determined
to be non-strategic, and approximately $1,200,000 related to management
changes. Of these restructuring charges, approximately $5,000,000 involved
cash outflows, all of which have been completed as of June 30, 1998. Non-cash
restructuring charges of approximately $2,400,000 related primarily to the
write-down of certain non-strategic business assets which were written off in
June 1997. There have been no material changes to the restructuring plan or in
the estimates of the restructuring costs.
Income Taxes
Due to the Infoseek's loss position, there was no provision for income taxes
for any of the periods presented. At December 31, 1997, Infoseek had federal
and state net operating loss carry forwards of approximately $42,600,000 and
$28,300,000, respectively. The federal net operating loss carry forwards will
expire beginning in 2009 through 2012, if not utilized, and the state net
operating loss carry forwards will expire in the years 1999 through 2002.
Certain future changes in the share ownership of Infoseek, as defined in the
Tax Reform Act of 1986 and similar state provisions, may restrict the
utilization of carry forwards. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of earnings history of Infoseek.
Year 2000 Compliance
Infoseek is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Infoseek management has conducted a review of Infoseek's exposure to the
year 2000 problem, including working with computer systems and software
vendors to assure that they are prepared for the year 2000. Based on this
review and discussions with such vendors, Infoseek currently believes that its
internal systems are year 2000 compliant (with the exception of a single
system, which is scheduled to be replaced as part of a regular upgrade program
and is not material to Infoseek's operations). Infoseek does not expect to
further incur any significant operating expenses or invest in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
112
<PAGE>
Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Infoseek's vendors. Further, Infoseek has not investigated
year 2000 compliance of third parties who are not vendors of Infoseek, and
Infoseek has no control over such third parties' compliance. For example, the
failure of any site to which a link appears on the Infoseek Service could
result in the loss of such link and therefore reduce the breadth of services
offered through links from the Infoseek Service, which may in turn materially
adversely affect the Infoseek Service and the value of user traffic and
advertisers using such service. Any failure of Infoseek or its viewers,
customers, linked sites, advertisers or other third parties to be year 2000
compliant could materially affect the business, results of operations,
financial conditions and prospects of Infoseek.
For the Years Ended December 31, 1997, 1996 and 1995
Total Revenues
For the years ended December 31, 1997, 1996 and 1995 total revenues were
$35,082,000, $15,095,000 and $1,032,000, respectively.
During 1997, 1996 and 1995, Infoseek derived a substantial majority of its
revenues from the sale of advertisements on its Web pages. Advertising
revenues in 1997, 1996 and 1995 were $33,648,000, $14,951,000 and $849,000,
respectively, representing 96%, 99% and 82% of total revenues in such periods.
The growth in advertising revenues since 1995 is attributable to the increased
use of the Internet for information publication, distribution and commerce
coupled with the development and acceptance of the Internet as an advertising
medium and increased viewer traffic on the Infoseek Service. Infoseek expects
to continue to derive a substantial majority of its revenues for the
foreseeable future from selling advertising space on its Web sites.
Also included in advertising revenues is the exchange by Infoseek of
advertising space on Infoseek's web sites for reciprocal advertising space or
traffic in other media publications or other web sites or receipt of
applicable goods and services.
In late 1997, Infoseek released a new version of its service which now
features 18 "channels," designed to bring together topical information,
services, products and communities on the web. Revenues generated by channel
sponsors is included in advertising revenues and is generally recognized on a
straight line basis over the terms of the agreements provided that minimum
impressions are met.
In 1997, the balance of total revenues was derived from the licensing of the
Ultraseek Server product to businesses for internal use in their intranets,
extranets or public sites. Licensing of the Ultraseek Server commenced in
early 1997 and represented approximately 4% of total revenues for the year. In
1996 and 1995, the balance of the total revenues were derived from
subscription fees for a premium service offered to business and professional
viewers, which was discontinued during the third quarter of 1996.
Costs and Expenses
Infoseek's operating expenses increased in absolute dollars during 1997,
1996 and 1995 as Infoseek has transitioned from the product development stage
to the marketing of its services and products and expansion of its business.
Infoseek recorded aggregate deferred compensation of $5,666,000 in connection
with certain stock options granted through 1997. The amortization of such
deferred compensation is being charged to operations over the vesting periods
of the options, which are typically four years. For the years ended December
31, 1997, 1996 and 1995, Infoseek amortized $832,000, $1,346,000 and $44,000,
respectively, related to stock options. At December 31, 1997, unamortized
deferred compensation totaled $753,000.
Hosting, Content and Website Costs
For the years ended December 31, 1997, 1996 and 1995, hosting, content and
website costs were $6,319,000, $3,194,000 and $614,000, respectively. Hosting,
content and website costs increased in 1997 and
113
<PAGE>
1996 as Infoseek added additional equipment and personnel to support its web
sites and as royalties due to certain third parties increased.
Research and Development
For the years ended December 31, 1997, 1996 and 1995 research and
development expenses were $7,900,000, $4,550,000 and $1,175,000, respectively.
The increase in research and development expenses for 1997 and 1996 over 1995
was primarily the result of ongoing enhancements to the Infoseek Service and
the development and implementation of new technology and products. Ultraseek,
Infoseek's core search engine, was released in November 1996, and the
Ultramatch technology and channel products were commercially released during
the second and fourth quarter of 1997, respectively.
Sales and Marketing
For the years ended December 31, 1997, 1996 and 1995 sales and marketing
expenses were $34,320,000, $20,455,000 and $1,488,000, respectively. The
increase in sales and marketing expenses for 1997 and 1996 was the result of
hiring additional sales and marketing personnel and an increase in promotional
and advertising activity including advertising campaigns in both 1997 and
1996, including television.
Sales and marketing expenses for the years ended December 31, 1997 and 1996
included payments made to Netscape pursuant to an arrangement for the listing
of Infoseek's service on the Netscape web page. The original agreement with
Netscape provided for payments of up to an aggregate of $5,000,000 in cash and
reciprocal advertising ($3,500,000 in cash and $1,500,000 in reciprocal
advertising) over the course of the one-year term of the agreement. At
December 31, 1997, Infoseek had approximately $7,555,000 of cash commitment
remaining in connection with this agreement, which includes $4,221,000 of
accrued liabilities to service providers.
In addition, in July 1997, Infoseek entered into an agreement with Netscape
whereby it was designated as a premier provider of international search and
navigational guide services for the Netscape Net Search Program, for 10
Netscape local web sites. Infoseek's agreement with Netscape provides for
payments of up to a maximum aggregate of $1,219,000 in cash and reciprocal
advertising over the one-year term of the agreement. During the year ended
December 31, 1997, Netscape delivered at the minimum exposure level and
Infoseek as a result recognized sales and marketing expenses of approximately
$333,000 under this agreement.
General and Administrative
For the years ended December 31, 1997, 1996 and 1995 general and
administrative expenses were $7,042,000, $4,177,000 and $1,148,000,
respectively. The increase in general and administrative expenses for the
years ended 1997 and 1996 was the result of hiring additional administrative
and executive staff and adding infrastructure to manage the expansion of the
business.
Restructuring and Other Charges
During the second quarter of 1997, Infoseek recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to the discontinuance of certain business arrangements which were determined
to be non-strategic, and approximately $1,200,000 related to management
changes. Of these restructuring charges, approximately $5,000,000 involved
cash outflows, of which $3,100,000 had been paid as of December 31, 1997. Non-
cash restructuring charges of approximately $2,400,000 related primarily to
the write-down of certain non-strategic business assets. There have been no
material changes to the restructuring plan or in the estimates of the
restructuring costs. As of December 31, 1997, Infoseek had approximately
$1,900,000 remaining in its restructuring reserve, which is currently expected
to be fully utilized by mid-1998.
LIQUIDITY AND CAPITAL RESOURCES
From inception through May 1996, Infoseek financed its operations and met
its capital expenditure requirements primarily from proceeds derived from the
issuance of equity, convertible debt securities and
114
<PAGE>
equipment term loans. In June 1996, Infoseek completed its initial public
offering and received proceeds from the offering of $43,485,000 net of
underwriting discounts, commissions and other offering costs. Concurrent with
the closing of the initial public offering, all outstanding shares of its
redeemable convertible preferred and convertible preferred stock were
automatically converted into shares of common stock. In February 1998,
Infoseek completed a follow-on public offering and received approximately
$43,015,000 net of underwriting discounts, commissions and other offering
costs. The proceeds will be used for general corporate purposes, including
expansion of its sales and marketing efforts, and capital expenditures.
For the first six months ended June 30, 1998, operating activities used cash
of $1,390,000 due primarily to Infoseek's net loss offset by increases in
depreciation and amortization, deferred revenue and accrued liabilities to
service providers. For the six month period ended June 30, 1997, operating
activities used cash of $8,760,000 due primarily to Infoseek's net loss
partially offset by increases in accrued restructuring and other charges,
depreciation and amortization and deferred revenue. For the six months ended
June 30, 1998, investing activities used cash of $44,695,000 primarily related
to the net purchases of short-term investments. For the six months ended June
30, 1997, investing activities provided net cash of $4,016,000, primarily
associated with the sale of short-term investments. Financing activities
generated cash of $43,430,000 and $5,120,000, in the six months ended June 30,
1998 and 1997, respectively, primarily from Infoseek's follow-on public
offering in February 1998 and equipment term loans in 1997.
For 1997, 1996 and 1995, operating activities used cash of $14,154,000,
$10,068,000 and $1,408,000, respectively. The net cash used during these
periods was primarily due to net losses and increases in accounts receivable,
partially offset by increases in accounts payable and accrued liabilities. For
1997, investing activities generated cash of $6,204,000 primarily related to
the sale of investments partially offset by purchases of short-term
investments and purchases of property and equipment. For 1996 and 1995,
investing activities used net cash of $49,827,000 and $3,326,000,
respectively, primarily associated with the purchase of short-term investments
and purchase of property and equipment partially offset by proceeds from the
sale of short-term investments. Financing activities generated net cash of
$7,485,000, $62,552,000 and $5,295,000, in 1997, 1996 and 1995, respectively,
primarily from repayment of term loans in 1997, the initial public offering in
June 1996, and preferred stock sales in 1995.
Infoseek has commitments for its facilities under operating lease agreements
and expects to continue to incur significant capital expenditures to support
expansion of Infoseek's business. Furthermore, from time to time Infoseek
expects to evaluate the acquisition of products, businesses and technologies
that complement Infoseek's business.
Infoseek had $67,332,000 in cash, cash equivalents and short-term
investments at June 30, 1998. Also, in March 1997, Infoseek entered into a
four-year, $5,000,000 equipment term loan facility. Infoseek currently
anticipates that its cash, cash equivalents, short-term investments, available
funds under its equipment term loan facility and, assuming consummation of the
Mergers, the approximately $70,000,000 of cash proceeds and the Note in the
amount of $139,000,000 from the sale of common stock and warrants to Disney in
connection with the Mergers and cash flows generated from advertising
revenues, will be sufficient to meet its anticipated needs for working capital
and other cash requirements through at least September 30, 1999. Thereafter,
Infoseek may need to raise additional funds. Infoseek may need to raise
additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the shareholders of
Infoseek will be reduced, shareholders may experience additional dilution and
such securities may have rights, preferences or privileges senior to those of
the holders of Infoseek's common stock. There can be no assurance that
additional financing will be available on terms favorable to Infoseek, or at
all. If adequate funds are not available or are not available on acceptable
terms, Infoseek's ability to fund expansion, take advantage of acquisition
opportunities, develop or enhance services or products or respond to
competitive pressures would be significantly limited. Such limitation could
have a material adverse effect on Infoseek's business, results of
115
<PAGE>
operations, financial condition and prospects. The estimate of the period for
which Infoseek expects its available funds to be sufficient to meet its
capital requirements is a forward-looking statement that involves risks and
uncertainties. There can be no assurance that Infoseek will be able to meet
its working capital and other cash requirements for this period as a result of
a number of factors including but not limited to those described under "Risk
Factors--Risks Relating to the Combined Companies, the Mergers and Related
Transactions--Future Capital Needs; Uncertainty of Additional Financing."
116
<PAGE>
INFOSEEK BUSINESS
Infoseek provides leading Internet search and navigation technology,
products and services that use the Web to connect its viewers' personal, work
and community lives. As a "connected" media company, Infoseek is able to
segment viewers by interest area, providing advertisers with focused and
targeted audiences. The Infoseek Service is a comprehensive Internet gateway
that combines search and navigation with directories of relevant information
sources and content sites, offers chat and instant messaging for communicating
shared interests and facilitates the purchase of related goods and services.
THE INFOSEEK SOLUTION AND STRATEGY
The Infoseek branded search and navigation services integrate accurate
search results with relevant Internet and other resources to enhance the
viewer's interaction with information and content and create a more effective
medium for advertisers, sponsors and commerce partners. The Infoseek Service
is a comprehensive Internet gateway that combines search and navigation with
directories of relevant information sources and content sites, offers chat and
instant messaging for communicating shared interests and facilitates the
purchase of related goods and services. In order to further leverage its core
strength in technology and to diversify its revenue base, Infoseek licenses
its Ultraseek Server product to corporate customers for use on their intranets
and public web sites.
Infoseek's business strategy is to leverage its leading search and directory
technologies, products and services to achieve the following:
. Build Infoseek Brand Awareness and Increase Market Share. Infoseek
believes that, as a "connected" media company that brings together
elements of its viewers' personal, work and community lives, building
Infoseek brand awareness is a key to building market share. Infoseek
intends to continue to utilize conventional mass media advertising
campaigns, distribution relationships and OEM relationships to enhance
its brand awareness. Infoseek intends to continue an integrated brand-
awareness campaign through press, print, broadcast, outdoor, radio and
online promotions in 1998. Infoseek has entered into agreements with a
number of companies such as AT&T Corp., Southwestern Bell Capital
Corporation ("Southwestern Bell"), Sprint Corporation ("Sprint") and
CNET (Snap! Online) ("CNET") in order to increase its brand awareness
and acquire new viewers.
. Create a Richer Viewer Experience. Infoseek believes that consumer
loyalty on the Internet is highly dependent on the creation of a robust
online environment from which viewers may access the information and
resources in which they are interested. The Infoseek Service provides a
rich experience for viewers through the integration of search, large
directories, shared interest communities and content features with
Infoseek's highly advanced core search technology. To date, Infoseek has
launched 18 "channels," which are organized topically.
. Maximize Value for Advertisers. Infoseek believes that it can best serve
advertisers on the Internet by effectively targeting interested
audiences and consumers. With the launch of its intelligent Web channel
service in October 1997, Infoseek believes that it greatly enhanced the
segmentation of its viewing audience. Infoseek intends to continue to
develop innovative approaches and solutions for its advertisers to
effectively reach their target audiences. For a segment of advertisers,
improved viewer targeting is achieved through Infoseek's Ultramatch
product, an advertising management product designed to create viewer
behavior profiles for the matching of goods and services. These Infoseek
products and services can result in better click-through for advertisers
and higher advertising rates for Infoseek.
. Provide Intranet Search Products. Infoseek believes that as enterprise
and corporate intranets continue to grow and are increasingly relied
upon for the efficient sharing of corporate documents, data and other
information, the need for advanced search and indexing technology
becomes critical. Infoseek has leveraged its research and development
investments in the core Infoseek search and navigation services to
provide a customizable intranet solution to corporate and enterprise
customers.
117
<PAGE>
. Enhance Core Search and Navigation Service. Infoseek believes that
search technology that delivers highly relevant results is an important
component in differentiating its services and in building a rich viewer
experience. Infoseek continuously seeks to innovate in the development
and integration of its services to provide viewers with a robust and
appealing environment and a convenient and powerful gateway to the
Internet.
THE INFOSEEK SERVICE AND PRODUCT OFFERINGS
Internet End-User Services and Products
Infoseek Service is a free search and navigation service targeted to viewers
at home, in business and in schools. Infoseek Service integrates multiple
methods of obtaining, organizing and sharing information on the Internet.
Viewers are presented with four principal means of obtaining information--
Search, Channels, Directory and Service Links--from which they can launch
specific queries, browse or access relevant content.
. Search: The Search function allows the viewer to launch query-based
searches of the Web, USENET News and other premium content databases,
including news and company collections. To perform a search, a viewer
types a query in the search box and is then presented a highly specific
response from a search of the entire database. A search can be effected
using either simple keywords, phrases or full text. The Search function
utilizes sophisticated techniques to allow viewers to obtain specific
results for case sensitive, numerical or singular letter aspects of
certain queries, such as "49ers" or "Vitamin C." Infoseek recently
announced Extra Search PrecisionTM, a search technology designed to
improve the quality of search results by delivering the most relevant
results on the Internet. Infoseek also added an advanced search feature
to the Infoseek homepage that allows users to control the specificity of
their search.
. Channels: Infoseek offers viewers 18 "channels" which are organized
topically much like sections of a newspaper. Current channels include
Automotive, Business, Careers, Communications, Computer, Education,
Entertainment, The Good Life, Health, Internet, Kids & Family, News,
Personal Finance, Real Estate, Shopping, Sports, Travel, and Women's.
Each channel includes content teasers to full stories, reviews,
databases and other information on content providers' sites and other
sites, best of the Web links to interesting and relevant information,
relevant Directory subtopics, news headlines, chat, transaction
opportunities and classified advertisements. Infoseek intends to launch
new channels aimed at specific demographic audiences and launch
subchannels within existing channels to help viewers easily find the
environment and information they are looking for.
. Directory: The Infoseek Directory is a hierarchical listing of Web pages
that have been selected and abstracted by Infoseek and organized by
category, which can be accessed by Infoseek's home page or the relevant
channel. The Directory enables a viewer to click on a directory entry
such as Arts & Entertainment or Sports, and to look through a hierarchy
of relevant Internet sites for areas of interest. For example, under
Sports, the viewer can proceed from "Baseball" to "Players," and
finally, to "Ken Griffey Jr." The Directory assists the viewer by
providing abstracts of each directory entry. As of October 1, 1998,
Infoseek had increased its directory of Web sites to over 500,000 sites.
. Service Links: Viewers can be directly linked to third party sites by
clicking on several different title bars listed at the side of the
search screen or icons presented on the Infoseek page. Pursuant to
arrangements with United Parcel Services of America, Inc. ("UPS"),
viewers can access the BigYellow on-line yellow pages directory or the
UPS tracking system by clicking on those links. The standard Internet
advertising on Infoseek also contains direct links to the advertisers'
home page. Without direct hypertext links such as these a viewer must
either conduct a new search or know and enter a precise URL to move to
another site.
The Infoseek Service offers viewers access to content feeds from a variety
of well-known Internet sources, third party content sources and co-branded
sites between Infoseek and other providers of services and products
118
<PAGE>
such as UPS, to provide viewers with high quality, up-to-date information
whether a viewer is navigating via search, channels or directory. For example,
news that is relevant to the viewer's query is made available as part of a
search result. In addition, the News Channel offers viewers the latest
business, world, political, technology and sports news from a variety of data
sources such as Reuters Holdings PLC ("Reuters"), Business Wire, Hoover's,
Inc. ("Hoover's"), PR Newswire, and USENET news groups.
To enrich the viewer experience, the Infoseek Service allows the use of the
information gathered from a search to interact with viewers of similar
interests and purchase goods within the site through features such as chat,
instant messaging and transaction-based web sites. For example, a consumer who
is interested in purchasing a Saturn automobile can conduct an online search,
compare notes with Saturn drivers in Infoseek's automobile chat room and even
purchase a Saturn through Auto-By-Tel Corporation ("Auto-By-Tel"), a web site
for evaluating and making car-buying decisions.
Corporate Intranet and Public Site Navigation Services and Products
In March 1997, Infoseek introduced Ultraseek Server, its first software
product targeted at the corporate market. Designed as an easy-to-install,
simple-to-manage spider and search engine, the product leverages the core
technology developed for the Infoseek Service. Key advantages of the Infoseek
Service in areas such as natural language support, relevance ranking
algorithms, and automated spider revisiting are augmented with an intuitive
interface, support for alternate document formats (for example, Microsoft
Office or Adobe PDF) and robust error recovery. The result is a solution for
corporate webmasters that enables the creation of a search capability on one
site or across an intranet with thousands of hosts, that is quick to
implement, and manageable with limited resources.
Infoseek views the Ultraseek Server product as a horizontal application,
with a strong fit across many industries. In 1997, Infoseek licensed software
to customers in the publishing industry (Industrial Distribution Group, Inc.
("IDG"), National Geographic Society), high technology (Sun Microsystems,
Inc., 3Com Corporation, Hewlett-Packard Company, Lexmark International Group,
Inc.), manufacturing (Ford Motor Company, The Boeing Company, Merck & Co.,
Inc., Rohm & Haas Company), communications (BellSouth Corporation, Ericsson LM
Tel. Co. Ad., Worldcom Inc.), government (NASA, U.S. Department of Education,
Lawrence Livermore National Laboratory), finance (Morgan Stanley Dean Witter,
John Hancock Mutual Life Insurance Company, Swiss Bank Corporation, New York
Stock Exchange), consumer goods (Sony Corporation, NIKE, Inc., Sears, Roebuck
and Co.) and education (Stanford University, Harvard University, Pennsylvania
State University, Georgia Institute of Technology, University of Sydney,
McGill University) among others. Infoseek also announced that it had been
selected as the intranet and public site search application by CERN, the
European Particle Physics Lab and creator of the world wide web.
Advertising Services and Products
Infoseek derives a substantial majority of its revenues from the sale of
advertisements. Infoseek is focused on providing its advertisers with high
volume and targeted access to interested audiences and potential buyers. These
advertisements appear on the Infoseek Service web page when a viewer enters
the service, receives search results, browses through the Directory or
accesses a channel. Advertising revenues represented 89%, 95%, 96% and 99% of
Infoseek's total revenues for the six months ended June 30, 1998 and 1997 and
fiscal 1997 and fiscal 1996, respectively. Infoseek believes it has been able
to achieve its advertising revenues to date primarily through its direct sales
force and through the products it offers advertisers.
Advertising Products and Pricing
Infoseek derives its revenue from several advertising options that may be
purchased individually or in packages--run of site rotations, directory and
channel rotations, key word rotations, cross service sponsorship, channel
sponsorship and Ultramatch targeting. These options may contain hypertext
links to the advertiser's home page.
119
<PAGE>
Rotations
. Run of Site: Run of site rotations are advertisements that rotate on a
random basis throughout the Infoseek Service, appealing to advertisers
seeking to establish brand recognition across the broadest reach of
Infoseek viewers. Search results advertisements are typically sold in
blocks of one thousand impressions to be generated over a four week
period. Infoseek's current cost per one thousand impressions ("CPM")
ranges from $18 to $29 depending upon the number of impressions
purchased.
. Directory and Channel: Directory and channel rotations are
advertisements that appear when an Infoseek viewer browses through
directory and channel topic pages. Directory and channel rotations allow
advertisers to target an audience with a specific area of interest. Like
run of site rotations, directory and channel rotations are sold in
blocks of impressions over a four week period. Because of the greater
selectivity of the audience, Infoseek's current CPM ranges from $30 to
$60.
. Keyword: Keyword rotations are advertisements that are displayed when an
Infoseek viewer's search contains a particular keyword selected by the
advertiser. This option offers the advertiser a highly targeted, self-
selected audience. Through its proprietary advertising management
system, Infoseek tracks every word that is queried by Infoseek viewers,
from which Infoseek has identified keywords that are most frequently
queried by Infoseek viewers and requested by advertisers. Infoseek's
current four week rate card CPM for a keyword is $55 to $60.
Channel and Cross-Service Sponsors and Partners
The channel version of the Infoseek Service, which was introduced in October
1997, now features 18 "channels" that allow a viewer to browse in an
environment that brings together the best topical information, service,
products and communities on the web. In addition, this version of the Infoseek
Service dynamically wraps relevant content around answers to a viewer's
queries.
Sponsors and partners with whom Infoseek has executed agreements include the
following:
<TABLE>
<S> <C>
CHANNEL SPONSORS AND PARTNERS
Automotive Auto-By-Tel, Insweb
Careers CareerPath
Communications AT&T
Computers CMP Media, Inc.
Entertainment N2K
Health Women.com, Onhealth, Vitamin Shoppe
Internet CMP Media, Inc.
Personal Finance Microsoft Investor, Datek Online
Travel Microsoft Expedia
Real Estate Netselect, Apartment.com, HomeShark, Housenet.com
Women's iVillage
CROSS-SERVICE
UPS
Borders Online
Microsoft Sidewalk
</TABLE>
120
<PAGE>
Infoseek believes there is significant potential to increase sponsorship
revenues through the six unsponsored channels, further segmentation of
existing channels into sub-channels as well as channels to be introduced in
the future.
Infoseek's enhanced channel version of the Infoseek Service provides a
better viewer experience and better segmentation of the target audience for
advertisers and sponsors. In addition, Infoseek was able to supplement its
banner advertising business with media-based revenues for sponsorships in its
channels and sub-channels. These opportunities for channel sponsors are in
addition to already existing arrangements with cross-service sponsors such as
UPS and Bell Atlantic. A cross-service sponsor's content or service appears on
the Infoseek Service home page or on multiple channels across the Infoseek
Service. Infoseek seeks to bundle these advertising options to create packages
that offer the greatest value to advertisers.
Ultramatch Targeting
Infoseek currently sells Ultramatch, an advertising management product based
upon technology which is designed to create a viewer profile based on real,
observed viewer behavior to allow precise, targeted advertising. Infoseek and
its advertisers have found that this technology significantly increases viewer
click-throughs. This innovative advertising approach, which allows advertisers
to target advertisements to specific viewer types based on analysis of
searching behavior, serves to significantly differentiate Infoseek's services.
Infoseek's current CPM for this targeting is $75, and the net cost for an
Ultramatch behavioral report is $1,100.
Advertisers
During 1997, over 500 advertisers placed advertisements on Infoseek's
service. For the year ended December 31, 1997 one customer, Bell Atlantic
Electronic Commerce Services, Inc., which has a representative on Infoseek's
Board of Directors and owns a substantial amount of Infoseek's common stock,
accounted for 8.2% of revenues. No one advertiser accounted for 10% or more of
Infoseek's revenues for the year ended December 31, 1997. To date, most of
Infoseek's contracts with advertisers have terms of three months or less.
Sales Force
As of June 30, 1998, Infoseek's advertising sales staff consisted of 50
representatives located in Sunnyvale, New York, San Francisco, Los Angeles,
Atlanta and Chicago. Infoseek believes that having an internal direct sales
force allows it to better understand and meet advertisers' needs, increase its
access to potential advertisers and maintain strong relationships with its
existing base of advertising clients.
MARKETING AND DISTRIBUTION
Marketing
Infoseek's strategy is to build brand awareness through an integrated plan
utilizing online and traditional media, public relations and promotions.
Infoseek's current consumer campaign includes the marketing of the Infoseek
brand on selected Web sites including MSNBC, ESPN SportsZone, AT&T Worldnet
and BigYellow. Infoseek's 1997 and first quarter 1998 television campaign
included a rotation of prime time spots in New York and San Francisco, both of
which are cities with higher than average Internet usage. In addition,
Infoseek's traditional media campaign includes local radio, outdoor
billboards, print advertising in consumer and vertical magazines such as Home
PC, Windows Magazine, Information Week and Internet Week, and trade
advertising in Advertising Age. Infoseek also cross-promotes with content
providers through advertising swaps both in online media and traditional print
and broadcast media.
Distribution
Infoseek seeks to form relationships that maximize audience reach and create
alternate distribution channels to Infoseek's services. Infoseek has
relationships with Netscape and Microsoft each of which distributes browser
121
<PAGE>
software to their customers which is used to navigate the web. Infoseek also
has distribution relationships with various Internet service providers and
content providers such as AT&T, Earthlink, Southwestern Bell and CNET.
Infoseek Service is listed by each of these companies as a navigational
service available to their viewers. The terms of these relationships vary
widely, both in the prominence given to Infoseek Service relative to other
alternatives and the compensation paid by Infoseek for advertising.
INTERNATIONAL OPERATIONS
As the Internet becomes an increasingly global information resource,
Infoseek believes it can leverage its core search and navigation technology
and brand recognition to provide benefits to viewers and advertisers
worldwide. Accordingly, Infoseek offers its service internationally through
partnerships with local providers of directory and editorial content in
Brazil, Denmark, Holland, France, Germany, Italy, Sweden and the United
Kingdom, and has been translated into Spanish. In addition, Infoseek's U.S.
sales force sells advertisements on Infoseek's foreign sites to U.S.
advertisers who want to reach a global audience. During 1995, 1996, 1997 and
through June 1998, less than 10% of Infoseek's traffic was derived from
international sources and less than 10% of Infoseek's revenues were derived
from advertising to international viewers. See "Risk Factors--Risks Related to
Infoseek's Business--Risks Associated With International Expansion."
TECHNOLOGY
Infoseek believes that by developing innovative proprietary technology and
integrating technology licensed from third parties where appropriate, it can
differentiate itself from its competitors. Infoseek's strategy is to develop
and license only technologies that are able to scale with the growth in
content on the Internet, in order to enable Infoseek to cost-effectively adapt
and grow with the Internet.
Core Search Engine Technology
Infoseek's current search engine technology is based on Ultraseek, an
enhanced search technology that provides users enhanced levels of accuracy,
currency, comprehensiveness and speed. Ultraseek includes built-in
intelligence with features such as phrase, capitalization and proper name
recognition. Infoseek's highly-rated search engine seeks to deliver accurate
results, which are characterized by the level of precision and the level of
recall. In addition, due to the dynamic nature of the Internet, the retrieval
of up-to-date information has become another key factor for the evaluation of
Internet search services. To bring current information to the viewer, Infoseek
has developed technology to regularly update its entire database of web pages.
This enables Infoseek Service to deliver accurate, relevant and up-to-date
search results. To facilitate the ease of use of the service, Infoseek Service
includes a sophisticated technology to interpret "natural language" queries.
Infoseek has also provided a proprietary web spider which works to enhance the
performance of the search engine. A web spider is software that identifies and
catalogs pages on the web. This catalog, when indexed with text retrieval
software such as Infoseek's search engine, can be quickly accessed by keyword
or phrase. Together, the search engine technology and the web spider
technology are used to index web pages, the directory and other sources of
content. Infoseek is continually developing its core search engine technology,
including the recently announced Extra Search Precision technology described
above.
Advertising Management
Infoseek has developed certain proprietary systems for the placement of
advertisements with targeted audiences on appropriate Infoseek Service web
pages. Infoseek's advertising management systems are capable of presenting in
real-time advertising that corresponds to a viewer's inquiry. If certain key
words have been purchased by more than one advertiser, the system
automatically determines which advertisement is displayed based upon the
number of impressions under contract and delivered to date. As part of
Infoseek's proprietary advertising management system, Infoseek also maintains
a database that tracks the number of searches of each word queried by Infoseek
viewers, the number of browses through each directory category and the number
of impressions of each advertisement. This system assists Infoseek in
estimating the number of expected
122
<PAGE>
impressions of specific advertisement options marketed by Infoseek or
otherwise sought by advertisers. As Infoseek's advertising volume increases,
Infoseek believes that it may be required to significantly improve its
internally developed advertising management system or to implement an
advertising management system from a third party vendor. Infoseek is in the
process of implementing such a system from NetGravity, but such implementation
has not yet occurred. To the extent that Infoseek encounters material
difficulties in bringing, or is unable to bring, this new system online,
Infoseek will need to acquire an alternative solution from a third party
vendor or devote sufficient resources to enhance its internally developed
current system. Any extended failure of, or material difficulties encountered
in connection with, Infoseek's advertising management system may expose
Infoseek to "make good" obligations with its advertising customers, which, by
displacing advertising revenue among other consequences, would reduce revenue
and would have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
COMPETITION
The market for Internet and intranet products and services is highly
competitive, and Infoseek expects that competition will continue to intensify.
The market for Internet and intranet search and navigational services has only
recently begun to develop, and Infoseek cannot predict with any certainty how
competition will affect Infoseek, its competitors or its customers. There can
be no assurance that Infoseek will be able to compete successfully or that the
competitive pressures faced by Infoseek, including those listed below, will
not have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Consolidated Internet Products. A principal competitive
factor among providers of consolidated Internet products is the number of
integrated features offered on such providers' sites. A number of companies
offering Internet products and services, including direct competitors of
Infoseek, recently have begun to integrate multiple features within the
products and services they offer to consumers. Such competing companies
have greater resources and abilities to offer more highly integrated
products and services. In addition, entities that sponsor or maintain high-
traffic web sites or that provide an initial point of entry for Internet
viewers, currently offer and can be expected to consider further
development, acquisition or licensing of Internet search and navigation
functions competitive with those offered by Infoseek, or could take actions
that make it more difficult for viewers to find and use Infoseek's products
and services. Continued or increased competition from such consolidations,
integration and strategic relationships involving competitors of Infoseek
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Search and Navigational Offerings. Many companies
currently offer directly competitive products or services addressing Web
search and navigation, including DEC/AltaVista, Excite, HotBot, Inktomi,
Lycos, CNET and Yahoo! The speed with which search results return and the
"intelligence" of such results received are factors which, among others,
determine such companies' competitiveness. Many of Infoseek's existing
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical, marketing and distribution
resources than Infoseek with which to increase the speed and intelligence
of its search results. Infoseek believes that the costs associated with
developing search and navigational technologies, products and services that
compete with those offered by Infoseek are relatively low. As a result, as
the market for Internet and intranet search and navigational products
develops, other companies may be expected to offer similar products and
services and directly and indirectly compete with Infoseek for advertising
revenues.
Commercial Acceptance of Internet Advertising. Infoseek's future success
is highly dependent upon the increased use of the Internet and intranets
for information publication, distribution and commerce. The market for
Infoseek's products and services has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants with products and services for use on the Internet and intranets.
Most of Infoseek's advertising customers have only limited experience with
the Internet as an advertising medium, have not yet devoted a significant
portion of their advertising expenditures to Internet-based advertising,
and may not find such advertising to be effective for promoting their
products and
123
<PAGE>
services relative to traditional print and broadcast media. Because
Infoseek expects to derive substantially all of its revenues in the
foreseeable future from sales of Internet advertising, the future success
of Infoseek is highly dependent on the development of the Internet as an
advertising medium. If the market fails to continue to develop, develops
more slowly than expected or becomes saturated with competitors, or if
Infoseek's products and services do not achieve or sustain acceptance by
Internet users or advertisers, Infoseek's business, results of operations,
financial condition and prospects would be materially adversely affected.
In addition, Infoseek has derived a substantial majority of its revenues to
date from the sale of advertisements and expects to continue its dependence
on advertising and related products, including channel sponsorships and, to
a lesser extent, the sale of the Ultramatch advertising management system
and the Ultraseek Server intranet product. Infoseek's current business
model of generating revenues through the sale of advertising on the
Internet, which is highly dependent on the amount of traffic on the
Infoseek Service, is relatively unproven. The Internet as an advertising
medium has not been available for a sufficient period of time to gauge its
effectiveness as compared with traditional advertising media. There can be
no assurance that Infoseek will be successful in generating significant
future advertising revenues or other source of revenues; failure to do so
could have a material adverse effect on Infoseek's business, results of
operations, financial condition and prospects.
Competition from Internet and Other Advertising Media. Infoseek competes
with online services, other web site operators and advertising networks, as
well as traditional media such as television, radio and print for a share
of advertisers' total advertising budgets. Additionally, a large number of
web sites and online services (including, among others, the Microsoft
Network, MSNBC, AOL and other web navigation companies such as Excite,
Lycos and Yahoo!) offer informational and community features, such as news,
stock quotes, sports coverage, yellow pages and e-mail listings, weather
news, chat services and bulletin board listings that are competitive with
the services currently offered or proposed to be offered by Infoseek. There
can be no assurance that Infoseek will be able to compete successfully with
such competitors.
Although Infoseek believes that its recent efforts to provide more
integrated products and services, develop and supply fast, large and
intelligent searches, and deliver large amounts of viewer impressions to
advertisers will allow it to compete effectively for viewers, partners and
advertisers with respect to the factors set forth above, there can be no
assurance that Infoseek will compete successfully with respect to any of the
factors described above for the reasons set forth with respect to each factor
above.
124
<PAGE>
INFOSEEK MANAGEMENT
INFOSEEK CALIFORNIA
Leslie E. Wright was promoted to Senior Vice President and Chief Operating
Officer in July 1998 from his position as Vice President and Chief Financial
Officer. Remo E. Canessa was appointed to the position of Vice President and
Chief Financial Officer. Certain biographical information regarding Messrs.
Wright and Canessa is set forth under "--Infoseek Delaware" below.
INFOSEEK DELAWARE
Prior to the closing of the Mergers, the executive officers and directors of
Infoseek Delaware will be the same executive officers and directors as those
of Infoseek California. Following the Mergers, the executive officers and
directors of Infoseek Delaware will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry M. Motro.......... 37 President, Chief Executive Officer and Director
Leslie E. Wright........ 45 Senior Vice President and Chief Operating Officer
Barak Berkowitz......... 44 Senior Vice President and General Manager, Portal
Product
Remo E. Canessa......... 41 Vice President and Chief Financial Officer
Bhagwan D. ("B.D.") Senior Vice President and General Manager,
Goel................... 34 Commerce
Beth A. Haggerty........ 39 Senior Vice President, Worldwide Sales and
Strategic Partnerships
Patrick Naughton........ 33 Senior Vice President and Chief Technology Officer
Andrew E. Newton........ 55 Vice President, General Counsel and Secretary
Steven Bornstein*....... 46 Director
Robert Iger*............ 47 Director
Steven T. Kirsch........ 41 Chairman of the Board of Directors
L. William Krause(1).... 56 Director
Matthew J. Stover(2).... 43 Director
Jake Winebaum*.......... 38 Director
John E. Zeisler(1)(2)... 45 Director
</TABLE>
- --------
* Messrs. Bornstein, Iger and Winebaum will be appointed to the Infoseek
Board of Directors pursuant to the terms of the Governance Agreement. See
"Description of Related Agreements--Equity and Governance Agreements--
Governance Agreements."
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Harry M. Motro joined Infoseek in April 1997 as its President and was
appointed Chief Executive Officer and a director of Infoseek California in May
1997. From 1995 to April 1997, Mr. Motro served as Senior Vice President of
Cable News Network Inc. in charge of CNN Interactive and News Business
Development. From 1988 to 1995, Mr. Motro served in several executive
positions with Turner Broadcasting Inc. and CNN, including Director, Special
Projects and External Reporting, Assistant Vice President, Finance, and Vice
President, Business Development and Strategic Planning. From 1982 to 1988, Mr.
Motro served as Manager, Audit Services, with Coopers & Lybrand LLP. Mr. Motro
holds a B.S. degree in business from the University of Virginia.
125
<PAGE>
Leslie E. Wright joined Infoseek in August 1997 as Vice President, Finance
and Chief Financial Officer and was appointed Senior Vice President and Chief
Operating Officer in August 1998. From 1994 to July 1997, Mr. Wright worked
with Fractal Design Corporation, a graphics software company, where from May
1995 to July 1997 he served as Chief Operating Officer. From 1984 to 1994, Mr.
Wright worked with The ASK Group, Inc., a software company, where from 1986
through 1994, he served as Executive Vice President and Chief Financial
Officer. Mr. Wright holds a B.S. degree in business from San Jose State
University and is a Certified Public Accountant in the State of California.
Barak Berkowitz joined Infoseek in October 1997 as Vice President,
Marketing. In August 1990, Mr. Berkowitz founded MarketCentrix, a marketing
consulting firm servicing technology-based companies. Mr. Berkowitz acted as
President of MarketCentrix from August 1990 to July 1994, and again from
October 1996 until October 1997. From July 1994 to October 1996, Mr. Berkowitz
was Vice President and General Manager for the American region of Logitech,
Inc., a computer peripherals company. Mr. Berkowitz studied Psychology and
Biology at the City College of New York.
Remo E. Canessa joined Infoseek in August 1998 as Vice President and Chief
Financial Officer. From February 1998 to May 1998, Mr. Canessa was Chief
Financial Officer and Vice President of Finance of Raster Graphics, a
developer and manufacturer of high-performance color printing systems. From
1993 to February 1998, Mr. Canessa served as Vice President of Finance and
Corporate Controller for Bell Micro Products, Inc., a distributor of
semiconductor and computer products and contract manufacturer. Mr. Canessa
holds an M.B.A. degree from the University of Santa Clara in Santa Clara,
California, a B.A. degree in Economics from the University of California,
Berkeley and is a Certified Public Accountant in the State of California.
Bhagwan D. ("B.D.") Goel joined Infoseek in September 1998 as Senior Vice
President and General Manager, Commerce. From 1996 to 1998, Mr. Goel served as
Vice President Products and Services of Internet Shopping Network, an internet
business infrastructure company and wholly-owned subsidiary of USA Networks,
Inc. From 1994 to 1996, Mr. Goel served as Vice President, Products
Development for Worldwide Systems Corporation, a publisher of online travel
information and a joint venture between Ameritech and Random House. From 1989
to 1994, Mr. Goel was Director of Product Development for KnowledgeSet
Corporation (now Banta Intergrated Media), a developer of alternative
electronic media applications. Mr. Goel holds a Bachelor of Technology in
Electrical Engineering from the Indian Institute of Technology in New Delhi,
India, and an M.S. degree in Electrical Engineering from the University of
Toledo and is a candidate for a Ph.D. in Computer Science from Michigan State
University.
Beth A. Haggerty joined Infoseek in August 1997 as Vice President, Worldwide
Advertising Sales. From 1995 to April 1997, Ms. Haggerty served as Publishing
Director of NetGuide Magazine, a CMP Media publication ("CMP"), and most
recently as Publishing Director of CMPnet, the Internet Media Group of CMP. In
August 1996, Ms. Haggerty also managed the launch of CMP's online product,
NetGuide Live. From 1994 to 1995, Ms. Haggerty was a partner and co-founder of
Interactive Enterprises, a Ziff Davis venture, and a Publisher of
Inter@ctiveWeek magazine. From 1986 to 1994, Ms. Haggerty served in various
capacities with CMP, including senior-level sales and marketing management
positions for Information Week magazine, National Sales Manager for Network
Computing magazine and Publisher of CommunicationsWeek magazine. Ms. Haggerty
holds a B.S. degree in political science from Rutgers University.
Patrick J. Naughton will join Infoseek upon the consummation of the Starwave
Merger as Senior Vice President and Chief Technology Officer. Mr. Naughton is
currently President and Chief Technology Officer of Starwave, which position
he has held since April 1997. From July 1996 to April 1997, Mr. Naughton
served as Starwave's Senior Vice President, Technology. From October 1994 to
July 1996, Mr. Naughton served as Starwave's Vice President, Technology. From
January 1993 to October 1994, Mr. Naughton served as Chief Technologist of
First Person, Inc., a Sun Microsystems subsidiary formed to commercialize Java
technologies. Beginning in June 1988, Mr. Naughton was employed by Sun
Microsystems, where he started a research project in December 1990 in the Sun
Microsystems Laboratories which conceived the Java programming language.
Mr. Naughton holds a B.S. degree in Computer Science from Clarkson University.
126
<PAGE>
Andrew E. Newton, a founder of Infoseek, has served as Vice President and
General Counsel since January 1994 and Secretary since March 1994. From
February 1990 to November 1993, Mr. Newton was Vice President and General
Counsel of Frame Technology Corporation, a software engineering company. Mr.
Newton holds an A.B. degree in English from Dartmouth College and a J.D.
degree from Columbia University School of Law.
Steven Bornstein will become a Director of Infoseek upon consummation of the
Mergers. Mr. Bornstein has been President and Chief Executive Officer of ESPN
since September 1990 and is also a director of ESPN.
Robert Iger will become a Director of Infoseek upon consummation of the
Mergers. Mr. Iger is President of ABC, Inc., a subsidiary of The Walt Disney
Company, which position he has held since February 1996. Prior thereto, Mr.
Iger served as President and Chief Operating Officer of Capital Cities/ABC,
Inc. from September 1994 to February 1996 and as President of the ABC
Television Network from January 1993 to August 1994. Mr. Iger holds a B.S. in
communications from Ithaca College.
Steven T. Kirsch, a founder of Infoseek, has been a director of Infoseek
since August 1993 and Chairman of the Board of Directors since December 1995.
From September 1993 to November 1995, Mr. Kirsch also served as President and
Chief Executive Officer of Infoseek. From January 1990 to December 1993, Mr.
Kirsch served as Vice President, New Product Development of Frame Technology
Corporation, a software engineering company which he co-founded. Mr. Kirsch
holds a B.S. degree and an M.S. degree in electrical engineering and computer
science from the Massachusetts Institute of Technology.
L. William Krause has served as a director of Infoseek since July 1997.
Since October 1991, Mr. Krause has served as President, Chief Executive
Officer and as a director of Storm Technology, Inc., a provider of computer
peripherals and software for digital imaging. Prior to that, Mr. Krause spent
ten years at 3Com Corporation, a manufacturer of global data networking
systems, where he served as President and Chief Executive Officer until he
retired in September 1990. Mr. Krause continued as Chairman of the Board for
3Com Corporation until 1993. Previously, Mr. Krause served in various
marketing and general management executive positions at Hewlett-Packard
Company. Mr. Krause currently serves as a director of Sybase, Inc. and Aureal
Semiconductor, Inc.
Matthew J. Stover has served as a director of Infoseek since March 1996.
Since December 1997, Mr. Stover has served as President and Chairman of the
Board of Bell Atlantic Information Services Group, an international marketing
information services provider. Mr. Stover is also the Chairman of the Board of
Global Directory Services Company. Since January 1998, Mr. Stover has served
as Chairman of the Board of Bell Atlantic Yellow Pages Company, formerly known
as NYNEX Information Resources Company, where from January 1994 to January
1998, he served as President and Chief Executive Officer. Prior to that, Mr.
Stover served as President and Chief Executive Officer of AGS Computers, Inc.
from December 1992 to December 1993, Vice President, Public Affairs and
Corporate Communications of NYNEX Corporation from May 1990 to December 1992
and Vice President, Communications for American Express Company from 1987 to
1990. Mr. Stover holds a B.A. degree in English language and literature from
Yale University and a certificate from the Executive Program of the University
of Virginia, Colgate Darden Graduate School of Business Administration.
Jake Winebaum will become a director of Infoseek upon consummation of the
Mergers. Mr. Winebaum is Chairman of the Buena Vista Internet Group, a
subsidiary of The Walt Disney Company, which position he has held since April
1998. Prior thereto, Mr. Winebaum was President of the Buena Vista Internet
Group from March 1997 to March 1998; President of Disney Online from July 1995
to March 1998; President of Disney Magazine Publishing from April 1994 to June
1995; President of Family PC from February 1994 to June 1995; and President of
Family Fun from February 1992 to June 1995. Mr. Winebaum currently is a member
of the Board of Directors of Starwave, although he will not be a member of the
Board of Directors of Starwave following the
Mergers. Mr. Winebaum will also become a member of the advisory committee
described in the Product Management Agreement. See "Description of Related
Agreements--Licensing and Commercial Agreements--Product Management
Agreement."
127
<PAGE>
John E. Zeisler has served as a director of Infoseek since May 1995. Since
October 1996, Mr. Zeisler has served as a General Partner of InterWest
Partners, a venture capital firm. From August 1995 to September 1996, he
served as Senior Vice President, Marketing of NETCOM, an internet company.
From 1992 to 1995, he served as President and Chief Executive Officer of
Pensoft Corporation, a software company. From 1987 to 1992, Mr. Zeisler was a
co-founder and Vice President, Marketing of Claris Corporation, a software
company. Mr. Zeisler holds a B.S. degree in communications from Boston
University.
COMPENSATION
None of the executive officers or directors of Infoseek Delaware received
any annual or long-term compensation from Infoseek Delaware during the last
fiscal year.
128
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS OF INFOSEEK
The following table sets forth certain information regarding beneficial
ownership of Infoseek California common stock as of October 9, 1998 (except as
otherwise noted) by (i) each director of Infoseek California, (ii) Infoseek
California's Chief Executive Officer and each of the four other most highly
compensated executive officers of Infoseek California during the fiscal year
ended December 31, 1997, (iii) all directors and executive officers of
Infoseek California as a group, and (iv) all those known by Infoseek
California to be beneficial owners of more than five percent of outstanding
shares of Infoseek California common stock. This table is based on information
provided to Infoseek California or filed with the SEC by Infoseek California's
directors, executive officers and principal shareholders. Unless otherwise
indicated in the footnotes below, and subject to community property laws where
applicable, each of the named persons has sole voting and investment power
with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING
OUTSTANDING INFOSEEK DELAWARE
COMMON STOCK COMMON STOCK
NUMBER OF SHARES OWNED PRIOR OWNED AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED (1) TO MERGERS(2)(3)(4) MERGERS(2)(3)(4)
---------------- ---------------------- ------------------- -----------------
<S> <C> <C> <C>
Steven T. Kirsch(5)..... 5,888,855 18.69% 9.90%
Harry M. Motro(6)....... 396,832 1.24% *
Matthew J. Stover(7).... 1,164,384 3.69% 1.96%
John E. Zeisler(8)...... 67,811 * *
L. William Krause(9).... 15,000 * *
Beth A. Haggerty(10).... 56,122 * *
Andrew E. Newton(11).... 542,650 1.72% *
John S. Nauman(12)...... 141,454 * *
Leo R. Jolicoeur(13).... 99,110 * *
All directors and
executive officers as a
group
(10 persons)(14)....... 8,372,218 26.00% 14.07%
</TABLE>
- --------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, the aggregate number of shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of October 9, 1998 are deemed outstanding. Shares issuable
pursuant to such options are deemed outstanding for computing the
percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. To
Infoseek's knowledge, except as set forth in the footnote to this table
and subject to applicable community property laws, each party named in
the table has sole voting and investment power with respect to the shares
set forth opposite such party's name. Except as otherwise indicated, the
address of each of the parties in this table is as follows: c/o Infoseek
Corporation, 1399 Moffett Park Drive, Sunnyvale, California 94089.
(2) Steven Bornstein, Robert Iger and Jake Winebaum will be appointed to
Infoseek Delaware's Board of Directors at the Closing of the Mergers.
Such persons currently own no shares of Infoseek or Starwave common stock
and are not expected to own any shares immediately after the Mergers.
(3) Disney currently owns no shares of Infoseek common stock. Immediately
after the Mergers, Disney is expected to own approximately 25,665,023
shares of Infoseek common stock and have an approximately 43.1% ownership
interest (excluding the Warrant) in Infoseek.
(4) Does not include up to approximately 700,000 shares of Infoseek common
stock which may be issued in connection with the acquisition of Quando.
(5) Represents 5,888,855 shares held in the name of trusts for the benefit of
Mr. Kirsch and his family members.
129
<PAGE>
(6) Includes 395,832 shares issuable pursuant to stock options that may be
exercised within 60 days after October 9, 1998.
(7) Includes 15,000 shares issuable pursuant to stock options held in the
name of Mr. Stover for the benefit of Bell Atlantic which may be
exercised within 60 days after the Record Date, of which 10,313 shares
would be subject to Infoseek's right of repurchase. Also includes
1,164,384 shares held by Bell Atlantic Electronic Commerce Services,
Inc., 35 Village Road, Middletown, Massachusetts 01949. Mr. Stover
disclaims beneficial ownership of such shares.
(8) Includes 55,312 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, of which 14,063 shares
would be subject to Infoseek's right of repurchase.
(9) Includes 15,000 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, of which 13,125 shares
would be subject to Infoseek's right of repurchase.
(10) Represents 1,122 shares held in the name of Ms. Haggerty's spouse.
Includes 55,000 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(11) Includes 26,562 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(12) Includes 46,875 shares which are subject to Infoseek's right of
repurchase, and 27,083 shares issuable pursuant to stock options that may
be exercised within 60 days after the Record Date.
(13) Includes 97,676 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date.
(14) Includes 687,465 shares issuable pursuant to stock options that may be
exercised within 60 days after the Record Date, including those options
identified in footnotes (4) through (12).
130
<PAGE>
STARWAVE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements subject to risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements as a result of, among other things, the factors
set forth in "Risk Factors" beginning on page 21 of this Joint Proxy
Statement/Prospectus, including those entitled "--Risks Related to the
Combined Companies, the Mergers and Related Transactions,--Dependence on Joint
Ventures and Third Party Relationships," "--Dependence on Continued Growth in
Use of the Internet," "--Developing Market; Unproven Acceptance of Internet
Advertising and of the Combined Companies' Products and Services," "--Risks
Limited to Starwave's Business--Limited Operating History; Accumulated
Deficit, Anticipated Losses," "--Unpredictability of Future Revenues;
Potential Fluctuations in Operating Results" and "--Competition."
OVERVIEW
Starwave
Starwave is a producer of Internet-based online services in specific content
areas with broad consumer appeal. Starwave is recognized for its sports, news
and entertainment services. Starwave was organized in December 1991 and
commenced operations in January 1992. From that time through February 1993,
the operations of Starwave were limited to start-up activities, including
recruiting personnel, raising capital, and research and development concerning
the technical feasibility of providing content for delivery to the home over
high bandwidth digital communications, including satellite broadcast. From
March 1993 through December 1994, the primary operating activities of Starwave
included the development of CD-ROM products and the development of online
services.
In 1995, Starwave launched its first online services and also released its
first CD-ROM products. Additionally, Starwave began shifting its focus
primarily toward online services, as management perceived greater long-term
potential in that business segment. These services included, among others,
ESPN SportsZone, NBA.com, NFL.com, NASCAR Online, Outside Online and Mr.
Showbiz. This shift of focus ultimately led to the decision in March 1996 to
discontinue its Multimedia CD-ROM business segment, which was phased out in
1996. See "--Discontinued Operations" below. In March 1995, Starwave and ESPN
entered into an agreement whereby Starwave became the exclusive producer and
distributor of ESPN content on the Internet through April 1, 2000, which
agreement was superceded by the ESPN Joint Venture in connection with the
transactions described in the next paragraph.
Pursuant to a Stock Purchase Agreement dated as of March 28, 1997 among
Starwave, Starwave's founder, Paul Allen, and DEI (the "Starwave Stock
Purchase Agreement"), Starwave issued and sold to DEI 9,967,337 shares of
Starwave common stock for aggregate consideration of $82 million (39,869,348
shares after adjustment for the four-for-one stock split of Starwave common
stock declared on October 3, 1997 (the "Starwave Stock Split")). Starwave used
approximately $50 million of those proceeds to repay the then-outstanding
indebtedness owed by it to Mr. Allen, and the remaining $45.7 million of
indebtedness owed by Starwave to Mr. Allen was converted into 5,155,289 shares
of Starwave common stock (20,621,156 shares when adjusted for the Starwave
Stock Split). In connection with this transaction, effective April 1997,
Starwave formed its subsidiary, Starwave Partner, and Starwave Partner entered
into the ESPN Joint Venture and the ABCNews Joint Venture with ESPN Partner
and ABC Partner, respectively (with the ESPN Joint Venture superceding the
1995 agreement between Starwave and ESPN pertaining to ESPN SportsZone).
Following these transactions, Starwave continued its web site hosting,
software development and research activities, while the majority of its web
site operations costs were allocated to the Joint Ventures. Effective April 1,
1997, Starwave and the Joint Ventures established a fiscal year end of the
last Sunday in September.
On May 1, 1998, pursuant to a Shareholders Agreement dated as of April 17,
1997 (the "Starwave Shareholders Agreement") among Starwave, Mr. Allen and
DEI, DEI acquired all of the shares of Starwave
131
<PAGE>
common stock owned by Mr. Allen, thereby increasing DEI's percentage ownership
of Starwave's outstanding capital stock from approximately 41% to
approximately 91% on a primary shares basis.
The ESPN Joint Venture
Effective April 1997, Starwave Partner and ESPN Partner entered into
the ESPN Joint Venture for the production of Internet-based services
intended to appeal to consumer interest in sports-related content
areas. Starwave contributes technical expertise, labor and
infrastructure, and ESPN contributes licensed content, branding and
promotion. The ESPN Joint Venture has a ten-year term and a 50/50
capital ownership structure, and provides ESPN Partner with credit for
on-air promotion. Required funding under the Joint Venture is split
60/40 between Starwave Partner and ESPN Partner in negative cash flow
years and 50/50 in years in which the Joint Venture achieves positive
cash flow. The ESPN Joint Venture has inherited Starwave relationships
with nationally prominent content and branding partners, including the
NBA, the NFL, and NASCAR. The ESPN Joint Venture's flagship service is
ESPN SportsZone, which provides sports-related content.
The ABCNews Joint Venture
Effective April 1997, Starwave Partner and ABC Partner entered into
the ABCNews Joint Venture for the production of Internet-based services
intended to appeal to consumer interest in news and entertainment-
related content areas. Starwave contributes the technical expertise,
labor and infrastructure, and ABC Partner contributes licensed content.
The ABCNews Joint Venture has a ten-year term and a 50/50 capital
ownership structure, and provides ABC Partner with credit for ABC's on-
air promotion. Required funding under the Joint Venture is split 60/40
between Starwave Partner and ABC Partner in negative cash flow years
and 50/50 in years in which the Joint Venture achieves positive cash
flow. The ABCNews Joint Venture's flagship service is ABCNews.com,
which provides world, national, entertainment, health, technology and
business content. The ABCNews Joint Venture's other services include
Mr. Showbiz, Wall of Sound, CelebSite and Moneyscope.
Under existing terms, the Joint Ventures expire in April 2007 and may be
subject to earlier termination in certain circumstances. The Joint Ventures
have a term of 10 years from the Effective Time as amended in connection with
the Mergers.
Prior to the formation of the Joint Ventures in April 1997, Starwave had
formed relationships with co-branding partners for certain of its online
services. Starwave bore substantially all the production costs for the online
services and paid royalties to its co-branding partners. The royalties were
generally computed as a percentage of either advertising or gross revenues
generated from the related online service. Those percentages ranged from 30%
to 50% of such revenues. During this period, Starwave derived the majority of
its revenues from the sale of advertisements and subscription fees related to
premium subscription services and fantasy league services offered to users of
the ESPN SportsZone service. Advertising revenues are derived principally from
advertising placements in which Starwave provides a minimum number of
impressions (displays of an advertisement to the user) for a fixed fee.
Advertising and subscription revenues are recognized ratably over the term of
the period during which services are provided and in the case of advertising
is stated net of commissions. In conjunction with the formation of the Joint
Ventures, the co-branding relationship with ESPN was discontinued. The co-
branding relationships with the NBA, the NFL, and NASCAR were assumed by the
ESPN Joint Venture.
Starwave expects the Joint Ventures to continue to derive the substantial
majority of their revenues from the sale of advertising. Most of the
advertising placements of Starwave and the Joint Ventures have terms of three
months or less, with options to cancel at any time. In addition, there is
intense competition among sellers of advertising space on the Internet and a
variety of pricing models offered. See "Risk Factors--Risks Related to the
Combined Companies, the Mergers and Related Transactions--Developing Market;
Unproven Acceptance of Internet Advertising and of the Combined Companies'
Products and Services."
132
<PAGE>
The following selected financial data are derived from the financial
statements of Starwave included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such financial
statements, the related notes thereto and the other financial information
pertaining to Starwave included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -----------------------
SEPTEMBER 30, YEAR ENDED YEAR ENDED JUNE 28, JUNE 29,
SEPTEMBER 28, 1996 DECEMBER 31, DECEMBER 31, 1998 1997
1997 (UNAUDITED) 1996 1995 (UNAUDITED) (UNAUDITED)
------------- ------------- ------------ ------------ ----------- -----------
(AMOUNTS IN THOUSANDS)
STATEMENTS OF OPERATIONS
DATA(1):
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 4,892 $ 4,583 $ 8,302 $ 1,111 $ 3,496 $ 7,960
-------- -------- -------- -------- ------- --------
Operating Expenses:
Cost of online
services.............. 7,185 11,046 18,170 6,577 2,147 12,122
Development............ 1,605 5,586 6,138 5,771 848 3,385
Sales and marketing.... 1,589 2,872 5,492 1,789 41 4,130
General and
administrative........ 2,527 3,389 4,845 3,388 1,778 3,412
-------- -------- -------- -------- ------- --------
Total operating
expenses............ 12,906 22,893 34,645 17,525 4,814 23,049
-------- -------- -------- -------- ------- --------
Operating loss.......... (8,014) (18,310) (26,343) (16,414) (1,318) (15,089)
-------- -------- -------- -------- ------- --------
Other income (expense):
Loss from affiliate--
ESPN Joint
Venture(2)............ (2,251) -- -- -- (2,091) (808)
Loss from affiliate--
ABC News Joint
Venture(2)............ (5,958) -- -- -- (6,982) (3,116)
Interest (expense)
income................ (1,814) (3,187) (4,675) (3,023) 768 (3,244)
Other, net............. 464 (52) (658) 8 25 (118)
-------- -------- -------- -------- ------- --------
Net other expenses... (9,559) (3,239) (5,333) (3,015) (8,280) (7,286)
-------- -------- -------- -------- ------- --------
Loss from continuing
operations............. (17,573) (21,549) (31,676) (19,429) (9,598) (22,375)
Loss from discontinued
operations............. -- (4,289) (4,289) (7,474) -- --
-------- -------- -------- -------- ------- --------
Net loss................ $(17,573) $(25,838) $(35,965) $(26,903) $(9,598) $(22,375)
======== ======== ======== ======== ======= ========
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of web site
hosting, software development and research activities while revenue and
expenses associated with sites operated under contract with ESPN, ABC and
others were assumed by these Joint Ventures. As a result, periods prior to
and following April 1997 are not comparable.
(2) Represents Starwave's proportionate share of the loss (i.e., 60%).
STARWAVE RESULTS OF OPERATIONS
From Starwave's commencement of business activities in January 1992 through
the first quarter of 1995, Starwave's operations were limited and consisted
primarily of development of online services and CD-ROMs and other start-up
activities. Starwave first recognized online revenues in the second quarter of
1995. Thereafter until April 1997, the ESPN SportsZone online revenues were
the primary source of Starwave's revenues.
Beginning April 1997, Starwave entered into the Joint Ventures. As a result
of the terms of the Joint Ventures, all business related advertising revenue
and operating expenses are reflected at the Joint Venture level. Accordingly,
following the discussion of Starwave's results of operations below is a
discussion of the Joint Ventures' results of operations in order to make
comparative assessments of the results of operations more meaningful.
Starwave has classified the results of operations of its Multimedia CD-ROM
business segment as discontinued for all periods presented. Accordingly,
except as otherwise indicated, all results of operations information of
Starwave contained in this Joint Proxy Statement/Prospectus relate only to
continuing operations. See "--Starwave Discontinued Operations."
133
<PAGE>
Starwave began a new line of business in February 1997 to provide web site
hosting operations for Internet services produced by third parties. Revenues
from this line of business have been for consulting services and software
license revenues. The primary customer for such services is Disney.
COMPARISON OF STARWAVE'S NINE MONTHS ENDED JUNE 28, 1998 AND JUNE 29, 1997
Revenues
Revenues for the nine months ended June 28, 1998 and June 29, 1997 were
$3,496 and $7,960, respectively. Beginning April 1, 1997, the majority of the
revenue was earned by the Joint Ventures, resulting in a decline in the total
revenue for comparable periods.
For the nine months ended June 28, 1998, all of Starwave's revenue was
derived from $2,327 in web site hosting service revenue and $1,169 in software
license revenue.
For the nine months ended June 29, 1997, Starwave recognized advertising
revenues of $5,210. Beginning April 1, 1997, all advertising revenue was
earned by the Joint Ventures.
Operating Expenses
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees and royalties paid to content
providers. Costs of online services for the nine months ended June 28, 1998
and June 29, 1997 were $2,147 and $12,122, respectively. Beginning April 1,
1997, all costs incurred for the production of online services were incurred
by the Joint Ventures, which resulted in a decrease in the costs for the
comparable periods.
Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
content, facilities and equipment. Once an online service is launched and
available to generate revenue, costs associated with enhancements and
development of new features for the service are included with online services
costs. Development costs for the nine months ended June 28, 1998 and June 29,
1997 were $848 and $3,385, respectively, representing 24% and 43%,
respectively, of total revenues. Beginning April 1, 1997, all costs incurred
for development relating to the Joint Ventures were moved to the Joint
Ventures. Starwave believes that a significant level of development activity
and expense is required in order to remain competitive with other new and
existing online services. Accordingly, Starwave anticipates that it will
continue to devote substantial resources to development and that the absolute
dollar amount of these costs will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. For the nine months ended
June 28, 1998 and June 29, 1997, sales and marketing expenses were $41 and
$4,130, respectively. Beginning April 1, 1997, all costs incurred for the
sales and marketing for the online services were incurred by the Joint
Ventures, resulting in a decrease in the costs for the comparable periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for Starwave, as well as fees for professional services. For
the nine months ended June 28, 1998 and June 29, 1997, general and
administrative costs were $1,778 and $3,412, respectively, representing 51%
and 43%, respectively, of total revenues. Beginning April 1, 1997 all costs
incurred for general and administrative relating to the Joint Ventures were
moved to the Joint Ventures. If Starwave continues to grow in size, it may
find it necessary to expand its information systems and to expand or relocate
to new or additional locations. As a result, Starwave anticipates that the
absolute dollar amount of general and administrative expenses will increase in
future periods.
134
<PAGE>
Other Income (Expense). From inception through March 31, 1997, other income
(expense) consists primarily of interest expense incurred on the loans made to
Starwave by its majority shareholder. From April 1, 1997 to the current date,
other income (expense) consists mainly of Starwave's proportionate share
(i.e., 60%) of the earnings (losses) from the ABCNews Joint Venture and the
ESPN Joint Venture.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JUNE 28, JUNE 29,
1998 1997
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loss from the ESPN Joint Venture(1)............... $ (2,091) $ (808)
Loss from the ABCNews Joint Venture(1)............ (6,982) (3,116)
Interest income (expense)......................... 768 ( 3,244)
Other income (expense)............................ 25 (118)
</TABLE>
- --------
(1) Represents Starwave's proportionate share of the loss (i.e., 60%).
COMPARISON OF STARWAVE'S NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER
30, 1996
Revenues
Revenues for the nine months ended September 28, 1997 and September 30, 1996
were $4,892 and $4,583, respectively. Beginning April 1, 1997, the majority of
the revenue generating operations was included in the Joint Ventures. The
transfer of revenue generating operations to the Joint Ventures was mitigated
by an increase in revenue in the first three months of the period resulting
from increased acceptance of commerce on the Internet.
Advertising revenues for the nine months ended September 28, 1997 and
September 30, 1996 were $2,446 and $3,475, respectively, representing 51% and
76%, respectively, of total revenues. Beginning April 1, 1997, all advertising
revenue was earned at the Joint Venture level, resulting in a decrease in
advertising revenue for comparable periods.
Cost of Online Services. Costs of online services for the nine months ended
September 28, 1997 and September 30, 1996 were $7,185 and $11,046,
respectively. Beginning April 1, 1997, all costs incurred for the production
of online services were incurred by the Joint Ventures, resulting in a
decrease in the costs for the comparable periods.
Development. Development costs for the nine months ended September 28, 1997
and September 30, 1996 were $1,605 and $5,586, respectively, representing 33%
and 122%, respectively, of total revenues. Development costs incurred on
behalf of the Joint Ventures' web sites are allocated to the Joint Ventures,
decreasing Starwave's total development costs for the comparable periods.
Sales and Marketing. Sales and marketing expenses for the nine months ended
September 28, 1997 and September 30, 1996 were $1,589 and $2,872,
respectively, representing 32% and 63%, respectively, of total revenues.
Beginning April 1, 1997, all costs incurred for the sales and marketing for
the online services were incurred by the Joint Ventures, resulting in a
decrease in the total costs for the comparable periods. A total of $1,301 or
82% of the sales and marketing costs incurred for the nine months ended
September 30, 1997 was incurred before the formation of the Joint Ventures on
April 1, 1997. The remainder of the sales and marketing costs were incurred
due to promotion of the web site hosting operations.
General and Administrative. For the nine months ended September 28, 1997 and
September 30, 1996, general and administrative costs were $2,527 and $3,389,
respectively, representing 52% and 74%, respectively, of total revenues.
Beginning April 1, 1997, general and administrative costs were allocated to
the Joint Ventures, thereby reducing the total expense for the comparable
periods.
135
<PAGE>
Other Income (Expense). From inception through March 31, 1997, other income
(expense) consists primarily of interest expense incurred on the loans made to
Starwave by its majority shareholder. From April 1, 1997 to the current date,
other income (expense) consists mainly of Starwave's proportionate share
(i.e., 60%) of the earnings (losses) from the ABCNews Joint Venture and the
ESPN Joint Venture.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 28, SEPTEMBER 30,
1997 1996
------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loss from the ESPN Joint Venture(1)............... $(2,251) $ --
Loss from the ABCNews Joint Venture(1)............ (5,958) --
Interest expense, net............................. (1,814) (3,187)
Other income (expense)............................ 464 (52)
</TABLE>
- --------
(1) Represents Starwave's proportionate share of the loss (i.e., 60%).
COMPARISON OF STARWAVE'S YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues
Starwave began to generate revenues in the second quarter of 1995. Revenues
for the years ended December 31, 1996 and 1995 were $8,302 and $1,111,
respectively.
For the years ended December 31, 1996 and 1995, advertising revenues were
$6,100 and $800, respectively, representing 73% and 72%, respectively, of
total revenues.
Operating Expenses
Cost of Online Services. Starwave did not incur any online services costs
until 1995 when Starwave launched its first online services and began
recognizing revenues from these services. Costs of online services for the
years ended December 31, 1996 and 1995 were $18,170 and $6,577, respectively.
Development. Development expenses include expenses relating to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
content, facilities and equipment. Once an online service is launched and
available to generate revenue, costs associated with enhancements and
development of new features for the service are included with cost of online
services. Total development expenses were $6,138 and $5,771 for the years
ended December 31, 1996 and 1995, respectively, representing 74% and 519%,
respectively, of total revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the years ended December 31, 1996 and 1995 were $5,492 and $1,789,
respectively, representing 66% and 161%, respectively, of total revenues.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for Starwave, as well as fees for professional services.
General and administrative expenses for the years ended December 31, 1996 and
1995 were $4,845 and $3,388, respectively, representing 58% and 305%,
respectively, of total revenues.
Other Income (Expense). In 1996 and 1995, other income (expense) consists
primarily of interest expense incurred on the loans made to Starwave by its
majority shareholder.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Interest expense................................... $ (4,675) $ (3,023)
Other income (expense)............................. (658) 8
</TABLE>
136
<PAGE>
Interest expense increased during each of the years ended December 31, 1996
and 1995 ($3,023 during 1995 from $1,400 during 1994) due principally to the
increased magnitude of such loans. As of April 1, 1997, outstanding loans from
Paul Allen to Starwave totaled $95.7 million. As of December 31, 1996,
outstanding loans from Paul Allen to Starwave totaled $84.9 million, versus
$51.0 million as of December 31, 1995.
STARWAVE DISCONTINUED OPERATIONS
In 1994, Starwave began developing interactive multimedia CD-ROM products.
Starwave released its first CD-ROM product in November 1995 and released
additional CD-ROMs in 1995 and the first quarter of 1996. In March 1996,
Starwave made the decision to discontinue its Multimedia CD-ROM business
segment, and to phase out these operations by December 31, 1996.
Starwave has reflected the results of operations of the Multimedia CD-ROM
business segment as a discontinued operation for all periods presented. During
the phase-out period, Starwave completed production of its final CD-ROM
product and disposed of its remaining inventory of CD-ROM products.
Losses from operations of the Multimedia CD-ROM segment totaled $4,700 in
1994, $7,474 in 1995 and $1,046 in 1996. The loss on disposal of the
Multimedia CD-ROM segment of $3,243 in 1996 included the provision for
operating losses through the phase-out period.
Income Taxes. Until December 31, 1995, Starwave utilized the provisions of
Subchapter S of the Code. As a result, Starwave's net losses for tax purposes,
as well as tax credits and other tax incidents, were distributed to and
included on the personal income tax returns of its shareholders. Starwave was
not required to record any provision for income taxes, and the net losses and
tax incidents of Starwave through December 31, 1995 will not be available to
offset taxes on Starwave's future net income, if any. Effective January 1,
1996, Starwave elected to be taxed as a Subchapter C corporation under the
Code. The conversion from S Corporation status to C Corporation status had no
impact on the financial position or results of operations of Starwave. As of
September 28, 1997, Starwave had incurred net operating losses of
approximately $54.8 million for income tax purposes that may be available to
offset a similar amount of net income for income tax purposes in future
periods through 2011. Starwave has recorded a valuation allowance against the
deferred tax asset generated by the net operating losses and therefore has no
deferred tax assets or liabilities recorded on its balance sheet. Starwave
expects that future operating losses will result in additional net operating
losses for income tax purposes. The aggregate net operating losses are subject
to certain limitations.
STARWAVE LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1997, Starwave financed its operations and
met its capital expenditure requirements primarily through loans received from
Paul Allen, which totaled approximately $95.7 million. In April 1997,
approximately $50 million of such indebtedness to Mr. Allen was repaid using
proceeds received by Starwave upon consummation of the transactions
contemplated by the Starwave Stock Purchase Agreement, and the remaining $45.7
million of such indebtedness to Mr. Allen was converted into 5,155,289 shares
(20,621,156 shares when adjusted for the Starwave Stock Split) of Starwave
common stock. The remaining approximately $32 million of cash proceeds
received by Starwave upon consummation of the transactions contemplated by the
Starwave Stock Purchase Agreement was used to fund Starwave operations.
Net cash used in operating activities of $27,190 and $30,060 for the years
ended December 31, 1995 and 1996, respectively, was primarily attributable to
net operating losses incurred in such periods. Net cash used in operating
activities for the nine months ended September 28, 1997 of $6,807 was
primarily attributable to net operating losses incurred in the period. Net
cash used in investing activities of $2,585 and $3,321 for the years ended
December 31, 1995 and 1996, respectively, was primarily attributable to
purchases of equipment and leasehold improvements. Net cash used in investing
activities of $13,873 for the nine months ended September 28, 1997 was
attributable to purchases of equipment and leasehold improvements of $1,336,
and for funding of the ESPN Joint Venture and the ABCNews Joint Venture of
$12,537. Net cash provided by operating
137
<PAGE>
activities for the nine months ended June 28, 1998 of $195 was the result of
net operating losses primarily consisting of non-cash items. Starwave
currently has a commitment for its facilities under a noncancelable lease
agreement that expires in May 2001, subject to extension at Starwave's option.
Starwave also has a commitment for facilities under a noncancelable lease
agreement that expires November 2000, subject to a three-year extension at
Starwave's option.
The ESPN Joint Venture and the ABCNews Joint Venture have entered into
agreements with certain co-branding partners that require the payment of
minimum royalties and/or royalty advances to the co-branding partners. At
September 28, 1997, the ESPN Joint Venture's minimum royalty liability totaled
$2,800 and the ABCNews Joint Venture's minimum royalty liability totaled
$1,800. Certain of the co-branding agreements provide for additional royalty
payments if specified targets are met.
From inception of the ESPN Joint Venture and the ABCNews Joint Venture on
April 1, 1997, Starwave has provided 60% of the capital contributions
necessary for the operations of each Venture. For the nine months ended June
28, 1998 and for the six months ended September 28, 1997, capital contributed
to the ESPN Joint Venture was $5,769 and $5,377, respectively, and cash
provided for the ABCNews Joint Venture was $8,852 and $8,660, respectively.
It is anticipated that Starwave's cash requirements will continue to be
funded by Disney through the consummation of the Mergers and thereafter will
be funded by Infoseek.
YEAR 2000 COMPLIANCE
Starwave is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Starwave management is conducting a review of Starwave's exposure to the
year 2000 problem, including working with computer system, data feed and
software vendors to assure that they are prepared for the year 2000. Based on
this review and discussions with such vendors, Starwave currently believes
that its internally developed systems are year 2000 compliant (with the
exception of two systems, which are scheduled to be replaced as part of a
regular upgrade program). Starwave does not expect to further incur any
significant operating expenses or significant investment in additional
computer systems to resolve issues relating to the year 2000 problem, with
respect to both its information technology and product and service functions.
Starwave has also inventoried, and is in the process of contacting, third
party software and data feed vendors to assure their systems are year 2000
compliant.
Notwithstanding the foregoing, significant uncertainty exists concerning the
effects of the year 2000 problem, including uncertainty with respect to
assurances made by Starwave's vendors. Further, Starwave has not investigated
year 2000 compliance of third parties who are not vendors of Starwave, and
Starwave has no control over such third parties' compliance. For example, the
failure of any site to which a link appears on a Starwave website could result
in the loss of such link and therefore reduce the breadth of services offered
through links from the Starwave website, which may in turn materially
adversely affect the Starwave website and the value of user traffic and
advertisers using such website. Any failure of Starwave or its viewers,
customers, linked sites, advertisers or other third parties to be year 2000
compliant could materially affect the business, results of operations,
financial condition and prospects of Starwave.
THE JOINT VENTURES' RESULTS OF OPERATIONS
The following is a discussion of the Joint Ventures' results of operations
in order to make comparative assessments of the results of operations move
meaningful.
138
<PAGE>
THE ESPN JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997 NINE MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
-------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revenues............................................. $ 6,996 $14,521
Operating expenses:
Cost of online services............................ 7,168 10,668
Development........................................ 515 1,299
Sales and marketing................................ 2,262 3,809
General and administrative......................... 811 2,228
------- -------
Total operating expenses............................. 10,756 18,004
------- -------
Operating loss....................................... (3,760) (3,483)
Net other income..................................... 8 --
------- -------
Loss from operations................................. $(3,752) $(3,483)
======= =======
</TABLE>
Revenues
The ESPN Joint Venture began to generate revenues on April 1, 1997, after
the formation of the Joint Venture. Revenues for the six months ended
September 28, 1997 and nine months ended June 28, 1998 were $6,996 and
$14,521, respectively. Advertising revenues for the corresponding periods were
$4,868 and $10,292, respectively, representing 70%, and 71%, respectively, of
total revenue. The balance of revenue during those periods was derived from
subscription fees for premium services, fantasy leagues, and merchandise
sales.
Operating Expenses
The ESPN Joint Venture began incurring operating expenses upon formation of
the Joint Venture on April 1, 1997. These costs also include those costs paid
by its partners on behalf of the Joint Ventures. Starwave expects that ESPN
Joint Venture operating expenses will continue to increase in the future as
the Joint Venture seeks to expand its online services.
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees paid to content providers. Costs of
online services for the six months ended September 28, 1997 and nine months
ended June 28, 1998 were $7,168 and 10,668, respectively.
Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
facilities and equipment. Total development costs for the six months ended
September 28, 1997 and nine months ended June 28, 1998 were $515 and $1,299,
respectively. These amounts represent 7% and 9%, respectively, of total
revenues in those periods. The increase in costs for the nine months ended
June 28, 1998 is primarily due to additional costs incurred for increased
labor costs. The ESPN Joint Venture anticipates that it will continue to
devote substantial resources to development to remain competitive and that the
absolute dollar amount of these costs will increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the six months ended September 28, 1997, and nine months ended June 28,
1998 were $2,262 and $3,809, respectively, representing 32% and 26%,
respectively, of total revenues. The ESPN Joint Venture anticipates that the
absolute dollar amount of sales and marketing expenses will increase in future
periods.
139
<PAGE>
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these
costs include occupancy costs for the ESPN Joint Venture, as well as fees for
professional services. General and administrative expenses for the six months
ended September 28, 1997, and nine months ended June 28, 1998 were $811 and
$2,228, respectively, representing 12% and 15%, respectively, of total
revenues. The ESPN Joint Venture opened offices in New York, New York and
Bristol, Connecticut, in addition to its operations in Starwave's existing
office in Bellevue, Washington, which contributed to the increased cost of
general and administrative expenses.
Income Taxes. Profits or losses of the ESPN Joint Venture are attributable
directly to its partners for income tax purposes. Consequently, an income tax
provision has not been reflected in any financial information presented.
THE ABCNEWS JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Revenues.............................................. $ 1,929 $ 7,171
Operating expenses:
Cost of online services............................. 9,015 11,696
Development......................................... 532 2,233
Sales and marketing................................. 1,777 2,660
General and administrative.......................... 537 2,219
------- --------
Total operating expenses.............................. 11,861 18,808
------- --------
Operating loss........................................ (9,932) (11,637)
Net other income...................................... 2 --
------- --------
Loss from operations.................................. $(9,930) $(11,637)
======= ========
</TABLE>
Revenues
The ABCNews Joint Venture began to generate revenues on April 1, 1997, after
the formation of the joint venture. Revenues for the six months ended
September 28, 1997, and the nine months ended June 28, 1998 were $1,929 and
$7,171, respectively. Advertising revenues for the corresponding periods were
$937 and $2,858, respectively, representing 49% and 40%, respectively, of
total revenue. The balance of revenue during those periods was derived from a
contract with a major online service for the use of ABCNews.com site
information on their proprietary service.
Operating Expenses
The ABCNews Joint Venture began incurring operating expenses upon formation
of the joint venture on April 1, 1997. These costs also include those costs
paid by its partners on behalf of the joint venture. Starwave expects that
ABCNews Joint Venture operating expenses will continue to increase in the
future as the joint venture seeks to expand its online services.
Cost of Online Services. Cost of online services consists primarily of site
production and maintenance costs, royalties to co-branding partners, web
operations and support costs, and fees paid to content providers. Costs of
online services for the six months ended September 28, 1997, and the nine
months ended June 28, 1998 were $9,015 and $11,696 respectively.
140
<PAGE>
Development. Development expenses include expenses related to the
development and production of new online services and technologies, including
payroll and related expenses for development staff as well as costs for
facilities and equipment. Total development costs for the six months ended
September 28, 1997 and the nine months ended June 28, 1998 were $532 and
$2,233, respectively. These amounts represent 28% and 31%, respectively, of
total revenues in those periods. Starwave expects that the ABCNews Joint
Venture will continue to devote substantial resources to development to remain
competitive and that the absolute dollar amount of these costs will increase
in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
payroll and related expenses for sales and marketing personnel, advertising
expenses, as well as related facilities expenses. Sales and marketing expenses
for the six months ended September 28, 1997 and the nine months ended June 28,
1998 were $1,777 and $2,660, respectively, representing 92% and 37%,
respectively, of total revenues. The ABCNews Joint Venture anticipates that
the absolute dollar amount of sales and marketing expenses will increase in
future periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses of executive, finance, legal, human
resources, and information systems personnel. In addition, these costs include
occupancy costs for the ABCNews Joint Venture, as well as fees for
professional services. General and administrative expenses for the six months
ended September 28, 1997 and the nine months ended June 28, 1998 were $537 and
$2,219, respectively, representing 28% and 31%, respectively, of total
revenues. The ABCNews Joint Venture opened an office in New York, New York in
addition to the existing offices in Bellevue, Washington, which contributed to
the increased cost of general and administrative expenses.
Income Taxes. Profits or losses of the ABCNews Joint Venture are
attributable directly to its partners for income tax purposes. Consequently,
an income tax provision has not been reflected in any financial information
presented.
141
<PAGE>
STARWAVE BUSINESS
OVERVIEW
Starwave is a producer of Internet-based online services in specific content
areas with broad consumer appeal. Starwave is recognized for its prominent
role in sports, news and entertainment services. These services are offered
through the Joint Ventures.
The ESPN Joint Venture's flagship service is ESPN SportsZone, which provides
unique sports-related content. The ESPN Joint Venture's other sports services
include NBA.com, NFL.com, NASCAR Online and Outside Online. The ABCNews Joint
Venture's flagship service is ABCNews.com, which provides a broad variety of
news and information, including world, national, entertainment, health,
technology and business news and information. The ABCNews Joint Venture's
other wholly owned services include Mr. Showbiz (entertainment news), Wall of
Sound (music news), CelebSite (celebrity information) and MoneyScope (business
news and information). The Joint Ventures derive content from their staffs,
partners, licensees, news services and freelance writers and commentators, and
they add additional value by converting this content into interactive
programming. To facilitate traffic to its online services, each service has
its own Internet address, or URL (Uniform Resource Locator), allowing direct
Internet access by any viewer.
BUSINESS STRATEGY
Starwave's business strategy consists of the following key elements: (i)
provide comprehensive, entertaining programming that is constantly updated;
(ii) leverage Starwave's association with high-profile brands, including ESPN,
ABC, the NBA, the NFL and NASCAR; (iii) utilize and develop leading-edge
technology that offers consumers advanced and entertaining services; (iv)
provide an attractive platform for mainstream, consumer-oriented advertisers;
and (v) capitalize on emerging revenue opportunities.
ESPN AND ABCNEWS JOINT VENTURES
The ESPN Joint Venture's sports services and the ABCNews Joint Venture's
news services are cross-linked, enabling users to move easily from one service
to another. The distinct URLs for ESPN SportsZone, NBA.com, NFL.com, NASCAR
Online and Outside Online enable the ESPN Joint Venture to capture audiences
having specific interests in particular sports categories, while the distinct
URLs for ABCNews.com, Mr. Showbiz, Wall of Sound, CelebSite and MoneyScope
enable the ABCNews Joint Venture to capture audiences having specific
interests in particular news, entertainment and business categories. These
URLs are displayed in ESPN and ABC broadcasts in order to promote ESPN
SportsZone and ABCNews.com, respectively.
The Joint Ventures have terms of ten years following the Effective Time of
the Mergers and are mutually exclusive with regard to U.S. and Canadian based
online sports and general news services, respectively. Required funding under
the Joint Ventures is split 60/40 between the Starwave and Disney entities in
loss years and 50/50 in years in which the respective Joint Ventures achieve
net income. Under the Joint Ventures, Starwave provides a variety of services,
including hosting, technology development, usage tracking, infrastructure,
production support, software tools and engines; ESPN provides access to ESPN
television and radio creative and editorial content, advertising and promotion
on ESPN cable television and radio networks and access to the "ESPN" brand,
properties and personalities; and Disney provides access to ABC News creative
and editorial content, advertising and promotion on ABC News programs, and
access to the "ABC News" brand, properties and personalities.
REVENUE SOURCES
Starwave and the Joint Ventures have historically derived their revenue
principally from advertising and subscription fees. Starwave believes that its
success in obtaining advertising revenue is primarily the result of high
consumer traffic, favorable demographics and innovative marketing approaches.
As of the date hereof, Starwave has introduced subscription services only on
ESPN SportsZone, including a premium subscription,
142
<PAGE>
which provides enhanced coverage, special editorial features, in-depth
statistics and graphical analysis and access to additional multimedia content,
as well as a one-time subscription, which provides access to fantasy games
such as Fantasy Baseball and Fantasy Football.
Starwave is also developing other revenue sources such as program bundling.
Services with branded content are able to bundle portions of their content
with third-party services, including online services, browsers, software
vendors and Internet service providers, in order to differentiate these
products and services from their competition. Starwave believes that bundling
branded services provides further distribution opportunities and generates
additional revenue through license fees, royalties and bounty payments.
Starwave also generates merchandising revenue through online sales and
transactions in the Zone Store within ESPN SportsZone and the NBA Store within
NBA.com. Finally, Starwave provides hosting services, and licenses some of its
proprietary software, to Disney and TheStreet.com.
MARKETING AND DISTRIBUTION
Starwave's strategy is to build brand awareness for the Joint Ventures'
services through a variety of marketing techniques, including reciprocal
advertising arrangements with web search engines, ABC and ESPN broadcasts,
advertisements in other traditional media and online media (such as broadcast
e-mail), trade advertisements and trade shows. Starwave and the Joint Ventures
have built brand awareness through their relationships with partners with
strong brands, including the NFL, the NBA, NASCAR, TheStreet and Outside
magazine.
TECHNOLOGY
Starwave believes that the utilization of leading-edge technologies is
necessary to differentiate the Joint Ventures' services. Starwave's technology
strategy is to internally develop technologies that offer consumers advanced
and entertaining services and increase the quality of the user experience. By
developing technologies internally, Starwave seeks to avoid the expense, delay
and dependence on outside suppliers typically associated with new technology
efforts. To date, Starwave has internally developed technologies that
facilitate authoring capabilities for text, audio, graphics and video that
enhance the speed and interactivity of its services, as well as technology
designed to enable consumers to make secure purchases using credit cards over
the Internet.
COMPETITION
Competition in Internet content publishing is intense and is expected to
increase significantly in the future. Starwave and the Joint Ventures face
overall competition for advertising dollars and audiences from Internet
navigation services such as Netscape, search engines and directories such as
Yahoo!, Lycos and Excite, online services such as AOL, The Microsoft Network
and SNAP! and other services such as PointCast. Furthermore, each of the Joint
Ventures' services faces direct competition from other content providers that
offer services and information pertaining to sports, news, entertainment and
finance. These include, among others, with respect to sports, CBS Sportsline,
CNNSI, Fox Sports online, MSNBC, Yahoo!Sports and AOL; with respect to news,
MSNBC, CNN Interactive, Fox News online, search engines' and directories' news
sections and the major online services; with respect to entertainment, E!
Online, Entertainment Weekly/Pathfinder, Hollywood Online, CNN Interactive-
Showbiz, movie studios such as MGM/UA, Warner Bros., Universal and Sony, and
the major online services; and with respect to finance, Bloomberg, Microsoft
Investor, Quicken Financial Network, Reuters, Dow Jones, CNNfn and various
other online services that provide both up-to-the-minute market information
and investment advice.
Large content providers in other media, including movie studios, television
networks, cable television providers and print publishers have the capacity to
translate their products into online services and to cross-promote these
services through their traditional media channels. These media providers may
form joint ventures such as MSNBC, a joint venture between Microsoft and NBC.
There have been many other recent strategic
143
<PAGE>
alliances and Starwave believes other potential alliances of technology and
content are likely to occur in the future.
Starwave believes that the principal competitive factors in attracting users
include the quality of presentation, the integration of content in an
interactive format and the relevance, timelines, depth and breadth of
information and services offered by Starwave. Access to real time data and
video and audio highlights of live events may become increasingly important in
differentiating sites and attracting users. With respect to attracting
advertisers, Starwave believes that the principal competitive factors include
the number of users accessing Starwave's interactive programming, the
demographic appeal of Starwave's services, the demographics of Starwave's
programming users, Starwave's ability to deliver focused advertising and
interactivity through its services, and the overall cost-effectiveness and
value of advertising offered by Starwave. Although Starwave believes that it
is well positioned to compete effectively because of the broad consumer appeal
of its content, its association with high-profile brands, its use and
development of leading-edge technology, and the attractive platform it
provides for advertisers, there can be no assurance that Starwave will be able
to compete successfully with respect to any of these factors. If Starwave
loses one or more significant advertising customers or is forced to reduce
advertising rates in order to retain customers, its business, financial
condition and operating results will be materially adversely affected. In
addition, there are many entities that have greater financial, technological,
marketing and editorial resources that can compete with all of Starwave's
services.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Starwave and the Joint Ventures rely on patent, trade secret and copyright
laws to protect their proprietary technologies, but there can be no assurance
that such laws will provide sufficient protection to Starwave and the Joint
Ventures, that others will not develop similar or superior technologies, or
that third parties will not copy or otherwise obtain and use the technologies
of Starwave and the Joint Ventures without authorization. After giving effect
to the Mergers, Starwave's proprietary technologies may receive greater
exposure in international markets. Effective patent, copyright, trademark and
trade secret protection may be unavailable or limited in certain of such
markets. Starwave has filed patent applications with respect to certain of its
software and online technologies, but there can be no assurance that patents
will issue with respect to such applications, that any issued patents will not
be challenged, invalidated or circumvented, or that the patents will provide a
competitive advantage to Starwave. Starwave's and the Joint Ventures' success
is also dependent in part on the protection of their original interactive
content and on the goodwill associated with their trademarks, trade names,
service marks and other proprietary rights. A substantial amount of
uncertainty exists concerning the application of copyright and trademark laws
to the Internet and other digital media, and there can be no assurance that
existing laws provide adequate protection for Starwave's and the Joint
Ventures' content or their Internet addresses (commonly referred to as "domain
names"). Starwave and the Joint Ventures have federally registered trademarks
for the names Starwave(R), SportsZone(R) and Mr. Showbiz(R), and have filed
applications to register a number of other trademarks and service marks and
will continue to evaluate the registration of additional service marks and
trademarks, as appropriate. There can be no assurance that Starwave's means of
protecting and maintaining its proprietary rights, including the goodwill
associated with its trademarks, trade names and service marks, will be
adequate, and any failure to protect and maintain such rights could have a
material adverse effect on Starwave's business, financial condition and
operating results.
EMPLOYEES
As of June 30, 1998, Starwave had a total of 333 employees, including those
employees supporting the Joint Ventures. Of the total, 40 were involved in
Starwave's technology division, 38 were in web operations and MIS, 37 were in
general administration and development and 218 were involved in the Joint
Ventures. None of these employees are represented by a labor union. Neither
Starwave nor the Joint Ventures has experienced any work stoppages and they
consider relations with their employees to be good. Starwave's and the Joint
Ventures' performance is substantially dependent on the continued services of
their senior management teams and on their continuing ability to attract and
retain highly qualified and motivated officers and key employees and to
attract and retain sufficient numbers of technical and production personnel.
144
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
SHAREHOLDERS OF STARWAVE
The following table sets forth, as of October 9, 1998, certain information
with respect to the beneficial ownership of shares of Starwave common stock by
(i) each Starwave director, (ii) Starwave's Chief Executive Officer and four
other most highly compensated executive officers of Starwave during the last
completed fiscal year whose total annual salary and bonus exceeded $100,000
(the "Starwave Named Executive Officers"), (iii) all directors and executive
officers of Starwave as a group, and (iv) each person (or group of affiliated
persons) known to Starwave to be the beneficial owner or 5% of more of
Starwave's outstanding shares. Except as otherwise noted, Starwave believes
that the beneficial owners of the shares of Starwave common stock listed
below, based on information furnished by them, have sole voting and investment
power with respect to such shares.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF STARWAVE INFOSEEK DELAWARE
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO MERGERS(2) AFTER MERGERS(3)(4)
-------------------------- --------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT CLASS NUMBER PERCENT
------------------- ------------ --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Disney(5).............. 88,550,088(6) 90.8% A/B 25,665,023(7) 43.1%
Michael B. Slade....... 2,172,917 2.2% A 564,959 **
Chairman of the Board
and Chief Executive
Officer(8)
Thomas L. Phillips,
Jr.(9) ............... 918,600 ** A 238,836 **
Patrick J. Naughton.... 1,569,417 1.6% A 408,049 **
President(8)
Curt D. Blake ......... 844,793 ** A 219,646 **
Chief Operating
Officer(8)
David Chamberlain ..... 136,500 ** A 35,490 **
Vice President,
Technical
Operations(8)
Richard Glover,
Director(10).......... -- -- -- -- --
Kevin Mayer,
Director(10).......... -- -- -- -- --
Thomas Staggs,
Director(10).......... -- -- -- -- --
Jake Winebaum,
Director(10).......... -- -- -- -- --
All directors and
executive officers as
a group
(9 persons)(8)........ 5,642,227 5.6% A 1,466,979 2.5%
</TABLE>
- --------
** Less than 1%
(1) The address for each of Messrs. Slade, Phillips, Naughton, Blake and
Chamberlain is c/o Starwave Corporation, 13810 S.E. Eastgate Way, Suite
400, Bellevue, Washington 98005, and for each of Messrs. Glover, Mayer,
Staggs and Winebaum is c/o The Walt Disney Company, 500 South Buena Vista
Street, Burbank, California 91521.
(2) Percentage ownership calculations are based on 97,535,287 shares of
Starwave common stock outstanding as of October 9, 1998. Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting and investment power with respect to shares. Shares of
Starwave common stock subject to options or warrants currently
exercisable or exercisable within 60 days of October 9, 1998 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing
the percentage of any other person.
(3) Estimates based on an Exchange Ratio of 0.26, which is subject to change
at the Effective Time based on the number of Starwave common shares and
options outstanding. Percentage ownership calculations are based on an
estimated 59,510,000 shares of Infoseek common stock outstanding
following the Mergers, which is subject to adjustment based on changes in
the Exchange Ratio (if any) and any additional shares of Infoseek common
stock that may be issued prior to the Effective Time in transactions (if
any) separate from those described herein.
(4) Does not include up to approximately 700,000 shares of Infoseek common
stock which may be issued in connection with the acquisition of Quando.
145
<PAGE>
(5) Includes both The Walt Disney Company and its wholly owned subsidiary,
DEI. For federal securities law purposes, The Walt Disney Company is
deemed to have investment and voting power over shares of Starwave and
Infoseek common stock held by itself as well as by its subsidiary, DEI.
(6) Consists of 48,680,740 shares of Starwave Class A Common Stock
(representing 50.0% of all outstanding Starwave shares) and 39,869,348
shares of Starwave Class B Common Stock (representing 40.8% of all
Starwave outstanding shares), all of which are owned by DEI. See Note (5)
above.
(7) Consists of 23,023,023 shares of Infoseek common stock acquired by DEI
pursuant to the Starwave Merger and 2,642,000 shares of Infoseek common
stock acquired by The Walt Disney Company pursuant to the Securities
Purchase Agreement. See Note (5) above.
(8) Includes shares which are issuable pursuant to stock options which may be
exercised within 60 days of October 9, 1998.
(9) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment with the ESPN Joint Venture
terminated.
(10) Based on his employment as an officer of Disney, such director may be
deemed the owner of the shares held by Disney as indicated in the chart
above. However, each such director disclaims beneficial ownership of
Disney's shares.
146
<PAGE>
MANAGEMENT OF STARWAVE
EXECUTIVE OFFICERS OF STARWAVE
Set forth below is certain information with respect to Starwave's executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------------
<S> <C> <C>
Michael B. Slade................. 41 Chairman and Chief Executive Officer of
Starwave
Patrick J. Naughton.............. 33 President and Chief Technology Officer of
Starwave
Curt D. Blake.................... 40 Chief Operating Officer of Starwave
David Chamberlain................ 33 Vice President, Technical Operations of
Starwave
</TABLE>
Michael B. Slade. Mr. Slade joined Starwave in February 1993 as President,
Chief Executive Officer, and director. In April 1997, he was made Chairman and
CEO. From October 1992 to February 1993, he served as Vice President of
Special Projects for Asymetrix Corporation, a company wholly owned by Paul
Allen. Mr. Slade also serves on the Board of Directors of CKS Group.
Patrick J. Naughton. Mr. Naughton joined Starwave in October 1994 as its
Vice President, Technology, and served as Starwave's Senior Vice President,
Technology from July 1996 to April 1997. Since April 1997, he has served as
its President and Chief Technology Officer. In June 1988, he joined Sun
Microsystems, where he started a research project in the Sun Microsystems
Laboratories in December 1990 which conceived the Java programming language.
From January 1993 to October 1994, he served as Chief Technologist of First
Person, Inc., a Sun Microsystems subsidiary formed to commercialize Java
technologies.
Curt D. Blake. Mr. Blake has served as Chief Operating Officer of Starwave
since April 1997. From July 1996 until that time, he served as Senior Vice
President, Business, Legal and Administration. He has been Corporate Secretary
since November 1994. From September 1993, when he joined Starwave, to July
1996, he served as Vice President, Business and Legal Affairs and Corporate
Secretary. From June 1992 to September 1993, Mr. Blake served as Director of
Acquisitions, Business and Legal Affairs for Continuum Productions Corporation
(now Corbis), a multimedia acquisition and production company.
David Chamberlain. Mr. Chamberlain joined Starwave in March 1995 as Director
of Management Information Systems and, since April 1997, has served as Vice
President, Technical Operations. From March 1992 until March 1995, Mr.
Chamberlain was MIS Manager for Continuum Productions Corporation (now
Corbis), a multimedia acquisition and production company.
147
<PAGE>
STARWAVE EXECUTIVE COMPENSATION
STARWAVE COMPENSATION SUMMARY
The following table sets forth certain information concerning compensation
paid by Starwave to the Starwave Named Executive Officers during the fiscal
year ended September 28, 1997.
SUMMARY COMPENSATION TABLE
(FISCAL YEAR ENDED SEPTEMBER 28, 1997)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS(1) ($)
--------------------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Michael B. Slade.............. $251,480 $ -- 3,300,000(2) $ --
Chairman & Chief Executive
Officer
Patrick J. Naughton........... 205,006 -- 2,620,000 --
President
Curt D. Blake................. 190,006 -- 1,300,000 --
Chief Operating Officer
Thomas L. Phillips, Jr. (3) .. 227,506 50,000 1,800,000(2) 101,454(4)
David Chamberlain............. 124,484 -- 240,000 --
Vice President, Technical
Operations
</TABLE>
- --------
(1) The securities underlying the stock options consist of shares of Class A
Common Stock of Starwave.
(2) During the fiscal year ended September 28, 1997, Paul Allen, Starwave's
founder, granted to Mr. Slade and Mr. Phillips options to acquire
1,000,000 shares and 300,000 shares of Starwave common stock,
respectively, directly from Mr. Allen. Since the issuance of such options
and prior to any exercise thereof by either such executive, Mr. Allen has
sold to Disney all shares of Starwave common stock owned by him and no
longer holds any shares of Starwave common stock. Such options have not
been assumed by Disney, Starwave or Infoseek.
(3) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment with the ESPN Joint Venture terminated.
(4) Represents moving assistance paid on a one-time basis pursuant to Mr.
Phillips' relocation from Seattle, Washington to New York City, New York.
148
<PAGE>
STARWAVE OPTION GRANTS IN YEAR ENDED SEPTEMBER 28, 1997
The following table sets forth stock option grants made during the fiscal
year ended September 28, 1997 to the Starwave Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
NAME GRANTED(#) YEAR(1) SHARE($)(2) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael B. Slade........ 1,000,000(4)(5) 20.8% $2.2675 3/28/2007 $ 1,853,824 $ 4,697,957
Patrick J. Naughton..... 1,000,000(4) 20.8% 2.2675 3/28/2007 1,426,019 3,613,811
Curt D. Blake........... 400,000(4) 8.3% 2.2675 3/28/2007 570,407 1,445,524
Thomas L. Phillips,
Jr..................... 900,000(4)(5)(6) 18.7% 2.2675 3/28/2007 1,283,417 3,252,430
David Chamberlain....... 120,000(7) 2.5% 2.2675 4/1/2007 171,122 433,657
</TABLE>
- --------
(1) Based on an aggregate of 4,819,600 options granted during the fiscal year
ended September 28, 1997 to Starwave employees (including the Starwave
Named Executive Officers) and employees of the Joint Ventures pursuant to
the Starwave Revised 1992 Combined Incentive and Nonqualified Stock Option
Plan, Amended and Restated as of March 7, 1995, and the Starwave 1997
Nonqualified Stock Option Plan.
(2) The exercise price per share of each option was equal to the fair market
value of Starwave common stock on the date of the grant as determined by
the Starwave Board of Directors based on recent sales of Starwave common
stock in arms' length transactions as well as the status of Starwave's
business, financial condition, results of operations and prospects.
(3) Represents amounts that may be realized upon exercise of the options
immediately prior to their expiration assuming the specified compounded
rates of appreciation on the base price (5% and 10%) of the Starwave
common stock over the option terms. The 5% and 10% amounts are calculated
based on rules required by the Commission and do not reflect Starwave's
estimate of future stock price growth.
(4) The options became exercisable as to 2.083% of the shares on April 28,
1997, and continue to vest as to an additional 2.083% with each month of
continuous employment thereafter.
(5) Does not include options granted by Paul Allen, Starwave's founder, to
Messrs. Slade and Phillips to acquire 1,000,000 shares and 300,000 shares
of Starwave common stock, respectively, directly from Mr. Allen. Since the
issuance of such options and prior to any exercise thereof by either such
executive, Mr. Allen has sold to Disney all shares of Starwave common
stock owned by him and no longer holds any shares of Starwave common
stock. Such options have not been assumed by Disney, Starwave or Infoseek.
(6) Mr. Phillips was President of the ESPN Joint Venture until September 17,
1998, on which date his employment agreement with the ESPN Joint Venture
terminated.
(7) The options became exercisable as to 25% of the shares on April 1, 1998
and continue to vest as to an additional 2.083% with each month of
continuous employment thereafter.
149
<PAGE>
STARWAVE AGGREGATE OPTION EXERCISES AND VALUES AT SEPTEMBER 28, 1997
The following table sets forth information with respect to options exercised
during the fiscal year ended September 28, 1997 and the number and value of
securities underlying unexercised options held by the Starwave Named Executive
Officers at September 28, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES SUBJECT IN-THE-
SHARES TO UNEXERCISED OPTIONS AT MONEY OPTIONS AT
ACQUIRED DOLLAR FISCAL YEAR END (#) FISCAL YEAR-END ($)(1)
ON VALUE ------------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael B. Slade........ 504,750 $1,128,915 124,998 1,006,250 $ 0 $ 286,125
Patrick J. Naughton..... 256,480 580,927 736,250 1,483,750 1,335,713 1,340,888
Curt D. Blake........... 63,140 27,466 356,250 481,250 697,313 286,125
Thomas L. Phillips,
Jr..................... 0 0 456,930 918,750 765,790 286,125
David Chamberlain....... 15,000 6,525 24,168 177,500 49,303 118,275
</TABLE>
- --------
(1) The value of in-the-money options is calculated as the fair market value
of the underlying Starwave common stock, minus the per share exercise
price of the stock options, multiplied by the number of shares subject to
the options, in accordance with applicable SEC rules. The fair market
value of the underlying securities at the fiscal year-end was estimated to
be approximately $2.27 per share, as determined by Starwave's Board of
Directors.
STARWAVE EMPLOYMENT AGREEMENTS
Michael B. Slade, Patrick J. Naughton, Curt D. Blake and David Chamberlain,
each a Starwave Named Executive Officer, are parties to the employment
agreements with Starwave summarized below. In connection with the Mergers,
Starwave is currently in the process of negotiating with these executive
officers regarding severance or retention arrangements in light of their
potential roles in the combined companies. Although Starwave is currently
unable to predict the final form of these arrangements, Starwave currently
anticipates that Messrs. Slade and Blake will terminate their employment with
Starwave concurrently with the consummation of the Mergers or shortly
thereafter in accordance with severance arrangements to be entered into with
each such executive, and that Messrs. Naughton and Chamberlain will continue
their employment with the combined companies in accordance with new or amended
employment agreements. However, there can be no assurance in this regard.
Starwave does not anticipate that any such arrangements or any failure to
retain such executive officers will have a material adverse impact on the
business, financial condition, operating results or prospects of Starwave. See
"The Mergers and Related Transactions--Additions to Infoseek's Board of
Directors; Interests of Certain Persons in the Mergers." The numbers of shares
of Starwave common stock and the price per share of Starwave common stock set
forth in the summaries below reflect the Starwave Stock Split.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Slade as its Chairman and Chief Executive Officer with an
annual base salary of $290,000, $320,000 and $360,000 for each of the three
successive 12-month periods in the employment period, which began April 1,
1997 and expires on March 31, 2000. In addition, the employment agreement
grants Mr. Slade (a) a nonqualified option to acquire 1,000,000 shares of
Starwave Class A Common Stock, (b) on or before August 1, 1997, the right to
sell up to 500,000 shares of Starwave Class A Common Stock to Starwave at a
cash price of $2.05 minus the exercise price of any vested options which are
purchased, (c) the right to sell up to 25% of his eligible shares of Starwave
Class A Common Stock within three months following December 31, 1998 and
December 31, 1999, if Starwave has met certain performance targets, and (d)
following the sixth anniversary of the employment agreement, if not previously
purchased by Disney pursuant to Disney's right to purchase such shares under
certain circumstances, the right to require Starwave to purchase all of his
eligible shares of Starwave Class A Common
150
<PAGE>
Stock at 80% of the fair market value thereof. The employment agreement also
provides for employee benefits, vacation days and expense reimbursement
customary for executive officers of Starwave.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Naughton as its President and Chief Technology Officer
with an annual base salary of $230,000, $260,000 and $290,000 and $330,000 for
each of the four successive 12-month periods in the employment period, which
began April 1, 1997 and expires on March 31, 2001. In addition, the employment
agreement grants Mr. Naughton (a) a nonqualified option to acquire 1,000,000
shares of Starwave Class A Common Stock, (b) on or before August 1, 1997, the
right to sell up to 318,500 of his eligible shares of Starwave Class A Common
Stock to Starwave at a cash price of $2.05, (c) the right to sell up to 10% of
his eligible shares of Starwave Class A Common Stock within three months
following December 31, 1998 and December 31, 1999, if Starwave has met certain
performance targets, and (d) following the sixth anniversary of the employment
agreement, if not previously purchased by Disney pursuant to Disney's right to
purchase such shares under certain circumstances, the right to require
Starwave to purchase all of his eligible shares of Starwave Class A Common
Stock at 80% of the Fair Market Value thereof. The employment agreement also
provides for employee benefits, vacation days and expense reimbursement
customary for executive officers of Starwave.
Pursuant to the terms of an employment agreement dated March 28, 1997,
Starwave engaged Mr. Blake as its Executive Vice President with an annual base
salary of $200,000, $220,000 and $240,000 for each of the three successive 12-
month periods in the employment period, which began April 1, 1997 and expires
on March 31, 2000. In addition, the employment agreement granted Mr. Blake (a)
a nonqualified option to acquire 400,000 shares of Starwave Class A Common
Stock, (b) on or before August 1, 1997, the right to sell up to 178,124 of his
eligible shares of Starwave Class A Common Stock to Starwave at a cash price
of $2.05, (c) the right to sell up to 10% of his eligible shares of Starwave
Class A Common Stock within three months following December 31, 1998 and
December 31, 1999, if Starwave has met certain performance targets, and (d)
following the sixth anniversary of the employment agreement, if not previously
purchased by Disney pursuant to Disney's right to purchase such shares under
certain circumstances, the right to require Starwave to purchase all eligible
shares of Starwave Class A Common Stock held by him at 80% of the Fair Market
Value thereof. The employment agreement also provides for employee benefits,
vacation days and expense reimbursement customary for executive officers of
Starwave.
Pursuant to the terms of an employment agreement dated April 11, 1997,
Starwave engaged Mr. Chamberlain as Vice President, Technical Operations with
an annual base salary of $125,000 and $145,000 for the two successive 12-month
periods in the employment period, which began April 1, 1997 and expires on
March 31, 1999. In addition, the employment agreement granted Mr. Chamberlain
(a) a nonqualified option to acquire 480,000 shares of Starwave Class A Common
Stock and (b) the right to sell up to 20% of his eligible shares of Starwave
Class A Common Stock to Starwave at a cash price of $2.05. The employment
agreement also provides for employee benefits, vacation days and expense
reimbursement customary for executive officers of Starwave.
151
<PAGE>
CERTAIN TRANSACTIONS OF STARWAVE
Following is a summary of certain business transactions and relationships
between Starwave and its majority shareholder, Disney. The following summary
does not purport to be complete and is subject to, and qualified by, express
reference to the provisions of the agreements (as applicable) governing the
respective transaction or relationship.
STOCK PURCHASE AGREEMENT
Pursuant to the Starwave Stock Purchase Agreement, Starwave issued and sold
to DEI 9,967,337 shares of Starwave common stock for aggregate consideration
of $82 million (39,869,348 shares after adjustment for the Starwave Stock
Split). Starwave used approximately $50 million of these proceeds to repay the
then-outstanding indebtedness owed by it to Paul Allen, and the remaining
approximately $45.7 million of indebtedness owed by Starwave to Mr. Allen was
converted into 5,155,289 shares of Starwave common stock (20,621,156 shares
when adjusted for the Starwave Stock Split). Pursuant to the Starwave Stock
Purchase Agreement, Starwave has certain indemnification obligations to
Disney, which Disney has agreed to relinquish in connection with the Mergers.
SHAREHOLDERS AGREEMENT
In connection with the Stock Purchase Agreement, Starwave, Mr. Allen and DEI
entered into the Starwave Shareholders Agreement, pertaining to the ownership,
voting and transfer of shares of Starwave common stock. On May 1, 1998, DEI
exercised its right under the Starwave Shareholders Agreement to call all of
the shares of Starwave common stock owned by Mr. Allen, which resulted in the
sale by Mr. Allen to DEI of 48,680,740 shares of Starwave common stock in
exchange for 1,290,518 shares of Disney common stock. Following such sale, Mr.
Allen ceased to own any shares of Starwave capital stock, thereby rendering
ineffective certain provisions of the Starwave Shareholders Agreement granting
various rights to Mr. Allen, including put rights, registration rights, board
representation rights, veto rights over certain corporate actions, preemptive
rights and tag-along sale rights. Pursuant to the Starwave Shareholders
Agreement, Starwave employee shareholders continue to be entitled to certain
tag-along sale rights and, in connection with Disney's purchase of Mr. Allen's
shares, the right to sell their shares to Disney at the same price paid by
Disney to Mr. Allen.
THE JOINT VENTURES
In connection with the transactions contemplated by the Starwave Stock
Purchase Agreement, the Joint Ventures were formed. The operations of the ESPN
Joint Venture currently include ESPN SportsZone, NBA.com, NFL.com, NASCAR
Online and Outside Online, and the operations of the ABCNews Joint Venture
currently include ABCNews.com, Mr. Showbiz, Wall of Sound, CelebSite and
MoneyScope.
The agreements relating to the Joint Ventures, as amended in connection with
the Mergers, have terms of ten years following the Effective Time of the
Mergers and are mutually exclusive with regard to U.S. based online sports and
general news services, respectively. Required funding under the Joint Ventures
are split 60/40 between the Starwave and Disney entities that are parties
thereto in negative cash flow years and 50/50 in years when the respective
Joint Ventures achieve positive cash flow. Under the Joint Ventures, Starwave
provides a variety of services, including hosting, technology development,
usage tracking, infrastructure, production support, software tools and
engines; ESPN provides access to all ESPN television and radio creative and
editorial content, advertising and promotion on ESPN cable television and
radio networks and access to the "ESPN" brand, properties and personalities;
and Disney provides access to all ABC News creative and editorial content,
advertising and promotion on ABC News programs, access to the "ABC News"
brand, properties and personalities and ABC News Broadcast Newsroom
infrastructure.
ESPN and ABC have editorial, creative and overall marketing control of the
services. Upon termination of the Joint Ventures, ESPN and ABC will own all
URLs containing "ESPN", "ESPNET" and "ABC" as well as all editorial and
creative assets, and Starwave will own all other assets. See "Starwave
Business--ESPN and ABCNews Joint Ventures."
152
<PAGE>
The agreements relating to the Joint Ventures, as amended in connection with
the transactions contemplated by the Reorganization Agreement, have been filed
as exhibits to the Registration Statement of Infoseek Delaware of which this
Joint Proxy Statement/Prospectus is a part, and the full text of such
agreements are hereby incorporated herein by reference. See "Related
Agreements--Licensing and Commercial Agreements."
HOSTING AND SOFTWARE LICENSING AGREEMENTS
Pursuant to a Hosting Agreement dated as of February 5, 1997 between
Starwave and Disney Online, a subsidiary of Disney ("DOL"), as amended,
Starwave provides Internet hosting services for "Disney's Daily Blast," an
online service of DOL, in exchange for monthly payments from DOL to Starwave
of $125,000. The Hosting Agreement expires April 8, 1999. Pursuant to a
Software License Agreement dated as of April 28, 1997 between Starwave and
DOL, as amended, Starwave licenses certain Internet site development and
production software to DOL in exchange for cash license fees in amounts
specified in the agreement for each type of licensed technology. The Software
License Agreement is terminable by Disney at any time upon 30 days' notice.
BOARD REPRESENTATION
As of the date hereof, four members of the Starwave Board of Directors,
consisting of Richard Glover, Kevin Mayer, Thomas Staggs and Jake Winebaum,
are employees of Disney or its affiliates. None of these individuals receives
any compensation for his service as a director on the Starwave Board.
Following the Mergers, Mr. Winebaum will become a director of Infoseek
Delaware and Mr. Glover, Mr. Mayer, Mr. Staggs and Mr. Winebaum will no longer
be members of the Board of Directors of Starwave. See "The Mergers and Related
Transactions--Additions to Infoseek's Board of Directors; Interests of Certain
Persons in the Mergers."
TECHNOLOGY LICENSE AGREEMENT
Pursuant to a Technology License Agreement dated as of April 23, 1997
between Paul Allen and Starwave (as amended on May 1, 1998, the "Technology
License Agreement"), Mr. Allen has a nonexclusive royalty-free U.S. license to
use (i) Starwave technology existing as of the date of the Technology License
Agreement, (ii) enhancements and modifications thereto created at any time
prior to the date Mr. Allen ceased to own any shares of Starwave common stock
(May 1, 1998), and (iii) a four-year non-exclusive U.S. license for $750,000
per year to additional enhancements and modifications thereto created during
the four-year period of the license, in each case in other ventures controlled
by Mr. Allen that are, in Disney's reasonable judgment, not competitive with
Starwave or Disney in the areas of general online services, search and
directory services, news, personal finance, sports, children's entertainment
or "edutainment" activities or women or family-related entertainment and
informational services and activities.
OTHER
Michael B. Slade, Starwave's Chief Executive Officer, is a member of the
Board of CKS, Inc., a new media marketing firm ("CKS"). Starwave has engaged
CKS to perform marketing and strategic analysis with regard to the planned New
Portal Service and to create and implement a marketing and advertising
campaign to support its launch. Although Starwave and CKS are currently
negotiating a definitive written agreement setting forth the terms of this
engagement, it is expected that CKS will receive approximately $1 million for
such services and that Starwave will be the owner of all work product produced
by CKS in connection with such services.
153
<PAGE>
REASONS FOR INCORPORATION OF THE HOLDING COMPANY IN DELAWARE
For the reasons set forth below, the Board of Directors of Infoseek believes
that it is in the best interests of Infoseek and its shareholders to change
the state of incorporation of the publicly traded Infoseek entity from
California to Delaware (the "Reincorporation") which will be the result of the
Infoseek Merger contemplated by the Reorganization Agreement. The
Reincorporation will be effected by merging Infoseek Merger Sub into Infoseek
California pursuant to the Infoseek Merger and the terms and conditions of the
Agreement and Plan of Merger related to the Infoseek Merger are attached to
this Joint Proxy Statement/Prospectus as Annex A-2 (the "Infoseek Merger
Agreement"). Upon completion of the Infoseek Merger, Infoseek California will
be a subsidiary of Infoseek Delaware. Infoseek Delaware's initial principal
business will be holding the capital stock of Infoseek California following
the Infoseek Merger and of Starwave following the Starwave Merger. The common
stock of Infoseek California is listed for trading on Nasdaq, and after the
Infoseek Merger, Infoseek Delaware's common stock will be traded on Nasdaq
without interruption, under the same symbol ("SEEK") as the shares of Infoseek
California common stock are currently traded.
As discussed below, the principal reasons for the proposed incorporation of
the publicly traded holding company are the greater flexibility of Delaware
corporate law, the substantial body of case law interpreting that law, and the
increased ability of Infoseek to attract and retain qualified directors.
Infoseek believes that its shareholders will benefit from the well established
principles of corporate governance that Delaware law affords. The proposed
Infoseek Delaware Amended and Restated Certificate of Incorporation ("Infoseek
Delaware's Certificate") and Infoseek Delaware's Bylaws ("Infoseek Delaware's
Bylaws") are substantially similar to those currently in effect for Infoseek
California, with the exception that differences between California and
Delaware law as they relate to cumulative voting and restrictions on hostile
takeovers, as well as certain other protective voting provisions included in
Infoseek Delaware's Certificate as required by the Governance Agreement. See
"Related Agreements--Equity and Governance Agreements" and "Comparison of
Capital Stock--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware." The Reincorporation is not being proposed in order to prevent an
unsolicited takeover attempt and the Board of Directors of Infoseek is not
aware of any present attempt to acquire an interest in Infoseek, obtain
representation on the Board of Directors of Infoseek or take any significant
action that would affect the governance of Infoseek other than as contemplated
in the Reorganization Agreement and the Governance Agreement.
The Reincorporation is not the subject of a separate proxy solicitation and
Infoseek shareholders voting for approval and adoption of the Reorganization
Agreement will be deemed to have voted for the Reincorporation.
The discussion set forth below is qualified by reference to the
Reorganization Agreement, the Infoseek Merger Agreement, Infoseek Delaware's
Certificate and Infoseek Delaware's Bylaws, copies of which are attached to
this Joint Proxy Statement/Prospectus as Annex A-1, Annex A-2, Annex D-1 and
Annex D-2, respectively.
PRINCIPAL REASONS FOR REINCORPORATION
As Infoseek plans for the future (including the results of the Mergers and
transactions contemplated by the Related Agreements), the Infoseek Board of
Directors and Infoseek management believe that it is essential to be able to
draw upon well established principles of corporate governance in making legal
and business decisions. The prominence and predictability of Delaware
corporate law provide a reliable foundation on which Infoseek's governance
decisions can be based and Infoseek believes that shareholders will benefit
from the responsiveness of Delaware corporate law to their needs and to those
of Infoseek.
Prominence, Predictability and Flexibility of Delaware Law. For many years
Delaware has followed a policy of encouraging incorporation in that state and,
in furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal
and business needs
154
<PAGE>
of corporations organized under its laws. Many corporations have chosen
Delaware initially as a state of incorporation or have subsequently changed
corporate domicile to Delaware. Because of Delaware's prominence as the state
of incorporation for many major corporations, both the legislature and courts
in Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to corporate legal affairs.
Increased Ability to Attract and Retain Qualified Directors. Both California
and Delaware law permit a corporation to include a provision in its
certificate of incorporation that reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has greatly expanded the risks facing directors and officers of
corporations in exercising their respective duties. The amount of time and
money required to respond to such claims and to defend such litigation can be
substantial. It is Infoseek's desire to reduce these risks to its directors
and officers and to limit situations in which monetary damages can be
recovered against directors so that Infoseek may continue to attract and
retain qualified directors who otherwise might be unwilling to serve because
of the risks involved. Infoseek believes that, in general, Delaware law
provides greater protection to directors than California law and that Delaware
case law regarding a corporation's ability to limit director liability is more
developed and provides more guidance than California law.
Well Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the
conduct of the board of directors such as under the business judgment rule and
other standards. Infoseek believes that its shareholders will benefit from the
well established principles of corporate governance that Delaware law affords.
NO CHANGE IN THE NAME, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT PLANS OR
LOCATION OF PRINCIPAL FACILITIES OF INFOSEEK
The Infoseek Merger will effect only a creation of a holding company and a
change in the legal domicile of the publicly traded Infoseek entity and
certain other changes of a legal nature, certain of which are described in
this Joint Proxy Statement/Prospectus. The Infoseek Merger alone will NOT
result in any change in the name, business, management, assets or liabilities
(except to the extent of legal and other costs of effecting the
reincorporation and the Infoseek Merger) or location of the principal
facilities of Infoseek. The current directors of Infoseek California are the
same as the directors of Infoseek Delaware except that three additional
directors representing Disney will be added to the Infoseek Delaware Board of
Directors upon consummation of the Mergers. See "Infoseek Management." All
employee benefit, stock option and employee stock purchase plans of Infoseek
California will be assumed and continued by Infoseek Delaware, and each option
or right issued pursuant to such plans will automatically be converted into an
option or right to purchase the same number of shares of Infoseek Delaware
common stock, at the same price per share, upon the same terms, and subject to
the same conditions. Shareholders should note that approval of the Infoseek
Merger will also constitute approval of the assumption of these plans by
Infoseek Delaware. Other employee benefit arrangements of Infoseek California
will also be continued by Infoseek Delaware upon the terms and subject to the
conditions currently in effect. As noted above, after the Infoseek Merger, the
shares of Infoseek Delaware common stock will be traded, without interruption,
on the same exchange, Nasdaq, and under the same symbol, "SEEK" as the shares
of common stock of Infoseek California are currently traded.
ANTITAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number of
measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. The Reincorporation is not being effected in order to prevent such
a change in control and,
155
<PAGE>
except as contemplated by the Reorganization Agreement and the Related
Agreements, the Board of Directors is not aware of any present attempt to
acquire control of Infoseek or to obtain representation on the Board of
Directors.
Certain effects of the Reincorporation may be considered to have
antitakeover implications. Section 203 of the Delaware General Corporation
Law, from which Infoseek Delaware does not intend to opt out, restricts
certain "business combinations" with "interested stockholders" for three years
following the date that a person becomes an interested stockholder, unless the
Board of Directors approves the business combination or the acquisition
pursuant to which a party became an "interested stockholder." Infoseek
Delaware has adopted a "poison pill" Preferred Share Purchase Rights Agreement
(the "Rights Plan"). Pursuant to the Rights Plan, each share, effective as of
the closing of the Mergers, of Infoseek Delaware common stock will have
associated with it certain rights to acquire shares of Infoseek Delaware's
Series A Participating Preferred Stock, par value $0.001 (the "Rights"). The
Rights are triggered and become exercisable upon the occurrence of either (i)
the date of a public announcement of the acquisition of 15% or more beneficial
ownership of Infoseek Delaware's common stock by a person or group (an
"Acquiring Person"), or (ii) ten business days after a public announcement of
a tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an Acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement. Other measures
permitted under Delaware law that Infoseek is not implementing as part of the
Reincorporation include the establishment of a staggered board of directors
and the elimination of the right to remove a director other than for cause. It
should also be noted that elimination of cumulative voting and the
establishment of a classified board of directors also can be undertaken under
California law in certain circumstances. See "Comparison of Capital Stock--
Comparison of Capital Stock of Infoseek California and Infoseek Delaware--
Shareholder Approval of Certain Business Combinations."
The Infoseek Board of Directors believes that unsolicited takeover attempts
may be unfair or disadvantageous to Infoseek and its shareholders because,
among other reasons: (i) a non-negotiated takeover bid may be timed to take
advantage of temporarily depressed stock prices; (ii) a non-negotiated
takeover bid may be designed to foreclose or minimize the possibility of more
favorable competing bids or alternative transactions; (iii) a non-negotiated
takeover bid may involve the acquisition of only a controlling interest in
Infoseek's stock, without affording all shareholders the opportunity to
receive the same economic benefits; and (iv) certain of Infoseek's material
contractual arrangements provide that they may not be assigned pursuant to a
transaction which results in a "change of control" of Infoseek without the
prior written consent of the licensor or other contracting party.
By contrast, in a transaction in which an acquiror must negotiate with an
independent board of directors, the board can and should take account of the
underlying and long-term values of the company's business, technology and
other assets, the possibilities for alternative transactions on more favorable
terms, possible advantages from a tax-free reorganization, anticipated
favorable developments in the company's business not yet reflected in the
stock price and equality of treatment of all shareholders.
156
<PAGE>
Despite the belief of the Infoseek Board of Directors as to the benefits to
shareholders of the Reincorporation, it may be disadvantageous to the extent
that it has the effect of discouraging a future takeover attempt which is not
approved by the Infoseek Board of Directors, but which a majority of the
shareholders besides Disney may deem to be in their best interests or in which
shareholders may receive a substantial premium for their shares over the then
current market value or over their cost basis in such shares. In addition, to
the extent that such provisions enable the Infoseek Board of Directors to
resist a takeover or a change in control of Infoseek, such provisions could
make it more difficult to change the existing Infoseek Board of Directors and
management.
157
<PAGE>
COMPARISON OF CAPITAL STOCK
DESCRIPTION OF INFOSEEK DELAWARE CAPITAL STOCK
The authorized capital stock of Infoseek Delaware will consist, prior to the
closing of the Mergers, of 500,000,000 shares of common stock, $0.001 par
value per share, and 25,000,000 shares of Preferred Stock, $0.001 par value
per share.
Infoseek Delaware Common Stock
As of October 9, 1998, 100 shares of Infoseek Delaware common stock were
outstanding, all of which were held by Infoseek California. After giving
effect to the transactions contemplated by the Reorganization Agreement
(including the Infoseek Merger), there will be approximately 59,510,000 shares
of Infoseek Delaware common stock outstanding (which is subject to adjustment
based on changes in Starwave's outstanding capital stock and any shares of
Infoseek Common Stock that may be issued in transactions separate from the
Mergers, including up to 700,000 shares in connection with the acquisition of
Quando). See "The Mergers and Related Transactions." The holders of Infoseek
Delaware common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Stockholders may not cumulate votes in
connection with the election of directors. The holders of Infoseek Delaware
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of Infoseek Delaware, the holders of Infoseek Delaware common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of liquidation preferences to holders of Preferred Stock, if any.
Infoseek Delaware common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Infoseek Delaware common stock. All outstanding shares of
Infoseek Delaware common stock are fully paid and non-assessable, and the
shares of Infoseek Delaware common stock to be outstanding upon completion of
the Mergers will be fully paid and non-assessable. Effective as of the closing
of the Mergers each share of Infoseek Delaware common stock will have
associated with it certain rights to acquire shares of Infoseek Delaware
capital stock pursuant to a "poison pill" Rights Plan. See "Comparison of
Capital Stock of Infoseek California and Infoseek Delaware--Share Purchase
Rights Plan."
Preferred Stock
Infoseek Delaware has 25,000,000 shares of Preferred Stock authorized, of
which, as of the Record Date, no shares were outstanding. Subject to the terms
of the Governance Agreement, the Infoseek Delaware Board has the authority to
issue these shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions, qualifications and
limitations granted to or imposed upon any unissued and undesignated shares of
Preferred Stock and to fix the number of shares constituting any series and
the designations of such series, without any further vote or action by the
stockholders (subject to applicable stock exchange rules). The Infoseek
Delaware Board, without stockholder approval (subject to applicable stock
exchange rules), can issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders
of Infoseek Delaware common stock and the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of
Infoseek Delaware. Infoseek Delaware has initially reserved 100,000 shares of
Series A Participating Preferred Stock, par value $0.001 per share, for
potential issuance pursuant to the exercise of Rights under the Rights Plan.
See "--Comparison of Capital Stock of Infoseek California and Infoseek
Delaware--Share Purchase Rights Plan."
Transfer Agent and Registrar
The Transfer Agent and Registrar of Infoseek Delaware common stock is Boston
Equiserve L.P. and its telephone number is (650) 947-3231.
DESCRIPTION OF INFOSEEK CALIFORNIA CAPITAL STOCK
The authorized capital stock of Infoseek California consists of 65,000,000
shares of common stock, no par value, and 5,000,000 shares of Preferred Stock,
no par value.
158
<PAGE>
Infoseek California Common Stock
As of October 9, 1998, there were approximately 31,508,312 shares of
Infoseek California common stock outstanding. Holders of Infoseek California
common stock are entitled to one vote per share on all matters to be voted
upon by the shareholders. The shareholders of Infoseek California may cumulate
votes in the election of directors. The holders of Infoseek California common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Infoseek California Board out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of Infoseek California, the holders of Infoseek California common
stock are entitled to share ratably in all assets remaining after payment of
liabilities. Infoseek California common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to Infoseek California common stock. All outstanding
shares of Infoseek California common stock are fully paid and non-assessable,
and the shares of Infoseek Delaware common stock to be received by Infoseek
California Shareholders in connection with the Mergers in exchange for the
Infoseek California common stock outstanding immediately prior to completion
of the Mergers will be fully paid and non-assessable.
Preferred Stock
Infoseek California has 5,000,000 shares of Preferred Stock authorized, of
which, as of the record date, no shares were outstanding. Subject to the terms
of the Governance Agreement, the Infoseek California Board has the authority
to issue shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon
any unissued and undesignated shares of Preferred Stock and to fix the number
of shares constituting any series and the designations of such series, without
any further vote or action by the shareholders (subject to applicable stock
exchange rules). Although it presently has no intention to do so, the Infoseek
California Board, without shareholder approval (subject to applicable stock
exchange rules), can issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders
of Infoseek California common stock and the issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of
Infoseek California.
Transfer Agent and Registrar
The Transfer Agent and Registrar of Infoseek California common stock is
Boston Equiserve L.P. and its telephone number is (650) 947-3231.
DESCRIPTION OF STARWAVE CAPITAL STOCK
The authorized capital stock of Starwave consists of 250,000,000 shares of
Class A Common Stock, par value $0.01 per share, and 80,000,000 shares of
Class B Common Stock, par value $0.01 per share.
Starwave Common Stock
As of October 9, 1998, there were approximately 57,665,939 shares of
Starwave Class A Common Stock and 39,869,348 shares of Starwave Class B Common
Stock outstanding. With regard to all matters submitted to a vote of Starwave
shareholders, holders of Starwave Class A and Class B Common Stock vote
together without regard to class, except that holders of Starwave Class A
Common Stock are entitled to one vote per share while the holders of Starwave
Class B Common Stock are entitled to two and one-half votes per share. With
respect to any amendment of Starwave's Amended and Restated Articles of
Incorporation ("Starwave's Articles") that would alter or change any
preferences, limitations or relative rights of either class of Starwave common
stock, a separate class vote is required for the class that is adversely
affected. All shares of Class B Common Stock are currently held by Disney, and
upon transfer to any party other than a Disney affiliate, convert
automatically into shares of Class A Common Stock. The shareholders of
Starwave may not cumulate votes in the election of directors. The holders of
Starwave common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Starwave Board out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of Starwave, the holders of Starwave common stock are entitled to
share ratably in all assets remaining after payment of liabilities. Holders of
Starwave common stock have no
159
<PAGE>
preemptive or conversion rights or other subscription rights except that a
holder of Class B Common Stock may elect to convert such shares to Class A
Common Stock at any time. There are no redemption or sinking fund provisions
applicable to Starwave common stock. All outstanding shares of Starwave common
stock are fully paid and non-assessable, and the shares of Infoseek Delaware
common stock to be received by Starwave shareholders in connection with the
Mergers in exchange for the Starwave common stock outstanding immediately
prior to completion of the Mergers will be fully paid and non-assessable.
Transfer Agent and Registrar
Starwave currently acts as the Transfer Agent and Registrar of Starwave
common stock.
COMPARISON OF CAPITAL STOCK OF INFOSEEK CALIFORNIA AND INFOSEEK DELAWARE
After consummation of the Mergers, the holders of Infoseek California common
stock will receive Infoseek Delaware common stock under the terms of the
Reorganization Agreement and become shareholders of Infoseek Delaware. As
shareholders of Infoseek California, their rights are presently governed by
California law and by Infoseek California's Amended and Restated Articles of
Incorporation ("Infoseek California's Articles") and Infoseek California's
Bylaws ("Infoseek California's Bylaws"). As shareholders of Infoseek Delaware,
their rights will be governed by Delaware law and by Infoseek Delaware's
Amended and Restated Certificate of Incorporation ("Infoseek Delaware's
Certificate") and Infoseek Delaware's Bylaws ("Infoseek Delaware's Bylaws").
The following discussion summarizes the material differences between the
rights of holders of Infoseek California common stock and the rights of
holders of Infoseek Delaware common stock, and the material differences
between the charters and bylaws of Infoseek California and Infoseek Delaware.
This summary does not purport to be complete and is qualified by reference to
Infoseek California's Articles and Infoseek California's Bylaws, Infoseek
Delaware's Certificate and Infoseek Delaware's Bylaws and the relevant
provisions of California and Delaware law.
Size of the Board of Directors. In accordance with Delaware law, Infoseek
Delaware's Bylaws provide the Infoseek Delaware Board the authority to set the
exact number of directors within the range of from 6 to 11 persons. The number
of directors of Infoseek Delaware is currently fixed at 8. The Infoseek
Delaware Board, acting without shareholder approval, may change such number
within the range authorized in Infoseek Delaware's Bylaws. Under California
law, although changes in the number of directors must in general be approved
by a majority of the outstanding shares, the board of directors may fix the
exact number of directors within a stated range set forth in the articles of
incorporation or bylaws, if that stated range has been approved by the
shareholders. Infoseek California's Bylaws provide the Infoseek California
Board the authority to set the exact number of directors within the range of
from 5 to 9 persons.
Loans to Officers and Employees. Under Delaware law, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries (including directors who are
also officers or employees) when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Under
California law, any loan or guaranty to or for the benefit of a director or
officer of the corporation or its parent requires approval of the shareholders
unless such loan or guaranty is provided under a plan approved by shareholders
owning a majority of the outstanding shares of the corporation. In addition,
under California law, shareholders of any corporation with 100 or more
shareholders of record may approve a bylaw authorizing the board of directors
alone to approve loans or guaranties to or on behalf of officers (whether or
not such officers are directors) if the board determines that any such loan or
guaranty may reasonably be expected to benefit the corporation. Infoseek
California's Bylaws permit Infoseek California to make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those
of its subsidiaries (including directors who are also officers or employees).
Voting by Ballot. Under Delaware law, the right to vote by written ballot
may be restricted if so provided in the certificate of incorporation. Infoseek
Delaware's Bylaws provide that the election of directors at a shareholders
meeting need not be by written ballot. Infoseek Delaware's Certificate
provides that elections of
directors need not be by written ballot unless the Infoseek Bylaws so provide.
California law provides that the
160
<PAGE>
election of directors may proceed in the manner described in a corporation's
bylaws. Infoseek California's Bylaws provide that, upon the demand of any
shareholder made at a meeting before the voting begins, the election of
directors shall be by ballot.
Cumulative Voting. In an election of directors under cumulative voting, each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder chooses. Under Delaware law, cumulative voting in the election
of directors is not available unless specifically provided for in the
certificate of incorporation. In contrast, California law provides that any
shareholder is entitled to cumulate his or her votes in the election of
directors upon proper notice of his or her intention to do so. However, a
"listed" California corporation may eliminate shareholders' cumulative voting
rights. Infoseek Delaware has not provided for cumulative voting in Infoseek
Delaware's Certificate and cumulative voting is therefore not available to
Infoseek Delaware's shareholders. Notwithstanding the fact that Infoseek
California is a listed corporation, Infoseek California has not eliminated the
right of cumulative voting, and cumulative voting is therefore available to
Infoseek California shareholders. A listed corporation is defined under
California law as a corporation with (i) outstanding securities listed on the
NYSE or American Stock Exchange, or (ii) a class of securities designated as a
national market system security on and by the National Association of
Securities Dealers Automatic Quotation System (or any successor) if the
corporation has at least 800 holders of its equity securities.
Classified Board of Directors. A classified board is one on which a certain
number of the directors are elected on a rotating basis each year. This method
of electing directors makes changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a
lengthier and more difficult process. Delaware law permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. Under California law, directors generally must be elected
annually; however, a "listed" corporation is permitted to adopt a classified
board. Neither Infoseek Delaware's Certificate nor Infoseek California's
Articles provides for a classified board.
Power to Call Special Shareholders' Meetings; Advance Notice of Shareholder
Business and Nominees. Under Delaware law, a special meeting of shareholders
may be called by the board of directors or by any other person authorized to
do so in the certificate of incorporation or the bylaws. Under California law,
a special meeting of shareholders may be called by the board of directors, the
chairman of the board, the president, the holders of shares entitled to cast
not less than 10% percent of the votes at such meeting and such additional
persons as are authorized by the articles of incorporation or the bylaws. The
Infoseek Delaware Bylaws authorize the Board of Directors, the Chairman of the
Board, the President or the holders of shares entitled to cast not less than
10% of the votes at such meeting to call a special meeting of shareholders.
The Infoseek Delaware Bylaws require 90 days advance notice in proper written
form of shareholder nominees for election as directors or other shareholder
business to be brought before a meeting, and permit the chairman of the
meeting to refuse to acknowledge the nomination of any person or the proposal
of any business not made in compliance with the procedures set forth in the
Infoseek Delaware Bylaws. The Infoseek California Bylaws allow shareholders
holding 10% of the outstanding shares of Infoseek California's voting stock,
the Board of Directors, the Chairman of the Board or the President to call
special meetings of shareholders. The Infoseek California Bylaws also require
between 35 and 60 days' advance notice provisions similar to those contained
in the Infoseek Delaware Bylaws.
Elimination of Actions by Written Consent of Shareholders. Under California
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Both California law and Delaware law permit
a corporation, pursuant to a provision in such corporation's articles or
certificate of incorporation, as the case may be, to eliminate the ability of
shareholders to act by written consent. Elimination of the ability of
shareholders to act by written consent could lengthen the amount of time
required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirements of a shareholders'
meeting, and could therefore deter hostile takeover attempts. If the ability
of
161
<PAGE>
shareholders to act by written consent is eliminated, a holder or group of
holders controlling a majority in interest of a corporation's capital stock,
for example, would not be able to amend such corporation's bylaws or remove
its directors pursuant to a shareholders' written consent. Infoseek
California's Articles and Infoseek Delaware's Certificate both eliminate the
ability of shareholders to act by written consent.
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states (but not California) have adopted special laws
designed to make certain kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
shareholders, more difficult. Under Section 203 of the General Corporations
Law of the State of Delaware ("Section 203 of the DGCL"), certain "business
combinations" by Delaware corporations with "interested stockholders" are
subject to a three-year moratorium unless specified conditions are met. Under
Section 1203 of the California Corporations Code, certain business
combinations with certain interested shareholders are subject to specified
conditions, including a requirement that a fairness opinion must be obtained
and delivered to the corporation's shareholders, but there is no equivalent
provision to Section 203.
California law does require that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its
affiliate unless all of the holders of such common stock consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Share Purchase Rights Plan. Pursuant to Infoseek Delaware's "poison pill"
Rights Plan, effective as of the closing or the Mergers, each share of
Infoseek Delaware common stock will have associated with it certain rights to
acquire shares of Infoseek Delaware's Series A Participating Preferred Stock,
par value $0.001. The Rights are triggered and become exercisable upon the
occurrence of either (i) the date of a public announcement of the acquisition
of 15% or more beneficial ownership of Infoseek Delaware's common stock by an
Acquiring Person, or (ii) ten business days after a public announcement of a
tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement.
Disinterested Shareholder and Disinterested Board Approval. Infoseek
Delaware's Certificate of Incorporation provides that certain actions require
Disinterested Shareholder Approval or Disinterested Board Approval, each as
defined in the Governance Agreement, before they may be taken by Infoseek.
Also, any amendment of Infoseek Delaware's Certificate of Incorporation that
affects the provisions regarding Disinterested Board Approval and
Disinterested Shareholder Approval will require Disinterested Shareholder
Approval. See "Description of Related Agreements--Equity and Governance
Agreements." Infoseek California's Articles contain no such provision.
Removal of Directors. Under Delaware law, except as otherwise provided in
the corporation's certificate of incorporation, a director of a corporation
that has a classified board of directors or cumulative voting may be removed
only with cause. In addition, under Delaware law, when a corporation's
certificate of incorporation
162
<PAGE>
provides that the holders of a class or series, voting as a class or series,
are entitled to elect one or more directors, then any director may be removed,
without cause, only by the applicable vote of holders of shares of that class
or series. A director of a corporation that does not have a classified board
of directors or cumulative voting may be removed with the approval of a
majority of the outstanding shares entitled to vote with or without cause.
Under California law, any director or the entire board of directors may be
removed, with or without cause (unless the corporation's articles of
incorporation provide otherwise), with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under
cumulative voting. In addition, under California law, when a corporation's
articles of incorporation provide that the holders of shares of a class or
series, voting as a class or series, are entitled to elect one or more
directors, then any director so elected may be removed only by the applicable
vote of holders of shares of that class or series. The Infoseek Delaware
Certificate and the Infoseek Delaware Bylaws do not provide for a classified
board or for cumulative voting.
Filling Vacancies on the Board of Directors. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in
the certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class of stock is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director so elected, may fill such vacancy). Under California law,
any vacancy on the board of directors (other than one created by removal of a
director) may be filled by the board. Unless otherwise specified in a
corporation's articles of incorporation or bylaws, if the number of directors
in office at the time a vacancy occurs is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office, by
the affirmative vote of a majority of the directors then in office or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if the board is so authorized. The Infoseek Delaware
Bylaws allow any newly created directorship or vacancy on the Board to be
filled by a majority of the directors then in office even though less than a
quorum (unless the Board determines by resolution that the newly created
directorship shall be filled by the shareholders). The Infoseek California
Bylaws allow a vacancy (other than one created by removal of a director) to be
filled by the remaining members of the Board.
Indemnification and Limitation of Liability. California and Delaware have
similar laws relating to indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability
of a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
Infoseek Delaware's Certificate eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director
received an improper personal benefit. Such limitation of liability provisions
do not affect the availability of non-monetary remedies such as injunctive
relief or rescission.
Infoseek California's Articles also eliminate the liability of directors to
the fullest extent permissible under California law. California law does not
permit the elimination of monetary liability where such liability is based on
(i) intentional misconduct or knowing and culpable violation of law; (ii) acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders, or that involve the absence of good faith
on the part of the director; (iii) receipt of an improper personal benefit;
(iv) acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary course
of performing a director's duties was aware or should have been aware of a
risk of serious injury to the corporation or its shareholders; (v) acts or
omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the corporation and its shareholders;
(vi) interested
163
<PAGE>
transactions between the corporation and a director in which a director has a
material financial interest; or (vii) liability for improper distributions,
loans or guarantees.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. The Infoseek Delaware
Bylaws include a provision providing that Infoseek Delaware must indemnify its
directors and officers to the fullest extent permissible under Delaware law.
California corporations may include in their charter a provision which
extends the scope of indemnification through agreements, bylaws or other
corporate action beyond that specifically authorized by statute. Infoseek
California's Articles include a provision that Infoseek California must
indemnify its directors and officers to the fullest extent permissible under
California law.
Inspection of Shareholders List. Both California and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. California law provides,
in addition, for an absolute right to inspect and copy the corporation's
shareholders list by persons holding an aggregate of 5% or more of a
corporation's voting shares, or, under certain other circumstances,
shareholders holding an aggregate of 1% or more of such shares.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares for most purposes as well as statutory
definitions of capital, surplus and the like. The concepts of par value,
capital and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of (i)
surplus or (ii) if there is no surplus, out of net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. Notwithstanding the foregoing, a Delaware corporation may redeem
or repurchase shares having a preference upon the distribution of any of its
assets (or shares of common stock, if there are no such shares of preferred
stock) if such shares will be retired upon acquisition (and provided that,
after the reduction in capital made in connection with such retirement of
shares, the corporation's remaining assets are sufficient to pay any debts not
otherwise provided for).
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses
and deferred charges) would be at least equal to 1 1/4 times its liabilities
(not including deferred taxes, deferred income and other deferred credits),
and the corporation's current assets would be at least equal to its current
liabilities (or 1 1/4 times its current liabilities if the average pre-tax and
pre-interest expense earnings for the preceding two fiscal years were less
than the average interest expense for such years). Such tests are applied to
California corporations on a consolidated basis.
Shareholder Voting on Mergers and Similar Transactions. Both California and
Delaware law generally require that the holders of a majority of the
outstanding voting shares of the constituent corporations approve statutory
mergers. Infoseek California's Articles do not require a supermajority vote to
approve a merger. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (i) the merger agreement does not
amend the existing certificate of incorporation; (ii) each share of the
surviving corporation outstanding before the merger is equal to an identical
outstanding or treasury share after the merger; and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the
164
<PAGE>
merger. California law contains a similar exception to its voting requirements
for reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved
by a majority vote of each class of shares outstanding. By contrast, Delaware
law generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation which adversely
affects a specific class of shares, increases or decreases the number of
authorized shares of a class of shares or increases or decreases the par value
of the shares of a class of shares.
Interested Director Transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law, either (i) the shareholders or the
disinterested directors must approve any such contract or transaction after
full disclosure of the material facts, and in California in the case of board
approval the contract or transaction must also be "just and reasonable" to the
corporation, or (ii) the contract or transaction must have been just and
reasonable (in California) or fair (in Delaware) as to the corporation at the
time it was approved. In the latter case, California law explicitly places the
burden of proof on the interested director.
Under California law, if shareholder approval is sought, the interested
director is not entitled to vote his shares with respect to any action
regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if board approval is sought, the contract or transaction
must be approved by a majority of the disinterested directors (even though
less than a quorum). Therefore, certain transactions that the Infoseek
California Board would lack the authority to approve because of the number of
interested directors, could be approved by a majority of the disinterested
directors of Infoseek Delaware representing less than a quorum.
Dissenters' or Appraisal Rights. Under both California and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may be entitled, under varying circumstances, to dissenters' or
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Under
Delaware law, such rights are not available (i) with respect to the sale,
lease or exchange of all or substantially all of the assets of a corporation
or an amendment to the corporation's certificate of incorporation (unless
otherwise provided in the corporation's certificate of incorporation); (ii)
with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if such shareholders are required to receive only
shares of the surviving corporation, shares of any other corporation which are
either listed on a national securities exchange or held of record by more than
2,000 holders, cash in lieu of fractional shares or a combination of the
foregoing; or (iii) to shareholders of a corporation surviving a merger if no
vote of the shareholders of the surviving corporation is required to approve
the merger because the agreement of merger does not amend the existing
certificate of incorporation, and each share of the surviving corporation
outstanding prior to the merger is an identical outstanding or treasury share
after the merger, the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately
prior to the merger.
165
<PAGE>
In contrast, shareholders of a California corporation whose shares are
listed on a national securities exchange (including Nasdaq) generally do not
have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. In addition, dissenters' rights are
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity,
and if the shares of the surviving corporation have the same rights,
preferences, privileges and restrictions as the shares of the disappearing
corporation that are surrendered in exchange. Accordingly, appraisal rights
may be available to shareholders of Infoseek California with respect to the
Infoseek Merger only if holders of at least 5% of the outstanding common stock
of Infoseek California claim such rights.
Dissolution. Under Delaware law, unless a majority of the whole board of
directors approves a proposal to dissolve, a dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only
if a dissolution is initially approved by a majority of the whole board of
directors may it be approved by a simple majority of the corporation's
outstanding shares of capital stock entitled to vote thereon. Delaware law
allows a Delaware corporation to include in its certificate of incorporation a
super majority voting requirement in connection with dissolutions initiated by
the Board. Infoseek Delaware's Certificate contains no such super majority
voting requirement. Under California law, shareholders holding 50% or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's board of directors, and this right
may not be modified by the articles of incorporation.
Shareholder Derivative Suits. Under Delaware law, a shareholder may only
bring a derivative action on behalf of the corporation if the shareholder was
a shareholder of the corporation at the time of the transaction in question or
his or her stock thereafter devolved upon him or her by operation of law.
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. California law
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
COMPARISON OF CAPITAL STOCK OF STARWAVE AND INFOSEEK DELAWARE
After consummation of the Starwave Merger, the holders of Starwave common
stock will be entitled to receive Infoseek Delaware common stock under the
terms of the Reorganization Agreement and become shareholders of Infoseek
Delaware. As shareholders of Starwave, their rights are presently governed by
Washington law and by Starwave's Articles and Starwave's Amended and Restated
Bylaws ("Starwave's Bylaws"). As shareholders of Infoseek Delaware, their
rights will be governed by Delaware law and by Infoseek Delaware's Certificate
and Infoseek Delaware's Bylaws. The following discussion summarizes the
material differences between the rights of holders of Starwave common stock
and the rights of holders of Infoseek Delaware common stock and differences
between the charters and bylaws of Starwave and Infoseek Delaware. This
summary does not purport to be complete and is qualified by reference to
Starwave's Articles and Starwave's Bylaws, Infoseek Delaware's Certificate and
Infoseek Delaware's Bylaws, and the relevant provisions of Washington and
Delaware law.
Size of the Board of Directors. In accordance with Delaware law, Infoseek
Delaware's Bylaws provide the Infoseek Delaware Board the authority to set the
exact number of directors within the range of from 6 to 11 persons. The number
of directors of Infoseek Delaware is currently fixed at 8. The Infoseek
Delaware Board acting without shareholder approval may change such number
within the range authorized in Infoseek Delaware's Bylaws. Under Washington
law, a corporation's articles of incorporation or bylaws must either specify
the number of directors or specify the process by which the number will be
fixed. Starwave's Bylaws provide the Starwave Board the authority to set the
exact number of directors within the range of from three to nine persons.
166
<PAGE>
Loans to Officers and Employees. Under Delaware law, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries (including directors who are
also officers or employees) when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation. Starwave's
Bylaws permit it to enter into contracts with its directors, officers and
shareholders to the extent permitted by Washington law. Starwave's Bylaws
permit Starwave to enter into contracts with its directors, officers and
shareholders to the extent permitted by Washington law. Further, Starwave's
Bylaws and Washington law provide that such transactions shall not, absent
fraud, be void or voidable if they are approved by the disinterested directors
or shareholders.
Voting by Ballot. Under Delaware law, the right to vote by written ballot
may be restricted if so provided in the certificate of incorporation. Infoseek
Delaware's Bylaws provide that the election of directors at a shareholders
meeting need not be by written ballot. Infoseek Delaware's Certificate
provides that elections of directors need not be by written ballot unless
Infoseek Delaware's Bylaws so provide. Starwave's Bylaws do not specify any
rules for accepting voice or ballot votes.
Cumulative Voting. In an election of directors under cumulative voting, each
share of stock normally having one vote is entitled to a number of votes equal
to the number of directors to be elected. A shareholder may then cast all such
votes for a single candidate or may allocate them among as many candidates as
the shareholder chooses. Under Delaware law, cumulative voting in the election
of directors is not available unless specifically provided for in the
certificate of incorporation. In contrast, Washington law provides that
cumulative voting in the election of directors is available unless a
corporation's articles of incorporation specifically provide otherwise.
Infoseek Delaware has not provided for cumulative voting in Infoseek
Delaware's Certificate and cumulative voting is therefore not available to
Infoseek Delaware's shareholders. Starwave has expressly eliminated the right
of cumulative voting in Starwave's Articles, and cumulative voting is
therefore not available to Starwave's shareholders.
Classified Board of Directors. A classified board is one on which a certain
number of the directors are elected on a rotating basis each year. This method
of electing directors makes changes in the composition of the board of
directors, and thus a potential change in control of a corporation, a
lengthier and more difficult process. Washington and Delaware law both permit,
but do not require, a classified board of directors, with staggered terms
under which one-half or one-third of the directors are elected for terms of
two or three years, respectively. Neither Infoseek Delaware's Certificate nor
Starwave's Articles provides for a classified board.
Power to Call Special Shareholders' Meetings; Advance Notice of Shareholder
Business and Nominees. Under both Washington and Delaware law, a special
meeting of shareholders may be called by the board of directors or by any
other person authorized to do so in the articles or certificate of
incorporation or the bylaws. Infoseek Delaware's Bylaws authorize the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than 10% of the votes at such meeting to call a
special meeting of shareholders. Infoseek Delaware's Bylaws require 90 days
advance notice in proper written form of shareholder nominees for election as
director or shareholder business to be brought before a meeting, and permit
the chairman of the meeting to refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the
procedures set forth in Infoseek Delaware's Bylaws. Starwave's Bylaws allow
shareholders holding 10% of the outstanding shares of Starwave's voting stock,
the Starwave Board of Directors, or any member of the Starwave Board to call
special meetings of shareholders. Starwave's Bylaws contain no advance notice
provisions similar to those contained in Infoseek Delaware's Bylaws.
Elimination of Actions by Written Consent of Shareholders. Under Washington
and Delaware law, shareholders may take action by written consent in lieu of
voting at a shareholders meeting. Delaware law permits a corporation, pursuant
to a provision in such corporation's certificate of incorporation to eliminate
the ability of shareholders to act by written consent. Elimination of the
ability of shareholders to act by written consent could lengthen the amount of
time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirements of a shareholders'
meeting, and could therefore deter
167
<PAGE>
hostile takeover attempts. If the ability of shareholders to act by written
consent is eliminated, a holder or group of holders controlling a majority in
interest of a corporation's capital stock, for example, would not be able to
amend such corporation's bylaws or remove its directors pursuant to a
shareholders' written consent. Under Washington law, for publicly-held
corporations and private corporations whose articles do not provide otherwise,
all actions taken by written consent must be unanimous. Starwave's Articles
provide for non-unanimous written consent, provided that the action is taken
by shareholders holding not less than the minimum number of votes that would
be necessary to authorize the action at a meeting at which all shares entitled
to vote were present and voted. Infoseek Delaware's Certificate eliminates the
ability of stockholders to act by written consent.
Shareholder Approval of Certain Business Combinations. In the last several
years, a number of states have adopted special laws designed to make certain
kinds of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Under Section 203 of the DGCL, certain "business combinations" by Delaware
corporations with "interested stockholders" are subject to a three-year
moratorium unless specified conditions are met. Washington law prohibits a
"Target Corporation" (as defined by the statute) with certain exceptions, from
engaging in certain significant business transactions with an "Acquiring
Person" (defined generally as a person who acquires 10% or more of the
corporation's voting securities without the prior approval of the
corporation's board of directors) for a period of five years after such
acquisition. The prohibited transactions include, among others, a merger or
share exchange with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or a reclassification of securities
that has the effect of increasing the proportionate share of the outstanding
securities held by the Acquiring Person. An Acquiring Person may avoid the
prohibition against effecting certain significant business transactions with
the Target Corporation if the board of directors of the Target Corporation, at
the time of the share acquisition, approves the proposed significant business
transaction.
Share Purchase Rights Plan. Pursuant to Infoseek Delaware's "poison pill"
Rights Plan, effective as of the closing of the Mergers, each share of
Infoseek Delaware common stock will have associated with it certain rights to
acquire shares of Infoseek Delaware's Series A Participating Preferred Stock,
par value $0.001. The Rights are triggered and become exercisable upon the
occurrence of either (i) the date of a public announcement of the acquisition
of 15% or more beneficial ownership of Infoseek Delaware's common stock by an
Acquiring Person, or (ii) ten business days after a public announcement of a
tender or exchange offer for 15% or more beneficial ownership of Infoseek
Delaware's common stock by an Acquiring Person. If the Rights are triggered
because an Acquiring Person beneficially owns 15% or more of Infoseek
Delaware's common stock, each Right will provide its holder, other than a
holder who is an Acquiring Person, the right to purchase that number of shares
of Infoseek Delaware common stock having a market value at the time equal to
twice the exercise price, upon payment of the exercise price of $150 per
Right. In addition, in the event of certain business combinations, the Rights
permit the purchase of shares of common stock of an acquiror at a 50% discount
from the market price at the time. The Board of Directors has the right to
redeem the Rights at a price of $0.001 per Right at any time prior to the
close of business on the tenth day after the first public announcement that a
person has become an Acquiring Person (or such later time as may be determined
by the Board of Directors). If the Rights are triggered under certain
circumstances, the Board of Directors may elect to exchange each Right (other
than Rights held by an Acquiring Person) for one share of Infoseek Delaware
common stock. The Rights expire on October 2, 2008. These provisions may have
the effect of deterring hostile takeovers or delaying changes in control or
management of Infoseek Delaware. For purposes of the Rights Plan, Disney shall
not be deemed to be an Acquiring Person, so long as Disney has not breached
the standstill provisions of the Governance Agreement.
Disinterested Shareholder and Disinterested Board Approval. Infoseek
Delaware's Certificate of Incorporation provides that certain actions require
Disinterested Shareholder Approval or Disinterested Board Approval, each as
defined in the Governance Agreement, before they may be taken by Infoseek. See
"Description of Related Agreements--Equity and Governance Agreements."
Starwave's Articles contain no such provision.
Removal of Directors. Under Delaware law, except as otherwise provided in
the corporation's certificate of incorporation, a director of a corporation
that has a classified board of directors may be removed only with
168
<PAGE>
cause. A director of a corporation that does not have a classified board of
directors or cumulative voting may be removed with the approval of a majority
of the outstanding shares entitled to vote with or without cause. In addition,
under Delaware law, when a corporation's certificate of incorporation provides
that the holders of a class or series, voting as a class or series, are
entitled to elect one or more directors, then any director may be removed,
without cause, only by the applicable vote of holders of shares of that class
or series. Under Washington law, if cumulative voting is not authorized, any
director or the entire board of directors may be removed, with or without
cause (unless the corporation's articles of incorporation provide otherwise),
if the number of votes cast to remove the director exceeds the number of votes
cast not to remove the director. In addition, under Washington law, when a
corporation's articles of incorporation provide that the holders of shares of
a class or series, voting as a class or series, are entitled to elect one or
more directors, then any director so elected may be removed only by the
applicable vote of holders of shares of that class or series. Infoseek
Delaware's Certificate and Infoseek Delaware's Bylaws do not provide for a
classified board or cumulative voting. Starwave's Articles expressly eliminate
cumulative voting.
Filling Vacancies on the Board of Directors. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in
the certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class of stock is to elect such
director, in which case any other directors elected by such class, or a sole
remaining director so elected, may fill such vacancy). Under Washington law,
any vacancy on the board of directors may be filled by the board unless the
articles of incorporation direct that a particular class of shares is to elect
such director, in which case only the holders of such class are entitled to
vote to fill the vacancy. Unless otherwise specified in a Washington
corporation's articles of incorporation or bylaws, if the number of directors
in office at the time a vacancy occurs is less than a quorum, a vacancy may be
filled by the affirmative vote of a majority of the directors then in office
or by a sole remaining director. Infoseek Delaware's Bylaws allow any newly
created directorship or vacancy on the Board to be filled by a majority of the
directors then in office even though less than a quorum (unless the Board
determines by resolution that the newly created directorship shall be filled
by the shareholders). Starwave's Bylaws allow a vacancy to be filled by the
remaining members of the Board unless the articles of incorporation direct
that a particular class of stock is to elect such director, in which case only
the holders of such class are entitled to vote to fill the vacancy.
Indemnification and Limitation of Liability. Washington and Delaware have
similar laws relating to indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit
corporations to adopt a provision in their charters eliminating the liability
of a director to the corporation or its shareholders for monetary damages for
breach of the director's fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states with respect to indemnification
and limitation of liability.
Infoseek Delaware's Certificate eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transactions in which the director
received an improper personal benefit. Such limitation of liability provisions
do not affect the availability of non-monetary remedies such as injunctive
relief or rescission.
Starwave's Articles also eliminate the liability of directors to the fullest
extent permissible under Washington law. Washington law does not permit the
elimination of monetary liability where such liability is based on (i) acts or
omissions that involve intentional misconduct or knowing violation of law;
(ii) unlawful distributions to shareholders; or (iii) receipt of an illegal
personal benefit.
Delaware law states that the indemnification provided by statute shall not
be deemed exclusive of any other rights under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. Infoseek Delaware's
Bylaws include a provision providing that Infoseek Delaware must indemnify its
directors and officers to the fullest extent permissible under Delaware law.
169
<PAGE>
Starwave's Articles include a provision that Starwave must indemnify its
directors and officers to the fullest extent permissible under Washington law.
Inspection of Shareholders List. Both Washington and Delaware law allow any
shareholder to inspect and copy the shareholders list for a purpose reasonably
related to such person's interest as a shareholder. In addition, Infoseek
Delaware's Bylaws provide for an absolute right to inspect and copy the
corporation's shareholders list by persons holding an aggregate of 5% or more
of a corporation's voting shares, or, under certain other circumstances,
shareholders holding an aggregate of 1% or more of such shares. Starwave's
Bylaws do not provide for any such absolute right of inspection.
Dividends and Repurchases of Shares. Washington law dispenses with the
concept of par value of shares for most purposes as well as statutory
definitions of capital, surplus and the like. The concepts of par value,
capital and surplus are retained under Delaware law.
Delaware law permits a corporation to declare and pay dividends out of (i)
surplus or (ii) if there is no surplus, out of net profits for the fiscal year
in which the dividend is declared and/or for the preceding fiscal year as long
as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. Notwithstanding the foregoing, a Delaware corporation may redeem
or repurchase shares having a preference upon the distribution of any of its
assets (or shares of common stock, if there are no such shares of preferred
stock) if such shares will be retired upon acquisition (and provided that,
after the reduction in capital made in connection with such retirement of
shares, the corporation's remaining assets are sufficient to pay any debts not
otherwise provided for).
Under Washington law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless the corporation's total assets immediately following the proposed
distribution would equal or exceed the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those receiving the
distribution and the corporation is able to pay its debts as they become due
in the usual course of business.
Shareholder Voting on Mergers and Similar Transactions. Delaware law
requires that the holders of a majority of the outstanding voting shares of
the acquiring and target corporations approve statutory mergers. Starwave's
Articles require that the holders of a majority of the outstanding voting
shares approve certain business combinations including mergers such as the
Starwave Merger. Delaware law does not require a shareholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise
in its certificate of incorporation) if (i) the merger agreement does not
amend the existing certificate of incorporation; (ii) each share of the
surviving corporation outstanding before the merger is equal to an identical
outstanding or treasury share after the merger; and (iii) the number of shares
to be issued by the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the merger. Washington law
contains a similar exception to its voting requirements for reorganizations
where (i) the articles of incorporation of the surviving corporation will not
differ from its articles of incorporation before the merger; (ii) each
shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number
of shares, with identical designations, preferences, limitations and relative
rights, immediately after the merger; (iii) the number of voting shares
outstanding immediately after the merger, plus the number of voting shares
issuable as a result of the merger, either by the conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger, will not exceed the total number of voting shares of
the surviving corporation authorized by its articles of incorporation
immediately before the merger; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger, either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger, will not exceed the
170
<PAGE>
total number of participating shares of the surviving corporation authorized
by its articles of incorporation immediately before the merger.
Delaware law also requires that a sale of all or substantially all of the
assets of a corporation be approved by a majority of the outstanding voting
shares of the corporation transferring such assets. Starwave's Articles
require that such a sale be approved by a majority of the outstanding shares
of its Class A and Class B Common Stock, voting together without regard to
class.
Interested Director Transactions. Under both Washington and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are substantially similar under Washington
and Delaware law.
Dissenters' or Appraisal Rights. Under both Washington and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may be entitled, under varying circumstances, to dissenters' or
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair value of his or her shares in lieu of the consideration he
or she would otherwise receive in the transaction. Under Delaware law, such
rights are not available (i) with respect to the sale, lease or exchange of
all or substantially all of the assets of a corporation or an amendment to the
corporation's certificate of incorporation (unless otherwise provided in the
corporation's certificate of incorporation); (ii) with respect to a merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders
if such shareholders are required to receive only shares of the surviving
corporation, shares of any other corporation which are either listed on a
national securities exchange or held of record by more than 2,000 holders,
cash in lieu of fractional shares or a combination of the foregoing; or (iii)
to shareholders of a corporation surviving a merger if no vote of the
shareholders of the surviving corporation is required to approve the merger
because the agreement of merger does not amend the existing certificate of
incorporation, and each share of the surviving corporation outstanding prior
to the reorganization is an identical outstanding or treasury share after the
merger, and the number of shares to be issued in the merger does not exceed
20% of the shares of the surviving corporation outstanding immediately prior
to the merger.
In contrast, under Washington law, dissenters' rights are available in the
event of any of the following corporate actions: (i) a merger (except for a
merger effected solely to change a corporation's state of incorporation); (ii)
a share exchange (only shareholders of the target who are entitled to vote on
the transaction may dissent); (iii) a sale or exchange of all or substantially
all of a corporation's assets for consideration other than cash (only
shareholders entitled to vote on the transaction may dissent); (iv) an
amendment of the articles of incorporation that materially reduces the number
of shares outstanding. Consequently, appraisal rights are available to
shareholders of Starwave with respect to the Starwave Merger; or (v) any
corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
Dissolution. Under Delaware law, unless a majority of the whole board of
directors approves a proposal to dissolve, a dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only
if a dissolution is initially approved by a majority of the whole board of
directors may it be approved by a simple majority of the corporation's
outstanding shares of capital stock entitled to vote thereon. Delaware law
allows a Delaware corporation to include in its certificate of incorporation a
super majority voting requirement in connection with dissolutions initiated by
the Board. The Infoseek Delaware Certificate contains no such super majority
voting requirement. Under Washington law, a proposal to dissolve must be
approved by both the corporation's board of directors and its shareholders.
Shareholder Derivative Suits. Under both Washington and Delaware law, a
shareholder may only bring a derivative action on behalf of the corporation if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or
her by operation of law.
171
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of Infoseek common
stock in the Starwave Merger, and the federal income tax consequences of the
Infoseek Merger will be passed upon for Infoseek California and Infoseek
Delaware by Wilson Sonsini Goodrich & Rosati, Professional Corporation. The
federal income tax consequences of the Starwave Merger will be passed upon for
DEI by Dewey Ballantine LLP.
EXPERTS
The consolidated financial statements of Infoseek Corporation at December
31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of Starwave as of September 28, 1997 and for the
period from January 1, 1997 to September 28, 1997 included in this Joint Proxy
Statement/Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Starwave as of December 31, 1996 and 1995, and
for each of the years ended December 31, 1996 and 1995, have been included in
this Joint Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
Effective April 24, 1997, Starwave's Board of Directors dismissed KPMG Peat
Marwick LLP (the "Former Accountants") as its independent accountants and
engaged PricewaterhouseCoopers LLP. The reports of the Former Accountants on
the financial statements of Starwave for the fiscal years ended December 31,
1996 and 1995 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the period of the Former Accountants' engagement in
Starwave's two most recent fiscal years, there were no disagreements with the
Former Accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the Former Accountants
would have caused them to make reference thereto in their report on Starwave's
financial statements. Prior to April 24, 1997, Starwave had not consulted with
PricewaterhouseCoopers LLP on items regarding the application of accounting
principles to a specific completed or contemplated transaction, the type of
audit opinion that might be rendered on Starwave's financial statements, or
any matter that was the subject of a disagreement or reportable event.
The financial statements of Quando as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, have been
included in this Joint Proxy Statement/Prospectus in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the December 31,
1997, financial statements contains an explanatory paragraph that states that
Quando's recurring losses from operations and net capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of that uncertainty.
172
<PAGE>
STARWAVE CORPORATION INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP....................................... F-2
Report of KPMG Peat Marwick LLP............................................ F-3
Starwave Corporation Balance Sheets as of June 28, 1998, September 28, 1997
and December 31, 1996 and 1995............................................ F-4
Starwave Corporation Statements of Operations for the Nine Months Ended
September 28, 1997,
the Years Ended December 31, 1996 and 1995 and the Nine Months Ended June
28, 1998 and
June 29, 1997............................................................. F-5
Starwave Corporation Statements of Changes in Shareholders' Equity
(Deficit) for the Nine Months Ended June 28, 1998, the Nine Months Ended
September 28, 1997, and the Years Ended December 31, 1996 and 1995........ F-6
Starwave Corporation Statements of Cash Flows for the Nine Months Ended
September 28, 1997,
the Years Ended December 31, 1996 and 1995 and the Nine Months Ended June
28, 1998 and
June 29, 1997............................................................. F-7
Starwave Corporation Notes to Financial Statements......................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Starwave Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Starwave
Corporation at September 28, 1997, and the results of its operations and its
cash flows for the period from January 1, 1997 to September 28, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
As described in Note 1, in April 1997 the Company completed a number of
transactions which significantly changed its capital and operating structure.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starwave Corporation:
We have audited the accompanying balance sheets of Starwave Corporation as
of December 31, 1996 and 1995, and the related statements of operations,
shareholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Starwave Corporation as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
February 7, 1997
F-3
<PAGE>
STARWAVE CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1995
----------- ------------- ------------ ------------
ASSETS
------ (UNAUDITED)
<S> <C> <C> <C> <C>
Cash and equivalents....... $ 2,543 $ 18,306 $ 305
Accounts receivable, net... 1,180 774 2,950 $ 734
Receivable from affiliate.. 615 1,292 174
Other receivables.......... 49 60 73 78
Net assets of discontinued
operations................ 1,052
Deferred royalties, net.... 783 28
Prepaid expenses and other
assets.................... 404 378 787 534
Equipment and leasehold
improvements, net......... 4,059 4,323 4,815 3,754
Investment in affiliates... 9,939 4,328
--------- --------- -------- --------
$ 18,789 $ 29,461 $ 9,713 $ 6,354
========= ========= ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C> <C> <C> <C>
Accounts payable........... $ 1,015 $ 1,500 $ 3,277 $ 710
Accrued interest on loans
from shareholder.......... 286
Accrued compensation....... 1,828 1,555 629 273
Accrued royalties.......... 250 500 2,087
Bank overdraft............. 191
Accrued liabilities of
discontinued operations... 441 359 519
Other accrued liabilities.. 118 177
Due to affiliates.......... 303 1,922 47
Deferred revenue........... 543 11 651 298
Loans from shareholder..... 84,888 51,025
--------- --------- -------- --------
Total liabilities...... 4,380 5,847 92,169 53,007
--------- --------- -------- --------
Commitments (Notes 6 and 8)
Shareholders' equity
(deficit)
Common stock A, $.01 par
value; authorized
250,000 shares; issued
and outstanding 57,269
(unaudited) shares in
1998, 55,512 shares in
1997, 34,214 shares in
1996 and 28,683 in
1995.................... 572 555 342 287
Common stock B, $.01 par
value; authorized 80,000
shares; issued and
outstanding 39,869
shares in 1998
(unaudited) and 1997 and
0 shares in 1996 and
1995.................... 400 399
Additional paid-in
capital................. 127,421 123,095 138 (215)
Deferred stock option
compensation expense.... (4,123) (172) (246)
Accumulated deficit...... (109,861) (100,263) (82,690) (46,725)
--------- --------- -------- --------
Total shareholders'
equity (deficit)...... 14,409 23,614 (82,456) (46,653)
--------- --------- -------- --------
$ 18,789 $ 29,461 $ 9,713 $ 6,354
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STARWAVE CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED YEAR ENDED ------------------
SEPTEMBER 28, DECEMBER 31, DECEMBER 31, JUNE 28, JUNE 29,
1997 1996 1995 1998 1997
------------- ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 4,892 $ 8,302 $ 1,111 $ 3,496 $ 7,960
-------- -------- -------- ------- --------
Operating expenses
Cost of online
services............. 7,185 18,170 6,577 2,147 12,122
Development........... 1,605 6,138 5,771 848 3,385
Sales and marketing... 1,589 5,492 1,789 41 4,130
General and
administrative....... 2,527 4,845 3,388 1,778 3,412
-------- -------- -------- ------- --------
Total operating
expenses........... 12,906 34,645 17,525 4,814 23,049
-------- -------- -------- ------- --------
Operating loss.......... (8,014) (26,343) (16,414) (1,318) (15,089)
-------- -------- -------- ------- --------
Other income (expense)
Loss from affiliate--
EIV.................. (2,251) (2,091) (808)
Loss from affiliate--
AIV.................. (5,958) (6,982) (3,116)
Interest (expense)
income, net.......... (1,814) (4,675) (3,023) 768 (3,244)
Other, net............ 464 (658) 8 25 (118)
-------- -------- -------- ------- --------
Net other expense... (9,559) (5,333) (3,015) (8,280) (7,286)
-------- -------- -------- ------- --------
Loss from continuing
operations............. (17,573) (31,676) (19,429) (9,598) (22,375)
-------- -------- -------- ------- --------
Discontinued operations
Loss from operations
of Multimedia CD-ROM
segment.............. (1,046) (7,474)
Loss on disposal of
Multimedia CD-ROM
segment.............. (3,243)
-------- -------- -------- ------- --------
Loss from
discontinued
operations......... -- (4,289) (7,474) -- --
-------- -------- -------- ------- --------
Net loss................ $(17,573) $(35,965) $(26,903) $(9,598) $(22,375)
======== ======== ======== ======= ========
Basic and diluted net
loss per share from
continuing operations.. $ (0.25) $ (0.99) $ (0.68) $ (0.10) $ (0.43)
Basic and diluted net
loss per share from
discontinued
operations............. -- (0.14) (0.27) -- --
-------- -------- -------- ------- --------
Basic and diluted net
loss per share......... $ (0.25) $ (1.13) $ (0.95) $ (0.10) $ (0.43)
======== ======== ======== ======= ========
Shares used in computing
basic and diluted net
loss per share......... 71,691 31,958 28,412 96,260 51,579
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
STARWAVE CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED TOTAL
COMMON STOCK ADDITIONAL STOCK OPTION SHAREHOLDERS'
-------------- PAID-IN COMPENSATION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL EXPENSE DEFICIT (DEFICIT)
------ ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 28,000 $280 $ (210) $ (19,822) $(19,752)
Exercise of stock
options................ 683 7 (5) 2
Net loss................ (26,903) (26,903)
------ ---- -------- --------- --------
Balance at December 31,
1995................... 28,683 287 (215) (46,725) (46,653)
Exercise of stock
options................ 5,531 55 (41) 14
Deferred compensation
expense related to
issuance of stock
options................ 394 $ (394)
Amortization of deferred
stock option
compensation expense... 148 148
Net loss................ (35,965) (35,965)
------ ---- -------- ------- --------- --------
Balance at December 31,
1996................... 34,214 342 138 (246) (82,690) (82,456)
Exercise of stock
options................ 2,612 26 (20) 6
Stock repurchase........ (1,935) (19) (3,950) (3,969)
Sale of common stock
Common Stock A........ 20,621 206 45,458 45,664
Common Stock B........ 39,869 399 81,469 81,868
Amortization of deferred
stock option
compensation expense... 74 74
Net loss................ (17,573) (17,573)
------ ---- -------- ------- --------- --------
Balance at September 28,
1997................... 95,381 954 123,095 (172) (100,263) 23,614
Exercise of stock
options (unaudited).... 1,757 18 94 112
Deferred compensation
expense related to
issuance of stock
options (unaudited).... 4,232 (4,232)
Amortization of deferred
stock option
compensation expense
(unaudited)............ 281 281
Net loss (unaudited).... (9,598) (9,598)
------ ---- -------- ------- --------- --------
Balance at June 28, 1998
(unaudited)............ 97,138 $972 $127,421 $(4,123) $(109,861) $ 14,409
====== ==== ======== ======= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
STARWAVE CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED ENDED
SEPTEMBER 28, DECEMBER 31, DECEMBER 31, JUNE 28, JUNE 29,
1997 1996 1995 1998 1997
------------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss................ $(17,573) $(35,965) $(26,903) $ (9,598) $(22,375)
Adjustments to reconcile
net loss to net cash
used in operating
activities
Depreciation and
amortization of
equipment and
leasehold
improvements......... 1,629 2,170 1,631 1,651 1,657
Equity in losses from
affiliates........... 8,209 9,072 3,923
Loss on sale of
equipment............ 36 90 47
Amortization of
deferred stock
compensation
expense.............. 74 148 281 74
Change in certain
assets and
liabilities
Accounts
receivable......... 2,176 (2,216) (734) (406) 357
Receivable from
affiliate and other
receivables........ (1,279) 179 (247) 688 (996)
Deferred royalties.. 783 (755) 106 1,415
Prepaid expenses and
other assets....... 572 (253) (94) (26) 381
Net assets and
accrued liabilities
of discontinued
operations......... (160) 1,571 (72) 82 (375)
Accounts payable.... (1,777) 2,567 367 (485) 147
Accrued interest on
loans from
shareholder........ (286) (1,488)
Accrued
compensation....... 926 356 179 273 909
Accrued royalties... (1,587) 2,087 (250) (2,994)
Due to affiliates... 1,922 (47) (209) (1,619) 620
Deferred revenue.... (640) 353 298 532 (1,201)
Other accrued
liabilities........ (118) (59) (71) -- 79
-------- -------- -------- -------- --------
Net cash (used in)
provided by
operating
activities....... (6,807) (30,060) (27,190) 195 (18,379)
-------- -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of equipment
and leasehold
improvements........... (1,336) (3,358) (2,617) (1,387) (1,596)
Proceeds from sale of
equipment.............. 37 32
Expenses incurred on
behalf of affiliates... (12,537) (14,683) (4,561)
-------- -------- -------- -------- --------
Net cash used in
investing
activities....... (13,873) (3,321) (2,585) (16,070) (6,157)
-------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES
Loans from shareholder.. 10,776 33,863 28,075 19,276
Repayment of loans from
shareholder............ (50,000) (50,000)
Proceeds from collection
of subscription
receivable............. 70
(Decrease) increase in
bank overdraft......... (191) 191
Proceeds from sale of
stock, net............. 81,868 81,868
Funds used for stock
repurchase............. (3,969) (521)
Proceeds from exercise
of stock options....... 6 14 2 112 5
-------- -------- -------- -------- --------
Net cash provided
by financing
activities....... 38,681 33,686 28,338 112 50,628
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and
equivalents............ 18,001 305 (1,437) (15,763) 26,092
Cash and equivalents at
beginning of period.... 305 1,437 18,306 2,325
-------- -------- -------- -------- --------
Cash and equivalents at
end of period.......... $ 18,306 $ 305 $ -- $ 2,543 $ 28,417
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION
Cash paid during the
period for interest.... $ 2,099 $ 4,889 $ 4,511 $ 2,953
SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Equity issued to
shareholder in return
for extinguishment
of debt................ $ 45,664 $ 45,664
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. CHANGE IN CAPITAL AND OPERATING STRUCTURE
In April 1997, Starwave Corporation (the "Company") completed a number of
transactions which changed its capital and operating structure as follows. As
of April 22, 1997, The Walt Disney Company ("Disney") purchased a controlling
interest in the Company (Note 7). A portion of the proceeds from the sale of
common stock to Disney was used to repay part of the outstanding balance under
the loan from the Company's primary shareholder. The remaining balance of the
loan from shareholder was converted to Class A common stock (Note 5).
Effective April 1, 1997, the Company established a wholly owned subsidiary,
Starwave Ventures, Inc. ("SVI"). Concurrent with the Disney equity
transaction, two new partnerships were formed and the majority of the
Company's operations were contributed to those partnerships. The Company
maintains the website hosting, software development and research and the
majority of its website operations costs are allocated to the partnerships.
The structure and purpose of the partnerships is summarized in Note 2. Certain
expenses of the partnerships are incurred by the Company and allocated to the
partnerships.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company produces Internet-based services intended to appeal to broad
consumer interests in sports, news and entertainment. In 1995, the Company
began receiving subscription and advertising revenues related to its online
services and revenues from sales of CD-ROM products.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet for
information, publication, distribution and commerce, and acceptance of the
Internet as an effective advertising medium. In 1997, the Company established
partnerships with related parties to produce the online services summarized as
follows:
ABC NEWS/STARWAVE PARTNERS ("AIV")
On April 1, 1997, SVI and Disney Online Investments, Inc. ("DOL"), entered
into a partnership for the production of Internet-based services intended to
appeal to a broad consumer interest in news and entertainment-related content
areas. SVI contributed the technical expertise, labor and infrastructure, and
content and DOL contributed licensed content. SVI is allocated a 60% economic
interest in partnership losses, and a 50% interest in partnership gains. DOL
is allocated a 40% economic interest in partnership losses and a 50% interest
in partnership gains.
The partners make contributions to the partnership based on actual
development and production expenses incurred on behalf of the partnership or
on formulas and sharing ratios for general and administrative expenses as
defined in the partnership agreement. For the nine months ended September 28,
1997, contributions to the partnership totaled $14,416, of which $6,738 was
contributed by SVI during the nine months ended September 28, 1997 and $1,922
is due to the partnership and is included in amounts due affiliates. The
Company considers the methodology of allocation of contributions reasonable.
ESPN/STARWAVE PARTNERS ("EIV")
On April 1, 1997, SVI and ESPN Online Investments, Inc. ("EOL"), entered
into a partnership for the production of Internet-based services intended to
appeal to broad consumer interest in sports-related content
F-8
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
areas. SVI contributed the technical expertise, labor and infrastructure, and
EOL contributed licensed content. SVI is allocated a 60% economic interest in
partnership losses and a 50% economic interest in partnership gains. EOL is
allocated a 40% economic interest in partnership losses and a 50% economic
interest in partnership gains.
The partners make contributions to the partnership based on actual
development and production expenses incurred on behalf of the partnership or
on formulas and sharing ratios for general and administrative expenses as
defined in the partnership agreement. For the nine months ended September 28,
1997, contributions to the partnership totaled $7,972, of which $6,580 was
contributed by SVI during the period and $1,203 is due from the partnership
and is included in amounts receivable from affiliates. The Company considers
the methodology of allocation of contributions reasonable. Included in other
income (expense) for 1997 are losses from these partnerships of $8,209.
Certain assets transferred by the Company to the partnerships upon formation
were recorded at book value.
Summarized financial information from the September 28, 1997 financial
statements of the partnerships is as follows:
<TABLE>
<CAPTION>
ESPN/STARWAVE ABC NEWS/STARWAVE
PARTNERS PARTNERS
------------- -----------------
<S> <C> <C>
Current assets............................... $4,985 $4,256
Noncurrent assets............................ 84 3,134
Current liabilities.......................... 2,333 2,930
Noncurrent liabilities....................... -- --
Revenues..................................... 6,996 1,929
Cost of online services...................... 7,168 9,015
Net loss..................................... (3,752) (9,930)
</TABLE>
BASIS OF PRESENTATION
The financial statements include the accounts of Starwave Corporation and
its wholly owned subsidiary, Starwave Ventures, Inc. All significant
intercompany transactions have been eliminated. Investments in partnerships
are accounted for using the equity method of accounting.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Company does not have any comprehensive income items
other than net income; therefore, SFAS 130 is not expected to impact the
Company.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the Company
does not hold any derivative instruments, SFAS 133 is not expected to impact
the Company.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. The Company is currently reviewing
the requirements of SOP 97-2 and assessing its impact on the Company's
financial statements.
F-9
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FISCAL YEAR CHANGE
Effective April 1, 1997, the Company changed its fiscal year-end from a
calendar year ended December 31 to a fiscal year ending the last Sunday in
September. For the purposes of the financial statements, fiscal year 1997
ended September 28, 1997.
The following is selected financial data for the nine-month transition
period ended September 28, 1997 and the comparable 1996 period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 30,
1997 1996
----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................... $ 4,892 $ 4,583
-------- --------
Operating expenses
Cost of online services.............. 7,185 11,046
Development.......................... 1,605 5,586
Sales and marketing.................. 1,589 2,872
General and administrative........... 2,527 3,389
-------- --------
Total operating expenses........... 12,906 22,893
-------- --------
Operating loss......................... (8,014) (18,310)
-------- --------
Other income (expense)
Loss from affiliate--EIV............. (2,251) --
Loss from affiliate--AIV............. (5,958) --
Interest (expense) income, net....... (1,814) (3,187)
Other, net........................... 464 (52)
-------- --------
Net other expense.................. (9,559) (3,239)
-------- --------
Loss from continuing operations........ (17,573) (21,549)
-------- --------
Discontinued operations
Loss from operations of Multimedia
CD-ROM segment...................... (1,046)
Loss on disposal of Multimedia CD-ROM
segment............................. (3,243)
-------- --------
Loss from discontinued operations.. -- (4,289)
-------- --------
Net loss............................... $(17,573) $(25,838)
======== ========
</TABLE>
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization of equipment and leasehold improvements are provided on the
straight-line method over the estimated useful lives of the assets or the
lease term, whichever is shorter.
DEFERRED ROYALTIES
Deferred royalties represent payments made or accrued to co-branding
partners and independent content providers under development and production
agreements. Amortization begins upon launch of the applicable online service
and is based on the greater of amounts determined by the contractual royalty
rates or amounts
F-10
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
computed on a straight-line basis over the term of the agreements. In April
1997, all significant deferred royalties were contributed to the partnerships.
REVENUE RECOGNITION
Revenues from subscriptions to the Company's online services and advertising
appearing on the Company's online services were recognized on the straight-
line method over the terms of the subscriptions and advertising contracts,
respectively. Advertising revenues were stated net of commissions. Deferred
revenue represented online subscriptions and customer advertising not yet
recognized as revenue.
The Company guaranteed to certain advertising customers a minimum number of
page impressions to be delivered on its online service for a specified period.
To the extent minimum guaranteed page impression deliveries were not met, the
Company deferred recognition of the corresponding revenues until guaranteed
page impression delivery levels were achieved. As of September 28, 1997, no
revenues have been deferred as a result of these guarantees. As described
above, beginning in April 1997 all operating revenues are recognized by the
partnerships established in the current year.
The Company has two software license arrangements with related parties. The
software licenses are one-time fees and are recognized at the time the
software master is delivered and when the criteria for fixed fee revenue
recognition under Statement of Position No. 91-1 "Software Revenue
Recognition" are satisfied. The Company has contracted to provide for
additional post-contract support for a fee, which is recognized over the
period of the contract.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new online services and
consist principally of compensation to Company employees, as well as costs for
content, facilities and equipment. Development expenses are charged to results
of operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and developments of
new features for the service are included in cost of online services, and
beginning in April 1997, are allocated to the partnerships. For the nine
months ended September 28, 1997, the development expenses consist mainly of
the expenses associated with the core technology software used to run the
online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Company
incurred advertising costs of $451, $1,203 and $271 in 1997, 1996 and 1995,
respectively.
FEDERAL INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred income tax
assets and liabilities of changes in tax rates is recognized in income in the
period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and equivalents, accounts receivable, receivable
from affiliate, other receivables, accounts payable, accrued compensation,
accrued royalties and due to affiliates approximates fair value because of the
short-term maturity of these instruments.
F-11
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provision of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant to employees
only if the current market price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provision of APB Opinion
No. 25 for transactions with employees and provide pro forma disclosures for
employee stock option grants made in 1995 and future years as if the fair
value-based method defined in SFAS No. 123 had been applied to these
transactions. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 to these transactions and provide the pro forma disclosure
provisions of SFAS No. 123.
NET LOSS PER SHARE
Basic net loss per share represents net loss divided by the weighted average
number of shares outstanding during the period. Diluted net loss per share
represents net loss divided by the weighted average number of shares
outstanding including the potentially dilutive impact of the stock options.
Common stock options are converted using the treasury stock method. Basic and
diluted net loss per share are equal for the periods presented because the
impact of stock options is antidilutive.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months ended
June 28, 1998 and June 29, 1997 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments necessary to present fairly the Company's
financial position as of June 28, 1998 and the results of its operations and
cash flows for the nine months ended June 28, 1998 and June 29, 1997.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Equipment.......................... $ 9,879 $ 9,171 $ 6,304
Leasehold improvements............. 826 403 311
------- ------- -------
10,705 9,574 6,615
Less: Accumulated depreciation and
amortization...................... (6,382) (4,759) (2,861)
------- ------- -------
Net equipment and leasehold
improvements...................... $ 4,323 $ 4,815 $ 3,754
======= ======= =======
</TABLE>
F-12
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS FROM SHAREHOLDER
During 1995 and 1996, the Company's majority shareholder made unsecured
loans to the Company under a $100,000 credit agreement which did not require
repayment of principal until October 31, 1999, at which time the entire
outstanding balance was due. The loans accrued interest at a rate which varied
based on the higher of the Citibank, N.A. base rate or 0.5% above certain
money market rates. In April 1997, the balance of the loan was repaid via a
cash repayment of $50,000, and conversion of the remaining $45,664 to Class A
common stock.
5. INCOME TAXES
From inception to December 31, 1995, the shareholders of the Company elected
to utilize the provisions of Subchapter S of the Internal Revenue Code (IRC)
and thus include the Company's losses in the shareholders' personal income tax
returns. Accordingly, the Company did not record a provision for federal
income taxes.
Effective January 1, 1996, the shareholders of the Company revoked their
election to utilize the provisions of Subchapter S of the IRC. As a result,
the Company has elected to be taxed as a Subchapter C corporation.
A current provision for income taxes has not been recorded for the period
ended September 28, 1997 or the year ended December 31, 1996 due to taxable
losses incurred during such periods. A valuation allowance has been recorded
for deferred tax assets because realization is primarily dependent on
generating sufficient taxable income prior to expiration of net operating loss
carry-forwards. Deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Capitalized "start-up" expenses................... $ 2,635 $ 2,635
Net operating loss carry-forwards................. 18,633 12,730
Other............................................. 902 512
-------- --------
Gross deferred tax assets......................... 22,170 15,877
Less: Valuation allowance......................... (22,170) (15,877)
-------- --------
Net deferred tax assets........................... $ -- $ --
======== ========
</TABLE>
As of September 28, 1997, the Company has approximately $54,800 of net
operating loss carry-forwards available to offset future taxable income, if
any, through 2011.
Under the provisions of the IRC, utilization of the Company's net operating
loss carry-forwards may be subject to limitation if it should be determined
that a greater than 50% ownership change were to occur in the future. The
Company has determined that such a change occurred in April 1997 and the
annual utilization of loss carry-forwards generated through that period will
be limited.
6. STOCK OPTION PLAN
The Company has a Combined Incentive and Nonqualified Stock Option Plan (the
"Plan") for employees, directors, consultants or independent contractors under
which is reserved 140,000 shares of Class A common stock for stock option
grants. Pursuant to the Plan, the Board of Directors may grant nonqualified
and incentive stock options. The vesting period, exercise price and expiration
period of options are established at the discretion of the Board of Directors,
except that incentive stock options must be granted with exercise prices of
not less than 100% of fair market value of the underlying common stock on the
date of the grant. However, in no event shall the term of any incentive stock
option exceed ten years. All option grants to date vest over periods ranging
from three to four years, and expire ten years from the date of grant.
The per share weighted average fair value of stock options granted during
1997, 1996 and 1995 was $1.62, $0.11 and $0.001, respectively, on the date of
grant using the Black Scholes option-pricing model with the
F-13
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
following weighted average assumptions: 1997, 1996 and 1995--expected dividend
yield 0%; risk-free interest rate of 6.28%, 6.14% and 6.25%, respectively, and
an expected life of 2.68, 2.89 and 3.16 years, respectively.
The Company applies APB Opinion No. 25 in accounting for the Plan and,
accordingly, compensation cost has been recognized for its stock options in
the financial statements only to the extent that the exercise price of the
option is less than the fair value of the underlying stock on the date of the
grant. Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net loss
As reported........................ $(17,573) $(35,965) $(26,903)
Pro forma.......................... (18,116) (36,049) (26,904)
</TABLE>
Pro forma net loss reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options'
vesting period of three to four years and compensation cost for options
granted prior to January 1, 1995 is not considered.
The following summarizes the activity, restated for the common stock split
(Note 7), under the Company's plan:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
NUMBER AVERAGE FAIR VALUE
OF EXERCISE OF OPTIONS
SHARES PRICE GRANTED
------ -------- ----------
<S> <C> <C> <C>
Balances at December 31, 1994.................... 10,152 $0.003
Options granted.................................. 3,208 0.003 $0.001
Options exercised................................ (683) 0.003
Options canceled................................. (1,109) 0.003
------
Balances at December 31, 1995.................... 11,568 0.003
Options granted:
Exercise price equal to fair value............. 3,420 0.27 0.03
Exercise price less than fair value............ 1,920 0.09 0.22
Options exercised................................ (5,531) 0.003
Options canceled................................. (1,300) 0.03
------
Balances at December 31, 1996.................... 10,077 0.105
Options granted.................................. 4,383 2.27 1.62
Options exercised................................ (2,612) 0.01
Options canceled................................. (816) 0.12
------
Balances at September 28, 1997................... 11,032 0.99
======
Options exercisable at:
December 31, 1995.............................. 4,556 $0.003
December 31, 1996.............................. 2,800 0.025
September 28, 1997............................. 3,116 0.38
</TABLE>
At September 28, 1997, 10,158 shares remained reserved and available for
grant under the Plan.
F-14
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan at September 28, 1997
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.003.............. 3,099 7.31 $0.003 1,377 $0.003
0.09............... 1,751 8.71 0.09 911 0.09
0.15............... 15 8.61 0.15 4 0.15
0.29............... 167 8.72 0.29 51 0.29
0.44............... 1,617 8.89 0.44 360 0.44
2.27............... 4,383 9.50 2.27 413 2.27
------ -----
11,032 8.66 0.99 3,116 0.38
====== =====
</TABLE>
7. EQUITY
As of April 22, 1997, the Company amended its Articles of Incorporation to
authorize the issuance of two new classes of shares, designated, respectively,
Class A common stock and Class B common stock. As of September 28, 1997, the
Company had the authority to issue 250,000 shares and 80,000 shares of Class A
common stock and Class B common stock, respectively, at a par value of $.01
per share. Each holder of Class A common stock is entitled to one vote per
share owned and each holder of Class B common stock is entitled to 2 1/2 votes
per share owned. Class B shares may be converted into one share of Class A
common stock at any time, and the transfer of Class B shares to a third party
results in its automatic conversion to Class A shares. Each outstanding share
of common stock on the date of amendment became one share of Class A common
stock.
As established in the Stock Purchase Agreement dated March 28, 1997,
effective April 22, 1997 Disney obtained a controlling interest in the Company
by purchasing 9,967 (39,869 following the October 3, 1997 stock split of the
Company) shares of the Company's Class B common shares. The agreement provides
that Disney has the option to acquire all of the outstanding Class A shares
held by key shareholders and employees at a predetermined price. The initial
purchase proceeds provided $31,868 in cash to the Company, and extinguished
loans from a key shareholder of $50,000 (Note 4).
COMMON STOCK SPLIT
On October 4, 1997, the Board of Directors declared a four-for-one stock
split on the Company's Class A and Class B common stock effected in the form
of a stock dividend to holders of record on that date. Class A and Class B
common stock issued, including stock option information, and additional paid-
in capital for all periods presented, have been restated to reflect this
split.
8. LEASE COMMITMENTS
The Company occupies its current facilities under terms of a noncancelable
operating lease that expires in May 2001, subject to extensions at the
Company's option. At September 28, 1997, future minimum rental payments under
the lease are as follows:
<TABLE>
<S> <C>
Year ending September,
1998.......................................................... $1,388
1999.......................................................... 1,388
2000.......................................................... 977
2001.......................................................... 285
------
$4,038
======
</TABLE>
F-15
<PAGE>
STARWAVE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Rent expense under noncancelable operating leases amounted to $871 in 1997,
$931 in 1996 and $823 in 1995.
9. DISCONTINUED OPERATIONS
In March 1996, the Company made the decision to discontinue its Multimedia
CD-ROM segment. During the phase-out period, the Company completed production
of its final CD-ROM product and disposed of its remaining inventory of CD-ROM
products currently released. The phase-out period was completed by March 31,
1997. Operating results of the Multimedia CD-ROM segment for 1996 and 1995 are
shown separately in the accompanying statements of operations. Any activity
subsequent to December 31, 1996 reduced the net liability.
Net assets (liabilities) of discontinued operations consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net assets (liabilities)
Accounts receivable.................. $ 380
Inventory............................ 105
Prepaid royalties to independent
content providers................... 839
Accounts payable and accrued
liabilities......................... $(359) $(500) (272)
Accrual for expected losses during
phase-out period.................... (19)
----- ----- ------
$(359) $(519) $1,052
===== ===== ======
</TABLE>
Net revenues and expenses of the Multimedia CD-ROM segment consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net revenues.......................... $-- $ 664 $ 538
Expenses.............................. (4,934) (8,012)
Accrual for expected losses during
phase-out period..................... (19)
--- ------- -------
Loss from discontinued operations..... $-- $(4,289) $(7,474)
=== ======= =======
</TABLE>
The Company recognized revenues from CD-ROM product sales at the time of
shipment from the Company's distributor. The estimated effect of price
protection programs and product returns were recorded as reductions to
revenue.
10. OTHER EXPENSE
During 1996, the Company incurred legal and accounting fees of $606 in
connection with a proposed initial public offering, which was not completed.
As a result, the costs were expensed in 1996 and included in other expenses.
F-16
<PAGE>
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP..................................... F-18
ESPN/Starwave Partners Balance Sheets as of June 28, 1998 and September
28, 1997................................................................ F-19
ESPN/Starwave Partners Statements of Operations for the Period from April
1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended June
28, 1998................................................................ F-20
ESPN/Starwave Partners Statement of Changes in Partners' Equity for the
Period from April 1, 1997 (Inception) to September 28, 1997 and the Nine
Months Ended June 28, 1998.............................................. F-21
ESPN/Starwave Partners Statements of Cash Flows for the Period from April
1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended June
28, 1998................................................................ F-22
ESPN/Starwave Partners Notes to Financial Statements..................... F-23
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To ESPN/Starwave Partners
d/b/a ESPN Internet Ventures
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' equity and of cash flows present fairly,
in all material respects, the financial position of ESPN/Starwave Partners
d/b/a ESPN Internet Ventures at September 28, 1997, and the results of its
operations and its cash flows for the period from April 1, 1997 (inception) to
September 28, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-18
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents.......................... $1,900 $ 5,064
Accounts receivable (net of allowance of $71 and
$79 (unaudited), respectively).................... 2,555 3,544
Prepaid royalties.................................. 530 2,105
Property and equipment, net.......................... 84 214
------ -------
Total assets..................................... $5,069 $10,927
====== =======
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities
Accounts payable................................... $ 506 $ 394
Deferred revenue................................... 1,718 1,665
Due to partner..................................... 109
------ -------
Total current liabilities........................ 2,333 2,059
Commitments (Note 3)
Partners' equity..................................... 2,736 8,868
------ -------
Total liabilities and partners' equity........... $5,069 $10,927
====== =======
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Advertising revenue................................. $ 4,868 $10,363
Subscription revenue................................ 1,732 3,898
Merchandise and other............................... 396 260
------- -------
Total revenues.................................... 6,996 14,521
------- -------
Operating expenses:
Cost of online services............................. 7,168 10,668
Development......................................... 515 1,299
Sales and marketing................................. 2,262 3,809
General and administrative.......................... 811 2,228
------- -------
Total operating expenses.......................... 10,756 18,004
------- -------
Interest income....................................... 8
------- -------
Net loss.............................................. $(3,752) $(3,483)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STARWAVE ESPN ONLINE TOTAL
VENTURES, INVESTMENTS PARTNERS'
INC. INC. EQUITY
--------- ----------- ---------
<S> <C> <C> <C>
Initial capital contribution
April 1, 1997 ............................... $(1,484) $(1,484)
Capital contributions.......................... 5,377 $ 2,595 7,972
Net loss for the period........................ (2,251) (1,501) (3,752)
------- ------- -------
Balance at September 28, 1997.................. 1,642 1,094 2,736
Capital contributions (unaudited).............. 5,769 3,846 9,615
Net loss for the period (unaudited)............ (2,090) (1,393) (3,483)
------- ------- -------
Balance at June 28, 1998 (unaudited)........... $ 5,321 $ 3,547 $ 8,868
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(3,752) $(3,483)
Adjustments to reconcile net loss to net cash used
in operating activities
Deferred revenue from contributed assets.......... 1,484
Operating expenses allocated from partners........ 5,004 9,615
Depreciation and amortization..................... 3 49
Change in accounts receivable..................... (2,555) (989)
Change in prepaid royalties....................... (530) (1,575)
Change in accounts payable........................ 506 (112)
Change in deferred revenue........................ 1,718 (53)
Change in due to partner.......................... 109 (109)
------- -------
Net cash provided by operating activities....... 1,987 3,343
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.................. (87) (179)
------- -------
Net increase in cash................................ 1,900 3,164
Cash, beginning of period........................... 1,900
------- -------
Cash, end of period................................. $ 1,900 $ 5,064
======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ESPN/Starwave Partners (the "Partnership") was formed on April 1, 1997 upon
the execution of a partnership agreement between Starwave Ventures, Inc.
("SVI") and ESPN Online Investments Inc. SVI and ESPN Online Investments Inc.
(the "Partners") are allocated net losses and net profits of the Partnership
60%/40% and 50%/50%, respectively. In addition, the partners incur and pay
certain operating expenses on behalf of the Partnership. These expenses are
allocated to the Partnership and considered contributions to partners' equity.
Upon inception, SVI contributed a deferred revenue liability of $1,484
relating to services subsequently performed by the Partnership.
BUSINESS
The Partnership was established to develop, produce and maintain Internet-
based services intended to appeal to broad consumer interests in sports-
related content areas. The Partnership generates revenue from advertisements
sold for display upon its services, and from fantasy games and subscriptions
sold to the end consumer.
Inherent in the Partnership's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet as an
information source, and acceptance of the Internet as an effective advertising
medium.
REVENUE RECOGNITION
Advertising, subscription and fantasy game revenues are recognized using the
straight-line method over the period of the related advertising contract,
subscription term or sports season. Merchandise revenue is recognized at the
time of sale. Advertising revenues are stated net of commissions. The
Partnership guarantees to certain advertising customers a minimum number of
page impressions to be delivered to users of its services for a specified
period. To the extent minimum guaranteed page impression deliveries are not
met, the Partnership defers recognition of the corresponding revenues until
guaranteed page impression delivery levels are achieved. As of September 28,
1997, no revenues have been deferred as a result of these guarantees. Deferred
revenues represent payments received by the Partnership and are deferred until
earned. Deferred revenues are classified based on the period of the related
advertising contract or subscription.
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
PREPAID ROYALTIES
Prepaid royalties represents payments made or accrued to independent content
providers under development and production agreements. Amortization begins
upon launch of the applicable online service and is based on the greater of
amounts determined by the contractual royalty rates or amounts computed on a
straight-line basis over the terms of the agreements. At September 28, 1997,
the Partnership had one contract for a total of $1,300, which is being
amortized on a straight-line basis over the 22-month life of the contract.
Management periodically evaluates the future recoverability of prepaid
royalties. In the event management does not expect to generate revenues
sufficient to recover the prepaid royalty under a particular contract, the
F-23
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Partnership will reduce the carrying amount of its prepaid royalty to its fair
value on the date such a determination is made.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Partnership does not have any comprehensive income
items other than net income; therefore, SFAS 130 is not expected to impact the
Partnership.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the
Partnership does not hold any derivative instruments, SFAS 133 is not expected
to impact the Partnership.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. Since the Partnership does not
generate revenue from selling or licensing software, SOP 97-2 is not expected
to impact the Partnership.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost for purchased assets and net book
value for contributed assets. Depreciation and amortization are recognized
using the straight-line method over the estimated useful lives of such assets.
The estimated useful life used is three years.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new technologies that may
benefit the existing online services and consist principally as costs for
content, facilities and equipment. Development expenses are charged to results
of operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and development of
new features for the service are included in cost of online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Partnership
incurred advertising costs of $1,558 as of September 28, 1997.
INCOME TAXES
Profits or losses of the Partnership are attributable directly to the
partners for income tax purposes. Consequently, an income tax provision has
not been reflected in these financial statements.
F-24
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued compensation approximates fair value because of
the short-term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months then
ended is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the Partnership's financial position as of June
28, 1998 and the results of its operations and cash flows for the nine months
ended June 28, 1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 28, 1997:
<TABLE>
<S> <C>
Computer hardware................................................... $87
Less: Accumulated depreciation and amortization..................... (3)
---
$84
===
</TABLE>
The Partnership shares office space and certain operating equipment with its
partners and the related rent and depreciation of $88 and $145, respectively,
was allocated to the Partnership for the period from April 1, 1997 (inception)
to September 28, 1997.
3. COMMITMENTS
The Partnership has production agreements with third parties (licensors)
under which the Partnership produces online services utilizing content
licensed under the production agreements. In exchange for content licenses,
the licensors are entitled to royalties calculated as a percentage of gross
revenues from the online services, as defined in the production agreements.
During the term of the production agreements, the Partnership is required to
pay minimum nonrefundable payments which are offset against the royalties as
they are earned. Future minimum royalty payments are summarized as follows:
<TABLE>
<S> <C>
Year ending September,
1998.......................................................... $ 525
1999.......................................................... 1,250
2000.......................................................... 1,000
------
$2,775
======
</TABLE>
F-25
<PAGE>
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP...................................... F-27
ABC News/Starwave Partners Balance Sheets as of June 28, 1998 and
September 28, 1997....................................................... F-28
ABC News/Starwave Partners Statements of Operations for the Period from
April 1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended
June 28, 1998 ........................................................... F-29
ABC News/Starwave Partners Statement of Changes in Partners' Equity for
the Period from April 1, 1997 (Inception) to September 28, 1997 and the
Nine Months Ended June 28, 1998 ......................................... F-30
ABC News/Starwave Partners Statements of Cash Flows for the Period from
April 1, 1997 (Inception) to September 28, 1997 and the Nine Months Ended
June 28, 1998............................................................ F-31
ABC News/Starwave Partners Notes to Financial Statements.................. F-32
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To ABC News/Starwave Partners
d/b/a ABC News Internet Ventures
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' equity and of cash flows present fairly,
in all material respects, the financial position of ABC News/Starwave Partners
d/b/a ABC News Internet Ventures at September 28, 1997, and the results of its
operations and its cash flows for the period from April 1, 1997 (inception) to
September 28, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
January 30, 1998
F-27
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents........................... $ 31 $ 4,330
Accounts receivable (net of allowance of $10 and $30
(unaudited), respectively)......................... 1,368 1,123
Prepaid royalties................................... 2,857 1,997
Equipment and leasehold improvements, net............. 3,134 3,553
------ -------
Total assets...................................... $7,390 $11,003
====== =======
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
<S> <C> <C>
Current liabilities
Accounts payable.................................... $2,605 $ 1,352
Accrued compensation................................ 240 49
Deferred revenue.................................... 85 203
Due to partner...................................... -- 1,822
------ -------
Total liabilities................................. 2,930 3,426
Commitments (Note 3)
Partners' equity...................................... 4,460 7,577
------ -------
Total liabilities and partners' equity............ $7,390 $11,003
====== =======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997 NINE MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
-------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Advertising revenues............................... $ 937 $ 2,856
Royalties.......................................... 992 4,315
------- --------
Total revenues................................... 1,929 7,171
------- --------
Operating expenses:
Cost of online services............................ 9,015 11,696
Development........................................ 532 2,233
Sales and marketing................................ 1,777 2,660
General and administrative......................... 537 2,219
------- --------
Total operating expenses......................... 11,861 18,808
------- --------
Interest income...................................... 2
------- --------
Net loss............................................. $(9,930) $(11,637)
======= ========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
STARWAVE DOL ONLINE TOTAL
VENTURES, INVESTMENTS, PARTNERS'
INC. INC. EQUITY
--------- ------------ ---------
<S> <C> <C> <C>
Initial capital contribution, April 1, 1997.. $ (26) $ (26)
Capital contributions........................ 8,660 $ 5,756 14,416
Net loss for the period...................... (5,958) (3,972) (9,930)
------- ------- --------
Balance at September 28, 1997................ 2,676 1,784 4,460
Capital contributions (unaudited)............ 8,852 5,902 14,754
Net loss for the period (unaudited).......... (6,982) (4,655) (11,637)
------- ------- --------
Balance at June 28, 1998 (unaudited)......... $ 4,546 $ 3,031 $ 7,577
======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
(INCEPTION) NINE MONTHS
TO ENDED
SEPTEMBER 28, JUNE 28,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(9,930) $(11,637)
Adjustments to reconcile net loss to net cash used
in operating activities
Deferred revenue from contributed assets.......... 26
Operating expenses allocated from partners........ 11,327 14,754
Depreciation and amortization..................... 273 492
Change in accounts receivable..................... (1,368) 245
Change in prepaid royalties....................... (2,857) 860
Change in accounts payable........................ 2,605 (1,253)
Change in accrued compensation.................... 240 (191)
Change in deferred revenue........................ 85 118
Change in due to partner.......................... 1,822
------- --------
Net cash provided by operating activities....... 401 5,210
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements.... (370) (911)
------- --------
Net increase in cash................................ 31 4,299
Cash, beginning of period........................... 31
------- --------
Cash, end of period................................. $ 31 $ 4,330
======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Fixed assets contributed by partners................ $ 3,037
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ABC News/Starwave Partners (the "Partnership") was formed on April 1, 1997
upon the execution of a partnership agreement between Starwave Ventures, Inc.
("SVI") and DOL Online Investments Inc. SVI and DOL Online Investments Inc.
are allocated the net losses and net profits of the Partnership 60%/40% and
50%/50%, respectively. In addition, the partners incur and pay certain
operating expenses on behalf of the Partnership. These expenses are allocated
to the Partnership and considered contributions to partners' equity. Upon
inception, SVI contributed a deferred revenue liability of $26, relating to
services subsequently performed by the Partnership.
BUSINESS
The Partnership was established to develop, produce and maintain Internet-
based services intended to appeal to broad consumer interests in news and
entertainment content areas. The Partnership currently generates revenue from
advertisements sold for display upon its services, and royalties from certain
production agreements.
Inherent in the Partnership's business are various risks and uncertainties,
including its limited operating history and the limited history of commerce on
the Internet. Future revenues from online services are dependent on the
continued growth and acceptance of the Internet, use of the Internet as an
information source, and acceptance of the Internet as an effective advertising
medium.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
Reporting Comprehensive Income, was issued. This pronouncement requires
companies to report comprehensive income and its components prominently in the
financial statements. Comprehensive income includes both net income and
charges or credits to equity that are not the result of transactions with
owners. SFAS 130 is required to be adopted for fiscal years beginning after
December 15, 1997. The Partnership does not have any comprehensive income
items other than net income; therefore, SFAS 130 is not expected to impact the
Partnership.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued. This
pronouncement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in the
financial statements and measure them at fair value. SFAS 133 is required to
be adopted for fiscal years beginning after June 15, 1999. Since the
Partnership does not hold any derivative instruments, SFAS 133 is not expected
to impact the Partnership.
In October 1997, Statement of Position (SOP) No. 97-2, Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue from selling or licensing software can be recognized.
SOP 97-2 is required to be adopted for transactions entered into in fiscal
years beginning after December 15, 1997. Since the Partnership does not
generate revenue from selling or licensing software, SOP 97-2 is not expected
to impact the Partnership.
F-32
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION
Advertising revenues are recognized using the straight-line method over the
period of the related advertising contract. Advertising revenues are stated
net of commissions. The Partnership guarantees to certain advertising
customers a minimum number of page impressions to be delivered to users of its
services for a specified period. To the extent minimum guaranteed page
impression deliveries are not met, the Partnership defers recognition of the
corresponding revenues until guaranteed page impression delivery levels are
achieved. As of September 28, 1997, no revenues have been deferred as a result
of these guarantees. Deferred revenues represent payments received in advance
by the Partnership which are deferred until earned. Deferred revenues are
classified based on the period of the related advertising or production
contract.
CASH AND EQUIVALENTS
Cash and equivalents include highly liquid investments with an original
maturity of three months or less.
PREPAID ROYALTIES
Prepaid royalties represents payments made or accrued to independent content
providers under development and production agreements. Amortization begins
upon launch of the applicable online service and is based on the greater of
amounts determined by the contractual royalty rates or amounts computed on a
straight-line basis over the terms of the agreements. At September 28, 1997,
the Partnership had one contract for a total of $3,750, which is being
amortized on a straight-line basis over the two-year life of the contract.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost for purchased
assets and net book value for contributed assets. Depreciation and
amortization are recognized using the straight-line method over the estimated
useful lives of such assets ranging from one to six years.
DEVELOPMENT EXPENSES
Development expenses relate to the development of new technologies that may
benefit the online service and consist principally of costs for labor,
facilities and equipment. Development expenses are charged to results of
operations as incurred. Once an online service is launched and available to
generate revenues, expenses associated with enhancements and development of
new features for the service are included in cost of online services.
ADVERTISING EXPENSES
Advertising and promotion costs are expensed as incurred. The Partnership
incurred advertising costs of $1,260 as of September 28, 1997.
INCOME TAXES
Profits or losses of the Partnership are attributable directly to the
partners for income tax purposes. Consequently, an income tax provision has
not been reflected in these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued compensation approximates fair value because of
the short-term maturity of these instruments.
F-33
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 28, 1998 and for the nine months then
ended is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the Partnership's financial position as of June
28, 1998 and the results of its operations and cash flows for the nine months
ended June 28, 1998.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at September
28, 1997:
<TABLE>
<S> <C>
Computer hardware.................................................. $ 348
Software........................................................... 3
Furniture and fixtures............................................. 19
Leasehold improvements............................................. 3,037
------
3,407
Less: Accumulated depreciation and amortization.................... (273)
------
Equipment and leasehold improvements, net.......................... $3,134
======
</TABLE>
The Partnership shares office space and certain operating equipment with its
partners. Related rent in the amount of $29 was allocated to the Partnership
for the period from April 1, 1997 (inception) to September 28, 1997.
3. COMMITMENTS
The Partnership has production agreements with third parties (licensors)
under which the Partnership produces online services utilizing content
licensed under the production agreements. In exchange for content licenses,
the licensors are entitled to royalties calculated as a percentage of gross
revenues from the online services, as defined in the production agreements.
During the term of the production agreements, the Partnership is required to
pay minimum nonrefundable payments which are offset against the royalties as
they are earned. Future minimum royalty payments are summarized as follows:
<TABLE>
<S> <C>
Year ending September,
1998........................................................... $1,053
1999........................................................... 750
------
$1,803
======
</TABLE>
F-34
<PAGE>
QUANDO, INC. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP.......................................... F-36
Quando, Inc. Balance Sheets as of December 31, 1997 and 1996 and June 30,
1998.................................................................... F-37
Quando, Inc. Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Six Months Ended June 30, 1997 and 1998..... F-38
Quando, Inc. Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1996 and 1997, and the Six Months Ended June
30, 1998................................................................ F-39
Quando, Inc. Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997, and the Six Months Ended June 30, 1997 and 1998.... F-40
Quando, Inc. Notes to Financial Statements............................... F-41
</TABLE>
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Quando, Inc.:
We have audited the accompanying balance sheets of Quando, Inc. (the
Company) as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quando, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are described in note 12. The financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
August 18, 1998
F-36
<PAGE>
QUANDO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash.................................. $ 2,935 $ 50,984 $ --
Accounts receivable, net.............. -- 29,241 33,134
----------- ----------- -----------
Total current assets................ 2,935 80,225 33,134
Property and equipment, net............. 51,308 42,681 46,804
Other assets............................ 3,562 3,718 3,718
----------- ----------- -----------
Total assets........................ $ 57,805 $ 126,624 $ 83,656
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses............................. $ 202,405 $ 260,908 $ 369,716
Shareholders' loans................... 66,991 67,658 107,242
----------- ----------- -----------
Total current liabilities........... 269,396 328,566 476,958
Convertible debt........................ -- 247,000 447,000
----------- ----------- -----------
Total liabilities................... 269,396 575,566 923,958
----------- ----------- -----------
Shareholders' deficit:
Preferred stock, no par value;
4,000,000 shares authorized:
Series A convertible preferred
stock; 300,000 shares authorized;
300,000 shares issued and
outstanding on December 31, 1996,
December 31, 1997 and June 30, 1998
(liquidation preference of
$300,000).......................... 295,575 295,575 295,575
Series B convertible preferred
stock; 880,000 shares authorized;
691,232, 880,000 and 880,000 shares
issued and outstanding on December
31, 1996, December 31, 1997 and
June 30, 1998, respectively
(liquidation preference of
$550,000).......................... 410,263 526,313 526,313
Common stock, no par value; 19,000,000
shares authorized; 5,445,000,
4,445,000 and 4,445,000 shares issued
and outstanding on December 31, 1996,
December 31, 1997 and June 30, 1998,
respectively......................... 160,000 160,000 160,000
Additional paid-in capital............ 6 6 6
Accumulated deficit................... (1,077,435) (1,430,836) (1,822,196)
----------- ----------- -----------
Total shareholders' deficit......... (211,591) (448,942) (840,302)
----------- ----------- -----------
Total liabilities and shareholders'
deficit............................ $ 57,805 $ 126,624 $ 83,656
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
QUANDO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net........... $ 71,186 $ 33,182 $ 255,723 $ 72,626 $ 88,578
Cost of goods sold...... 32,212 19,373 654 250 2,400
--------- --------- --------- --------- ---------
Gross margin.......... 38,974 13,809 255,069 72,376 86,178
--------- --------- --------- --------- ---------
Operating costs and
expenses:
Research and
development.......... 127,273 115,782 161,339 80,670 184,454
Sales and marketing... 400 2,000 12,000 1,971 --
General and
administrative....... 361,156 326,103 418,850 203,734 257,027
--------- --------- --------- --------- ---------
488,829 443,885 592,189 286,375 441,481
--------- --------- --------- --------- ---------
Loss from
operations......... (449,855) (430,076) (337,120) (213,999) (355,303)
Other income (expense):
Interest expense...... (5,737) (14,897) (26,151) (9,015) (35,908)
Other income
(expense), net....... 1,232 2,226 9,870 5 (149)
Loss on sale of fixed
assets............... (3,743) -- -- -- --
--------- --------- --------- --------- ---------
Loss before
provision for
income taxes....... (458,103) (442,747) (353,401) (223,009) (391,360)
Provision for income
taxes.................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss.............. $(458,103) $(442,747) $(353,401) $(223,009) $(391,360)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
QUANDO, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------
TOTAL
SERIES A SERIES B COMMON STOCK ADDITIONAL SHAREHOLDERS
---------------- ---------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------- -------- ------- -------- ---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 125,000 $120,575 -- $ -- 5,445,000 $160,000 $ 5 $ (176,585) $ 103,995
Issuance of preferred
stock.................. 175,000 175,000 -- -- -- -- 1 -- 175,001
Net loss................ -- -- -- -- -- -- -- (458,103) (458,103)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1995................... 300,000 295,575 -- -- 5,445,000 160,000 6 (634,688) (179,107)
Issuance of preferred
stock, net of offering
costs.................. -- -- 691,232 410,263 -- -- -- -- 410,263
Net loss................ -- -- -- -- -- -- -- (442,747) (442,747)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1996................... 300,000 295,575 691,232 410,263 5,445,000 160,000 6 (1,077,435) (211,591)
Issuance of preferred
stock, net of offering
costs.................. -- -- 188,768 116,050 -- -- -- -- 116,050
Recision of common
stock.................. -- -- -- -- (1,000,000) -- -- -- --
Net loss................ -- -- -- -- -- -- -- (353,401) (353,401)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, December 31,
1997................... 300,000 295,575 880,000 526,313 4,445,000 160,000 6 (1,430,836) (448,942)
Net loss (unaudited).... -- -- -- -- -- -- -- (391,360) (391,360)
------- -------- ------- -------- ---------- -------- --- ----------- ---------
Balance, June 30, 1998
(unaudited)............ 300,000 $295,575 880,000 $526,313 4,445,000 $160,000 $ 6 $(1,822,196) $(840,302)
======= ======== ======= ======== ========== ======== === =========== =========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
QUANDO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- ---------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(458,103) $(442,747) $(353,401) $ (223,009) $ (391,360)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 22,146 12,567 16,179 9,025 9,894
Allowance for bad
debts.............. -- -- 1,618 1,618 --
Gain on forgiveness
of accounts
payable............ -- -- (10,000) -- --
Loss on sale of
fixed assets....... 3,743 -- -- -- --
Changes in assets
and liabilities:
Accounts
receivable....... (13,571) 26,909 (30,859) (16,090) (3,893)
Inventory......... (4,376) 16,538 -- -- --
Other assets...... 6,753 9 (156) (156) --
Accounts payable
and accrued
expenses......... 135,237 15,702 68,503 43,079 108,808
Other current
liabilities...... 15,953 (15,953) -- -- --
--------- --------- --------- ------------ ------------
Net cash used in
operating
activities..... (292,218) (386,975) (308,116) (185,533) (276,551)
--------- --------- --------- ------------ ------------
Cash flows from
investing activities:
Purchase of
equipment............ (17,277) (39,302) (7,552) (19) (14,017)
Proceeds from sale of
equipment............ 36,182 -- -- -- --
--------- --------- --------- ------------ ------------
Net cash
provided by
(used in)
investing
activities..... 18,905 (39,302) (7,552) (19) (14,017)
--------- --------- --------- ------------ ------------
Cash flows from
financing activities:
Proceeds from issuance
of convertible debt.. -- -- 240,000 65,000 200,000
Proceeds from
shareholder loans,
net.................. 51,364 15,627 7,667 1,567 39,584
Proceeds from issuance
of preferred stock,
net.................. 175,000 410,263 116,050 116,050 --
Proceeds from sale of
warrants............. 1 -- -- -- --
--------- --------- --------- ------------ ------------
Net cash
provided by
financing
activities..... 226,365 425,890 363,717 182,617 239,584
--------- --------- --------- ------------ ------------
Increase
(decrease) in
cash........... (46,948) (387) 48,049 (2,935) (50,984)
Cash at beginning of
year................... 50,270 3,322 2,935 2,935 50,984
--------- --------- --------- ------------ ------------
Cash at end of year..... $ 3,322 $ 2,935 $ 50,984 $ -- $ --
========= ========= ========= ============ ============
Supplemental disclosures
of cash flow
information:
Cash paid during the
year for:
Interest (including
amounts paid to
shareholders of
$5,737, $14,897,
$16,825, $7,970 and
$7,684,
respectively....... $ 5,737 $ 14,897 $ 26,151 $ 9,015 $ 35,908
Income taxes.......... -- -- -- -- --
Supplemental disclosures
of non-cash financing
activities:
Convertible notes
issued upon
conversion of
shareholder loans.... $ -- $ -- $ 7,000 $ -- $ --
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Quando, Inc. (Quando or the Company) was incorporated as an S Corporation
on December 12, 1993 in the State of Oregon as Media Mosaic, Inc. (Media
Mosaic or the Company). Media Mosaic developed and published "how to" CD-
ROM's for several activities and hobbies. On October 10, 1994, Media Mosaic
revoked its S Corporation election of tax status and began operating as a C
Corporation. During 1994 and 1995, the Company's sales consisted entirely
of CD-ROM sales.
In 1996, due to lower than expected CD-ROM sales, Media Mosaic terminated
its CD-ROM development and publishing business. In March 1996, the Company
began developing custom event directory services for the internet.
Effective September 27, 1996, the Company changed its name from Media
Mosaic, Inc. to Quando, Inc. and in March 1997, the Company began to sell
their custom event directory services to customers. During 1997, the
Company's sales consisted entirely of fees charged for custom directory
services and fees charged for custom engineering projects.
UNAUDITED QUARTERLY INFORMATION
The financial information included herein for the six-month periods ended
June 30, 1997 and 1998 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The interim financial statements should be read in conjunction
with the financial statements and the notes included in the financial
statements. The results of operations for the interim period presented are
not necessarily indicative of the results to be expected for the full year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
In 1995 and 1996, revenue resulted primarily from CD-ROM product sales. CD-
ROM sales were recognized upon shipment. The Company generally provided for
a right of return, however, due to the termination of this line of business
in 1996, no sales reserve was considered necessary at December 31, 1996 or
1997.
In 1997, revenue results primarily from fees for (a) directory services and
(b) engineering or other customization of directory services. Directory
service fees are recognized monthly as they are earned and custom
engineering projects are recognized on a completed contract basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives
of the assets as follows: computers and software over three to five
F-41
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
years, furniture and equipment over five to seven years. Leasehold
improvements are amortized over the shorter of the useful life of the asset
or the life of the lease.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of events that have been included in the financial statements
and tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to be recovered or settled.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
CAPITALIZED SOFTWARE
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. The establishment of
technological feasibility of the Company's products has occurred shortly
before general release and, accordingly, no costs have been capitalized.
ROYALTIES
Royalties are accrued based on certain product sales, pursuant to
contractual agreements with developers of software products published by
the Company.
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $-0-,
$1,618 and $1,618 at December 31, 1996, December 31, 1997 and June 30,
1998, respectively.
INTANGIBLE ASSETS
Intangible assets, which represent capitalized packaging design fees, are
amortized on a straight-line basis over the expected periods to be
benefited. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the product sales. Due to the discontinuance of the associated
product, the remaining capitalized packaging design fees of $16,937 were
written off during 1995 and are included in cost of goods sold.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the Financial
Accounting Standard Board's Statement of Financial Accounting Standards No.
123 (SFAS 123), Accounting for Stock-Based Compensation. This statement
permits a company to choose either a fair-value based method of accounting
for its stock-based compensation arrangements or to comply with the current
Accounting Principles Board
F-42
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Opinion 25 (APB Opinion 25) intrinsic-value-based method adding pro forma
disclosures of net loss computed as if the fair-value-based method had been
applied in the financial statements. The Company applies SFAS No. 123 by
retaining the APB Opinion 25 method of accounting for stock-based
compensation for employees with annual pro forma disclosures of net loss.
Stock-based compensation for non-employees is accounted for using the fair-
value-based method.
ADVERTISING
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $12,000, $2,000 and $400 for the
years ended December 31, 1995, 1996 and 1997, respectively.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS
130 is to report all changes in equity that result from transactions and
economic events other than transactions with owners. Comprehensive income
is the total of net income and all other non-owner charges in equity. SFAS
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of earlier financial statements for comparative purposes
is required. The Company does not expect implementation to have a
significant impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires public
companies to report certain information about their operating segments in a
complete set of financial statements to shareholders. It also requires
reporting of certain enterprise-wide information about the Company's
products and services, its activities in different geographic areas and its
reliance on major customers. The basis for determining the Company's
operating segments is the manner in which management operates the business.
SFAS No. 131 is effective for fiscal years beginning after December 15,
1997. The Company does not expect implementation to have a significant
impact on its financial statements.
In October 1997, the AICPA issued Statement of Position 97-2, "Software
Revenue Recognition," ("SOP 97-2"), which is effective for software
transactions entered into beginning January 1, 1998. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair values
of the elements. The revenue allocated to software products generally is
recognized upon delivery of the products. The revenue allocated to post-
contract customer support generally is recognized ratably over the term of
the support and revenue allocated to service elements generally is
recognized as the services are performed. The Company does not expect SOP
97-2 to have a significant impact on its financial statements.
F-43
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Leasehold improvements.................................... $ 3,212 $ 3,212
Software.................................................. 33,526 33,526
Furniture and fixtures.................................... 6,792 7,152
Equipment................................................. 1,371 1,435
Computer equipment........................................ 29,245 36,373
------- -------
74,146 81,698
Less accumulated depreciation and amortization............ 22,838 39,017
------- -------
$51,308 $42,681
======= =======
</TABLE>
(3) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for
the years 1995, 1996 and 1997.
The difference between the expected tax expense, computed by applying the
federal statutory rate of 34% to loss before taxes, and the actual tax
expense of $-0- is primarily due to the increase in the valuation allowance
for deferred tax assets.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at December
31 are approximately as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Federal and state operating loss carryforwards....... $334,000 $492,000
Research and experimentation credits................. 18,000 33,000
Other................................................ 27,000 2,000
-------- --------
Total gross deferred tax assets.................. 379,000 527,000
Less valuation allowance............................. (379,000) (524,000)
-------- --------
Net deferred tax assets.......................... -- 3,000
Deferred tax liability:
Property and equipment, due to differences in
depreciation........................................ -- 3,000
-------- --------
$ -- $ --
======== ========
</TABLE>
The total valuation allowance for deferred tax assets as of December 31,
1995, 1996 and 1997 was $207,000, $379,000 and $524,000, respectively. The
net change in the total valuation allowance for the years ended December
31, 1995, 1996 and 1997 was an increase of $192,000, $172,000 and $145,000,
respectively.
At December 31, 1997, the Company has federal and state net operating loss
and research and experimentation credit carryforwards of approximately
$1,280,000 and $40,000, respectively. These carryforwards will expire
between 2000 and 2012 if not used by the Company to reduce income taxes
payable in future periods. These carryforwards will be subject to further
limitations upon closing of the proposed transaction discussed in note 12.
F-44
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) SHAREHOLDERS' EQUITY
RECISION OF COMMON STOCK
On February 25, 1997, the two founders surrendered a total of 1,000,000
shares of common stock to the Company in exchange for no consideration. As
the Company has no par common stock, there is no statement of operations or
balance sheet effects of this transaction.
SERIES A AND SERIES B PREFERRED STOCK
The Series A preferred stock has no stated value per share and a
liquidation preference over the holders of common stock of an amount per
share equal to $1.00 (the original issue price) plus all declared but
unpaid dividends. The Series B preferred stock has no stated value per
share and a liquidation preference over the holders of common stock of an
amount per share equal to $.625 (the original issue price) plus all
declared but unpaid dividends. No dividend declarations have been made for
Series A or Series B preferred stock as of December 31, 1995, 1996 and
1997.
Each share is convertible into common stock at any time at the option of
the holder. The initial conversion ratio for both Series A and Series B
preferred stock is one-to-one, but this ratio is subject to modification
under the Company's Articles of Incorporation in the event of certain
dilutive issuance of securities, stock splits, stock dividends, stock
distributions or other common stock equivalent distributions. Automatic
conversion to common stock at the then effective conversion rate will occur
upon the closing of the issuance of shares following an effective
registration statement under the Securities Act of 1933, in which the
aggregate price to the public at least $7,500,000 and in which the public
offering price per share of common stock equals or exceeds $4.00.
The holders of each share of Series A preferred stock and Series B
preferred stock has the right to the number of votes to which they would be
entitled if the shares were converted to common stock. The Series A
preferred stock, Series B preferred stock and the common stock vote
together, not as separate classes. The Company has reserved 300,000 shares
of the Company's common stock for the conversion of Series A preferred
stock and 880,000 shares of common stock for the conversion of Series B
preferred stock.
SHAREHOLDERS' AGREEMENT
The Company and its shareholders have entered into agreements that include
restrictions on the transfer of the Company's common stock. Except for
expressly provided exceptions, no shareholder is allowed to transfer
ownership of stock without the shares being first offered for sale to the
Company.
WARRANTS
The Company issued warrants to purchase 300,000 shares of the Company's
common stock in 1994 and 1995 in conjunction with the sale of the Series A
preferred stock. The warrants were issued with an exercise price of $.10
per share and initially expired three years from the date of grant. On
November 1, 1997, the Company extended the term of these warrants from
three to five years from the date of grant.
On July 15, 1996, the Company granted a warrant to purchase 47,727 shares
of the Company's common stock to a related party at an exercise price of
$.55 per share. This warrant was issued in connection with an equipment
lease.
On December 1, 1997, the Company issued 16,000 warrants with an exercise
price of $.625 per share to a creditor.
F-45
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) 1994 STOCK INCENTIVE PLAN
In 1994, the Company adopted an incentive stock option plan (the Plan)
whereby a total of 1,000,000 shares of common stock have been reserved for
the grant of stock options to selected employees, officers, directors,
consultants and advisors. Options granted pursuant to the Plan may be
either incentive stock options as defined in Section 442A of the Internal
Revenue Code of 1986, as amended, or non-qualified stock options, at the
discretion of the Board. Additionally, the aggregate fair market value
(determined at the time the options are granted) of common stock which the
incentive stock options are exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
Under the Plan, options generally vest ratably over three to five years.
Options granted under the Plan must be exercised within three months of the
optionee's termination of employment and within ten years of the date of
the grant. Option prices are generally not less than the fair market value
of the shares at the date of grant. At the time of the exercise of the
option, all optionee's must grant the Company or its designee a right of
first refusal with respect to all transfers.
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25; however, the Company has computed, for proforma
disclosure purposes, the value of all options granted during 1995, 1996 and
1997 using the minimum value option-pricing model as prescribed by SFAS 123
using the following assumptions used for grants:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate...................... 6.00% 6.25% 6.50%
Expected dividend yield...................... $ -- $ -- $ --
Expected lives............................... 5 years 5 years 5 years
Weighted average grant date fair value per
option...................................... $ .10 $ .141 $ .15
</TABLE>
If the Company had accounted for these options in accordance with SFAS 123,
the Company's net loss for the year ended December 31, 1997 would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported............................ $(458,103) $(442,747) $(353,401)
Proforma............................... (458,517) (445,212) (356,786)
</TABLE>
F-46
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's Plan at December 31, 1997 and
changes during the three year period then ended is presented in the
following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding December 31, 1994............................ 5,000 $.10
Granted.................................................. 202,550 .10
Exercised................................................ -- --
Canceled................................................. 100,000 .10
------- -----
Outstanding December 31, 1995............................ 107,550 .10
Granted.................................................. 266,003 .141
Exercised................................................ -- --
Canceled................................................. 25,200 .10
------- -----
Outstanding December 31, 1996............................ 348,353 .131
Granted.................................................. 210,243 .150
Exercised................................................ -- --
Canceled................................................. 103,650 .126
------- -----
Outstanding December 31, 1997............................ 454,946 $.141
======= =====
</TABLE>
The outstanding stock options have a weighted average remaining contractual
life of 5.9 years. At December 31, 1997, a total of 174,421 incentive and
non-qualified stock options were exercisable at an weighted average
exercise price of $.13 share and with a weighted average remaining
contractual live in years of 5.5.
(6) CONVERTIBLE PROMISSORY NOTES
In 1997, the Company issued $247,000 in convertible subordinated promissory
notes (the Notes). The Notes are due on January 1, 2000 through April 1,
2000 and bear interest at 10% to 12% per annum. Prior to January 1, 2000,
the Notes are convertible into common stock at a price per share of the
next equity financing by the Company or, if there is no equity financing
before January 1, 2000, at $.625 per share of common stock.
(7) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases equipment and office space under non-cancelable
operating leases which expire at various dates through 2000.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 50,692
1999.......................................................... 46,800
2000.......................................................... 42,900
--------
Total minimum lease payments................................ $140,392
========
</TABLE>
Lease expense totaled $63,114, $70,765 and $80,397 in 1995, 1996 and 1997,
respectively. (See Note 10)
F-47
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit year value to
00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause
a system to fail.
The Company has conducted a review of the Company's exposure to the year
2000 problem, including working with computer systems and software vendors
to assure that they are prepared for the year 2000. Based on this review
and discussions with such vendors, the Company currently believes that its
internal systems are year 2000 compliant. The Company does not expect to
incur any significant operating expenses or invest in additional computer
systems to resolve issues relating to the year 2000 problem, with respect
to both its information technology and product and service functions.
(8) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(9) CUSTOMER INFORMATION
The Company had five, four and five significant customers in 1995, 1996 and
1997, respectively, that each account for greater than 10% of the Company's
revenues. These customers accounted for 100% and 79% of the Company's
accounts receivable at December 31, 1996 and 1997, respectively.
(10) RELATED PARTY TRANSACTION
In December 1994, the Company entered into a sales leaseback transaction
with a related party, which includes two Series A preferred shareholders
and one of the Company's founders and officers. The total payments under
this lease agreement totaled $40,040, $49,991 and $40,643 in 1995, 1996 and
1997, respectively.
The shareholders of the Company have made several loans to the Company. At
December 31, 1995, 1996 and 1997, the shareholder loan balances outstanding
totaled $51,364, $66,991 and $74,658, respectively. These loans have an
average interest rate of, 22%, 22% and 24% during 1995, 1996 and 1997,
respectively and interest expense totaled $5,737, $14,897 and $16,825 in
each year, respectively.
F-48
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(11) RISK OF TECHNOLOGICAL CHANGE
CONTINGENCIES AND FACTORS THAT COULD AFFECT FUTURE RESULTS
A substantial portion of the Company's revenues each year are generated
from the development and rapid release to market of computer software
products newly introduced during the year. In the extremely competitive
industry environment in which the Company operates, such product
generation, development and marketing processes are uncertain and complex,
requiring accurate prediction of market trends and demand as well as
successful management of various development risks inherent in such
products. Additionally, the Company's development strategy relies on
certain key suppliers' ability to deliver completed products and component
computer software products in time to meet critical development and
distribution schedules. In light of these dependencies, it is reasonably
possible that failure to successfully manage a significant product
introduction or failure of certain key suppliers to deliver as needed could
have a sever near-term impact on the Company's growth and results of
operations.
(12) SUBSEQUENT EVENTS
During the six month period ended June 30, 1998, the Company issued
$200,000 in convertible subordinated promissory notes (the 1998 Notes). The
1998 Notes are due on April 1, 2000 and bear interest at 10% per annum.
Prior to January 1, 2000, the 1998 Notes are convertible into common stock
at a price per share of the next equity financing by the Company, or if
there is no equity financing before January 1, 2000, at $.625 per share of
common stock.
The Company issued warrants to purchase 592,000 shares of the Company's
common stock in 1998 in conjunction with the issuance of the 1998 notes.
The warrants were issued with an exercise price of $.0001 per share and
expire five years from the date of grant.
On July 13, 1998, two of the Company's Series A preferred stock
shareholders exercised warrants to purchase a total of 50,000 shares of
common stock at $.01 per share.
On July 24, 1998, the Company entered into an Agreement and Plan of
Reorganization (the Agreement) with Steelhead Acquisition Corp., a wholly-
owned subsidiary of Infoseek Corporation (Infoseek). Pursuant to the
Agreement, among other things, all the issued and outstanding shares of the
Company shall be converted into the right to receive shares of the common
stock of Infoseek. Commensurate with the closing, all outstanding preferred
stock will be converted in accordance with the respective preferred stock
conversion ratios. Additionally, all outstanding options under the
Company's 1994 stock option plan, whether vested or unvested, will be
assumed by Infoseek.
Effective upon the signing of the Agreement, Infoseek loaned the Company
$360,000 in the form of a promissory note. The Company used the proceeds
from this note to pay down their outstanding accounts payable and accrued
liabilities. All principal and accumulated interest on this note shall be
due and payable on March 31, 1999. This note is secured by the Company's
assets and bears interest at a rate of 6% annually.
This acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not
completed, there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-49
<PAGE>
ANNEX A-1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSEEK CORPORATION,
INFOSEEK CORPORATION,
STARWAVE CORPORATION,
AND
DISNEY ENTERPRISES, INC.
DATED AS OF JUNE 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I FORMATION OF HOLDING COMPANY AND SUBSIDIARIES ................ A-1
1.1 Organization of Holding Company................................ A-1
1.2 Directors and Officers of the Holding Company.................. A-2
1.3 Organization of Merger Subsidiaries............................ A-2
1.4 Actions of Directors and Officers.............................. A-2
1.5 Actions of Parent and Company.................................. A-2
1.6 The Mergers.................................................... A-2
1.7 The Closing.................................................... A-3
1.8 Directors...................................................... A-3
1.9 Officers....................................................... A-3
1.10 Merger Sub Stock............................................... A-3
1.11 Cancellation of Holding Company Capital Stock.................. A-3
1.12 Conversion of Parent Stock..................................... A-3
1.13 Treasury Stock................................................. A-4
1.14 Conversion of Company Common Stock............................. A-4
1.15 Exchange Agent................................................. A-5
1.16 Holding Company to Provide Common Stock........................ A-5
1.17 Exchange Procedures............................................ A-5
1.18 Dividends, Fractional Shares, Etc. ............................ A-5
1.19 Certain Definitions............................................ A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DEI ....... A-7
2.1 Organization of the Company.................................... A-8
2.2 Subsidiaries................................................... A-8
2.3 Company Capital Structure...................................... A-8
2.4 Authority...................................................... A-9
2.5 No Conflict.................................................... A-9
2.6 Consents....................................................... A-10
2.7 Company Financial Statements and Controls...................... A-10
2.8 No Undisclosed Liabilities..................................... A-10
2.9 No Changes..................................................... A-10
2.10 Tax Matters.................................................... A-11
2.11 Restrictions on Business Activities............................ A-13
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment........................................ A-13
2.13 Intellectual Property.......................................... A-14
2.14 Agreements, Contracts and Commitments.......................... A-16
2.15 Interested Party Transactions.................................. A-16
2.16 Governmental Authorization..................................... A-17
2.17 Litigation..................................................... A-17
2.18 Minute Books................................................... A-17
2.19 Environmental Matters.......................................... A-17
2.20 Brokers' and Finders' Fees; Third Party Expenses............... A-18
2.21 Employee Benefit Plans; Compensation; Labor Matters............ A-18
2.22 Insurance...................................................... A-19
2.23 Compliance with Laws........................................... A-19
2.24 Warranties; Indemnities........................................ A-19
2.25 Ownership of Parent Stock...................................... A-20
2.26 Claims for Losses.............................................. A-20
2.27 Capital Summary Statements..................................... A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT...................... A-20
3.1 Organization, Standing and Power................................. A-20
3.2 Parent Subsidiaries.............................................. A-20
3.3 Authority; No Conflict; Consents................................. A-20
3.4 Parent Capital Structure......................................... A-21
3.5 SEC Documents; Parent Financial Statements....................... A-21
3.6 No Undisclosed Liabilities....................................... A-22
3.7 No Material Adverse Effect....................................... A-22
3.8 Brokers' and Finders' Fees....................................... A-22
3.9 Litigation....................................................... A-22
3.10 Taxes............................................................ A-22
3.11 Employee Benefit Plans; Compensation............................. A-23
3.12 Compliance with Laws............................................. A-25
3.13 Agreements, Contract, Commitments................................ A-25
3.14 Intellectual Property............................................ A-25
3.15 Real Property.................................................... A-26
3.16 Interested Party Transactions.................................... A-26
3.17 Restrictions on Business Activities.............................. A-26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ A-27
4.1 Conduct of the Parties........................................... A-27
4.2 No Solicitation.................................................. A-29
4.3 No HSR Violation................................................. A-31
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-31
5.1 Registration Statement; Preparation of Joint Proxy Statement..... A-31
5.2 Shareholder Meetings............................................. A-33
5.3 Cooperation; Access to Information............................... A-33
5.4 Confidentiality.................................................. A-33
5.5 Expenses......................................................... A-33
5.6 Public Disclosure................................................ A-34
5.7 Consents......................................................... A-34
5.8 FIRPTA Compliance................................................ A-34
5.9 Reasonable Efforts............................................... A-34
5.10 Notification of Certain Matters.................................. A-34
5.11 Voting Agreements................................................ A-34
5.12 Director Nominees................................................ A-34
5.13 Non-Competition.................................................. A-34
5.14 Regulatory Filings; Reasonable Efforts........................... A-35
5.15 Additional Documents and Further Assurances...................... A-35
5.16 Employees........................................................ A-35
5.17 Form S-8......................................................... A-35
5.18 Director Action with Respect to Option Plans..................... A-35
5.19 Directors' Insurance and Indemnification......................... A-35
5.20 Stock Listing.................................................... A-35
5.21 Certain Tax Matters.............................................. A-35
5.22 Non Solicitation of Company Employees............................ A-39
5.23 Net Worth Test................................................... A-39
5.24 Compliance with Laws............................................. A-39
5.25 Share and Warrant Ownership...................................... A-40
5.26 Parent Option Grants............................................. A-40
5.27 ABC News/Starwave Partners....................................... A-40
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.28 Funding of Ventures ............................................. A-40
5.29 Third Party Agreements........................................... A-40
5.30 Adoption of Option and Employee Stock Purchase Plans............. A-41
ARTICLE VI CONDITIONS TO THE MERGER ...................................... A-41
6.1 Conditions to Obligations of Each Party ......................... A-41
6.2 Conditions to Obligations of Company and DEI .................... A-41
6.3 Conditions to the Obligations of Parent and Holding Company ..... A-42
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION .. A-43
7.1 Survival of Representations and Warranties ...................... A-43
7.2 Indemnification ................................................. A-43
7.3 Claims Against DEI for Indemnification .......................... A-44
7.4 Resolution of Conflicts; Arbitration ............................ A-44
7.5 Third-Party Claims .............................................. A-45
7.6 Exclusive Remedy ................................................ A-45
7.7 Indemnification For Taxes ....................................... A-45
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................... A-46
8.1 Termination ..................................................... A-46
8.2 Effect of Termination ........................................... A-48
8.3 Termination Fees ................................................ A-48
8.4 Amendment ....................................................... A-49
8.5 Extension; Waiver ............................................... A-49
ARTICLE IX GENERAL PROVISIONS ............................................ A-49
9.1 Notices ......................................................... A-49
9.2 Interpretation .................................................. A-50
9.3 Counterparts .................................................... A-51
9.4 Entire Agreement; Assignment .................................... A-51
9.5 Severability .................................................... A-51
9.6 Other Remedies .................................................. A-51
9.7 Governing Law ................................................... A-51
9.8 Rules of Construction ........................................... A-51
9.9 Attorneys Fees .................................................. A-51
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 18, 1998 among Infoseek Corporation., a California
corporation ("Parent"), Infoseek Corporation, a newly organized Delaware
Corporation ("Holding Company"), Starwave Corporation, a Washington
corporation (the "Company"), and Disney Enterprises, Inc., a Delaware
corporation and the majority shareholder of the Company ("DEI").
RECITALS
A. The Boards of Directors of each of the constituent companies hereto
believe it is in the best interests of each company and their respective
shareholders to consummate the reorganization (the "Reorganization") provided
for herein, pursuant to which Holding Company, will acquire all of the capital
stock of each of Parent and the Company through the mergers of the Merger
Subsidiaries (as defined in Section 1.3) with and into each of the Parent and
the Company.
B. For federal income tax purposes, it is intended that (i) the Parent
Merger (as hereinafter defined) qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal Revenue Code of
1986, as amended, (the "Code") and/or as an exchange under the provisions of
Section 351 of the Code and (ii) that the Company Merger (as hereinafter
defined) qualify as a reorganization under the provisions of Section 368(a) of
the Code and/or as an exchange under the provisions of Section 351 of the
Code.
C. Concurrently with the execution hereof, in order to induce Parent to
enter into this Agreement, certain shareholders of the Company and Parent are
each entering into a shareholders agreement providing for certain voting and
other restrictions with respect to shares of Parent Common Stock (as defined
in Section 1.12(a)) upon the terms and conditions specified therein.
D. Concurrently with the execution hereof, in order to induce the Company to
enter this Agreement, certain shareholders of Parent and DEI are each entering
into a shareholders agreement providing for certain voting and other
restrictions with respect to shares of Company Common Stock, upon the terms
and conditions specified therein; and Parent and DEI (or one of its
Affiliates) have entered into certain Transaction Agreements (as defined in
Section 2.4).
E. The Company and DEI, on the one hand, and Parent and Holding Company, on
the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
Formation of Holding Company and Subsidiaries
1.1 Organization of Holding Company. The Certificate of Incorporation and
Bylaws of the Holding Company shall be in such forms as shall be mutually
determined by Parent and DEI; provided that the Certificate of Incorporation
of Holding Company shall be amended to be substantially in the form of the
Articles of Incorporation of Parent and to preserve the existing rights
afforded to shareholders thereunder (subject to any changes required in
accordance with the provisions of Delaware General Corporate Law). The
Certificate of Incorporation of Holding Company will additionally be amended
to provide that the authorized capital stock of Holding Company shall consist
initially of shares of common stock, no par value (the "Holding Company Common
Stock") and shares of preferred stock, no par value (the "Holding Company
Preferred Stock").
A-1
<PAGE>
1.2 Directors and Officers of the Holding Company. Subject to Section 5.12,
the directors and officers of the Holding Company shall be designated by
Parent. Each officer and director shall remain in office until his or her
successor is elected.
1.3 Organization of Merger Subsidiaries. As promptly as practicable
following the execution of this Agreement, Parent shall cause the following
companies to be organized for the sole purpose of effectuating the Parent
Merger and the Company Merger contemplated herein:
(i) Indigo Acquisition Corp., a corporation organized under the laws of
the State of California ("Merger Sub A"). The Articles of Incorporation and
Bylaws of Merger Sub A shall be in such forms as shall be determined by the
Parent and reasonably acceptable to DEI as soon as practicable following
the execution of this Agreement. The authorized capital stock of Merger Sub
A shall initially consist of 1,000 shares of common stock, no par value,
which shall be issued to Holding Company at a price of $1.00 per share;
(ii) Starwave Acquisition Corp., a corporation organized under the laws
of the State of Washington ("Merger Sub B" and, together with Merger Sub A,
the "Merger Subsidiaries" which will conduct no business activity that is
unrelated to the Mergers). The Articles of Incorporation and Bylaws of
Merger Sub B shall be in such forms as shall be determined by the Parent
and reasonably acceptable to DEI as soon as practicable following the
execution of this Agreement. The authorized capital stock of Merger Sub B
shall initially consist of 100 shares of common stock, par value $.01 per
share, which shall be issued to Holding Company at a price of $1.00 per
share.
1.4 Actions of Directors and Officers. As promptly as practicable following
the execution of this Agreement, the Parent shall designate the directors and
officers of Merger Sub A and Merger Sub B. The Parent shall cause (i) Holding
Company to elect the directors of the Merger Subsidiaries, (ii) the directors
of Merger Sub A and Merger Sub B to elect their respective officers, (iii) the
directors of Holding Company to ratify and approve this Agreement and to
approve the forms of the Merger Agreements (as defined below), (iv) the Merger
Agreements to be executed on behalf of the parties thereto, and (v) the
directors and officers of the Merger Subsidiaries to take such steps as may be
necessary or appropriate to complete the organization of the Merger
Subsidiaries and to approve the Merger Agreements.
1.5 Actions of Parent and Company. As promptly as practicable following the
execution of this Agreement, as the holders of all of the outstanding shares
of capital stock of Holding Company, the Parent shall cause Holding Company to
ratify and approve this Agreement, and shall cause Holding Company, as the
sole shareholder of each of the Merger Subsidiaries, to adopt the Merger
Agreements. The Parent shall cause Holding Company and the Merger Subsidiaries
to perform their respective obligations under this Agreement and the Merger
Agreements.
1.6 The Mergers. Pursuant to Plans of Merger, in forms to be mutually agreed
upon by the Parent and the Company (sometimes hereinafter referred to
individually as the "Parent Merger Agreement" and the "Company Merger
Agreement", respectively, and collectively as the "Merger Agreements"), which
Parent Merger Agreement and Company Merger Agreement shall upon such mutual
agreement be attached hereto as Exhibit A-1 and Exhibit A-2, respectively,
upon the terms and subject to the conditions set forth in this Agreement and
in the Merger Agreements:
(a) Merger Sub A shall be merged with and into Parent (the "Parent
Merger") in accordance with the applicable provisions of the laws of the
State of California. Parent shall be the surviving corporation in the
Parent Merger and shall continue its corporate existence under the laws of
the State of California. As a result of the Parent Merger, Parent shall
become a wholly owned Subsidiary of Holding Company. The effects and
consequences of the Parent Merger shall be as set forth in the Parent
Merger Agreement.
(b) Merger Sub B will be merged with and into the Company (the "Company
Merger"), in accordance with the applicable provisions of the laws of the
State of Washington. The Company shall be the surviving corporation in the
Company Merger and shall continue its corporate existence under the laws of
the State of
A-2
<PAGE>
Washington. As a result of the Company Merger, the Company shall become a
wholly owned Subsidiary of Holding Company. The effects and consequences of
the Company Merger shall be as set forth in the Company Merger Agreement.
The term "Mergers" shall mean the Parent Merger and the Company Merger,
each of which shall occur on the same date and which are intended to
constitute a single transaction.
(c) The term "Effective Time" shall mean the time and date which is the
later of (i) the date and time of the filing of the Certificate of Merger
relating to the Parent Merger with the Secretary of State of the State of
California (or such other date and time as may be specified in such
certificate as may be permitted by California law) and (ii) the date and
time of the filing of a Certificate of Merger by the Secretary of State of
the State of Washington with respect to the Company Merger (or such other
date and time as may be specified in such certificate as may be permitted
by Washington law).
1.7 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement and the Merger
Agreements (the "Closing") shall take place (a) at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California 94304, at 10:00 a.m., local time, on the first business day
following the day on which the last to be fulfilled or waived of the
conditions set forth in Article VI shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Parent and the Company
may agree. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
1.8 Directors. The directors of Parent immediately prior to the Effective
Time shall be the directors of the surviving corporation of the Parent Merger
as of the Effective Time and until their successors are duly appointed or
elected in accordance with applicable law. The directors of Merger Sub A and
the directors of Merger Sub B immediately prior to the Effective Time shall be
the directors of the surviving corporation of the Parent Merger and the
Company Merger, respectively, as of the Effective Time and until their
successors are duly appointed or elected in accordance with applicable law.
1.9 Officers. The officers of Parent and the Company immediately prior to
the Effective Time shall be the officers of the surviving corporations of the
Parent Merger and the Company Merger, respectively, as of the Effective Time
and until their successors are duly appointed or elected in accordance with
applicable law.
1.10 Merger Sub Stock. At the Effective Time, each share of the common stock
of Merger Sub A outstanding immediately prior to the Effective Time shall be
converted into and shall become one (1) share of common stock of the surviving
corporation of the Parent Merger. At the Effective Time, each share of the
common stock of Merger Sub B outstanding immediately prior to the Effective
Time shall be converted into and shall become one share of common stock of the
surviving corporation of the Company Merger.
1.11 Cancellation of Holding Company Capital Stock. At the Effective Time,
each share of the capital stock of Holding Company issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to exist,
and the amounts paid by Parent for such shares shall be returned by Holding
Company to Parent.
1.12 Conversion of Parent Stock.
(a) Subject to Section 1.12 (b), at the Effective Time, each share of common
stock, no par value, of Parent ("Parent Common Stock") issued and outstanding
at the Effective Time shall be converted into one share of Holding Company
Common Stock. Upon such conversion, all such shares of Parent Common Stock
shall be canceled and cease to exist, and each certificate theretofore
representing any such shares shall, without any action on the part of the
holder thereof, be deemed to represent an equivalent number of shares of
Holding Company Common Stock.
(b) Notwithstanding anything in this Section 1.12 to the contrary, shares of
Parent Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Parent Merger and who shall have properly exercised and
perfected their rights of appraisal for such shares in the manner provided by
California Corporation Law and who, as of the
A-3
<PAGE>
Effective Time, shall not have effectively withdrawn or lost such dissenters
rights (collectively, the "Parent Dissenting Shares") shall not be converted
into or represent the right to receive the consideration for Parent Common
Stock pursuant to this Section 1.12, but the holder shall only be entitled to
such rights as are granted by applicable law. If such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, his
shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the
consideration provided for Parent Common Stock.
(c) At the Effective Time, each outstanding option or right to purchase
shares of Parent Common Stock (a "Parent Option") shall be contributed and
assumed by Holding Company in such manner that it is converted into an option
to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Parent Option shall be exercisable
upon the same terms and conditions as then are applicable to such Parent
Option, except that (i) each such Parent Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Parent Common Stock that were issuable
upon exercise in full of such assumed Parent Option immediately prior to the
Effective Time by one, and (ii) the per share exercise price for the shares of
Holding Company Common Stock issuable upon exercise of such assumed Parent
Option shall be equal to the exercise price per share of Parent Common Stock
at which such Parent Option was exercisable immediately prior to the Effective
Time. It is the intention of the parties that, to the extent that any such
Parent Option constituted an "incentive stock option" (within the meaning of
Section 422 of the Code) immediately prior to the Effective Time, such option
continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Code, and that the assumption of the Parent
Stock Options provided by this Section 1.12(c) satisfy the conditions of
Section 424(a) of the Code.
1.13 Treasury Stock. At the Effective Time, each share of Parent Common
Stock which is held in the treasury of Parent immediately prior to the
Effective Time shall, by virtue of the Mergers, cease to be outstanding and
shall be canceled and retired without payment of any consideration therefor.
1.14 Conversion of Company Common Stock.
(a) At the Effective Time each issued and outstanding share of Company
Capital Stock, $0.01 par value, shall be converted, without any action on the
part of the holders hereof, into the right to receive, upon surrender of a
certificate representing such share of Company Capital Stock in the manner
provided in Section 1.17, that number of shares of Holding Company Common
Stock equal to the Exchange Ratio.
(b) Notwithstanding anything contained in this Section 1.14 to the contrary,
each share of Company Common Stock issued and held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Company
Merger, cease to be outstanding and shall be canceled and retired without
payment of any consideration therefor.
(c) Notwithstanding anything in this Section 1.14 to the contrary, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Company Merger and who shall have properly exercised
and perfected their rights of appraisal for such shares in the manner provided
by the Washington Business Corporation Act (the "WCL") and who, as of the
Effective Time, shall not have effectively withdrawn or lost such dissenters
rights ( collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the consideration for Company Capital Stock
pursuant to Section 1.14, but the holder shall only be entitled to such rights
as are granted by applicable law. If such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, his shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive that number of
shares of Holding Company Common Stock equal to the Exchange Ratio. The
Company shall give Parent prompt notice of any Dissenting Shares (and shall
also give Parent prompt notice of any withdrawals of such demands for payment
in exercise of a shareholder's dissenters' rights) and Parent shall have the
right to direct all negotiations and proceedings with respect to any such
demands. Neither the Company nor the surviving corporation of the Company
Merger shall,
A-4
<PAGE>
except with the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for payment in
exercise of a shareholder's dissenters' rights.
(d) At the Effective Time, each outstanding option or right to purchase
shares of Company Common Stock (a "Company Option") shall be transferred to
and assumed by Holding Company in such manner that it is converted into an
option to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Company Option shall be exercisable
upon the same terms and conditions as then are applicable to such Company
Option, except that (i) each such Company Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Company Capital Stock that were
issuable upon exercise in full of such assumed Company Option immediately
prior to the Effective Time by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Holding Company Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient obtained by
dividing the exercise price per share of Company Capital Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. It is the intention of
the parties that, to the extent that any such Company Option constituted an
"incentive stock option" (within the meaning of Section 422 of the Code)
immediately prior to the Effective Time, such option continue to qualify as an
incentive stock option to the maximum extent permitted by Section 422 of the
Code, and that the assumption of the Company Stock Options provided by this
Section 1.14(d) satisfy the conditions of Section 424(a) of the Code.
1.15 Exchange Agent. Parent shall appoint a reputable institution,
reasonably acceptable to DEI, to serve as exchange agent (the "Exchange
Agent") in the Mergers.
1.16 Holding Company to Provide Common Stock. Promptly after the Effective
Time, Holding Company shall make available to the Exchange Agent for exchange
in accordance with this Article I the shares of Holding Company Common Stock
issuable pursuant to Article I in exchange for all of the outstanding shares
of Company Capital Stock.
1.17 Exchange Procedures. On the Closing Date or as soon thereafter as
practicable, the Shareholders may surrender the certificates representing
their Company Capital Stock (the "Company Stock Certificates") to the Exchange
Agent for cancellation together with a letter of transmittal in such form and
having such provisions as Parent may reasonably request. Upon surrender of a
Company Stock Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Exchange Agent will promptly deliver to the holder
of such Company Stock Certificate (other than the holders of Dissenting
Shares) in exchange therefor, subject to Section 1.18, the number of shares of
Holding Company Common Stock issuable in exchange for such Company Stock
Certificate pursuant to this Article I, and the Company Stock Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Company Stock Certificate (other than certificates representing
Dissenting Shares) will be deemed from and after the Effective Time, for all
corporate purposes and subject to Section 1.18, to evidence only the right to
receive shares of Holding Company Common Stock issuable in accordance with
this Article I.
1.18 Dividends, Fractional Shares, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Holding Company
Common Stock shall be paid with respect to any shares of Company Capital Stock
represented by a Company Stock Certificate, until such Company Stock
Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Company Stock
Certificate, there shall be paid to the holder of the Holding Company Stock
Certificates issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Holding Company Common Stock and not paid, less the amount of any
withholding taxes which may be required
A-5
<PAGE>
thereon, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Holding Company Common Stock, less the amount of any
withholding taxes which may be required thereon.
(b) From and after the Effective Time, there shall be no transfers on the
stock transfer books of Parent or the Company of the shares of Parent Common
Stock or Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates representing any
such shares are presented to the surviving corporations of the Parent Merger
or the Company Merger, they shall be canceled and exchanged for certificates
for the consideration, if any, deliverable in respect thereof pursuant to this
Agreement and the Merger Agreements in accordance with the procedures set
forth in this Article I. Subject to applicable law, Company Stock Certificates
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until Parent has
received a written agreement from such person agreeing to comply with the
provisions of Rule 145 under the Securities Act.
(c) No fractional shares of Holding Company Common Stock shall be issued
pursuant to the Company Merger. In lieu of the issuance of any fractional
share of Holding Company Common Stock pursuant to the Company Merger, cash
adjustments will be paid to holders in respect of any fractional share of
Holding Company Common Stock that would otherwise be issuable, and the amount
of such cash adjustment shall be equal to the product of such fractional
amount and the average closing price of Parent Common Stock for the ten (10)
trading days ending on the trading day prior to the Closing Date.
(d) None of the Parent, the Company, the Holding Company, the Exchange Agent
or any other person shall be liable to any former holder of shares of Parent
Common Stock or Company Capital Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) In the event that any Company Stock Certificate (other than certificates
representing Dissenting Shares) shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Company Stock Certificate to be lost, stolen or destroyed and, if required by
Holding Company, the posting by such person of a bond in such reasonable
amount as Holding Company may direct as indemnity against any claim that may
be made against it with respect to such Company Stock Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Company Stock Certificate the applicable merger consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Holding
Company Common Stock deliverable in respect thereof pursuant to this Agreement
and the Company Merger Agreement.
1.19 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Closing Balance Sheet" shall mean the estimated unaudited consolidated
balance sheet of the Company as of the Closing Date prepared in accordance
with GAAP (except that such unaudited consolidated balance sheet does not
contain the footnotes required by GAAP) and in good faith and based upon
the accounting procedures and methodologies utilized in preparing the Year-
End Financials and the Interim Financials.
"Company Capital Stock" shall mean shares of Company Common Stock and
shares of any other capital stock of the Company.
"Company Common Stock" shall mean shares of Class A Common Stock and the
Class B Common Stock of the Company.
"Company Options" shall mean all issued and outstanding options,
warrants, and other rights to acquire or receive Company Capital Stock
(whether or not vested).
A-6
<PAGE>
"Estimated Net Worth" shall equal the Net Worth of the Company as set
forth on the Closing Balance Sheet.
"Exchange Ratio" shall equal the quotient obtained by dividing (i)
28,138,000 by (ii) the sum of: (x) the aggregate number of Total
Outstanding Company Shares and (y) the aggregate number of shares of
Company Capital Stock subject to Company Options outstanding as of the
Effective Time.
"GAAP" shall mean generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis for the
relevant entity.
"Merrill Lynch" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Net Worth" shall equal total consolidated assets of the Company minus
total consolidated liabilities of the Company, each as determined in
accordance with GAAP, as of the close of business on the Closing Date.
"Net Worth Target" shall mean $5 million.
"Parent Common Stock" shall mean shares of the common stock, no par
value, of Parent.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"DEI Taxes" shall mean (i) all Taxes relating to any period (or portion
of any period) ending on or prior to the Closing Date of the Company or its
Subsidiaries including those attributable to their assets, operations or
employees for any period (or portion of any period) ending on or prior to
the Closing Date (not including any Tax incurred other than in the ordinary
course of business after the Effective Time on the Closing Date), including
without limitation any Taxes of the Company or any such Subsidiaries
arising as a result of the Company Merger or the Company's or any
Subsidiary of the Company during such period ceasing to be a member of a
consolidated, combined, or unitary group during such period, (ii) any
liability of the Company or any of its Subsidiaries that is attributable to
any consolidated, combined or unitary group of which the Company or any of
its Subsidiaries is a member prior to the Closing Date under Treas. Reg.
Section 1.1502-6 (or any comparable provision of foreign, state or local
law) or (iii) any liability of the Company or any of its Subsidiaries for
any period (or portion thereof) ending prior to the Effective Time under
any Tax sharing, Tax indemnity, Tax allocation or similar agreement or
arrangement entered into on or prior to the Effective Time, other than this
Agreement, or the Tax Sharing Agreement attached hereto as Exhibit E (the
Tax Sharing Agreement"); provided, however, that notwithstanding anything
in this Agreement to the contrary, DEI Taxes shall not include any Taxes
(i) for which Parent and Holding Company are required to indemnify DEI
pursuant to Section 7.7 hereof, or (ii) which Parent has agreed to share
pursuant to Section 5.21(a)(iii) hereof.
"Total Outstanding Company Shares" shall be the aggregate number of
shares of Company Capital Stock outstanding immediately prior to the
Effective Time.
ARTICLE II
Representations and Warranties of the Company and DEI
Each of the Company and DEI hereby, jointly and severally, represents and
warrants to Parent and Holding Company, subject to such exceptions as are
specifically disclosed in the disclosure schedule supplied by the Company and
DEI to Parent (the "Disclosure Schedule"), on the date hereof and as of the
Effective Time as though made at the Effective Time, as follows:
A-7
<PAGE>
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under Washington Law. The
Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each of
the Subsidiaries (as defined in Section 2.2 below) of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its properties and to carry on its business as now being conducted.
Each of the Subsidiaries is duly qualified to do business and in good standing
in each jurisdiction outside of the jurisdiction of its formation in which the
failure to be so qualified would have a Material Adverse Effect. For all
purposes of this Agreement, the term "Material Adverse Effect" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition, or results of operations
of the entity referred to, together with its subsidiaries, taken as a whole
("Material Adverse Effect"). The Company has delivered a true and correct copy
of its Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, each as amended to date, and has delivered a true and correct copy of
the charter or other organizational documents of each of its Subsidiaries,
each as amended to date, to Parent.
2.2 Subsidiaries. Except as set forth in Section 2.2 of the Disclosure
Schedule, the Company does not have, and has never had, any subsidiaries and
does not otherwise own, and has not otherwise owned, any shares in the capital
of or any interest in, or control of, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity. The entities
set forth in Section 2.2 of the Disclosure Schedule are, except as otherwise
set forth in such section of the Disclosure Schedules hereinafter occasionally
referred to individually as a "Subsidiary" and, collectively, as the
"Subsidiaries." Section 2.2 of the Disclosure Schedule also sets forth or
references the form and percentage interest of the Company in the Subsidiaries
and, to the extent that a Subsidiary set forth thereon is not wholly owned by
the Company, lists the other person, persons, entity or entities who have an
interest in such Subsidiary and references the percentage of such interest.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 250,000,000
shares of authorized Class A Common Stock of which 57,316,042 shares are
issued and outstanding as of the date hereof and 80,000,000 shares of
authorized Class B Common Stock, of which 39,869,348 shares are issued and
outstanding as of the date hereof. As of the Effective Time, the number of
outstanding shares of Company Capital Stock shall not exceed 97,185,390
shares, except for such number of shares issued pursuant to Company Options
after the date hereof and through to the Effective Time. As of the date
hereof, the Company Capital Stock is held by the persons and in the amounts
set forth in Section 2.3(a) of the Disclosure Schedule. All outstanding shares
of Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Amended and Restated Articles of Incorporation or Amended and Restated Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound and have been issued in compliance with federal and state securities
laws. There are no declared or accrued unpaid dividends with respect to any
shares of the Company's Capital Stock. The Company has no other capital stock
authorized, issued or outstanding.
(b) Except for the Company's Option Plans, the Company has never adopted or
maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 86,000,000 shares of
Company Common Stock for issuance to employees and consultants pursuant to the
Option Plans of which options to purchase 18,639,114 shares of Company Capital
Stock have been issued as of the date hereof of which 10,003,812 shares remain
subject to options unexercised as of the date hereof. On June 13, 1998, the
Company's Board of Directors granted options to purchase 1,084,450 shares of
Class A Common Stock to the individuals indicated on Section 2.3(b) of the
Disclosure Schedule. Except as set forth on Section 2.3(b) of the Disclosure
Schedule, there is no outstanding Company Capital Stock which is subject to
vesting or Company Options. Section 2.3(b) of the Disclosure Schedule sets
forth the name of the holder of any Company Capital Stock subject to vesting,
the number of shares of Company Capital Stock subject to vesting and the
vesting schedule for such Company Capital Stock, including the extent vested
as of the most recent practicable date, and
A-8
<PAGE>
sets forth the name of the holder of any Company Options, the number of shares
of Company Capital Stock subject to such Company Option and the vesting
schedule for such Company Option, including the extent vested to date. There
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company or any Subsidiary is a party
or by which it is bound obligating the Company or any Subsidiary to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
interests in any Subsidiary, as the case may be, or obligating the Company or
any Subsidiary to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement which are not set forth on Schedule 2.3(b). There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company or any
Subsidiary. Except as contemplated by this Agreement, to the Company's and
DEI's Knowledge, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company or any
Subsidiary. For purposes of this Agreement, "Knowledge" shall mean actual
knowledge of the person (which in the case of a corporation shall mean only
the executive officers or directors of such corporation and which, in the case
of the Company, shall be deemed to be each of the following persons: Thomas
Phillips, Patrick Naughton, Michael Slade, Curt Blake, and Barbara Thompson,
after reasonable investigation; provided, however, that Knowledge shall not
constitute a representation or warranty that such investigation has in fact
been made and, for such purposes, "reasonable investigation" shall mean
inquiry of or consultation with the directors and executive officers of the
respective party but no other independent investigation.
2.4 Authority. Each of the Company and DEI has all requisite power and
authority to enter into this Agreement and any Transaction Agreements (as
hereinafter defined) to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Transaction Agreements to which it is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company and DEI, and no
further action is required on the part of the Company or DEI to authorize the
Agreement, any Transaction Agreements to which it is a party and the
transactions contemplated hereby and thereby, subject only to the approval of
this Agreement by the Shareholders. DEI has granted and delivered to Parent
irrevocable proxies, and such proxies are sufficient to permit Parent to
approve the Company Merger and all other matters required to be approved by
the Company's Shareholders in connection herewith; provided, however, that
such proxies shall not limit DEI's ability to vote for directors of the
Company. This Agreement and the Merger have been approved unanimously by the
Board of Directors of the Company. This Agreement and any Transaction
Agreements to which the Company or DEI is a party have been duly executed and
delivered by the Company or DEI, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company and DEI, as the
case may be, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The "Transaction Agreements"
shall mean all of the agreements executed and delivered in connection with the
transactions contemplated hereby by Parent, the Company, DEI and certain
affiliates of the Company and DEI (as defined in Rule 12b-2 promulgated under
the Securities Exchange Act of 1934, as amended) (the "Affiliates") and dated
as of the date hereof, including, without limitation, the ABCNews/Starwave
Management and Services Agreement, the ESPN/Starwave Management and Services
Agreement, the Representation Agreement by and among ESPN/Starwave Partners,
Starwave Corporation and Parent and the Representation Agreement by and among
ABC/Starwave Partners, Starwave Corporation and Parent (such Representation
Agreements, the "Representation Agreements").
2.5 No Conflict. Except as set forth in Section 2.5 of the Disclosure
Schedule, the execution and delivery of this Agreement and any Transaction
Agreements to which the Company or DEI is a party by either the Company or
DEI, as the case may be, do not, and the performance and consummation of the
transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation,
modification or
A-9
<PAGE>
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles or Certificate of Incorporation
or Bylaws of the Company, or DEI, (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise or license to which the Company, any Subsidiary, or DEI or any of
their material properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company,
any Subsidiary, or DEI or their respective material properties or assets.
2.6 Consents. Except as set forth in Section 2.6 of the Disclosure Schedule,
no consent, waiver, approval, order or authorization of, or registration,
declaration or filing with any Governmental Body is required by or with
respect to the Company any Subsidiary, or DEI in connection with the execution
and delivery of this Agreement and any Transaction Agreements to which the
Company, or DEI is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws thereby, (ii) the filing of
the Merger Agreement with the Secretary of State of the State of Washington,
(iii) any applicable filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iv) the approval of the
Merger by the Company's Shareholders and (v) any other such filings or
approvals as may be required under Washington State Law. For purposes of this
Agreement, "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi- governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any court or
other tribunal).
2.7 Company Financial Statements and Controls.
(a) Section 2.7 of the Disclosure Schedule sets forth the Company's audited
consolidated balance sheet as of September 28, 1997 and the related audited
consolidated statements of income and cash flows for the nine-month periods
ended September 28, 1997 and the twelve-month period ended December 31, 1996
(the "Year-End Financials") and the Company's unaudited consolidated balance
sheets as of March 31, 1998, and the related unaudited consolidated statements
of income and cash flows for the six months ended March 31, 1998 (the "Interim
Financials"). Except as otherwise set forth in Section 2.7 of the Disclosure
Schedule, the Year-End Financials and the Interim Financials have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and are consistent with each other. The Year-End Financials
and Interim Financials present fairly the consolidated financial condition and
consolidated operating results of the Company and any consolidated
Subsidiaries as of the dates and during the periods indicated therein, subject
in the case of the Interim Financials, to normal year-end adjustments, which
will not be material in amount. The Company's unaudited consolidated balance
sheet as of March 31, 1998 included in the Interim Financials shall be
hereinafter referred to as the "Current Balance Sheet."
(b) The Company and each of its Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability.
2.8 No Undisclosed Liabilities. Except (i) as reflected in the Current
Balance Sheet, or (ii) with respect to any matter arising in the ordinary
course of business consistent with past practices since March 31, 1998, the
Company and its Subsidiaries have no liability, indebtedness, obligation, or
claim of any type, whether accrued, absolute, contingent, matured, unmatured
or other, which individually or in the aggregate are required to be reflected
or reserved against on the consolidated balance sheet of the Company and its
consolidated Subsidiaries in accordance with GAAP or that, individually or in
the aggregate, would have a Material Adverse Effect on the Company.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule or as contemplated by this Agreement or the Transaction Agreements,
since March 31, 1998 to the date of this Agreement, there has not been,
occurred or arisen:
A-10
<PAGE>
(a) amendments or changes to the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of the Company, or to the
charter or other organizational documents of any Subsidiary;
(b) capital expenditure or commitment by the Company or any Subsidiary,
exceeding $100,000 individually or $500,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets of the
Company or any Subsidiary (whether or not covered by insurance);
(d) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or any
Subsidiary;
(e) revaluation exceeding $100,000 individually or $500,000 in the
aggregate by the Company or any Subsidiary of any of its assets;
(f) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company's capital stock or any direct or
indirect redemption, purchase or other acquisition by the Company of its
capital stock;
(g) material increase in the salary, bonuses or other payment or
compensation payable or to become payable by the Company or any Subsidiary
to any of its officers, directors, employees or consultants, other than
routine increases in the ordinary course of business consistent with past
practices;
(h) sale, lease, license or other disposition of any of the assets or
properties with a value of $100,000 or more of the Company or any
Subsidiary or any creation of any security interest in such assets or
properties, in each case, other than in the ordinary course of business
consistent with past practices;
(i) loan by the Company or any Subsidiary to any person or entity, or the
incurring by the Company or any Subsidiary of any indebtedness (other than
trade payables or other ordinary course liabilities consistent with past
practices), guaranteeing by the Company or any Subsidiary of any
indebtedness (other than in the ordinary course of business), issuance or
sale of any debt securities of the Company or any Subsidiary or
guaranteeing of any debt securities of others;
(j) waiver or release of any right or claim with a value of $100,000 or
more individually or $500,000 or more in the aggregate of the Company or
any Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary;
(k) issuance or sale, or contract to issue or sell, by the Company or any
of its Subsidiaries of any shares of its capital stock or other equity
interests or securities exchangeable, convertible or exercisable therefor,
or any securities, warrants, options or rights to purchase any of the
foregoing, except for options to purchase capital stock of the Company
granted to employees of the Company, which such issuance has been described
in Section 2.3(b) of the Disclosure Schedule;
(l) any event or condition of any character that has had a Material
Adverse Effect on the Company; or
(m) negotiation or agreement by the Company, any of its Subsidiaries or
any officer or employees thereof to do any of the things described in the
preceding clauses (a) through (l) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this
Agreement and the Transaction Agreements).
2.10 Tax Matters.
(a) Tax Definitions.
(i) "Tax" or, collectively, "Taxes", means (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; (ii) any
liability for the payment of any amounts of the type described in clause
(i) as a result of being or ceasing to be a member of an affiliated,
consolidated, combined or unitary group for any period (including, without
limitation, any liability under
A-11
<PAGE>
Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state
or local law); and (iii) any liability for the payment of any amounts of
the type described in clause (i) or (ii) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(ii) "Cash Payment Agreements" means the Promotional Services Agreement,
the License Agreement and the Promissory Note.
(iii) "Final Determination" means a determination as defined in section
1313(a) of the Code or any other event which finally and conclusively
establishes the amount of any liability for Taxes.
(iv) "Management" means the Chairman of the Board of Directors, Chief
Executive Officer, President, Chief Operating Officer, Chief Financial
Officer, and any other officer of a corporation having a comparable level
of decision-making responsibility.
(v) "Other Property or Money" means other property or money within the
meaning of section 351(b) and/or section 356 of the Code.
(vi) "Post-Closing Tax Period" means any Tax period (or portion thereof)
ending after the Closing Date.
(vii) "Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the Closing Date.
(viii) "Taxing Authority" means any federal, state, local, foreign or
other body that imposes any Tax.
(b) Tax Returns and Audits. Except as set forth in Section 2.10(b) of the
Disclosure Schedule:
(i) As of the Effective Time, Company and Company Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to the Company) required federal, state, local and foreign
returns, estimates, information statements and reports required to be filed
(required federal, state, local and foreign returns, estimates, information
statements and reports relating to any person are collectively referred to
hereinafter as "Returns") relating to any and all Taxes concerning or
attributable to the Company and Company Subsidiaries or their operations
and such Returns shall be true and correct in all material respects and
have been completed in all material respects in accordance with applicable
law. Notwithstanding the foregoing, no representation is hereby made
regarding the size or availability of the net operating losses of the
Company or its Subsidiaries.
(ii) As of the Effective Time, the Company and Company Subsidiaries (A)
will have paid (or caused to be paid) all material (as to the Company)
Taxes the Company or any of its Subsidiaries is required to pay and will
have withheld (or caused to be withheld) with respect to employees of the
Company and Company Subsidiaries all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and (B) will have accrued on
the Current Balance Sheet all Taxes attributable to the operations of the
Company and Company Subsidiaries for the periods covered by the Current
Balance Sheet and will not have incurred any liability for Taxes for the
period from the date of the Current Balance Sheet to the Effective Time
other than in the ordinary course of business.
(iii) There has been no delinquency in the payment of any Tax with
respect to the Company, its Subsidiaries or their operations, nor is there
any Tax deficiency outstanding, assessed or proposed with respect to the
operations of the Company or its Subsidiaries, nor has DEI, the Company, or
its Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Company or its Subsidiaries.
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Company is presently in progress, nor has the Company been
notified in writing of any request for such an audit or other examination.
(v) The Company and its Subsidiaries have made available to Parent or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for the Company filed for all periods since its
inception.
A-12
<PAGE>
(vi) There are (and there will be immediately following the Effective
Time) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company or its Subsidiaries
relating to or attributable to Taxes other than Liens for Taxes not yet due
and payable or delinquent.
(vii) None of the Company's or its Subsidiaries' assets are treated as
"tax-exempt use property", within the meaning of Section 168(h) of the
Code.
(viii) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(ix) Neither the Company nor any of its Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does the
Company owe any amount under any such agreement, other than this Agreement
and the Tax Sharing Agreement.
(x) The Company is not, and has not been at any time, a "United States
Real Property Holding Corporation" within the meaning of Section 897(c)(2)
of the Code.
(c) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Company is a party as of the date of this Agreement, including but
not limited to the provisions of this Agreement, covering any service provider
or former service provider to the Company or any Subsidiary, which as a result
of the Mergers, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 Restrictions on Business Activities. Except as set forth in Section
2.11 of the Disclosure Schedule, there is no material agreement (noncompete or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company or its Subsidiaries
which has the effect of prohibiting any material current business practice of
the Company or its Subsidiaries, any material acquisition of property
(tangible or intangible) by the Company or its Subsidiaries or the conduct of
material business by the Company or its Subsidiaries. Without limiting the
foregoing, neither the Company nor its Subsidiaries has entered into any
material agreement under which the Company or its Subsidiaries is materially
restricted from selling, licensing or otherwise distributing any of its
material technology or products to or providing services to, customers or
potential customers or any class of customers, in any material geographic
area, during any material period of time or in any material segment of the
market. After the date hereof, with respect to each agreement listed on
Section 2.11 of the Disclosure Schedule, each of DEI and the Company agrees to
use commercially reasonable efforts (including using reasonable efforts to
cause its officers, divisions and affiliates) to modify or amend such
agreements as reasonably requested by Parent (provided such efforts shall not
include any material expenditures) and as reasonably necessary to eliminate
any conflict with the proposed business of Holding Company.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Neither the Company nor its Subsidiaries own(s) any real property, and
has never owned any real property. Section 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased by the Company or any
of its Subsidiaries. All such current leases are in full force and effect in
accordance with their respective terms, and neither the Company nor its
Subsidiaries is in material default under any of such leases.
(b) Except as set forth in Section 2.12(b) of the Disclosure Schedule, the
Company and its Subsidiaries have good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
material tangible properties and assets, real, personal and mixed, used or
held for use in their business, free and clear of any Liens, except (i) as
reflected in the Current Balance Sheet, (ii) for Taxes not yet due and payable
or delinquent, and (iii) where such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
A-13
<PAGE>
(c) The Company and its Subsidiaries have valid and enforceable rights, free
and clear of any Liens (except Liens for Taxes not yet due and payable or
delinquent), of all advertising, hosting and content customer files and other
advertising, hosting and content customer information relating to advertising,
hosting and content of the Company's and its Subsidiaries' current and former
customers as are material for the conduct of the Company's business as
currently conducted (the "Customer Information").
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations and
applications therefor and all goodwill associated therewith throughout the
world; (v) all databases and data collections and all rights therein
throughout the world; and (vi) all computer software including all source
code, object code, firmware, development tools, files, records and data,
all media on which any of the foregoing is recorded, all Web addresses,
sites and domain names, all rights of publicity and privacy, and (vii) any
similar, corresponding or equivalent rights to any of the foregoing and (x)
all documentation related to any of the foregoing.
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by or exclusively licensed to the Company.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations
and applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by, any state, government or other public legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights.
(c) Except as set forth in Section 2.13(c) of the Disclosure Schedule, each
item of Company Intellectual Property, including all Company Registered
Intellectual Property listed in Section 2.13(b) of the Disclosure Schedule and
all Intellectual Property licensed to the Company or any of its Subsidiaries,
is free and clear of any Liens, except for Liens for Taxes not yet due and
payable or delinquent and Liens that do not materially interfere with the
Company's use of Intellectual Property. Except as set forth in Section 2.13(c)
of the Disclosure Schedule, the Company (i) is the exclusive owner or has
valid and enforceable rights to use of all trademarks and trade names used in
connection with the operation or conduct of the business of the Company or any
of its Subsidiaries as currently conducted, including the sale of any products
or technology or the provision of any services by the Company or any of its
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use, all copyrighted works that are Company or its Subsidiaries'
products or other works of authorship used in connection with the operation or
conduct of the business of the Company or any of its Subsidiaries as currently
conducted, including the sale of any products or technology or the provision
of any services by the Company or any of its Subsidiaries.
A-14
<PAGE>
(d) Except as set forth in Section 2.13(d) of the Disclosure Schedule and
except for any transfer, grants or authorizations that do not have a Material
Adverse Effect, the Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use
any Intellectual Property that is or was Company Intellectual Property, to any
other person.
(e) Except as set forth in Section 2.13(e) of the Disclosure Schedule, the
Company Intellectual Property constitutes all of the material Intellectual
Property used in and necessary to the conduct of the Company's and its
Subsidiaries' businesses as currently conducted by the Company and its
Subsidiaries, including, without limitation, the design, development,
distribution, manufacture, use, import, license and sale of the products,
technology and services of by the Company and its Subsidiaries (including
products, technology or services currently under development). Except as set
forth in Section 2.13(e) of the Disclosure Schedule, no person who has
licensed Intellectual Property to the Company or any of its Subsidiaries has
material ownership rights or license rights to improvements made by the
Company or any of its Subsidiaries in such Intellectual Property which has
been licensed to the Company or any of its Subsidiaries.
(f) Other than "shrink-wrap" and similar widely available commercial end-
user licenses, the contracts, licenses and agreements listed in Section
2.13(f) of the Disclosure Schedule include all material contracts, licenses
and agreements to which the Company or any of its Subsidiaries is a party with
respect to any Intellectual Property.
(g) Except as set forth in Section 2.13(g) of the Disclosure Statement, the
operation of the business of the Company and its Subsidiaries as it currently
is conducted by the Company and its Subsidiaries (including but not limited to
the design, development, distribution, use, import, manufacture, license and
sale of the products, technology or services (including products, technology
or services currently under development) of the Company or any of its
Subsidiaries does not infringe or misappropriate the Intellectual Property of
any person, violate the rights of any person (including rights to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and neither the Company nor any of its Subsidiaries has
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company or any of its Subsidiaries
infringes or misappropriates the Intellectual Property of any person or that
the Company or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company or
DEI have Knowledge of any basis therefor).
(h) All necessary registration, maintenance and renewal fees in connection
with Company Registered Intellectual Property have been paid and all necessary
documents and certificates in connection with Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Registered Intellectual Property
when commercially reasonable.
(i) Except as set forth in Schedule 2.13(i) of the Disclosure Schedule,
there are no material contracts, licenses or agreements between the Company
and any other person with respect to Company Intellectual Property under which
there is any material dispute to the Knowledge of the Company or DEI regarding
the scope of such agreement, or performance under such agreement including
with respect to any payments to be made or received by the Company thereunder.
(j) Except as set forth in Schedule 2.13(j) of the Disclosure Schedule, the
Company has no currently pending claim against any person for infringing or
misappropriating any Company Intellectual Property.
(k) Except as set forth in Section 2.13(k) of the Disclosure Schedule, no
Company Intellectual Property or product, technology or service of the Company
or any of its Subsidiaries which is material to the conduct of the business of
the Company or any of its Subsidiaries as currently conducted is subject to
any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
A-15
<PAGE>
(l) No (i) product, technology, service or publication of the Company or any
of its Subsidiaries (ii) material published or distributed by the Company or
any of its Subsidiaries is obscene, defamatory, or constitutes false
advertising or otherwise violates any law or regulation.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.11, 2.13(f), or 2.14(a) of the
Disclosure Schedule, as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to or is bound by:
(i) any fidelity or surety bond or completion bond,
(ii) any lease of personal property having a value individually in excess
of $50,000 individually or $100,000 in the aggregate,
(iii) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000
individually or $500,000 in the aggregate,
(iv) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise, in each
case with a value of more than $100,000 individually or $500,000 in the
aggregate and occurring outside the ordinary course of the Company's or any
of its Subsidiaries' business,
(v) any mortgages, indentures, loans or credit agreements, security
agreements, guarantees, or other agreements or instruments relating to the
borrowing of money or extension of credit (other than between the Company
and DEI),
(vi) any purchase order or contract for the purchase of materials
involving in excess of $50,000 individually or $100,000 in the aggregate,
(vii) any material distribution, joint marketing or development
agreement, or
(viii) any other agreement, contract or commitment that involves $100,000
or more and is not cancelable without penalty within sixty (60) days.
(b) The Company and each of its Subsidiaries is in compliance in all
material respects with and has not, in any material respect, breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted in such manner under, any of the terms or conditions of any
agreement, contract, covenant, instrument, lease, license or commitment
required to be listed on Section 2.11, 2.13, or 2.14(a) of the Disclosure
Schedule (collectively a "Contract"), nor does the Company or DEI have
Knowledge of any event that would constitute such a breach, violation or
default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and, to the Knowledge of the Company and DEI, is not
subject to any material default thereunder by any party obligated to the
Company or its Subsidiaries pursuant thereto. The Company and each of its
Subsidiaries has obtained, or will obtain prior to the Closing Date, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Mergers or for such Contracts to
remain in effect without material modification after the Closing. Following
the Effective Time, each of the Company and its Subsidiaries will be permitted
to exercise all of their respective rights under each Contract then in effect
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company or its Subsidiaries
would otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
2.15 Interested Party Transactions. To DEI's and the Company's Knowledge, no
officer or director of the Company has directly or indirectly, (i) an interest
in any entity which furnishes or sells, services, products or technology that
are the same as any products, services, or technologies that the Company or
any of its Subsidiaries furnishes or sells and that constitute a material part
of the Company's or its Subsidiaries' business, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or any of its
Subsidiaries any goods or services that are material in nature to the
Company's or its Subsidiaries' business or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than five percent (5%) of the
outstanding voting stock of a corporation shall not be deemed an "interest in
any entity" for purposes of this Section 2.15.
A-16
<PAGE>
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
accurately lists each material consent, license, permit, grant or other
authorization issued to the Company and each of its Subsidiaries by a
Governmental Body (i) pursuant to which the Company or any of its Subsidiaries
currently operates or holds any interest in any of their properties or (ii)
which is required for the operation of its business or the holding of any such
interest, in each case the absence of which would have a Material Adverse
Effect (herein collectively called "Company Authorizations"). The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company and its Subsidiaries to operate
or conduct its business or hold any interest in its properties or assets, in
each case except to the extent that would not result in a Material Adverse
Effect on the Company.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Company's or DEI's Knowledge, threatened, against the Company or any of
its Subsidiaries, their properties or any of their officers or directors, nor,
to the Knowledge of the Company or DEI, is there any reasonable basis
therefor. To the Company's and DEI's Knowledge, there is no investigation
pending or threatened against the Company or any of its Subsidiaries, their
properties or any of their officers or directors (nor, to the Knowledge of the
Company and DEI, is there any reasonable basis therefor) by or before any
Governmental Body.
2.18 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company.
2.19 Environmental Matters.
(a) Hazardous Material. Each of the Company and its Subsidiaries has not:
(i) operated any underground storage tanks at any property that the Company
has at any time owned, operated, occupied or leased; or (ii) illegally
released any material amount of any substance that has been designated by any
Governmental Body or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws (a "Hazardous Material"), but
excluding office and janitorial supplies used in the ordinary course of
business. No Hazardous Materials are present as a result of the deliberate
actions of the Company or any of its Subsidiaries in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. The Company has not illegally
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials (excluding office and janitorial
supplies used in the ordinary course of business) in violation of any law in
effect on or before the Effective Time, nor has the Company or any of its
Subsidiaries illegally disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (excluding office and janitorial
supplies used in the ordinary course of business) (any or all of the foregoing
being collectively referred to as "Hazardous Materials Activities").
(c) Permits. Each of the Company and its Subsidiaries currently holds all
material environmental approvals, permits, licenses, clearances and consents
(the "Environmental Permits") necessary for the conduct of the Company's
Hazardous Material Activities, respectively, and other businesses of the
Company and its Subsidiaries as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to the Company's
or DEI's Knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or its
Subsidiaries. Neither the Company nor DEI has Knowledge of any fact or
circumstance which would reasonably
A-17
<PAGE>
be expected to involve the Company or any of its Subsidiaries in any
environmental litigation or impose upon the Company or any of its Subsidiaries
any environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses. The Company has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
2.21 Employee Benefit Plans; Compensation; Labor Matters.
(a) For purposes of this Section 2.21, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder, provided that DEI and its
Affiliates, other than the Company and its subsidiaries, shall not be
deemed an Affiliate of the Company for these purposes.
(ii) "Employee Plan" shall refer to any plan, program, policy, contract,
or agreement or other arrangement providing for bonuses, severance or
retention payments or benefits, termination pay, deferred compensation,
pensions, profit sharing, performance awards, stock or stock- related
awards, or fringe benefits, or other employee benefits of any kind, written
or otherwise, funded or unfunded, including without limitation, any plan
which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability, contingent or otherwise;
and
(iii) "Employee" shall mean any current, former, or retired employee,
consultant, officer, or director of the Company or any of its Subsidiaries.
(iv) "Employee Agreement" shall refer to each employment, severance or
retention agreement or contract between the Company or any Affiliate and
any Employee;
(b) Schedule. Section 2.21(b) of the Disclosure Schedule contains an
accurate and complete list of each Employee Plan and each Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or
to conform any such Employee Plan or Employee Agreement to the requirements of
any applicable law, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided access to Parent to correct and
complete copies of each Employee Plan and each Employee Agreement including
all amendments thereto.
(d) Employee Plan/Employee Agreement Compliance. Except as set forth in
Section 2.21(d) of the Disclosure Schedules, (i) the Company has performed in
all material respects all obligations required to be performed by it under
each Employee Plan and Employee Agreement and each Employee Plan has been
established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of the Company or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; and (iv) there are no inquiries or
proceedings pending or, to the Knowledge of the Company or its Affiliates,
threatened by the IRS or DOL with respect to any Employee Plan.
(e) Pension Plans. The Company or any of its Affiliates does not now, nor
have they ever, maintained, established, sponsored, participated in, or
contributed to, any Employee Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
A-18
<PAGE>
(f) Multi-Employer Plans. At no time has the Company or any of its
Affiliates contributed to or been requested to contribute to any Employee Plan
that is a "multi-employer plan" as defined in Section 3(37) of ERISA.
(g) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and except as may otherwise be
provided under any agreement listed on Section 2.21(b) of the Disclosure
Schedule, the Company has not represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(i) Employment Matters. Except as set forth in Section 2.22(i) of the
Disclosure Schedule, the Company (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company or any of
its Subsidiaries is pending, or to the Knowledge of the Company or DEI,
threatened. Neither the Company nor any of its Subsidiaries is involved in or,
to the Company's or DEI's Knowledge threatened with any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company, any of its Subsidiaries, Parent or Sub. Neither the Company nor any
of its Subsidiaries has engaged in any unfair labor practices which could,
individually or in the aggregate, directly or indirectly result in any
material liability to the Company, any of its Subsidiaries, Parent, Sub or any
Affiliate. Neither the Company nor any of its Subsidiaries is presently a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company or any of its Subsidiaries.
2.22 Insurance. As of the date hereof, the Company is insured against such
losses and risks and in such amounts as are customary in the business in which
it is engaged and the policies providing such insurance are in full force and
effect.
2.23 Compliance with Laws. The Company and each of its Subsidiaries has
complied in all material respects with, is not in material violation of, and
has not received any notices of material violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
2.24 Warranties; Indemnities. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13, and
2.14 of the Disclosure Schedule and (ii) the Company's "shrink wrap"
commercial end-user license agreements, neither the Company nor any Subsidiary
has given any warranties or indemnities relating to products or technology
sold or licensed or services rendered by the Company or any Subsidiary.
A-19
<PAGE>
2.25 Ownership of Parent Stock. None of DEI, its affiliates, Company or any
of their Subsidiaries or Affiliates beneficially owns as of the date hereof
any shares of Parent Capital Stock (other than immaterial amounts through
employee benefit plans of DEI or the Company over which neither DEI nor the
Company exercises any voting power).
2.26 Claims for Losses. DEI has no outstanding claims for Losses (as defined
in the Stock Purchase Agreement as such term is defined in Section 7.2 of this
Agreement) nor does it have any other action, suit or proceeding of any nature
pending, or to DEI's Knowledge, threatened against Company, their properties
or any of their officers or directors.
2.27 Capital Summary Statements. Schedule 2.27 of the Company Disclosure
Schedule sets forth the unaudited Capital Summary Statement of each holder of
a Partnership Interest (as such term is defined in each of the ABC
News/Starwave and ESPN/Starwave Partnership Agreements dated as of March 28,
1997 (the "Partnership Agreements") as of May 31, 1998 (the "Capital Summary
Statement")). (The partnerships formed under such Partnership Agreements are
referred to herein as the "Partnerships".) The Capital Summary Statement
presents accurately the allocation of profits and loss among the capital
accounts of the Partnership Interest holders since inception and is correct in
all material respects. The Capital Summary Statement reflects an allocation of
losses of 60% to the Company and 40% to the other partner, in each case. Also
such allocations of profit and loss have been properly made in accordance with
the Partnership Agreements.
ARTICLE III
Representations and Warranties of Parent
Parent represents and warrants to the Company and DEI, subject to such
exceptions as are specifically disclosed in the Disclosure Schedule supplied
by Parent to DEI and the Company (the "Parent Disclosure Schedule"), as of the
date hereof as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. Holding Company is, and the Merger Subsidiaries will be as of
the Effective Time, corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Each of Parent and its Subsidiaries has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Parent.
Parent has delivered a true and correct copy of the Articles of Incorporation
and Bylaws of Parent, as amended to date, to counsel for the Company and DEI.
Each of the Subsidiaries as defined in Section 3.2 below of Parent is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its property and to carry on its business as now being conducted. Each
of the Subsidiaries is duly qualified to do business and is in good standing
each jurisdiction outside of the jurisdiction of its formation of which the
failure to be so qualified would have a Material Adverse Effect. Parent has
made available the true and correct copy of the charter and by laws or other
organizational document of each of its Subsidiaries, each as amended to date,
to the Company.
3.2 Parent Subsidiaries. Except as set forth in Section 3.2 of Parent
Disclosure Schedule, Parent does not have, and has never had, any
subsidiaries, in each case that would be required to be listed as a
"Subsidiary" in exhibits to the periodic reports of Parent under the Exchange
Act. The entities set forth in Section 3.2 of Parent Disclosure Schedule are
hereinafter occasionally referred to individually as a "Parent Subsidiary"
and, collectively as the "Parent Subsidiaries." Section 3.2 of Parent
Disclosure Schedule also sets forth the form and percentage interest of Parent
in the Parent Subsidiaries and, to the extent that a Parent Subsidiary set
forth thereon is not wholly owned by Parent, lists the other person or
persons, or entity or entities, who have an interest in such Parent Subsidiary
and the percentage of such interest.
3.3 Authority; No Conflict; Consents. Each of Parent and Parent Subsidiaries
has all requisite corporate power and authority to enter into this Agreement
and the Transaction Agreements to which it is a party and to
A-20
<PAGE>
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Transaction Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of Parent and Parent
Subsidiaries, and no further action is required on the part of Parent or
Parent Subsidiaries to authorize the Agreement, any Transaction Agreements to
which it is a party and the transactions contemplated hereby and thereby,
subject only to the approval of this Agreement by Parent's shareholders. This
Agreement, the Transaction Agreements and the Merger have been approved by the
Board of Directors of Parent. This Agreement and the Transaction Agreements to
which Parent or Parent Subsidiaries is a party have been duly executed and
delivered by Parent or Parent Subsidiaries, as the case may be, and, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of Parent and Parent
Subsidiaries, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The execution and delivery by
each of Parent and Parent Subsidiaries, as the case may be, of this Agreement
and the Transaction Agreements do not, and the performance and consummation of
the transactions contemplated hereby and thereby will not, result in any
Conflict with (i) any provision of the Articles or Certificate of
Incorporation, Bylaws or other organizational documents of Parent or Parent
Subsidiary, (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which
Parent or any Parent Subsidiary, or any of their properties or assets, are
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any Parent Subsidiary or their
respective properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Body is required by or with respect to Parent or any Parent Subsidiaries in
connection with the execution and delivery of this Agreement and any
Transaction Agreements to which Parent or Parent Subsidiaries are a party or
the consummation of the transactions contemplated hereby and thereby, except
for (i) the filing of the Articles of Merger for the Company Merger with the
Secretary of State of the State of Washington and the Agreement of Merger, for
the Parent Merger with the Secretary of State of the State of California, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) any applicable filings required under the HSR Act, (iv)
the approval of the Merger by Parent's shareholders and (v) any other such
filings or approvals as may be required under Washington Law.
3.4 Parent Capital Structure. The authorized capital stock of Parent
consists of 50,000,000 shares of Common Stock, no par value, of which
31,414,015 shares were issued and outstanding as of June 12, 1998, and
5,000,000 shares of undesignated Preferred Stock, no par value, of which no
shares are issued or outstanding. All such shares of Parent have been duly
authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and not subject to preemptive rights
created by statute, the Articles or Certificate of Incorporation or Bylaws of
Parent or any agreement to which Parent is a party or by which it is bound,
and have been issued in compliance with federal and state securities laws.
There are no declared or accrued unpaid dividends with respect to any shares
of Parent's capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to Parent or Parent Subsidiaries. Except as contemplated by this
Agreement, to Parent's Knowledge, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting stock of Parent or
Parent Subsidiaries.
3.5 SEC Documents; Parent Financial Statements. Parent has furnished the
Company with a true and complete copy of all of its filings with the
Securities and Exchange Commission (the "SEC") since January 1, 1997 (the "SEC
Documents"). Each of the SEC Documents when filed, was true and correct and
did not omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading in each case, except as superseded
in any subsequent filings. The SEC Documents contain an audited consolidated
balance sheet of Parent as of December 31, 1997 and the related audited
consolidated statements of income and cash flow for the year then ended and
Parent's unaudited consolidated balance sheet as of March 31, 1998 filed as an
exhibit to Parent's Current Report
A-21
<PAGE>
on Form 8-K, dated as of May 22, 1998 (the "Parent Balance Sheet"), and the
related unaudited consolidated statements of income and cash flow for the
three-month period then ended (collectively, the "Parent Financials"). The
Parent Financials have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and are consistent with each
other. The Parent Financials present fairly the consolidated financial
condition and consolidated operating results and cash flows of the Parent as
of the dates and during the periods indicated therein, subject, in the case of
unaudited statements, to normal year-end adjustments, which will not be
material in amount. The Parent and each of its Parent Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability.
3.6 No Undisclosed Liabilities. Except (i) as reflected in the Parent
Balance Sheet, (ii) as set forth on Section 3.6 to the Parent Disclosure
Schedules, or (iii) with respect to any matter arising in the ordinary course
of business consistent with past practices since March 31, 1998, Parent and
Parent Subsidiaries have no liability, indebtedness, obligation, expense,
claim, deficiency, guarantee or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other, which individually or in
the aggregate are required to be reflected or reserved against on the
consolidated balance sheet of Parent and Parent Subsidiaries in accordance
with GAAP, or that, individually or in the aggregate, would have a Material
Adverse Effect. In addition, since March 31, 1998, there has not been any
declaration, setting aside or payment of a dividend or other distribution with
respect to Parent's capital stock or any material change in accounting methods
practices by Parent or any Parent Subsidiary.
3.7 No Material Adverse Effect. Since the date of the Parent Balance Sheet,
there has not occurred any event or condition of any character that has had a
Material Adverse Effect on Parent.
3.8 Brokers' and Finders' Fees. Except for those fees payable to Merrill
Lynch & Co. as financial advisor to Parent, neither Parent nor Parent
Subsidiary has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.9 Litigation. Except as set forth on Section 3.9 of the Parent Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Parent's Knowledge, threatened, against the Parent or any of Parent
Subsidiaries, their properties or any of their officers or directors, nor, to
the Knowledge of the Parent, is there any reasonable basis therefor. To the
Parent's Knowledge, there is no investigation pending or threatened against
Parent or any of its Subsidiaries, their properties or any of their officers
or directors (nor, to the Knowledge of the Parent, is there any reasonable
basis therefor) by or before any Governmental Body. No Governmental Body has
at any time challenged or questioned the legal right of Parent or any of
Parent's Subsidiaries to conduct its operations as presently or previously
conducted.
3.10 Taxes.
(a) Tax Returns and Audits.
(i) As of the Effective Time, Parent and Parent Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to Parent) required federal, state, local and foreign Returns,
relating to any and all Taxes concerning or attributable to the Parent and
Parent Subsidiaries or their operations and such Returns shall be true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law. Notwithstanding the foregoing,
no representation is hereby made regarding the size or availability of the
net operating losses of Parent or the Parent Subsidiaries;
(ii) As of the Effective Time, Parent and Parent Subsidiaries (A) will
have paid (or caused to be paid) all material (as to Parent) Taxes that
Parent or any of Parent's Subsidiaries is required to pay and will have
withheld (or caused to be withheld) with respect to employees of the Parent
and Parent Subsidiaries all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, and (B) will have
A-22
<PAGE>
accrued on the Parent Financials, all Taxes attributable to the operations
of the Parent and Parent Subsidiaries for the periods covered by the Parent
Financials and will not have incurred any liability for Taxes for the
period from the date of the Parent Balance Sheet to the Effective Time
other than in the ordinary course of business;
(iii) There has been no delinquency in the payment of any Tax with
respect to Parent, any Parent Subsidiaries, or their operations, nor is
there any Tax deficiency outstanding, assessed or proposed with respect to
the operations of Parent or the Parent Subsidiaries, nor has Parent or the
Parent Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Parent or Parent Subsidiaries;
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Parent is presently in progress, nor has Parent been
notified in writing of any request for such an audit or other examination;
(v) There are (and there will be immediately following the Effective
Time) no Liens on the assets of the Parent or Parent Subsidiaries relating
to or attributable to Taxes other than Liens for Taxes not yet due and
payable or delinquent;
(vi) Neither Parent nor any of the Parent Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does
Parent or any of the Parent Subsidiaries owe any amount under any such
agreement, other than this Agreement and the Tax Sharing Agreement;
(vii) Parent has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(4) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by Parent or a Parent Subsidiary.
(viii) Parent and its Subsidiaries have made available to Company or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for Parent filed for all periods since its
inception.
(b) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Parent is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any service provider or
former service provider to the Parent or any Parent Subsidiary, which as a
result of the Mergers, could give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
3.11 Employee Benefit Plans; Compensation.
(a) For purposes of this Section 3.11, the following terms shall have the
meanings set forth below:
(i) As used in this Section 3.11, "Affiliate" shall mean any other person
or entity under common control with Parent within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder.
(ii) As used in this Section 3.11, "Employee Plan" shall refer to any
plan, program, policy, contract, agreement or other arrangement providing
for bonuses, severance or retention payments or benefits, termination pay,
deferred compensation, pensions, profit sharing, performance awards, stock
or stock-related awards or fringe benefits of any kind, written or
otherwise, funded or unfunded, including without limitation, any plan which
is or has been maintained, contributed to, or required to be contributed
to, by the Parent or any Affiliate for the benefit of any "Employee" (as
defined below), and pursuant to which the Parent or any Affiliate has or
may have any material liability, contingent or otherwise; and
(iii) As used in this Section 3.11, "Employee" shall mean any current,
former, or retired employee, consultant, officer, or director of Parent or
any Parent Subsidiary.
(iv) As used in this Section 3.11, "Employee Agreement" shall refer to
each employment, severance, retention, agreement or contract between the
Parent or any Affiliate and any Employee;
A-23
<PAGE>
(b) Employee Plan Compliance. (i) Parent has performed in all material
respects all obligations required to be performed by it under each Employee
Plan and Employee Agreement and each Employee Plan and Employee Agreement has
been established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of Parent or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; (iv) each Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, any of its
Subsidiaries, Parent, Parent Subsidiary or any Affiliate (other than ordinary
administration expenses typically incurred in a termination event); and (v)
there are no inquiries or proceedings pending or, to the Knowledge of the
Parent or its Affiliates, threatened by the IRS or DOL with respect to any
Employee Plan.
(c) Pension Plans. Parent or any of its Affiliates does not now, nor have
they ever, maintained, established, sponsored, participated in, or contributed
to, any Employee Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(d) Multi-Employer Plans. At no time has Parent or any of its Affiliates
contributed to or been requested to contribute to any Employer Plan that is a
"multi-employer plan" as defined in Section 3(37) of ERISA.
(e) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and has not represented,
promised or contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such Employee(s) would
be provided with life insurance, medical or other employee welfare benefits
upon their retirement or termination of employment, except to the extent
required by statute.
(f) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(g) Employment Matters. Parent (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; (iv) is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees.
(h) Labor. No work stoppage or labor strike against Parent or Parent
Subsidiaries is pending, or to the Knowledge of the Parent, threatened. Parent
Subsidiaries is not involved in, or to its Knowledge threatened with any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any material
liability to the Parent or Parent Subsidiaries. Parent has not engaged in any
unfair labor practices which could, individually or in the aggregate, directly
or indirectly result in any material liability to the Parent, Parent
Subsidiaries or any Affiliate. None of Parent or any Parent Subsidiaries is
presently a party to, or bound by, any collective bargaining
A-24
<PAGE>
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by Parent.
3.12 Compliance with Laws. Parent and Parent Subsidiaries have complied in
all material respects with, are not in violation of, and have not received any
notices of violation with respect to, any material foreign, federal, state or
local statute, law or regulation.
3.13 Agreements, Contract, Commitments. Parent and each Parent Subsidiary is
in compliance in all material respects with and has not, in any material
respects, breached, violated or defaulted under or received notice that it has
breached, violated or defaulted in such manner under, any of the terms or
conditions of any agreement, contract, covenant, instrument, lease, license or
commitment that is included in any Securities Act or Exchange Act filing as a
"Material Contract" (collectively "Parent Contracts"), nor does Parent have
Knowledge of any event that would cause such a breach, violation or default
with the lapse of time, giving of notice or both. Each Parent Contract is in
full force and effect and, to the Knowledge of Parent, is not subject to any
material default thereunder by any party obligated to Parent or Parent
Subsidiaries pursuant thereto. Parent and each Parent Subsidiary has obtained,
or will obtain prior to Closing Date, all necessary consents, waivers and
approvals of parties to any Parent Contract as are required thereunder in
connection with the Mergers or for such Contracts to remain in effect without
material modification after the Effective Time.
3.14 Intellectual Property.
(a) For purposes of this Agreement, the following terms have the following
definitions:
"Parent Intellectual Property" shall mean any Intellectual Property owned
by or exclusively licensed to Parent (including, without limitation, Patent
Number 5,751,956 ("Method and Apparatus for Redirection of Server External
Hyper-Link References") (the "Click-On Patent").
(b) Section 3.14(b) of the Parent Disclosure Schedule lists any proceedings
or actions before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Registered Intellectual
Property of Parent.
(c) Except as set forth in Section 3.14(c) of the Parent Disclosure
Schedule, each item of Parent Intellectual Property, and all Intellectual
Property licensed to Parent or any of its Subsidiaries, is free and clear of
any Liens, except for Liens for Taxes not yet due and payable or delinquent
and Liens that do not materially interfere with the Parent's use of
Intellectual Property. Except as set forth in Section 3.14(c) of the Parent
Disclosure Schedule, Parent (i) is the exclusive owner or has valid and
enforceable rights to use all trademarks and trade names used in connection
with the operation or conduct of the business of Parent or any of the Parent
Subsidiaries as currently conducted, including the sale of any products or
technology or the provisions of any services by Parent or any of the Parent
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use all copyrighted works that are Parent or the Parent Subsidiaries
products or any works of authorship used in connection with the operation or
conduct of the business of the Parent or any of the Parent Subsidiaries as
currently conducted, including the sale of any products or technology or the
provision of any services by the Parent or any of the Parent Subsidiaries.
(d) Except as set forth in Section 3.14(d) of the Parent Disclosure Schedule
and except for any transfers, grants or authorizations that do not have
Material Adverse Effect, Parent has not transferred ownership of or granted
any license of or the right to use or authorized the retention of any rights
to use any Intellectual Property that is or was Parent Intellectual Property,
to any other person.
(e) Parent has valid and enforceable rights in all of the material
Intellectual Property used in and necessary to the conduct of Parent's and its
Subsidiaries' businesses as currently conducted by Parent and its
Subsidiaries. No person who has licensed Intellectual Property to Parent or
any of its Subsidiaries has material ownership rights or license rights to
improvements made by Parent or any of its Subsidiaries in such Intellectual
Property which has been licensed to Parent or any of its Subsidiaries.
A-25
<PAGE>
(f) Except as set forth in Section 3.14(f) of the Parent Disclosure
Schedule, the operation of the business of Parent and Parent Subsidiaries as
it currently is conducted does not infringe or misappropriate the Intellectual
Property of any person, violate the rights of any person (including rights to
privacy or publicity), or constitute unfair competition or trade practices
under the law of any jurisdiction, and neither Parent nor any of Parent
Subsidiaries has received notice from any person claiming that such operation
or any act, product, technology or service (including products, technology
services currently under development) of Parent or any of Parent Subsidiaries
infringes or misappropriate the Intellectual Property of any person or that
the Parent or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does Parent have
Knowledge of any basis therefor).
(g) To Parent's Knowledge, there is no prior art that would compromise the
validity of the Click-On Patent under any subsection of 35 U.S.C. Section 102.
Parent has no Knowledge of any public knowledge or use anywhere, by anyone, of
the subject matter disclosed in the Click-On Patent before the invention date.
Parent has no Knowledge of the subject matter disclosed in the Click-On Patent
having been patented or described anywhere in a printed publication by anyone
before the invention date. Parent has no Knowledge of the subject matter
disclosed in the Click-On Patent having been in public use or on sale
anywhere, by anyone, before February 22, 1995.
(h) All necessary registration, maintenance and renewal fees in connection
with Registered Intellectual Property of Parent have been paid and all
necessary documents and certificates in connection with Parent Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property when commercially reasonable.
(i) There are no material contracts, licenses or agreements between Parent
and any other person with respect to Parent Intellectual Property under which
there is any material dispute to the Knowledge of Parent regarding the scope
of such agreement, or performance under such agreement including with respect
to any payments to be made or received by Parent thereunder.
(j) Parent has no currently pending claim against any person for infringing
or misappropriating any Parent Intellectual Property.
(k) No Parent Intellectual Property or product, technology or service of
Parent or any of its Subsidiaries which is material to the conduct of the
business of Parent or any of its Subsidiaries as currently conducted is
subject to any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by Parent or may affect the validity, use or enforceability
of such Parent Intellectual Property.
3.15 Real Property. Neither Parent nor any Parent Subsidiary owns any real
property nor has it ever owned any real property.
3.16 Interested Party Transactions. To Parent's Knowledge, no executive
officer or director of Parent is a party to any transactions required to be
disclosed under Item 404 of Regulation S-K of the Securities Act that have not
been disclosed in the SEC Documents.
3.17 Restrictions on Business Activities. Except as set forth in the Parent
Disclosure Schedule, there is no material agreement (noncompete or otherwise),
commitment, judgment, injunction, order or decree to which Parent is a party
or otherwise binding upon Parent or its Subsidiaries which has the effect of
materially prohibiting any material current business practice of Parent or its
Subsidiaries, any material acquisition of property (tangible or intangible) by
Parent or its Subsidiaries or the conduct of material business by Parent or
its Subsidiaries. Without limiting the foregoing, neither Parent nor its
Subsidiaries has entered into any material agreement under which Parent or its
Subsidiaries is materially restricted from selling, licensing or otherwise
distributing any of its material technology or products to or providing
services to, customers or potential
A-26
<PAGE>
customers or any class of customers, in any material geographic area, during
any material period of time or in any material segment of the market.
ARTICLE IV
Conduct Prior to the Effective Time
4.1 Conduct of the Parties.
(a) Conduct of Business of the Company and its Subsidiaries. Except as
otherwise contemplated by this Agreement, the Transaction Agreements and the
other agreements by and between Parent and DEI or their Affiliates of even
date herewith and the several transactions contemplated hereby and thereby,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, each of
the Company and DEI agrees (except to the extent that Parent shall otherwise
have previously consented in writing), to carry on the Company's and its
Subsidiaries' respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, to pay the debts and
Taxes of the Company and its Subsidiaries when due (unless such debts and
Taxes are the subject of a dispute that the Company is actively seeking to
resolve), to pay or perform other obligations when due (unless such
obligations are the subject of a dispute that the Company is actively seeking
to resolve), and, to the extent consistent with such businesses, use their
reasonable efforts consistent with past practice and policies to preserve
intact the Company's and its Subsidiaries' present business organizations,
keep available the services of the Company's and its Subsidiaries' present
officers and key employees and preserve the Company's and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
the Company's and its Subsidiaries' goodwill and ongoing businesses at the
Effective Time; provided, however, that neither the Company nor DEI shall be
deemed in breach of this Section 4.1 because of attrition, if any, among the
Company employees which may occur as a result of the transactions contemplated
hereby, so long as each of the Company and DEI use all reasonable efforts to
retain such employees at the Company. Except as expressly contemplated by this
Agreement or as set forth in Section 4.1 of the Disclosure Schedule, neither
the Company nor any Subsidiary shall, without the prior written consent of
Parent pursuant to a request made in accordance with the notice provisions set
forth in Section 9.1 of this Agreement (which written consent will be granted
or denied within seventy two (72) hours of receipt of such notice by Parent,
provided that any failure to reply within such time period will be deemed as
non-consent, and which consent will not be unreasonably withheld).
(i) Other than in the ordinary course of business, consistent with past
practices, sell or enter into any material license agreement with respect
to the Company Intellectual Property with any person or entity or buy or
enter into any material license agreement with respect to the Intellectual
Property of any person or entity;
(ii) Other than in the ordinary course of business, consistent with past
practices, sell or transfer to any person or entity any material rights to
the Company Intellectual Property;
(iii) Other than in the ordinary course of business, consistent with past
practices, enter into or materially amend any Contract pursuant to which
any other party is granted marketing or distribution rights of any type or
scope with respect to any material products or technology of the Company or
any Subsidiary, it being understood that the granting of exclusive rights
to any third party shall not be considered practices in the ordinary course
of business.
(iv) Materially amend or otherwise materially modify (or agree to do so),
except in the ordinary course of business, or intentionally violate the
terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(v) Settle any litigation for an amount in excess of $100,000 in any
single case;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock or any other equity interests, as applicable, or split,
A-27
<PAGE>
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities or any other equity interests of the
Company, as applicable, in respect of, in lieu of or in substitution for
shares of capital stock of the Company or any other equity interests, as
applicable, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of the capital stock of the Company or any
Subsidiary or other equity interests as applicable, of any Subsidiary (or
options, warrants or other rights exercisable therefor);
(vii) Other than the Company's issuance of approximately 1,100,000
options to employees of the Company in accordance with the resolutions of
the Company's Board adopted on June 13, 1998 and any other grants of
options to purchase Company Common Stock (with an exercise price equal to
fair market value of the Company Stock at the date of option grant) granted
to employees in the ordinary course of business consistent with past
practices, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or any other equity interests, as
applicable, or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue or purchase any such shares or any other
equity interests of the Company or any of its Subsidiaries, as applicable,
or other convertible securities of the Company or any of its Subsidiaries.
(viii) Cause or permit any amendments to its Articles or Certificate of
Incorporation or Bylaws, or any amendments to its other organizational
documents;
(ix) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or except in the ordinary course
otherwise acquire or agree to acquire any assets, in each case involving an
investment in excess of $100,000, individually or $500,000 in the
aggregate;
(x) Without limiting any other provisions of clause 4.1(a)(i) above,
sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practices, and except in the case of properties or assets of less than
$100,000 individually or $500,000 in the aggregate;
(xi) Except for advances and short-term loans provided by DEI or its
Affiliates to fund operating losses incurred in the ordinary course of
business consistent with past practice (whether evidenced by a written
instrument (which the Company may execute at any time) or only reflected on
the financial statements (including without limitation the Closing Balance
Sheet, if then outstanding) and books and records of the Company) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others
except for obligations not exceeding $100,000 individually or $500,000 in
the aggregate;
(xii) Grant any loans to others or purchase debt securities of others or
materially amend the terms of any outstanding loan agreement to others;
(xiii) Grant any severance, retention, or termination pay (i) to any
director or officer or (ii) to any other Employee except in each case
payments made pursuant to standard written agreements outstanding on the
date hereof and disclosed in the Disclosure Schedule or payments not
exceeding $250,000 in the aggregate after the date hereof;
(xiv) Adopt any Employee Plan, or enter into any Employee Agreement, pay
or agree to pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates of its Employees other
than routine increases and promotions in the ordinary course of business,
consistent with past practices;
(xv) Revalue any of its assets with a value in excess of $100,000
individually or $500,000 in the aggregate, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
A-28
<PAGE>
(xvi) Except with respect to Taxes, pay, discharge or satisfy, in an
amount in excess of $100,000 (in any one case) or $500,000 (in the
aggregate), any claim, liability or obligation (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business of liabilities;
(xvii) Except with respect to Tax Returns to be filed for the taxable
year ending September 30, 1997, (i) make or change any material election in
respect of Taxes relating to the operations of the Company and its
Subsidiaries, or, (ii) adopt or change any accounting method in respect of
Taxes except as required by law;
(xviii) Other than in the ordinary course of business consistent with
past practice, enter into any strategic alliance;
(xix) Accelerate the vesting schedule of any of the outstanding Company
Options or Company Capital Stock;
(xx) Hire any material number of employees or terminate any of the
Company's key employees, or encourage employees to resign;
Take, or agree to take, any of the actions described in Sections 4.1(a)
through (w) above, or any other action that would prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
(b) Conduct of Business of the Parent. Except as otherwise contemplated by
this Agreement, the Transaction Agreements and the other agreements by and
between Parent and DEI or its affiliates of even date herewith and the several
transactions contemplated hereby and thereby, Parent shall conduct its
business in accordance with the terms and conditions as described in the
Governance Agreement entered into of even date herewith. Except as otherwise
contemplated by this Agreement, the Transaction Agreements and the other
agreements by and between Parent and DEI and/or their Affiliates of even date
herewith and the several transactions contemplated hereby and thereby, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Parent agrees (except
to the extent that the Company shall otherwise have previously consented in
writing), to carry on Parent's and its Subsidiaries' respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of Parent and its
Subsidiaries when due (unless such debts and Taxes are the subject of a
dispute that Parent is actively seeking to resolve), to pay or perform other
obligations when due (unless such obligations are the subject of a dispute
that Parent is actively seeking to resolve), and, to the extent consistent
with such businesses, use their reasonable efforts consistent with past
practice and policies to preserve intact Parent's and its Subsidiaries'
present business organizations, keep available the services of Parent's and
its Subsidiaries' present officers and key employees and preserve Parent's and
its Subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with
the goal of preserving Parent's and its Subsidiaries' goodwill and ongoing
businesses at the Effective Time.
4.2 No Solicitation.
(a) From and after the date hereof, the Company and DEI shall not, and shall
not authorize or permit any of their respective parent corporations,
subsidiaries or officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, their "Representatives") to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing non-public information)
or take any other action to facilitate knowingly any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) in respect of the Company or any of
its Subsidiaries, from any person or entity, or engage in any discussion or
negotiations relating thereto or enter into any agreement with any person
providing for or contemplating any such Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, (1) the Company and
DEI may comply with applicable securities laws and regulations and (2) after a
Section 4.2 Notice (as defined below), if any, has been delivered to the
Company by Parent, and prior to the time the Company's stockholders shall have
voted to approve this Agreement, the Company may:
A-29
<PAGE>
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
the Company or its Representatives after the date hereof) seeks to initiate
such discussions or negotiations, and may furnish such third party
information concerning the Company and its business, properties and assets
if and only to the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of the Company's securities that is financially superior to the
Company Merger and the transactions contemplated in connection with the
Company Merger and not subject to any financing condition, as
determined in good faith in each case by the Company's board of
directors after consultation with its financial advisors (a "Company
Superior Proposal"), and (b) the Company's board of directors shall
conclude in good faith, after considering applicable provisions of
state law, after consultation with outside counsel that such action is
consistent with its fiduciary duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, the Company (y)
provides prompt notice to Parent to the effect that it is furnishing
information to or entering into discussions or negotiations with such
person or entity and (z) receives from such person or entity an
executed confidentiality agreement in reasonably customary form on
terms not materially more favorable to such person or entity than the
terms contained in the Confidentiality Agreement between Parent and
TWDC; and/or
(ii) recommend to its shareholders that they accept a Company Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(a)(i)(1)and 4.2(a)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Company Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(i) or
8.1(j), as applicable.
(b) From and after the date hereof, Parent shall not, and shall not
authorize or permit any of its subsidiaries or officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
representatives (collectively, its "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined herein) in respect of
Parent or any of its Subsidiaries from any person or entity, or engage in any
discussion or negotiations relating thereto or enter into any agreement with
any person providing for or contemplating any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, Parent may (1)
comply with applicable securities laws and regulations, including without
limitation the Exchange Act (and Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer), and (2) prior to the time its
stockholders shall have voted to approve this Agreement, Parent may:
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Parent or its Representatives after the date hereof) seeks to initiate such
discussions or negotiations, and may furnish such third party information
concerning the party and its business, properties and assets if and only to
the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of Parent's securities that is financially superior to the
Mergers and the transactions contemplated in connection with the
Mergers and not subject to any financing condition, as determined in
good faith in each case by Parent's board of directors after
consultation with its financial advisors (a "Parent Superior
Proposal"), and (b) Parent's board of directors shall conclude in good
faith, after considering applicable provisions of state law, after
consultation with outside counsel that such action is necessary for the
board of directors to act in a manner consistent with its fiduciary
duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, Parent (y)
provides a Section 4.2 Notice (as defined below) and (z) receives from
such person or entity an executed confidentiality agreement in
reasonably customary form on terms
A-30
<PAGE>
not materially more favorable to such person or entity than the terms
contained in the Confidentiality Agreement between Parent and TWDC;
and/or
(ii) recommend to its stockholders that they accept a Parent Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(b)(i)(1) and 4.2(b)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Parent Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(g) or
8.1(h), as applicable.
(c) Each party shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any party or parties conducted heretofore by the party or its
Representatives with respect to any Acquisition Proposal. Each party hereto
shall notify the other party orally (if possible) and in writing of any
Acquisition Proposal with respect to it or any other transaction, the
consummation of which would reasonably be expected to prevent or materially
interfere with or materially delay the Merger (including the material terms
and conditions of any such Acquisition Proposal and the identity of the person
making it), promptly, but in any event within 72 hours, after actual knowledge
thereof by any such party's directors, executive officers, counsel or
individuals representing it as its investment bankers or financial advisors.
In the event that Parent delivers confidential information to a third party
and/or enters into discussions or negotiations with a third party pursuant to
Section 4.2(b)(1), Parent shall, 24 hours prior to such delivery or
discussions or negotiations deliver a notice to the Company regarding such
fact (a "Section 4.2 Notice"; a Section 4.2 Notice will also be deemed to have
been given upon occurrence of any of the events specified in clauses (x), (y)
or (z) of Section 8.1(g)).
As used in this Section 4.2, "Acquisition Proposal" shall mean:
(i) a bona fide proposal or offer (other than by another party hereto)
for a tender or exchange offer for the securities of the Company or Parent,
as the case may be, or
(ii) a bona fide proposal or offer (other than by another party hereto)
for a merger, consolidation or other business combination involving an
acquisition of the Company or Parent, as the case may be, or any material
subsidiary of the Company or Parent, as the case may be, or
(iii) any proposal to acquire in any manner a substantial equity interest
in or a substantial portion of the assets of the Company or Parent, as the
case may be, or any material subsidiary of the Company or Parent, as the
case may be.
4.3 No HSR Violation. During the period from the date of this Agreement and
until the earlier of the termination of this Agreement pursuant to its terms
or the Effective Time, no party hereto shall be required to take any action
that would cause a violation of the HSR Act.
ARTICLE V
Additional Agreements
5.1 Registration Statement; Preparation of Joint Proxy Statement
(a) As soon as practicable after the execution of this Agreement, Parent and
the Company shall jointly prepare and cause to be filed with the SEC
preliminary proxy materials constituting the Joint Proxy Statement of Parent
and the Company for the solicitation of approval of the respective
shareholders of Parent and the Company of this Agreement, the Mergers (in the
case of Parent) and the Company Merger (in the case of the Company) and the
transactions contemplated hereby. Parent shall also prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the Joint
Proxy Statement will be included as a prospectus, with respect to those shares
of Holding Company Common Stock issuable in the Mergers. Each of Holding
Company, Parent, Company and DEI shall use all reasonable efforts to cause the
Form S-4 Registration Statement and the Joint Proxy Statement to comply with
applicable law and the rules and regulations promulgated by the SEC, to
respond promptly to any comments of the SEC or its staff and to have the Form
S-4
A-31
<PAGE>
Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC and Parent shall use all
reasonable efforts to cause the Joint Proxy Statement to be mailed to Parent's
shareholders and the Company's shareholders, as promptly as practicable after
the Form S-4 Registration Statement is declared effective under the Securities
Act; provided, however, that if any of the Representation Agreements is duly
terminated prior to the Effective Time by Parent, Parent shall have the
unilateral right, exercisible in its sole discretion, to elect not to submit
the this Agreement and the transactions contemplated hereby to a vote of
Parent's shareholders without being deemed in breach of any obligation under
this Agreement and without payment of any fees or penalties hereunder
(provided that Parent shall otherwise remain subject to the terms and
conditions of this Agreement, including without limitation Section 8.3
hereof), and the Company may terminate this Agreement. Each of the parties
hereto shall promptly furnish to the other party all information concerning
itself, its shareholders and its affiliates that may be required or reasonably
requested in connection with any action contemplated by this Section 5.1. If
any event relating to Holding Company, Parent, DEI or the Company occurs, or
if Holding Company, Parent, DEI or the Company becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Form S-4 Registration Statement or the Joint Proxy Statement, then Holding
Company, Parent, DEI or the Company, as applicable, shall inform the other
thereof and shall cooperate with each other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of Parent and the Company. The Joint Proxy
Statement shall include the recommendations of the Boards of Directors of
Parent and the Company in favor of the Agreement and the Mergers, as
applicable, and the transactions contemplated hereby; provided that the
respective recommendations of the Boards of Directors may not be included or
may be withdrawn if the Parent Board of Directors or the Company Board of
Directors has recommended a Superior Proposal or Company Superior Proposal, as
the case may be, in accordance with the terms of Section 4.2 (it being
understood that nothing herein shall limit the Company's and Parent's
obligations to hold and convene their respective shareholder meetings promptly
and as provided in this Agreement).
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Holding Company
Common Stock to be issued in the Mergers: (i) will be registered or qualified
under the securities law of every jurisdiction of the United States in which
any registered holder of the Company Common Stock or Parent Common Stock who
is receiving shares of registered Holding Company Common Stock has an address
of record or be exempt from such registration; and (ii) will be approved for
quotation at the Effective Time on the Nasdaq National Market; provided,
however, that neither Parent nor Holding Company shall, pursuant to the
foregoing, be required (A) to qualify to do business as a foreign corporation
in any jurisdiction in which it is now qualified, or (B) to file a general
consent to service of process in any jurisdiction with respect to matters
unrelated to the issuance of Holding Company Common Stock pursuant hereto.
(c) Parent, DEI and the Company (in respect of the information respectively
supplied by it) agree that: (i) none of the information to be supplied by it
or its Affiliates for inclusion in the Form S-4 Registration Statement will,
at the time the Form S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading; (ii) none of the information to be supplied by it or
its Affiliates for inclusion in the Joint Proxy Statement will, at the time
the Joint Proxy Statement is mailed to the stockholders of Parent and the
Company, or as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (iii) as to
matters respecting it and its Joint Proxy Statement and the Form S-4 will
comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated by the SEC thereunder, except that no covenant
representation or warranty is made by Parent with respect to statements made
or incorporated by reference therein based on information supplied by the
Company or DEI for inclusion or incorporation by reference in the Joint Proxy
Statement and no covenant, representation or warranty is made by the Company
or DEI with respect to statements made or incorporated by reference therein
based on information supplied by Parent for inclusion or incorporation by
reference in the Joint Proxy Statement.
A-32
<PAGE>
5.2 Shareholder Meetings.
(a) The Company shall promptly after the date hereof take all action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to hold and convene a meeting of the Company's shareholders (the
"Company Shareholders' Meeting") on the date of a Parent Shareholders' Meeting
or prior thereto if it so chooses. Except as required by the SEC or applicable
court order, the Company shall not postpone or adjourn (other than for the
absence of a quorum) the Company Shareholders' Meeting without the consent of
Parent. It is understood and intended by the parties hereto that the Voting
Agreement and the irrevocable proxies delivered to Parent by DEI are
sufficient for Parent to approve the transactions contemplated hereby by the
Company's stockholders, and neither DEI nor the Company shall in any way
challenge the validity, enforceability or effectiveness of the Voting
Agreement or proxies. Subject to Section 5.1(a), the Company and DEI shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required by applicable law to effect the Mergers and the
transactions contemplated hereby (the "Required Company Shareholder Vote").
(b) Parent shall promptly after the date hereof take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
hold and convene a meeting of Parent's shareholders (the "Parent Shareholders'
Meeting"). Except as required by the SEC or applicable court order, Parent
shall not postpone or adjourn (other than for the absence of a quorum) the
Parent Shareholders' Meeting without the consent of the Company. Parent shall
not in any way challenge the validity, enforceability or effectiveness of the
voting agreements entered into by shareholders of Parent in connection with
the Mergers. Subject to Section 5.1(a), Parent shall take all other action
necessary or advisable to secure the vote or consent of shareholders required
by applicable law to effect the Mergers and the transactions contemplated
hereby (the "Required Parent Shareholder Vote").
5.3 Cooperation; Access to Information. Upon reasonable prior notice, the
Company and Parent shall afford the other party and its respective
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to all of
its properties, books, contracts, commitments and records, all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the first party may reasonably
request and all its key employees. Upon reasonable prior notice Company and
Parent agree to provide each other and its respective accountants, counsel and
other representatives copies of internal financial statements (including by
returns and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.4, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective as of on or about February 17,
1998, and that the Company, its officers, directors, employees, agents and
representatives agree to be bound by the terms thereof by virtue of DEI's
execution thereof.
5.5 Expenses.
(a) Except as set forth in Section 5.5(b) and Section 8.3, whether or not
the Merger is consummated, all fees and expenses incurred in connection with
the Merger including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses, provided, however that Parent and DEI
shall share equally in all fees and expenses, other than Third Party Expenses,
incurred in relation to filing of the Form S-4 Registration Statement and
printing the Joint Proxy Statement (including any preliminary materials
related thereto). Without limiting the foregoing, but subject to Section
8.3(c), Parent agrees to pay the fees and expenses of Merrill Lynch in
connection with the transactions contemplated hereby.
A-33
<PAGE>
(b) In the event that the Merger is consummated, DEI agrees to pay at the
Closing those Third Party Expenses of the Company and DEI and their Affiliates
that have been incurred on or prior to the Closing Date.
5.6 Public Disclosure. Parent, DEI and the Company shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger or the transactions
contemplated hereby or thereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law, The Nasdaq Stock Market, or any listing agreement with a
national securities exchange.
5.7 Consents. The Company, DEI and Parent shall use their best efforts to
obtain the consents, waivers, assignments and approvals under any of their
respective material contracts as may be required in connection with the
Mergers so as to preserve all rights of, and benefits to, the Company and
Parent thereunder.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that none of DEI, the Company nor
Parent shall be required to agree to any divestiture by any of them or any of
their respective subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of any of them or any of their subsidiaries
or affiliates, or the imposition of any material limitation on the ability of
any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.10 Notification of Certain Matters. Each of the Company, DEI and Parent
shall give prompt notice to the other party of (i) the occurrence or non-
occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of any party contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of either Parent, the Company or DEI, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect any
remedies available to the party receiving such notice. No disclosure by the
Company or DEI, on the one hand, or Parent, on the other, pursuant to this
Section 5.10, however, shall be deemed to amend or supplement the Disclosure
Schedule or prevent or cure any misrepresentations, breach of warranty or
breach of covenant.
5.11 Voting Agreements. DEI has delivered to Parent, concurrently with the
execution of this Agreement, an executed Voting Agreement substantially in the
form attached hereto as Exhibit D (the "Voting Agreement") together with an
irrevocable proxy. In addition, certain Parent shareholders have delivered to
DEI, concurrently with the execution of this Agreement, an executed voting
agreement.
5.12 Director Nominees. The Company and DEI shall have the right to select
as its nominees three persons to serve as members of the Board of Directors of
Holding Company (such persons, or any replacement persons, the "Nominees") and
Parent shall cause the Nominees to be appointed to the Board of Directors of
Holding Company (to the extent they so consent) as of the Effective Time.
5.13 Non-Competition. Parent, Holding Company and DEI agree to be bound by
the non-competition provisions set forth in Annex I hereto and incorporated
herein.
A-34
<PAGE>
5.14 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Parent and DEI each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by HSR, as well as comparable
pre-merger notification forms required by the merger notification or control
laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Parent, DEI and Company each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.15 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.16 Employees. Upon and after the Effective Time, subject to the applicable
eligibility and other requirements of such plans, each of the employees of the
Surviving Corporation shall be eligible for the benefit plans and arrangements
available to employees of Holding Company.
5.17 Form S-8. Holding Company agrees to file, no later than thirty (30)
days after the Closing, a registration statement on Form S-8 covering the
shares of Holding Company Common Stock issuable pursuant to outstanding
options granted under the applicable stock option plans of Parent and the
Company. The Company shall cooperate with and assist Holding Company in the
preparation of such registration statement.
5.18 Director Action with Respect to Option Plans. Prior to the Effective
Time, the Board of Directors of the Company shall take such actions as shall
ensure that Company Options outstanding under the Option Plans do not have
their vesting accelerated as a result of the consummation of the Mergers and
the transactions contemplated hereby and thereby.
5.19 Directors' Insurance and Indemnification. The Holding Company will
indemnify each director of Parent and the Company as of the Effective Time
(individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent permitted under applicable law. The rights
under this Section 5.19 are in addition to rights that an Indemnified Party
may have under the Articles of Incorporation, Bylaws, other similar
organizational documents of Parent, the Company, or any of its Subsidiaries or
applicable law. The rights under this Section 5.19 are contingent upon the
occurrence of, and will survive consummation of, the transactions contemplated
hereby and are expressly intended to benefit each Indemnified Party. DEI
hereby agrees to indemnify and hold Holding Company and each of its
Subsidiaries harmless, and reimburse Holding Company upon demand for any and
all amounts paid to or on behalf of an Indemnified Party who was, at the date
hereof, or following the date hereof at any time prior to the Effective Time,
a director of the Company, other than Michael Slade.
5.20 Stock Listing. Parent will use reasonable efforts to list prior to the
Effective Time on the Nasdaq National Market, subject to official notice of
issuance, the shares of Holding Company Common Stock to be issued hereunder.
5.21 Certain Tax Matters.
(a) Return Filing; Information Sharing.
(i) DEI shall prepare and file, or cause to be prepared and filed, with
the appropriate governmental authority all Returns relating to Taxes
required to be filed (with extensions) by or with respect to the Company
and its Subsidiaries on or prior to the Closing Date. DEI shall prepare (or
cause to be prepared) and the Parent shall timely file (or cause to be
timely filed), all Returns relating to Taxes of the Company or any of its
Subsidiaries with respect to periods (or portions thereof) ending on or
prior to the Closing Date that are required to be filed after the Closing
Date.
A-35
<PAGE>
(ii) DEI and Parent agree that they will, and will cause their affiliates
to, make available all such information, employees and records of or
relating to the Company and its Subsidiaries as either party may request
with respect to matters relating to Taxes (including, without limitation,
the right to make copies of such information and records) and will
cooperate with respect to all matters relating to Taxes (including, without
limitation the filing of Returns, the filing of an amended Return, audits,
and proceedings). Unless requested by DEI, neither Holding Company, Parent
nor their subsidiaries nor the Company nor any Subsidiary thereof shall
file (or permit to be filed) any amended Return with respect to the Company
or any Subsidiary thereof for any period (or portion thereof) ending on or
prior to the Closing Date without obtaining the prior written consent of
DEI and neither Holding Company, Parent nor their subsidiaries nor the
Company nor any Subsidiary thereof shall, with respect to Taxes relating to
(i) a period (or portion thereof) ending on or prior to the Effective Time
or (ii) any matter that is the subject of this Agreement or any of the
Transaction Agreements, unless, however, there has been a Final
Determination to the contrary relating to such position or matter, take (or
permit to be taken by any affiliate) any position, initiate (or permit to
be initiated) any claim or otherwise take (or fail to take) any action that
could reasonably be expected to adversely affect DEI or its affiliates with
respect to such Taxes. Following the Effective Time, nothing in this
Agreement shall be construed to prevent Holding Company, Parent, any Parent
Subsidiary, the Company or its Subsidiaries from deducting to the maximum
extent permitted by law amounts required to be paid in cash under the
Promotional Services Agreement, the License Agreement and the
Representation Agreement.
(iii) Notwithstanding any other provision of this Agreement, all
transfer, registration, stamp, documentary, sales, use and similar Taxes
(including, but not limited to, all applicable real estate transfer or
gains Taxes and stock transfer Taxes), any penalties, interest and
additions to such Taxes incurred in connection with this Agreement and the
Merger contemplated hereby shall be the responsibility of and be shared
equally by Parent and DEI. DEI and Parent shall cooperate in the timely
making of all filings, Returns, reports and forms as may be required in
connection therewith.
(iv) If any of Holding Company, Parent, the Company or any subsidiary or
affiliate of the foregoing thereof receives any written notice from any Tax
authority proposing any audit or adjustment to any Tax relating to the
Company or any Subsidiary thereof for which DEI or any affiliate thereof
may be liable under this Agreement, Parent, the Company or such subsidiary
shall give prompt written notice thereof to DEI, which notices shall
describe in detail each proposed adjustment. In the event DEI receives
notice of Taxes for which Parent may be liable, DEI shall provide similar
notice to Parent or Holding Company.
(v) Parent, the Company and DEI shall furnish and Parent and Holding
Company shall each use their reasonable efforts to cause officers,
directors and employees of Parent or Holding Company holding or
representing 5% or more of the outstanding stock of Parent to furnish
special counsel to DEI and counsel to Parent with one or more certificates
dated as of the Closing Date signed on behalf of it by one or more of its
officers having authority to sign such certificates and containing such
true and correct statements as may reasonably be requested to enable
special counsel to DEI and counsel to Parent to render the opinions
described in Sections 6.2(a) and 6.3(a), provided, however, that in
connection with such certificates neither Parent nor Holding Company shall
be required to ascertain the intent (but must disclose actual knowledge) of
any Parent shareholder who is not an officer, director or employee of
Holding Company or Parent.
(vi) Holding Company, Parent, the Company and DEI agree to report (and
cause to be reported by their affiliates) any item attributable to a
transaction that occurs on the Closing Date but after the Closing (other
than any transaction in the ordinary course of business) in accordance with
the "next day rule" contained in Treas. Reg. Section 1.1502-76(b).
(vii) Parent and Holding Company grant to DEI and its duly appointed
representatives the sole right to negotiate, resolve, settle or contest any
audit of or claim for Tax with respect to which DEI may have to indemnify
Parent or any affiliate under this Agreement and Parent and Holding Company
agree to cooperate and cause their affiliates to cooperate and take all
actions requested by DEI with respect to the foregoing. If DEI does not
assume the defense of any such claim for Taxes after receiving written
notice of the same
A-36
<PAGE>
from Parent or Holding Company, Holding Company may defend the same in such
manner as it may deem appropriate.
(viii) Holding Company, Parent and DEI agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to Holding Company, Parent and their
Affiliates (including without limitation any partnership in which either
owns directly or indirectly any interest), and the Company as is reasonably
necessary for the filing of all Tax Returns, and the making of any election
related to Taxes, the preparation for any audit by any Taxing Authority,
and the prosecution or defense of any claim, suit or proceeding relating to
any Tax Return. Holding Company, Parent and DEI will cooperate with each
other in the conduct of any audit or other proceeding related to Taxes and
all other Tax matters relating to the Holding Company, Parent and the
Company, and each will execute and deliver such powers of attorney and
other documents as are necessary to carry out the intent of this Section
5.21 (viii).
(b) Tax Covenants. Unless there has been a Final Determination to the
contrary (or DEI and Holding Company otherwise agree in writing), DEI, the
Company, Holding Company, and Parent covenant and agree, for all Tax purposes
including all Tax Returns and any Tax controversies, to (and to cause any
affiliate or successor to their assets or businesses to) take each of the
positions set forth below (and not to take any position inconsistent
therewith):
(i) The Company Merger (i) will qualify as a reorganization described in
section 368(a) of the Code and/or (ii) when taken together with the Parent
Merger, will qualify as a transfer of the stock of the Company to Holding
Company governed by section 351 of the Code.
(ii) The Parent Merger (i) will qualify as a reorganization under Section
368(a) of the Code and/or (ii) when taken together with the Company Merger,
will qualify as a transfer of the stock of Parent to Holding Company
governed by section 351 of the Code.
(iii) Except for cash received in lieu of fractional shares, none of the
consideration received by DEI or any non-dissenting shareholder of the
Company in the Company Merger will be treated as Other Property or Money.
(iv) Except for cash received in lieu of fractional shares, none of the
consideration received by Parent's non-dissenting stockholders in the
Parent Merger will be treated as Other Property or Money.
(v) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Holding Company, TWDC (or any other
affiliate thereof, including without limitation DEI, the Company and Merger
Sub B), or any non-dissenting shareholder of the Company with respect to
the exchange of Company Common Stock for Holding Company Common Stock in
the Company Merger.
(vi) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Parent, its non-dissenting shareholders,
or Merger Sub A with respect to the exchange of Parent Common Stock for
Holding Company Common Stock in the Parent Merger.
(vii) None of the consideration in either the Company Merger or the
Parent Merger will be paid or issued for services.
(viii) Unless Holding Company and DEI agree to the contrary, except with
respect to interest payments pursuant to the Promissory Note, no income,
deduction, gain or loss will be recognized with respect to the issuance,
exercise or satisfaction of the Holding Company Common Stock, Holding
Company Warrants or the Promissory Note (e.g., the parties agree that the
Promissory Note will not be issued with any original issue discount as
defined in section 1273 of the Code.)
(c) Additional "Tax Covenants". Parent and, upon the consummation of the
Mergers contemplated hereby, Holding Company covenants, jointly and severally,
to DEI (and with respect to 5.21(c)(viii), DEI also covenants to Parent):
(i) No stock or securities (including, without limitation, options or
warrants (other than warrants issued to TWDC pursuant to the Common Stock
and Warrant Purchase Agreement and options issued to
A-37
<PAGE>
Employees pursuant to Section 5.21 hereof)) will be issued to any person or
entity other than TWDC, DEI and the shareholders of Parent and the Company
in connection with the Transaction.
(ii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) Holding Company to issue any stock
other than Holding Company Common Stock in (or in connection with) the
Transaction.
(iii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit in connection with the Transaction)
Holding Company to redeem or otherwise acquire in connection with the
Transaction any of the Holding Company Common Stock to be issued in the
Transaction (other than stock repurchased from terminated employees in the
ordinary course of business.)
(iv) Management of each of Parent and Holding Company has no plan or
intention to cause (and will not permit in connection with the Transaction)
Parent or the Company to be liquidated for U.S. Federal income tax purposes
or merged with any other entity.
(v) Management of each of Parent and Holding Company has no plan or
intention to terminate the existence of Holding Company or to merge Holding
Company with any other corporation (and will not permit the occurrence of
any such event in connection with the Transaction).
(vi) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) in (or in connection with) the
Transaction, Holding Company to dispose of all or any portion of the stock
of either Parent or the Company (including, without limitation, via
merger).
(vii) Following the Transaction, the Management of each of Parent and
Holding Company will cause (i) Parent to continue its historic business or
use a significant portion of its historic business assets in a business of
Parent and (ii) the Company to continue its historic business or use a
significant portion of its historic business assets in a business of the
Company.
(viii) None of DEI, Holding Company, Parent or any of their subsidiaries
has taken (or will take) any action including, without limitation, any
action inconsistent with any representation, warranty, or covenant made
pursuant to Sections 6.2(a) and 6.3(a) hereof or has any knowledge of any
fact or circumstance that is reasonably likely to prevent (i) the Parent
Merger from qualifying as (x) a reorganization described in section 368(a)
of the Code and/or (y) when taken together with the Company Merger, a
transfer of property to Holding Company by the shareholders of Parent
governed by section 351 of the Code and/or (ii) the Company Merger from
qualifying as (x) and reorganization described in section 368(a) of the
Code and/or (y) when taken together with the Parent Merger, as a transfer
of property to Holding Company by DEI governed by section 351 of the Code.
(d) Reporting. DEI, the Company, Parent and Holding Company agree to report
to the other any communication from or with the Internal Revenue Service or
any other Taxing Authority which relates in any way to the characterization of
the Transaction. Notwithstanding any such communication, Holding Company and
Parent covenant and agree to (and to cause any affiliate or successor to their
assets or businesses to) continue to take each of the positions specified in
Section 5.21(b) for all Tax purposes (unless there has been a Final
Determination contrary to such position). Without limiting the generality of
the foregoing, (i) each of DEI and Holding Company will file with its Federal
income tax return for the taxable year in which the Transfer is made (which
tax return shall be timely filed) the information required by Treas. Reg.
Section 1.351-3 and 1.368-3 and to provide each other upon request with a
statement to the effect that such party has complied with this requirement
after filing, and (ii) DEI shall have the opportunity to review and approve
any Tax return to be filed by Holding Company, the Company and/or Parent with
respect to the Transaction, such approval not to be unreasonably withheld.
DEI, the Company, Holding Company and Parent also will maintain such permanent
records as are required by Treas. Reg. (S)(S) 1.351-3(c) and 1.368-3.
(e) Protective Claims. Notwithstanding anything in this Section 5.21(e) to
the contrary, Holding Company will (and will cause any affiliate to) file
protective claims for refund if so requested in writing by DEI (and only if so
requested by DEI) based on any position contrary to the positions described in
Section 5.21(b), (i), (ii), (iii), (v) and (vii) (the "DEI Positions"). In
addition, Holding Company will (and will cause any affiliate to) use
A-38
<PAGE>
its best efforts to obtain any refund if so requested in writing by DEI (and
only if so requested by DEI) which may be available based on any position
contrary to the DEI Positions, and, upon receipt of any such refund, will
promptly remit any such amount (less any Taxes attributable to such refund)
and also taking into account any deduction attributable to any payment under
this Section 5.21(e) to DEI. DEI will have the right to control any
administrative or judicial proceeding relating to any such claim for refund,
and DEI will reimburse Holding Company for all reasonable cost relating to any
such claim.
(f) Tax Adjustment Payments. If a Final Determination is made contrary to
any of the DEI Positions, then (in addition to any other remedies which may be
available to DEI but without duplication thereof) Holding Company will pay to
DEI an amount equal to the excess of (a) the liability for the aggregate
amount of Taxes to which Parent, Holding Company, and their subsidiaries would
have been subject in each relevant jurisdiction had the DEI Positions been
sustained (and had Holding Company not been required to make any such payments
pursuant to this Section 5.21(f), over (b) the actual liability for such Taxes
for such periods assuming that the other positions set forth in Section
5.21(b) are sustained. Such payment (i) will not be treated as, or deemed to
be a payment of, Tax and (ii) will be due (subject to a 30-day grace period)
when, as and to the extent Parent or Holding Company derives an actual Tax
savings (including, without limitation, in the form of any refund or reduction
in Tax liability that would not have otherwise been available) as the result
of such excess; provided, however, that appropriate adjustments will be made
in the event that Tax savings are ultimately disallowed in a Final
Determination. If any payment required under this Section 5.21(f) is not made
on or before the above due date, then such payment will be made together with
interest at the rate per annum determined from time to time under section
6621(a)(2) of the Code compounded daily for the period from such due date to
the date on which the payment is actually made. Any dispute concerning the
calculation of payments due under this Section 5.21(f) will be resolved by a
nationally recognized accounting firm that is jointly selected and mutually
engaged by DEI and the non-DEI designated members of the Board of Directors of
Holding Company (the fees and expenses of which shall be shared equally by DEI
and Holding Company).
(g) Allocation of Income and Deductions. For purposes of this Agreement,
income, deductions, and other items will be allocated between the final Pre-
Closing Tax Period and Post-Closing Tax Period based on an actual closing of
the books of the business as of the close of business on the Closing Date. Any
amounts attributable to transactions not in the ordinary course of business
prior to the Closing will be allocated to the final Pre-Closing Tax Period and
amounts attributable to transactions not in the ordinary course of business
following the Closing will be allocated to the initial Post-Closing Tax
Period.
5.22 Non Solicitation of Company Employees. DEI agrees beginning on the date
hereof and continuing until the Effective Date, not to, without Parent's
consent, solicit the hiring of any person who is an employee of the company,
or induce any such person to discontinue his or her employment with the
Company.
5.23 Net Worth Test. At least two (2) business days prior to the Closing
Date, DEI and the Company shall deliver to Parent the Closing Balance Sheet.
DEI and the Company agree that if Estimated Net Worth is less than the Net
Worth Target, then DEI shall deliver to Holding Company at the Closing by
cashier's check or wire transfer in immediately available funds the amount by
which Estimated Net Worth is less than the Net Worth Target (the "Net Worth
Payment"). DEI and the Parent agree that (i) if Net Worth is less than the
lesser of (A) the Net Worth Target and (B) Estimated Net Worth, Holding
Company shall be entitled to recover the amount of such deficit from DEI as a
Loss in accordance with the procedures set forth in Article VII and (ii) if
the Net Worth exceeds the Estimated Net Worth, the Holding Company shall
reimburse DEI the amount of such excess, provided that the amount of such
reimbursement plus the Estimated Net Worth shall not exceed the Net Worth
Target. Following the Closing, Holding Company shall deliver to DEI a
statement indicating the Net Worth and, upon request, a calculation thereof in
reasonable detail.
5.24 Compliance with Laws. For a period of six months following the
Effective Time, Holding Company agrees with DEI that it will not knowingly
fail to comply with applicable employment laws.
A-39
<PAGE>
5.25 Share and Warrant Ownership. Parent and Holding Company hereby
represent, warrant and agree, jointly and severally, that, if the transactions
contemplated by this Agreement and the Common Stock Warrant and Purchase
Agreement between Parent and DEI of even date herewith (the "Purchase
Agreement") were consummated as of the date of this Agreement, then (i) the
shares of Holding Company Common Stock that would be acquired by DEI pursuant
to this Agreement, coupled with the shares of Holding Company Stock that would
be acquired by The Walt Disney Company ("TWDC") pursuant to the Purchase
Agreement, would represent, as of the date of this Agreement, in the
aggregate, at least 42.75% of all outstanding shares of Holding Company Stock
and at least 38.45% of all outstanding shares of Holding Company Common Stock
on a fully diluted basis (i.e., assuming the conversion, exchange or exercise
of all securities that are convertible, exchangeable or exercisable for shares
of Holding Company Common Stock, excluding the Warrant acquired by TWDC
pursuant to the Purchase Agreement) as of the date of this Agreement, and (ii)
the Warrant would represent, as of the date hereof, the right to acquire a
number of shares of Holding Company Common Stock that, when coupled with the
shares referred to in clause (i) hereof, would represent as of the date of
this Agreement at least 50.10% of all outstanding shares of Holding Company
Common Stock on a fully diluted basis (i.e., assuming the conversion, exchange
or exercise of all securities that are convertible, exchangeable or
exercisable for shares of Holding Company Common Stock, including, without
limitation, the Warrant) as of the date of this Agreement assuming for
purposes of the percentage calculations set forth in the foregoing clauses (i)
and (ii) that there are only (x) 88,550,088 shares of Company Common Stock
outstanding as of the date of this Agreement and held by DEI, and (y)
107,189,202 shares of Company Common Stock outstanding on a fully diluted
basis (assuming the conversion, exchange or exercise of all Company Options)
and further assuming the truth and accuracy of the representations and
warranties set forth in Section 2.3 hereof. Any breach of the foregoing
representation, warranty and agreement shall be remedied by the issuance,
without additional consideration (the consideration therefor being deemed part
of the original consideration payable by TWDC under the Purchase Agreement, by
Holding Company of additional shares of Holding Company Common Stock or
additional Warrants, to the extent necessary to increase TWDC's and DEI's
aggregate percentage ownership of Holding Company to the amounts and as of
such date specified in clauses (i) and (ii), respectively. This
representation, warranty and agreement shall survive and continue until the
eighteen (18) month anniversary of the Effective Time.
5.26 Parent Option Grants. Prior to the Effective Time, without the written
consent of DEI, Parent shall not issue any options, warrants or other rights
to acquire Parent Common Stock, other than employee stock options and rights
to acquire shares in accordance with employee stock purchase plans in the
ordinary course of business, consistent with past practice.
5.27 ABC News/Starwave Partners. Following the date hereof, subject to the
mutual, reasonable approval of Parent and DEI and provided that Parent and DEI
mutually agree that ABC News/Starwave Partners will continue to lease space
from DEI's affiliate, ABC, Inc., then ABC News/Starwave Partners will enter
into an arms-length lease with ABC, Inc. for such amount of space as the
parties hereto deem reasonable. The parties hereto acknowledge that, until
such lease is entered into (or until the parties determine that ABC
News/Starwave Partners shall locate alternative space), ABC News/Starwave
Partners shall continue to lease the space it currently occupies at ABC, Inc.
at reasonable rates consistent with past practice.
5.28 Funding of Ventures. From the date hereof through the Effective Time or
the termination of this Agreement, the Company agrees that it shall promptly
fund, and DEI agrees that it shall cause its Affiliates, ABC, Inc. and ESPN,
to promptly fund the capital accounts of ABC News/Starwave Partners and
ESPN/Starwave Partners, respectively, in accordance with past practice and the
Partnership Agreements pertaining to such partnerships (it being understood
that in past practice, both partners have contributed their appropriate share
of the capital requirements in accordance with the Partnership Agreements).
5.29 Third Party Agreements. DEI will cause the AOL/ABC News Short Form
Agreement, dated as of March 5, 1997, as amended on June 4, 1998, to terminate
and be of no further force and effect no later than November 30, 1998 with no
liability to Parent or Holding Company. Parent agrees that, although DEI will
be
A-40
<PAGE>
required to indemnify Parent for any breach of this covenant, no such breach
shall be the basis for not closing the transactions contemplated hereby.
5.30 Adoption of Option and Employee Stock Purchase Plans. At the Effective
Time, Holding Company shall assume all stock option and employee stock
purchase plans of Parent.
ARTICLE VI
Conditions to the Merger
6.1 Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Mergers, which makes the consummation of the Mergers
illegal. All waiting periods under the HSR Act relating to the transactions
hereby will have expired or terminated early.
(b) Shareholder Approval. This Agreement shall have been approved and
adopted, and the Mergers shall have duly approved, by the requisite vote
under applicable law, by the shareholders of Parent and the Company.
(c) Listing. The shares of Holding Company Common Stock to be issued in
the Merger to the Shareholders shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
(d) Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act, and no stop order shall have been issued by the SEC
with respect to the Form S-4 Registration Statement and no similar
proceeding in respect of the Joint Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
(e) Transaction Agreements. The Transaction Agreements executed on the
date hereof shall be in full force and effect as of the Effective Time.
6.2 Conditions to Obligations of Company and DEI. The obligations of the
Company and DEI to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company and DEI:
(a) Tax Opinion. DEI shall have received the opinion of Dewey Ballantine
LLP, special counsel to DEI, substantially in the same form as the Tax
opinion described in Section 6.3(a), and based upon reasonably requested
representation letters of DEI, the Holding Company, and Parent and their
officers, directors, and employees dated the Closing Date, which opinion
shall be reasonably satisfactory to DEI, to the effect that the Company
Merger will be treated as a reorganization described in section 368(a) of
the Code and/or, when taken together with the Parent Merger, will be
treated as a transfer of property to Holding Company by DEI governed by
section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except for
such inaccuracies as individually or in the aggregate would not have a
Material Adverse Effect on Parent, and each of Parent and Holding Company
shall have performed and complied in all material respects with all
covenants and obligations of this Agreement required to be performed and
complied with by then as of the Effective Time.
A-41
<PAGE>
(c) No Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on Parent (except for any Material Adverse Effect
that shall have been cured without such cure resulting or reasonably being
expected to result in a Material Adverse Effect on Parent). (For purposes
of this Article VI, it shall be deemed a "Material Adverse Effect" on
Parent if there shall be in effect a preliminary injunction or permanent
injunction issued by a court of competent jurisdiction against Parent
preventing Parent from generally using or materially limiting the ability
of Parent to generally use Intellectual Property that is both material to
and necessary for the conduct of Parent's business as currently conducted
(taken as a whole), and the prior pendency of a temporary restraining order
in respect of such Intellectual Property which is no longer in effect shall
be deemed not to be a "Material Adverse Effect" on Parent for purposes of
this Article VI.)
(d) Certificate of Parent and Holding Company. The Company and DEI shall
have been provided with a certificate executed on behalf of Parent and
Holding Company by its President and Chief Executive Officer to the effect
that, as of the Effective Time, the conditions set forth in Sections 6.3(a)
and 6.2(b) and (c) have been met.
6.3 Conditions to the Obligations of Parent and Holding Company. The
obligations of Parent and Holding Company to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Tax Opinion. Parent shall have received the opinion of Wilson Sonsini
Goodrich & Rosati, special counsel to Parent, substantially in the same
form as the Tax opinion described in Section 6.2(a), and based upon
reasonably requested representation letters of DEI, the Holding Company,
and Parent and their officers, directors, and employees dated the Closing
Date, which opinion shall be reasonably satisfactory to Parent, to the
effect that the Parent Merger will be treated as a reorganization described
in section 368(a) of the Code and/or, when taken together with the Company
Merger, as a transfer of property to Holding Company by holders of Parent
Common Stock governed by section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Company and DEI in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of the Effective
Time, except for such inaccuracies as individually or in the aggregate
would not have an Material Adverse Effect on the Company, and each of the
Company and DEI shall have performed and complied in all material respects
with all covenants and obligations of this Agreement required to be
performed and complied with by them as of the Effective Time.
(c) No Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on the Company (except for any Material Adverse
Effect that shall have been cured without such cure resulting or reasonably
being expected to result in a Material Adverse Effect on the Company). (For
purposes of this Article VI, it shall be deemed a "Material Adverse Effect"
on the Company if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
the Company preventing the Company from generally using or materially
limiting the ability of the Company to generally use Intellectual Property
that is both material to and necessary for the conduct of the Company's
business as currently conducted (taken as a whole), and the prior pendency
of a temporary restraining order in respect of such Intellectual Property
which is no longer in effect shall be deemed not to be a "Material Adverse
Effect" on the Company for purposes of this Article VI.)
(d) Third Party Consents. Any and all consents, waivers, assignments and
approvals listed in Section 2.5 of the Disclosure Schedule (other than
those whose failure to obtain, individually or in the aggregate, would not
have a Material Adverse Effect on the Company or the Holding Company) shall
have been obtained.
A-42
<PAGE>
(e) Certificate of the Company and DEI. Parent shall have been provided
with a certificate executed on behalf of DEI by its Chief Financial Officer
and executed on behalf of the Company by its President and Chief Executive
Officer to the effect that, as of the Effective Time the conditions set
forth in Sections 6.2(a) and 6.3(b) and (c) have been met.
(f) Net Worth Payment. Parent shall have received from DEI and the
Company on or prior to the Closing Date the Closing Balance Sheet,
certified as to correctness by DEI and the Company; and DEI shall have
delivered to Holding Company the Net Worth Payment pursuant to Section
5.23.
ARTICLE VII
Survival of Representations and Warranties; Indemnification
7.1 Survival of Representations and Warranties. The representations and
warranties made by the Company and DEI in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate on the eighteen (18)
month anniversary of the Closing Date; provided, however, that the
representations, warranties, covenants, promises and agreements made by any
party to this Agreement relating or pertaining to any Tax or Returns related
to Taxes, whether made pursuant to this Agreement or any instrument required
under this Agreement other than those representations and warranties made
pursuant to Section 3.10 hereof (which shall terminate upon the Effective
Time) shall survive until sixty (60) days following the expiration of the
applicable statute of limitations (taking into account all extensions). The
representations and warranties made by Parent and Holding Company contained
herein or in any instrument delivered pursuant to this Agreement (other than
with respect to certificates relating to the Tax opinions described in
Sections 6.2(a) and 6.3(a) hereof, which shall survive until 60 days following
the expiration of the applicable statute of limitations taking into account
all extensions) shall terminate and be of no further force or effect at the
Effective Time, and following the Effective Time, notwithstanding the
following sentence, no party shall have any recourse whatsoever against Parent
or Holding Company in respect of any such representation and warranty (other
than with respect to certificates relating to the tax Opinions described in
Sections 6.2(a) and 6.3(a) hereof). The covenants, promises and agreements of
Parent shall survive the Effective Time, whether made pursuant to this
Agreement or any instrument required under this Agreement. No party hereto
makes any representation or warranty other than those representations and
warranties set forth in this Agreement.
7.2 Indemnification.
(a) From and after the Effective Time, DEI agrees to indemnify and hold
Parent, Holding Company, and their respective officers, directors, employees,
agents and affiliates harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Holding Company, Parent, its
officers, directors, employees, agents or affiliates (including the Surviving
Corporation) directly or indirectly as a result of (i) any inaccuracy or
breach of a representation or warranty of the Company or DEI contained in this
Agreement, (ii) any failure by the Company (on or prior to the Effective Time)
or DEI (at any time) to perform or comply with any covenant contained in this
Agreement, including, without limitation, Section 5.23 hereof, or (iii) DEI
Taxes to the extent not accrued on the Closing Balance Sheet; provided,
however, that DEI shall be liable under Section 7.2 (a)(i) only to the extent
that Losses incurred exceed $3 million (the "Threshold") in which case DEI
will be liable for the amount of all such Losses in excess of the Threshold up
to an aggregate of $350 million (the "Cap"); provided, however, with respect
to the matters set forth in Sections 7.2(a)(ii) and (a)(iii) the Threshold
shall not be applicable. In addition, to the extent that Losses are incurred
that result solely from the inaccuracies or breaches of representations and
warranties of the Company or DEI arising solely from facts and circumstances
occurring following the date hereof (but only to the extent that such Losses
do not result from a breach by DEI or the Company of any representation or
warranty made as of the date hereof, or a breach of any obligations under this
Agreement, and only to the extent not relating to facts and circumstances
occurring on or prior to the date hereof), the right to indemnification under
this Section 7.2 for such Losses ("Post-Signing Losses") shall be subject to a
separate and additional threshold of $1 million, which
A-43
<PAGE>
will be used first prior to using the $3 million Threshold, and DEI's
obligation to indemnify in respect of such Post-Signing Losses shall commence
only to the extent that such Post-Signing Losses exceed the sum of $1 million
plus the portion of the $3 million Threshold unused by other Losses, and then,
only for the amount of such Losses in excess of the sum of $1 million plus the
unused portion of the $3 million Threshold; provided, however that DEI's
obligation to indemnify with respect to such Losses shall be aggregated with
all other Losses resulting from the matters set forth in Section 7.2(a)(i)
and, together with such Losses, shall be subject to the Cap. Furthermore,
without regard to any threshold, DEI shall pay to Holding Company in
immediately available funds, upon demand by Holding Company the amounts, if
any, by which Net Worth is less than the lesser of (1) Estimated Net Worth and
(2) the Net Worth Target. DEI shall not have any right of contribution from
the Company with respect to any Loss claimed. Nothing herein shall limit the
liability of the Company or DEI for any willful breach of any representation,
warranty or covenant if the Merger does not occur.
(b) Notwithstanding the foregoing, DEI hereby waives any right to seek
indemnification from the Company for any Losses as such term is defined in
that certain Stock Purchase Agreement dated as of March 28, 1997 by and
between the Company, Paul G. Allen and DEI (the "Stock Purchase Agreement")
pursuant to Section 5.1 of the Stock Purchase Agreement, and hereby forever
releases the Company from any and all past and present claims, actions, suits,
and proceedings of any nature pending or threatened against the Company,
whether or not in connection with the Stock Purchase Agreement, other than
intercompany accounts in the amounts reflected in the books and records of the
Company.
7.3 Claims Against DEI for Indemnification. Upon receipt by DEI of a
certificate signed by any officer of Holding Company or Parent (an "Officer's
Certificate"): (A) stating that Parent or Holding Company has paid or properly
accrued Losses for which indemnification may be sought under Section 7.2 and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued and
the nature of the misrepresentations, breach of warranty or covenant to which
such items is related, DEI shall, unless DEI shall timely object in writing to
such claim or claims made in such Officer's Certificate pursuant to the
provisions of Section 7.4, deliver to Holding Company as promptly as
practicable, cash in an amount equal to such Losses. To the extent that DEI
indemnifies Holding Company for any accrued Loss, and such accrued Loss is
ultimately determined to exceed the amounts required by GAAP, Holding Company
shall promptly return such amount to DEI.
7.4 Resolution of Conflicts; Arbitration.
(i) In case DEI shall object in writing to any claim or claims made in any
Officer's Certificate within thirty (30) days after delivery of such Officer's
Certificate, DEI and Holding Company shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If
DEI and Holding Company should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith negotiation,
either Holding Company or DEI may demand arbitration of the matter pursuant to
this Section 7.4 unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by one arbitrator mutually agreeable to Holding Company
and DEI. In the event that within forty-five (45) days after submission of any
dispute to arbitration, Holding Company and DEI cannot mutually agree on one
arbitrator, Holding Company and DEI shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgement of the arbitrator
or majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator or a majority of the three arbitrators, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the
extent as a competent court of law or equity, should the arbitrators or a
majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without
A-44
<PAGE>
substantial justification. The decision of the arbitrator or a majority of the
three arbitrators, as the case may be, as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth
the award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Clara County, California, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
7.5 Third-Party Claims. Promptly after the receipt by any party hereto of a
notice of any claim, action, suit or proceeding of any third party (a "Third
Party Claim") which may be subject to indemnification hereunder, such party
(the "Indemnified Party") shall give written notice of such claim to the party
obligated to provide indemnification hereunder (the "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof, to the
extent known. Failure of the Indemnified Party to give such notice shall not
relieve the Indemnifying Party from any liability which it may have on account
of this indemnification or otherwise, except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Indemnifying Party
shall be entitled to participate in the defense of and, if it agrees
unconditionally to indemnify the Indemnified Party for any and all Losses
incurred as a result of such Third Party Claim, to assume the defense of such
claim, action, suit or proceeding with counsel selected by the Indemnifying
Party and approved by the Indemnified Party (such approval not to be
unreasonably withheld). Upon the election by the Indemnifying Party to assume
the defense of, or otherwise contest, such claim, action, suit or proceeding,
the Indemnifying Party shall not be liable for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof, although the Indemnified Party shall have the right to participate in
the defense thereof and to employ counsel, at its own expense. Notwithstanding
the foregoing, the Indemnifying Party shall be liable for the reasonable fees
and expenses of counsel employed by the Indemnified Party, if and only to the
extent that (i) the Indemnifying Party has not employed counsel or counsel
reasonably acceptable to the Indemnified Party to assume the defense of such
action within a reasonable time after receiving notice of the commencement of
the action, (ii) the employment of counsel and the amount reimbursable
therefor by the Indemnified Party has been authorized in writing by the
Indemnifying Party, or (iii) there is an actual conflict of interests between
the Indemnifying Party and the Indemnified Party. The parties shall use
commercially reasonable efforts to minimize Losses from claims by third
parties and shall act in good faith in responding to, defending against,
settling or otherwise dealing with such claim, notwithstanding any dispute as
to liability as between the parties under this Article VII. The parties shall
also cooperate in any such defense, give each other reasonable access to all
information relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually convenient basis
to provide additional information and explanation of any material provided in
connection therewith. No claim by a third party may be settled by the
Indemnifying Party without the written consent of the Indemnified Party (which
consent shall not be unreasonably withheld), except in the event that the
settlement involves (i) the payment of money only, for which the Indemnified
Party is totally indemnified by the Indemnifying Party, and (ii) the
unconditional release from all related liability of the Indemnified Party.
This section 7.5 shall not apply to disputes relating to Taxes.
7.6 Exclusive Remedy. Following the Effective Time, except with respect to
any knowing or intentional or fraudulent breaches of the representations and
warranties of the Company or DEI contained in this Agreement, the sole and
exclusive remedy of Holding Company for any claim for breaches of
representation and warranties of the Company or DEI arising under this
Agreement shall be the indemnification provided in this Article VII.
7.7 Indemnification For Taxes. Parent and Holding Company agree to indemnify
and hold DEI and its affiliates harmless from and against (a) any and all
Taxes, expenses, costs and other damages attributable in whole or in part to
any breach of any (i) representation, warranty, covenant, agreement or promise
contained in the Certificates delivered pursuant to Section 6.2(a) hereof, or
(ii) any agreement, covenant or promise made by Parent and/or Holding Company
in this Agreement, any Transaction Agreement, or in any instrument delivered
A-45
<PAGE>
pursuant to such agreements, in each case that relate to Taxes, (b) Taxes
attributable to any action or transaction occurring on the Closing Date after
the Effective Time, other than in the ordinary course of business, or (c)
Taxes attributable to the Company or any Subsidiary thereof with respect to
any period or portion thereof commencing after the Closing.
ARTICLE VIII
Termination, Amendment and Waiver
8.1 Termination. This Agreement may be terminated and the Mergers abandoned
at any time prior to the Effective Time:
(a) by mutual consent of DEI, the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
by December 31, 1998 provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
(who, in the case of the Company, shall include DEI) whose action or
failure to act has been a principal cause of or resulted in the failure of
the Mergers to occur on or before such date and such action or failure to
act constitutes a material breach of this Agreement; (ii) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Mergers; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers by any Governmental Body that would make consummation of the
Mergers illegal;
(c) by Parent or the Company if (i) the Parent Shareholders' Meeting
(including any adjournments or postponements thereof) shall have been held
and completed and Parent's shareholders shall have taken a final vote on
the matters set forth in Section 5.2(b) hereof, and (ii) such matters shall
not have been approved at such meeting by the required Parent Shareholder
Vote (provided, further, that the right to terminate this Agreement under
Section 8.1(c) shall not be available to Parent or the Company where the
failure to obtain the required Parent Shareholder Vote shall have been
caused by the action or failure to act of such party and such action or
failure to act constitutes a material breach by such party of this
Agreement);
(d) by Parent or the Company if there shall be any governmental action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Mergers by any Governmental Body, which
would: (i) prohibit Holding Company's ownership or operation of any
material portion of the business of the Company or (ii) compel Holding
Company or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Holding Company as a
result of the Mergers;
(e) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty
or covenant contained in this Agreement on the part of the Company or DEI,
or if any representation or warranty on the part of the Company or DEI
shall have become untrue, in either case such that the condition set forth
in Sections 6.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue and
such inaccuracy in such representation or warranty or breach shall not have
been cured within thirty (30) calendar days after written notice to the
Company and DEI; provided, however, that, no cure period shall be required
for a breach which by its nature cannot be cured;
(f) by the Company or DEI if neither the Company nor DEI is in material
breach of their respective obligations under this Agreement and there has
been a breach of any representation, warranty or covenant contained in this
Agreement on the part of Parent, or if any representation or warranty of
Parent shall have become untrue, in either case such that the condition set
forth in Section 6.2(b) would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become
untrue and such inaccuracy in such representations and warranties or such
breach shall not have been cured within thirty (30) calendar days after
written notice to Parent; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
A-46
<PAGE>
(g) by the Company, prior to obtaining the Required Parent Shareholder
Vote and after receipt by Parent of an Acquisition Proposal for Parent, if
(x) by the end of the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reaffirm its recommendation to stockholders of
Parent to vote for the Mergers, the Board of Directors of Parent fails to
so publicly reaffirm; or (y) by the later of the end of (A) the tenth
business day following the public announcement of an Acquisition Proposal
for Parent or (B) the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reject such publicly announced Acquisition Proposal,
the Board of Directors of Parent fails to publicly reject such Acquisition
Proposal; or (z) the Board of Directors of Parent shall have changed its
recommendation to its shareholders to vote in favor of approval of the
transactions contemplated hereby;
(h) by Parent, prior to obtaining the Required Parent Shareholder Vote
upon five days' prior notice to the Company (the "Parent Superior Proposal
Notice"), if, as a result of a Parent Superior Proposal by a party other
than the Company or any of its Affiliates, the board of directors of Parent
determines in good faith, after considering applicable provisions of state
law, after consultation with outside counsel that acceptance of the Parent
Superior Proposal is necessary for the board of directors to act in a
manner consistent with its fiduciary duties under applicable law; provided,
however, that the board of directors of Parent, in making any such
determination, shall have considered all concessions which have then been
offered by the Company (it being understood that prior to any such
termination Parent shall, and shall cause its respective financial and
legal advisors to, negotiate with the Company to make such adjustments in
the terms and conditions of this Agreement in favor of Parent as would
induce Parent to proceed with a transaction with the Company rather than
consummation of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(h) Parent must pay to the Company in
immediately available funds the fees required to be paid pursuant to
Section 8.3(a) hereof. In addition, Parent agrees that it shall not
terminate this Agreement pursuant to this Section 8.1(h) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after the Company's receipt of a Parent Superior Proposal Notice in
respect of the Parent Superior Proposal to be accepted;
(i) by Parent, prior to obtaining the Required Company Shareholder Vote
and after receipt by the Company of an Acquisition Proposal for the
Company, if (x) by the end of the third business day following (but not
including) the day Parent notifies the Company that it wishes the Board of
Directors of the Company to publicly reaffirm its recommendation to
stockholders of the Company to vote for the Mergers, the Board of Directors
of the Company fails to so publicly reaffirm; or (y) by the later of the
end of (A) the tenth business day following the public announcement of an
Acquisition Proposal for the Company or (B) the third business day
following (but not including) the day Parent notifies the Company that it
wishes the Board of Directors of the Company to publicly reject such
publicly announced Acquisition Proposal, the Board of Directors of the
Company fails to publicly reject such Acquisition Proposal; or (z) the
Board of Directors of the Company shall have changed its recommendation to
its shareholders to vote in favor of approval of the transactions
contemplated hereby;
(j) by the Company, prior to obtaining the Required Company Shareholder
Vote, upon five days' prior notice to Parent (the "Company Superior
Proposal Notice"), if, as a result of a Company Superior Proposal by a
party other than Parent or any of its Affiliates, the Board of Directors of
the Company determines in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that
acceptance of the Company Superior Proposal is consistent with its
fiduciary duties under applicable law; provided, however, that the board of
directors of the Company, in making any such determination, shall have
considered all concessions which have then been offered by Parent (it being
understood that prior to any such termination the Company shall, and shall
cause its respective financial and legal advisors to, negotiate with Parent
to make such adjustments in the terms and conditions of this Agreement in
favor of the Company as would induce the Company to proceed with a
transaction with Parent rather than consummation of an Acquisition Proposal
made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(j) the Company must pay to Parent in
immediately available funds the fees required to be paid pursuant to
A-47
<PAGE>
Section 8.3(c) hereof. In addition, the Company agrees that it shall not
terminate this agreement pursuant to this Section 8.1(j) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after Parent's receipt of a the Company Superior Proposal Notice in
respect of the Company Superior Proposal to be accepted.
(k) by the Company, provided that neither it nor DEI is in breach of this
Agreement, in the event that the Form S-4 Registration Statement has not
been declared effective by the SEC on or prior to the day that is 60
calender days following the day, if any, Parent receives initial written
comments from the SEC in respect of the disclosures set forth therein
(tolled for any period of Federal government strike or extraordinary
shutdown that affects the SEC);
(l) by the Company, provided that neither it nor DEI is in breach of this
Agreement, if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
Parent preventing Parent from generally using or materially limiting the
ability of Parent to generally use Intellectual Property that is both
material to and necessary for the conduct of Parent's business as currently
conducted (taken as a whole); or
(m) by Parent, provided that it is not in breach of this Agreement, if
there shall be in effect a preliminary injunction or permanent injunction
issued by a court of competent jurisdiction against the Company preventing
the Company from generally using or materially limiting the ability of the
Company to generally use Intellectual Property that is both material to and
necessary for the conduct of the Company's business as currently conducted
(taken as a whole).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1 and subject to the payment of any amounts due under
Section 8.3, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Holding Company, Parent, Sub, DEI or
the Company, or their respective officers, directors or shareholders, provided
that each party shall remain liable for any willful breaches of such party's
covenants hereunder or intentional or willful breaches of such party's
representations and warranties hereunder (other than in the case of Parent,
Section 3.17, for which Parent shall bear no liability) prior to its
termination; provided further that the provisions of Sections 5.4, 5.5, 8.3
and Article IX of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Termination Fees.
(a) If this Agreement is terminated by (i) the Company as a result of a
breach of Section 4.2(b) by Parent, or (ii) by the Company pursuant to its
rights under Section 8.1(g), or (iii) by Parent pursuant to its rights under
Section 8.1(h), Parent shall pay to the Company a fee of $17 million, plus the
amount of any documented out-of-pocket expenses incurred by the Company and
its Affiliates in connection with the negotiation and preparation of this
Agreement and the Transaction Agreements and any other ancillary agreements
executed and delivered in connection with the transactions contemplated hereby
and thereby (including fees of counsel and accountants) up to the date of such
termination up to a maximum aggregate of $1.5 million (collectively,
"Expenses") in cash minus any amounts as may have been previously paid by such
party pursuant to this Section 8.3.
(b) If :
(i) this Agreement is terminated by a party pursuant to Section 8.1(c)
following a failure of the shareholders of Parent to grant the necessary
approvals described in Section 5.2; and
(ii) prior to such meeting of the shareholders of Parent (and following
the date hereof), there shall have been publicly announced an Acquisition
Proposal involving Parent (whether or not such Acquisition Proposal shall
have been rejected or shall have been withdrawn prior to the time of such
termination or of the shareholders' meeting); and
(iii) within 12 months of any such termination described in clause (b)(i)
above, Parent becomes a majority-owned subsidiary of the offeror of such
Acquisition Proposal or an Affiliate thereof or accepts a
A-48
<PAGE>
written offer to consummate or consummates an Acquisition Proposal with
such offeror or Affiliate thereof which would result in the acquisition of
50% or more of the voting power of Parent (a "Majority Acquisition
Proposal");
then Parent, upon the signing of a definitive agreement relating to such
Majority Acquisition Proposal, or, if no such agreement is signed then at
the closing (and as a condition of the closing) of Parent becoming such a
subsidiary or of such Majority Acquisition Proposal, shall pay to the
Company a fee of $17 million plus Expenses, minus any amounts as may have
been previously paid by such party pursuant to this Section 8.3.
(c) If this Agreement is terminated by (i) Parent as a result of a breach of
Section 4.2(a) by the Company, or (ii) by Parent pursuant to its rights under
Section 8.1(i), or (iii) by the Company pursuant to its rights under Section
8.1(j), the Company shall pay to Parent a fee of $17 million, plus the amount
of any documented out-of-pocket expenses incurred by Parent and its Affiliates
in connection with the negotiation and preparation of this Agreement and the
Transaction Agreements and any other ancillary agreements executed and
delivered in connection with the transactions contemplated hereby and thereby
(including fees of counsel and accountants) up to the date of such termination
up to a maximum aggregate of $1.5 million in cash minus any amounts as may
have been previously paid by such party pursuant to this Section 8.3.
(d) Expenses. The parties agree that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement. No termination by a party of this Agreement under this Article VIII
shall be effective unless and until all fees required to be then paid by such
party pursuant to Section 8.3 hereof shall have been received in immediately
available funds by the other party. Notwithstanding anything to the contrary
contained in this Section 8.3, if one party fails to pay to the other any fee
due under Sections 8.3(a) or (b) or (c) within the time required under Section
8.1(h) or 8.1(j), if applicable, or within 5 business days of the event giving
rise to the payment of such fees in all other cases, in addition to any
amounts paid or payable pursuant to such sections, the defaulting party shall
pay the out-of-pocket costs and expenses (including reasonable legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank N.A.
from the date such fee was required to be paid. The fees and expenses set
forth in this Section 8.3 shall not be the exclusive remedy available against
any party that willfully breaches this Agreement.
8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of Parent, Sub,
DEI and the Company.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company and DEI, on the other hand, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
General Provisions
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified or
overnight mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice), provided, however, that notices sent by mail will not be deemed given
until received:
A-49
<PAGE>
(a) if to Holding Company, Parent or Sub, to:
Infoseek
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (408) 734-9350
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Attention: Marty W. Korman, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to
Starwave, Inc.
c/o DEI
500 South Buena Vista Street
Burbank, California 91521
Attention: Lawrence J. Shapiro
Telephone No.: (818) 560-4370
Facsimile No.: (818) 563-4160
(c) if to DEI, to:
DEI
500 South Buena Vista Street
Burbank, CA 91521
Attention: Lawrence J. Shapiro
Telephone No.: (818) 560-4370
Facsimile No.: (818) 563-4160
with copies to:
O'Melveny & Myers
400 S. Hope Street
Los Angeles, CA 90071-2899
Attention: C. James Levin, Esq.
Telephone No.: (213) 669-6578
Facsimile No.: (213) 669-6407
Dewey Ballantine LLP
1775 Pennsylvania Avenue N.W.
Washington, DC 20006
Attention: Joseph M. Pari
9.2 Interpretation. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-50
<PAGE>
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Transaction Agreements, the Confidentiality Agreement, and the documents and
instruments and other agreements among the parties and/or their Affiliates
hereto referenced herein or entered into in connection herewith: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned (other than by operation of law)
without the written consent of the other party. The obligations of the parties
hereto shall be binding on the respective legal successor and assigns to the
parties and the successors in interest of all or substantially all of the
business of the respective parties.
9.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 Attorneys Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
A-51
<PAGE>
IN WITNESS WHEREOF, Holding Company, Parent, the Company and DEI have caused
this Agreement to be signed, all as of the date first written above.
Infoseek Corporation Starwave Corporation
/s/ Harry M. Motro /s/ Kevin A. Mayer
By: _________________________________ By: _________________________________
Name: Harry M. Motro Name: Kevin A. Mayer
Title:President and Chief Title:Vice President
Executive Officer
Infoseek Corporation Disney Enterprises, Inc.
/s/ Harry M. Motro /s/ John R. Ball
By: _________________________________ By: _________________________________
Name: Harry M. Motro Name: John R. Ball
Title:President and Chief Title:Vice President
Executive Officer
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
A-52
<PAGE>
ANNEX A-2
AGREEMENT OF MERGER
BY AND AMONG
ICO ACQUISITION CORP.,
A CALIFORNIA CORPORATION,
INFOSEEK CORPORATION,
A CALIFORNIA CORPORATION
AND
INFOSEEK CORPORATION,
A DELAWARE CORPORATION
This Agreement of Merger (the "Merger Agreement"), is made and entered into
as of , 1998 by and among Infoseek Corporation, a California
corporation ("Infoseek California"), Infoseek Corporation, a Delaware
corporation ("Holding Company"), and ICO Acquisition Corp., a California
corporation and wholly owned subsidiary of Holding Company ("Merger Sub" and,
together with Infoseek California, the "Constituent Corporations").
RECITALS
A. Holding Company, Infoseek California, Starwave Corporation and Disney
Enterprises, Inc. have entered into that certain Agreement and Plan of
Reorganization dated as of June 18, 1998 (the "Reorganization Agreement"),
providing, among other things, for the execution and filing of this Merger
Agreement and the merger of Merger Sub with and into Infoseek California upon
the terms set forth in this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective shareholders that Merger Sub be merged with
and into Infoseek California and have approved this Merger Agreement and the
Merger.
C. The Reorganization Agreement, this Merger Agreement and the Merger have
been approved by the shareholders of Infoseek California and by the sole
shareholder of Merger Sub.
NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, each of the Constituent Corporations hereby agrees that Merger
Sub shall be merged with and into Infoseek California in accordance with the
provisions of the laws of the State of California, upon the terms and subject
to the conditions set forth as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 Infoseek California. Infoseek California is a corporation duly organized
and existing under the laws of the State of California and has an authorized
capital of sixty-five million (65,000,000) shares, sixty million (60,000,000)
of which are designated "Common Stock," no par value, and five million
(5,000,000) of which are designated "Preferred Stock", no par value. As of the
date of this Merger Agreement, shares of Common Stock are issued
and outstanding, and no shares of Preferred Stock are issued and outstanding.
Infoseek California was incorporated under the laws of the State of California
on August 30, 1993.
1.2 Merger Sub. Merger Sub is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
1,000 shares, all of which are designated "Common Stock," no par value. As of
the date of this Agreement, 1,000 shares of Common Stock are outstanding, all
of which are held by Holding Company. Merger Sub was incorporated under the
laws of the State of California on July 1, 1998.
A-2-1
<PAGE>
ARTICLE II
THE MERGER
2.1 Surviving Corporation. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Merger Agreement, the
Reorganization Agreement and the applicable provisions of the California
General Corporation Law, Merger Sub shall be merged with and into Infoseek
California, the separate corporate existence of Merger Sub shall cease and
Infoseek California shall continue as the surviving corporation and as a
wholly-owned subsidiary of Holding Company. The surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
2.2 Filing and Effectiveness. The Merger shall become effective upon filing
the Merger Agreement with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time."
2.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as set forth in Section 1107 of the California General Corporation
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and
franchises of Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
2.4 Articles of Incorporation; Bylaws. At the Effective Time, the Articles
of Incorporation and the Bylaws of the Surviving Corporation shall be those of
Infoseek California immediately prior to the Effective Time.
2.5 Directors and Officers. The directors of Infoseek California shall be
the directors of the Surviving Corporation at the Effective Time and such
directors shall serve until they are removed in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation. The officers of
Infoseek California shall be the officers of the Surviving Corporation at the
Effective Time and such officers shall serve until they are removed or
replaced in accordance with the Bylaws of the Surviving Corporation.
2.6 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Common Stock of Infoseek California. At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Sub,
Infoseek California, the holders of any shares of Infoseek California
Common Stock or any other person, each share of Infoseek California Common
Stock ("Infoseek California Common Stock") issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished
and be converted automatically into the right to receive, upon surrender of
the certificate representing such shares of Infoseek California Common
Stock in the manner provided in Section 2.7(c), one (1) share of common
stock of the Holding Company ("Holding Company Common Stock").
(b) Infoseek California Stock Options and Right to Purchase Infoseek
California Common Stock. At the Effective Time, each outstanding stock
option granted by Infoseek California ("Infoseek California Option"), and
each other outstanding right to purchase Infoseek California Common Stock
shall be assumed by Holding Company. Prior to the Effective Time, Infoseek
California shall take all action necessary to effect the transactions
anticipated by this Section 2.7(b) under all Infoseek California Option
agreements and any other outstanding rights to purchase Infoseek California
Common Stock and any other plan or arrangement of Infoseek California.
(c) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
A-2-2
<PAGE>
(d) Cancellation of Holding Company Common Stock. At the Effective Time,
each share of the Holding Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to
exist, and such shares shall be returned to the status of authorized but
unissued shares.
2.7 Exchange of Certificates.
(a) Exchange Agent. Boston Equiserve L.P. shall serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Holding Company to Provide Common Stock. Promptly after the Effective
Time, Holding Company shall make available to the Exchange Agent for
exchange in accordance with this Article II the Common Stock issuable
pursuant to Section 2.6 in exchange for all of the outstanding shares of
Infoseek California Common Stock.
(c) Exchange Procedures. After the Effective Time, each holder of an
outstanding certificate representing shares of Infoseek California Common
Stock shall receive a letter of transmittal from the Exchange Agent
describing the exchange procedures and may, at such shareholder's option,
surrender the same for cancellation to the Exchange Agent, and each such
holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of Holding Company Common
Stock into which the surrendered shares were converted as herein provided.
Unless and until so surrendered, each outstanding certificate theretofore
representing shares of Infoseek California Common Stock shall be deemed for
all purposes to represent the number of shares of Holding Company Common
Stock into which such shares of Infoseek California Common Stock were
converted in the Merger.
The registered owner on the books and records of Holding Company or the
Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to Holding Company or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the
shares of Common Stock of Holding Company represented by such outstanding
certificate as provided above.
Each certificate representing Holding Company Common Stock so issued in the
Merger shall bear the same legends, if any, with respect to the restrictions
on transferability as the certificates of Infoseek California Common Stock so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of Holding Company in compliance with applicable laws, or
other such additional legends as agreed upon by the holder and Holding
Company.
If any certificate for shares of Holding Company Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, that such transfer otherwise be proper and comply
with applicable securities laws and that the person requesting such transfer
pay to Holding Company or the Exchange Agent any transfer or other taxes
payable by reason of the issuance of such new certificate in a name other than
that of the registered holder of the certificate surrendered or establish to
the satisfaction of Holding Company that such tax has been paid or is not
payable.
2.8 Dissenting Shares.
(a) Notwithstanding any provision of this Merger Agreement to the
contrary, the shares of any holder of Infoseek California who has demanded
and perfected appraisal rights for such shares in accordance with
California law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive Holding Company Common Stock
pursuant to Section 2.6, but the holder thereof shall only be entitled to
such rights as are granted by the California General Corporation Law.
A-2-3
<PAGE>
(b) Notwithstanding the foregoing, if any holder of shares of Infoseek
California Common Stock who demands appraisal of such shares under the
California General Corporation Law shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to appraisal, then, as
of the later of the Effective Time or the occurrence of such event, such
holder's shares shall automatically be converted into and represent only
the right to receive Holding Company Common Stock in accordance with
Section 2.6 hereof, without interest thereon, upon surrender of the
certificate representing such shares of Infoseek California Common Stock in
the manner provided in Section 2.6.
2.9 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Holding Company with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of Infoseek California, Holding Company and Merger Sub, the
officers and directors of Infoseek California, Holding Company and Merger Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
2.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code and/or,
when taken together with the Company Merger (as defined in the
Reorganization Agreement), will be treated as a transfer of property by the
holders of Infoseek California Common Stock to Holding Company governed by
Section 351 of the Code. The parties hereto adopt this Merger Agreement as
a "plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger will be
accounted for under the "purchase" method of accounting in accordance with
generally accepted accounting principles.
ARTICLE III
MISCELLANEOUS
3.1 Termination by Mutual Agreement. Notwithstanding the approval of this
Merger Agreement by the shareholders of Merger Sub and Infoseek California,
this Merger Agreement may be terminated at any time prior to the Effective
Time by mutual agreement of the Board of Directors of Merger Sub and Infoseek
California, subject to the terms and conditions of the Reorganization
Agreement.
3.2 Termination of Agreement and Plan of Reorganization. Notwithstanding the
approval of this Merger Agreement by the shareholders of Merger Sub and
Infoseek California, this Merger Agreement shall terminate forthwith in the
event that the Reorganization Agreement shall be terminated as therein
provided.
3.3 Amendment. This Merger Agreement may be amended by the parties hereto at
any time before or after approval hereof by the shareholders of either Merger
Sub or Infoseek California, but, after any such approval, no amendment will be
made which, under the applicable provisions of California law, requires the
further approval of shareholders without obtaining such further approval. This
Merger Agreement shall not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
3.4 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
3.5 Governing Law. This Merger Agreement shall be governed in all respects,
including validity, interpretation and effect by the laws of the State of
California.
A-2-4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Merger Agreement.
INFOSEEK CORPORATION,
a California corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Andrew E. Newton
Title: Secretary
INFOSEEK CORPORATION,
a Delaware corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Andrew E. Newton
Title: Secretary
ICO ACQUISITION CORP.
a California corporation
By:
----------------------------------
Name: Harry M. Motro
Title: President
By:
----------------------------------
Name: Leslie E. Wright
Title: Secretary
A-2-5
<PAGE>
INFOSEEK CORPORATION
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
The undersigned, Harry M. Motro and Andrew E. Newton, do hereby certify
that:
1. They are the President and Secretary, respectively, of Infoseek
Corporation, a California corporation (the "Company").
2. The principal terms of the Agreement of Merger in the form attached to
this Certificate (the "Merger Agreement") providing for the merger (the
"Merger") of ICO Acquisition Corp., a California corporation, with and into
the Company and the conversion of each outstanding share of Company Common
Stock into the right to receive one share of common stock of Infoseek
Corporation, a Delaware corporation, was duly approved by the Board of
Directors and shareholders of the Company.
3. The authorized capital stock of the Company consists of 60,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. As of the
date hereof, shares of Company Common Stock were issued and
outstanding, all of which were entitled to vote upon the Merger. No shares
of Preferred Stock were issued and outstanding and entitled to vote on the
Merger. A vote of more than 50% of the outstanding shares of Company Common
Stock was required to approve the Merger.
4. The principal terms of the Merger Agreement were approved by the
consent of the holders of a majority of the outstanding shares of Company
Common Stock, which vote exceeded the vote required.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1998
Signature:
------------------------------
Name: Harry M. Motro
Title: President
Signature:
------------------------------
Name: Andrew E. Newton
Title: Secretary
A-2-6
<PAGE>
ICO ACQUISITION CORP.
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
The undersigned, Harry M. Motro and Leslie E. Wright, do hereby certify
that:
1. They are the President and Secretary, respectively, of ICO Acquisition
Corp., a California corporation ("ICO").
2. The principal terms of the Agreement of Merger in the form attached to
this Certificate (the "Merger Agreement") providing for the merger (the
"Merger") of ICO with and into Infoseek Corporation, a California
corporation, was duly approved by the Board of Directors and by the sole
shareholder of ICO.
3. The authorized capital stock of ICO consists of 1,000 shares of Common
Stock. As of the date hereof, there were 1,000 shares of ICO Common Stock
issued and outstanding, all of which were entitled to vote upon the Merger.
A vote of more than 50% of the outstanding shares of ICO Common Stock was
required to approve the Merger.
4. The principal terms of the Merger Agreement were approved by the
consent of ICO's sole shareholder, Infoseek Corporation, a Delaware
corporation, which holds 100% of ICO's issued and outstanding shares, which
vote exceeded the vote required.
5. The required vote of the shareholders of Infoseek Corporation, a
Delaware corporation, and the parent of ICO Acquisition Corp., to enter
into the Merger was obtained.
6. The cancellation of all of the outstanding shares of Common Stock of
Infoseek Corporation, a Delaware corporation, at the Effective Time of the
Merger, was approved by 100% of the outstanding shares of Infoseek
Corporation, a Delaware corporation.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: , 1998.
Signature:
------------------------------
Name: Harry M. Motro
Title: President
Signature:
------------------------------
Name: Leslie E. Wright
Title: Secretary
A-2-7
<PAGE>
ANNEX A-3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STARWAVE ACQUISITION CORP.,
A WASHINGTON CORPORATION,
STARWAVE CORPORATION,
A WASHINGTON CORPORATION
AND
INFOSEEK CORPORATION,
A DELAWARE CORPORATION
This AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made and
entered into as of , 1998 by and among Infoseek Corporation, a
Delaware corporation ("Infoseek Delaware"), Starwave Acquisition Corp., a
Washington corporation and wholly-owned subsidiary of Infoseek Delaware
("Merger Sub"), and Starwave Corporation, a Washington corporation ("Starwave"
and, together with Merger Sub, the "Constituent Corporations").
RECITALS
A. Infoseek Delaware, a Delaware corporation, Infoseek Corporation, a
California corporation, Starwave and Disney Enterprises, Inc., a majority
shareholder of Starwave, have entered into that certain Agreement and Plan of
Reorganization dated as of June 18, 1998 (the "Reorganization Agreement"),
providing, among other things, for the execution and filing of this Merger
Agreement and the merger of Merger Sub with and into Starwave upon the terms
set forth in this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective shareholders that Merger Sub be merged with
and into Starwave and have approved this Merger Agreement and the Merger.
C. The Reorganization Agreement, this Merger Agreement and the Merger have
been approved by the shareholders of Starwave and by the sole shareholder of
Merger Sub.
NOW THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, each of the Constituent Corporations hereby agrees that Merger
Sub shall be merged with and into Starwave in accordance with the provisions
of the laws of the State of Washington, upon the terms and subject to the
conditions set forth as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 Starwave. Starwave is a corporation duly organized and existing under
the laws of the State of Washington and has an authorized capital of two
hundred fifty million (250,000,000) shares of Class A Common Stock and eighty
million (80,000,000) shares of Class B Common Stock. As of the date of this
Merger Agreement, shares of Class A Common Stock and shares
of Class B Common Stock are issued and outstanding. The Class A Common Stock
and the Class B Common Stock are referred to herein collectively as the
"Starwave Capital Stock."
1.2 Merger Sub. Merger Sub is a corporation duly organized and existing
under the laws of the State of Washington and has an authorized capital of
1,000 shares, all of which are designated "Common Stock," no par value. As of
the date of this Agreement, 1,000 shares of Common Stock are outstanding, all
of which are held by Infoseek Delaware.
A-3-1
<PAGE>
ARTICLE II
THE MERGER
2.1 Surviving Corporation. At the Effective Time (as defined in Section 2.2)
and subject to and upon the terms and conditions of this Agreement, the
Reorganization Agreement and the applicable provisions of Washington Law,
Merger Sub shall be merged with and into Starwave, the separate corporate
existence of Merger Sub shall cease and Starwave shall continue as the
surviving corporation and as a wholly-owned subsidiary of Infoseek Delaware.
The Articles of Incorporation of Merger Sub as in effect at the Effective Time
shall from and after the Effective Time be and continue to be the Articles of
Incorporation of the Surviving Corporation, and the Surviving Corporation
shall amend its Articles of Incorporation accordingly. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation" and shall be governed by the laws of the State of
Washington.
2.2 Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(a) This Merger Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in accordance
with the requirements of the Washington Business Corporation Act;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Merger Agreement shall have been satisfied or duly waived
by the party entitled to satisfaction thereof; and
(c) This Merger Agreement and the Articles of Merger in substantially the
form attached hereto as Exhibit A-1 shall have been filed with the
Secretary of State of the State of Washington.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time."
2.3 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Capital Stock of Starwave; Exchange Ratio. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub, Starwave, the holders of any shares of Starwave Capital Stock or any
other person, each share of Starwave Capital Stock issued and outstanding
immediately prior to the Effective Time will be canceled and extinguished
and be converted automatically into the right to receive, upon surrender of
the certificate representing such shares of Starwave Capital Stock in the
manner provided in Section 2.4(c) the number of shares of Infoseek Delaware
Common Stock determined by dividing (i) 28,138,000 by (ii) the sum of: (x)
the aggregate number of shares of Starwave Capital Stock outstanding
immediately prior to the Effective Time and (y) the aggregate number of
shares of Starwave Capital Stock subject to options, warrants or other
rights to acquire or receive Starwave Capital Stock ("Starwave Options")
outstanding as of the Effective Time (the "Exchange Ratio").
(b) Starwave Stock Options. Each outstanding Starwave Option shall be
assumed by Infoseek Delaware in such manner that it is converted into an
option to purchase shares of Infoseek Delaware Common Stock as provided
herein. Following the Effective Time, each such Starwave Option shall be
exercisable upon the same terms and conditions as then are applicable to
such Starwave Option, except that (i) each such Starwave Option shall be
exercisable for that number of shares of Infoseek Delaware Common Stock as
are equal to the product obtained by multiplying the number of shares of
Starwave Capital Stock that were issuable upon exercise in full of such
assumed Starwave Option immediately prior to the Effective Time by the
Exchange Ratio, rounded down to the nearest whole number of shares of
Infoseek Delaware Common Stock, and (ii) the per share exercise price for
the shares of Infoseek Delaware Common Stock issuable upon exercise of the
assumed Starwave Option shall be equal to the quotient obtained by dividing
the exercise price per share of Starwave Capital Stock at which each such
Starwave Option was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded up to the nearest whole cent. Prior to the
Effective Time, Starwave shall take all action necessary to effect the
transactions anticipated by this Section 2.3(b) under all Starwave Option
agreements.
A-3-2
<PAGE>
(d) Capital Stock of Merger Sub. Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(e) Fractional Shares. No fractional shares of Infoseek Delaware Common
Stock shall be issued pursuant to this Merger Agreement. In lieu of the
issuance of any fractional share of Infoseek Delaware Common Stock, cash
adjustments will be paid to holders in respect of any fractional share of
Infoseek Delaware Common Stock that would otherwise be issuable, and the
amount of such cash adjustment shall be equal to the product of such
fractional amount and the average closing price of the common stock of
Infoseek Corporation, a California corporation and the parent of Infoseek
Delaware, for the ten (10) days ending on the trading day prior to the
Effective Time.
2.4 Exchange of Certificates.
(a) Exchange Agent. Boston Equiserve L.P. shall serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Infoseek Delaware to Provide Common Stock. Promptly after the
Effective Time, Infoseek Delaware shall make available to the Exchange
Agent for exchange in accordance with this Article II the Common Stock
issuable pursuant to Section 2.3 in exchange for all of the outstanding
shares of Starwave Capital Stock.
(c) Exchange Procedures. After the Effective Time, each holder of an
outstanding certificate representing shares of Starwave Capital Stock shall
receive a letter of transmittal from the Exchange Agent describing the
exchange procedures and shall surrender the same for cancellation to the
Exchange Agent, and each such holder shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
shares of Infoseek Delaware Common Stock into which the surrendered shares
were converted as herein provided. Unless and until so surrendered, each
outstanding certificate theretofore representing shares of Starwave Capital
Stock shall be deemed for all purposes to represent the number of shares of
Infoseek Delaware Common Stock into which such shares of Starwave Capital
Stock were converted in the Merger.
The registered owner on the books and records of Infoseek Delaware or the
Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to Infoseek Delaware or the
Exchange Agent, have and be entitled to exercise any voting and other rights
with respect to and to receive dividends and other distributions upon the
shares of Common Stock of Infoseek Delaware represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock of Infoseek Delaware so issued in
the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Starwave so converted
and given in exchange therefor, unless otherwise determined by the Board of
Directors of Infoseek Delaware in compliance with applicable laws, or other
such additional legends as agreed upon by the holder and Infoseek Delaware.
If any certificate for shares of Infoseek Delaware Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, that such transfer otherwise be proper and comply
with applicable securities laws and that the person requesting such transfer
pay to Infoseek Delaware or the Exchange Agent any transfer or other taxes
payable by reason of the issuance of such new certificate in a name other than
that of the registered holder of the certificate surrendered or establish to
the satisfaction of Infoseek Delaware that such tax has been paid or is not
payable.
2.5 Rights, Privileges, Etc. At the Effective Time, the Surviving
Corporation, without further act, deed or other transfer, shall retain or
succeed to, as the case may be, and possess and be vested with all the rights,
A-3-3
<PAGE>
privileges, immunities, powers, franchises and authority, of a public as well
as of a private nature, of the Constituent Corporations; all property of every
description and every interest therein and all debts and other obligations of
or belonging to or due to the Constituent Corporations on whatever account
shall thereafter be taken and deemed to be held by or transferred to, as the
case may be, or vested in the Surviving Corporation without further act or
deed; title to any real estate, or any interest therein, vested in the
Constituent Corporations shall not revert or in any way be impaired by reason
of the Merger; and all of the rights of creditors of the Constituent
Corporations shall be preserved unimpaired, and all liens upon the property of
the Constituent Corporations shall be preserved unimpaired, and such debts,
liabilities, obligations and duties of the Constituent Corporations shall
thenceforth remain with or attach to, as the case may be, the Surviving
Corporation and may be enforced against it to the same extent as if all of
such debts, liabilities, obligations and duties had been incurred or
contracted by it.
2.6 Articles of Incorporation and Bylaws. The Articles of Incorporation of
Merger Sub as in effect on the Effective Time shall, from and after the
Effective Time, be and continue to be the Articles of Incorporation of the
Surviving Corporation without change or amendment until thereafter amended in
accordance with the provisions thereof and applicable laws. The Bylaws of
Merger Sub as in effect on the Effective Time shall, from and after the
Effective Time, be and continue to be the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof, the Articles of Incorporation of the Surviving Corporation
and applicable laws.
2.7 Directors and Officers. The directors of Merger Sub shall be the
directors of the Surviving Corporation at the Effective Time and such
directors shall serve until they are removed in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation. The officers of
Starwave shall be the officers of the Surviving Corporation at the Effective
Time and such officers shall serve until they are removed or replaced in
accordance with the Bylaws of the Surviving Corporation.
2.8 Further Action. From time to time, as and when requested by the
Surviving Corporation, or by its successors or assigns, any party hereto shall
execute and deliver or cause to be executed and delivered all such deeds and
other instruments, and shall take or cause to be taken all such further or
other actions, as the Surviving Corporation, or its successors or assigns, may
deem necessary or desirable in order to vest in and confirm to the Surviving
Corporation, and its successors or assigns, title to and possession of all the
property, rights, privileges, powers and franchises referred to herein and
otherwise to carry out the intent and purposes of this Merger Agreement.
2.9 Dissenting Shares. Notwithstanding anything in this Merger Agreement to
the contrary, shares of capital stock of the Constituent Corporations which
are issued and outstanding immediately prior to the Effective Time and which
are held by shareholders who have not voted such shares in favor of the Merger
and shall have complied with the applicable provisions of Revised Code of
Washington 23B.13.010 et seq. shall not be converted into or be exchangeable
for the right to receive the consideration provided in Section 2.3 of this
Merger Agreement, unless and until such holder shall have failed to perfect or
shall have effectively withdrawn or lost his or her rights as a dissenting
shareholder under Revised Code of Washington 23B.13.010 et seq. If such holder
shall have so failed to perfect or shall have effectively withdrawn or lost
such rights, his or her shares of Starwave Capital Stock shall thereupon be
deemed to have been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the merger consideration provided herein
without interest thereon.
2.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code and/or,
when taken together with the Parent Merger (as defined in the
Reorganization Agreement), will be treated as a transfer of property by the
holders of Starwave common stock to Infoseek Delaware governed by Section
351 of the Code. The parties hereto adopt this Merger Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a)
of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger will be
accounted for under the "purchase" method of accounting in accordance with
generally accepted accounting principles.
A-3-4
<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Termination by Mutual Agreement. Notwithstanding the approval of this
Merger Agreement by the shareholders of Merger Sub and Starwave, this Merger
Agreement may be terminated at any time prior to the Effective Time by mutual
agreement of the Board of Directors of Merger Sub and Starwave.
3.2 Termination of Agreement and Plan of Reorganization. Notwithstanding the
approval of this Merger Agreement by the shareholders of Merger Sub and
Starwave, this Merger Agreement shall terminate forthwith in the event that
the Reorganization Agreement shall be terminated as therein provided.
3.3 Amendment. This Merger Agreement may be amended by the parties hereto at
any time before or after approval hereof by the shareholders of either Merger
Sub or Starwave, but, after any such approval, no amendment will be made
which, under the applicable provisions of Washington law, requires the further
approval of shareholders without obtaining such further approval. This Merger
Agreement shall not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
3.4 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one agreement.
3.5 Governing Law. This Merger Agreement shall be governed in all respects,
including validity, interpretation and effect by the laws of the State of
Washington.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolutions of the Board of Directors of each of the Constituent
Corporations and Infoseek Delaware, is hereby executed on behalf of each of
the Constituent Corporations and Infoseek Delaware by their respective
officers thereunto duly authorized.
INFOSEEK CORPORATION, a Delaware
corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
STARWAVE ACQUISITION CORP.,
a Washington corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
STARWAVE CORPORATION, a Washington
corporation
By:
--------------------------------------
Its:
--------------------------------------
Attest:
By:
---------------------------------
A-3-5
<PAGE>
EXHIBIT A-1
ARTICLES OF MERGER
STARWAVE ACQUISITION CORP.,
A WASHINGTON CORPORATION
WITH AND INTO
STARWAVE CORPORATION,
A WASHINGTON CORPORATION
IN ACCORDANCE WITH RCW 23B.11.050
The undersigned, Harry M. Motro, being the President of Starwave Acquisition
Corp., a Washington corporation, and Michael B. Slade, being the Chief
Executive Officer of Starwave Corporation, a Washington corporation, DO HEREBY
CERTIFY as follows:
(1) The constituent corporations in the merger (the "Merger") are
Starwave Acquisition Corp., a Washington corporation, and Starwave
Corporation, a Washington corporation; Starwave Acquisition Corp. shall be
merged with and into Starwave Corporation. The surviving corporation shall
be Starwave Corporation and its name shall remain Starwave Corporation.
(2) An Agreement and Plan of Merger dated as of , 1998 (the
"Merger Agreement") has been approved, adopted, and executed by each of the
constituent corporations in accordance with RCW 23B.11.010. The Merger
Agreement is attached hereto as Exhibit A and incorporated herein by
reference.
(3) The Merger was duly approved by the shareholders of each of the
constituent corporations in accordance with Section 23B.011.030 of the
Washington Business Corporation Act.
(4) The Merger shall become effective on , 1998 at :
.m.
IN WITNESS WHEREOF, the parties hereto have caused these Articles of Merger
to be duly executed as of this day of , 1998.
STARWAVE ACQUISITION CORP.,
a Washington corporation
By:
----------------------------------
Harry M. Motro, President
STARWAVE CORPORATION,
a Washington corporation
By:
----------------------------------
Michael B. Slade, Chief Executive
Officer
A-3-6
<PAGE>
ANNEX B-1
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
(S)1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph
(1) (without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a short-
form merger; provided, however, that subparagraph (A) rather than subparagraph
(B) of this paragraph applies in any case where the approval required by
Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S)1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the
B-1-1
<PAGE>
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status
as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
(S)1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
(S)1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
(S)1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
B-1-2
<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S)1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
(S)1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S)1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
(S)1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
B-1-3
<PAGE>
(S)1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S)1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation.
(S)1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
(S)1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization of short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
B-1-4
<PAGE>
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
B-1-5
<PAGE>
ANNEX B-2
WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 RIGHT TO DISSENT. (1) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially reduces
the number of shares owned by the shareholder to a fraction of a share if
the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B-2-1
<PAGE>
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.1.200 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholder's meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT. If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
must (a) deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effected, and (b) not vote such shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
B-2-2
<PAGE>
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance
with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of
a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 SHARE RESTRICTIONS. (1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
23B.13.250 PAYMENT. (1) Except as provided in RCW 23B.13.270, within thirty
days of the later of the effective date of the proposed corporate action, or
the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
B-2-3
<PAGE>
23B.13.270 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (1) A dissenter may notify the corporation in writing of the
dissenter's own estimate of the fair value of the dissenter's shares and
amount of interest due, and demand payment of the dissenter's estimate, less
any payment under RCW 23B.13.250, or reject the corporation's offer under RCW
23B.13.270 and demand payment of the dissenter's estimate of the fair value of
the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
23B.13.300 COURT ACTION. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and
B-2-4
<PAGE>
recommend decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except
that the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
B-2-5
<PAGE>
ANNEX C
Corporate and
Institutional
Client Group
101 California Street,
Suite 1200
San Francisco,
California 94111
415 676 3200
FAX 415 676 3299
[LOGO OF MERRIL LYNCH APPEARS HERE]
June 18, 1998
Board of Directors
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089-1134
Members of the Board of Directors:
We understand that Infoseek Corporation, a California corporation (the
"Company"), Infoseek Corporation, a Delaware corporation ("Holding"), Starwave
Corporation, a Washington corporation ("Starwave") and Disney Enterprises,
Inc., a Delaware corporation ("DEI"), a wholly-owned subsidiary of The Walt
Disney Company, a Delaware corporation (the "Purchaser") have entered into an
Agreement and Plan of Reorganization, dated as of June 18, 1998 (the
"Reorganization Agreement"), which provides, among other things, for (i) the
merger of a wholly-owned subsidiary of Holding with and into the Company and
(ii) the merger of another wholly-owned subsidiary of Holding with and into
Starwave (collectively, the "Mergers") such that the Company and Starwave will
become wholly-owned subsidiaries of Holding. Pursuant to the Mergers (i) each
outstanding share of common stock, no par value, of the Company ("Company
Common Stock"), other than shares held by the Company or Starwave, shall be
converted into one share of common stock, par value $.01 per share, of Holding
("Holding Common Stock"), and (ii) all outstanding shares of common stock of
Starwave (the "Starwave Common Stock") shall be converted into shares of
Holdings Common Stock based upon an exchange ratio equal to 28,138,000 divided
by the aggregate number of shares of Starwave capital stock outstanding and
issuable upon exercise of options, warrants or other rights to acquire
Starwave capital stock as of the effective time of the merger of Starwave. In
addition, in connection with the execution of the Reorganization Agreement,
the Purchaser and Holding will enter into a Common Stock and Warrant Purchase
Agreement (the "Purchase Agreement") pursuant to which Purchaser will acquire
2,642,000 shares of Holding Common Stock and a warrant exercisable for up to
15,720,000 shares of Holding Common Stock upon the terms and conditions set
forth in the Common Stock Warrant (the "Warrant") in return for approximately
$70 million in cash and the Purchaser Promissory Note (the "Notes") in an
aggregate principal amount of $139 million. In connection with the Mergers and
the purchase of the Holdings Common Stock and Warrant, Holdings, the Purchaser
and certain affiliates thereof will enter into the Governance Agreement (the
"Governance Agreement") and the Company and DEI will enter into the License
Agreement (the "License Agreement") granting the Company certain rights with
respect to internet portal services (the "New Portal Service"). The
consummation of the Mergers and the transactions contemplated by the Purchase
Agreement, the License Agreement and the Governance Agreement shall be
referred to collectively as the "Transaction."
You have asked us whether, in our opinion, the Transaction is fair from a
financial point of view to the Company and the shareholders of the Company.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
C-1
<PAGE>
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company and Starwave furnished to us by the Company and Purchaser,
respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and Purchaser concerning the matters
described in clauses 1 and 2 above, as well as the Company's and Starwave's
respective businesses and prospects before and after giving effect to the
Transaction;
(4) Reviewed the market prices and valuation multiples for the Company
Common Stock and compared it with those of certain publicly traded
companies that we deemed relevant;
(5) Reviewed the results of operations of the Company and Starwave and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and Purchaser and their legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction;
(9) Reviewed drafts of the Reorganization Agreement, the Purchase
Agreement, the Warrant, the Note, the License Agreement and the Governance
Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or Starwave or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or Starwave, and have participated in discussions with a limited number of
members of senior management of Starwave. With respect to the financial
forecast information furnished to or discussed with us by the Company or
Purchaser, including financial forecast information developed by the Company
taking into account the Transaction, including the New Portal Service, we have
not assumed any responsibility for independently verifying such financial
forecast information and have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
Company's or Purchaser's management as to the expected future financial
performance of the Company or Starwave, as the case may be. We have assumed
that the Mergers will qualify as tax-free reorganization and/or a tax-free
exchange for U.S. federal income tax purposes and that immediately following
the closing of the Mergers, Holding shall be entitled to properly report, in
accordance with GAAP, the activities of itself, its subsidiaries and the AIV
and EIV joint ventures under the Representative Agreements as revenue in
Holding's publicly disclosed consolidated financial statements. We have also
assumed that the final forms of each of the Reorganization Agreement, the
Purchase Agreement, the Warrant, the Note, the Governance Agreement and the
License Agreement will be substantially similar to the last drafts of such
agreements reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. We have assumed that in the course of obtaining
the necessary regulatory or other consents or approvals (contractual or
otherwise) for the Transaction, including the Mergers, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits
of the Transaction, including the Mergers.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or
any part of the Company.
C-2
<PAGE>
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Company and Purchaser and may
continue to do so and have received, and may receive, fees for the rendering
of such services. We have recently underwritten an offering of the Company's
Common Stock. In addition, in the ordinary course of our business, we actively
make a market for and may actively trade the Company Common Stock, for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in the evaluation of the Transaction, and our opinion is not intended
to be, and does not constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote in connection with any portion
of the Transaction.
We are not expressing any opinion herein as to the prices at which the
Company Common Stock or Holding Common Stock will trade following the
announcement or consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Transaction is fair to the Company and the
shareholders of the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
/s/ Merrill Lynch, Pierce, Fenner & Smith
Incorporated
C-3
<PAGE>
ANNEX D-1
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
INFOSEEK CORPORATION
Infoseek Corporation, a corporation organized and existing under the laws of
the State of Delaware, does hereby certify:
1. The name of the corporation is Infoseek Corporation. Infoseek
Corporation was originally incorporated under the same name, and the
original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on June 12, 1998.
2. Pursuant to Sections 242 and 228 of the General Corporation Law of the
State of Delaware, the amendments and restatement herein set forth have
been duly approved by the Board of Directors and stockholders of Infoseek
Corporation.
3. This Amended and Restated Certificate of Incorporation restates and
integrates and amends the provisions of the Certificate of Incorporation of
this corporation and has been duly adopted in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as follows:
FIRST
The name of the Corporation is Infoseek Corporation (the "Corporation").
SECOND
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
FOURTH
(a) The total number of shares which the Corporation shall have authority to
issue is five hundred twenty five million (525,000,000) shares of capital
stock.
(b) Of such authorized shares, five hundred million (500,000,000) shares
shall be designated "Common Stock" and have a par value of $.001.
(c) Of such authorized shares, twenty five million (25,000,000) shares shall
be designated "Preferred Stock" and have a par value of $.001. The Preferred
Stock may be issued from time to time in one or more series. The Board of
Directors of the Corporation is authorized to fix the voting power, full or
limited or no
D-1-1
<PAGE>
voting power, and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
series of Preferred Stock, and within the limitations or restrictions stated
in any resolution or resolutions of the Board of Directors fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of any such series then outstanding) the number of shares of
any such series, to determine the designation of any series, and to fix the
number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series subject to the requirements of
applicable law.
FIFTH
The Corporation is to have perpetual existence.
SIXTH
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
SEVENTH
The number of directors which constitute the whole Board of Directors of the
Corporation shall be designated in the Bylaws of the Corporation.
EIGHTH
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
Bylaws of the Corporation.
NINTH
(a) To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.
(b) The Corporation may indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director, officer or
employee of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee at the
request of the Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article Ninth, nor the adoption
of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article Ninth, shall eliminate or reduce the effect of
this Article Ninth, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article Ninth, would
accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
TENTH
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
D-1-2
<PAGE>
ELEVENTH
The stockholders of the Corporation may not take action by written consent
in lieu of a meeting but must take any actions at a duly called annual or
special meeting and the power of stockholders to consent in writing without a
meeting is specifically denied.
TWELFTH
(a) Certain Definitions. For purposes of this Article Twelfth, the following
shall apply:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); provided, however, that for purposes of this Certificate
of Incorporation, the Purchaser and its Affiliates, on the one hand, and the
Corporation and its Affiliates, on the other, shall not be deemed to be
"Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the
Exchange Act.
"Change in Control of the Corporation" shall mean any of the following: (i)
a merger, consolidation or other business combination or transaction to which
the Corporation is a party if the stockholders of the Corporation immediately
prior to the effective date of such merger, consolidation or other business
combination or transaction, as a result of such share ownership, have
Beneficial Ownership of voting securities representing less than 50% of the
Total Current Voting Power of the surviving corporation following such merger,
consolidation or other business combination or transaction; (ii) an
acquisition by any person, entity or 13D Group of direct or indirect
Beneficial Ownership of Voting Stock of the Corporation representing 25% or
more of the Total Current Voting Power of the Corporation; (iii) a sale of all
or substantially all the assets of the Corporation; or (iv) a liquidation or
dissolution of the Corporation.
"Closing" shall mean the consummation of the transactions contemplated by
the Merger Agreement.
"Corporation Competitor" shall mean Yahoo! Inc., Lycos, Inc., Excite, Inc.,
Netscape Communications Corporation, Microsoft Corporation, CNET, America
Online, Inc. or any of their respective Affiliates, or any successor thereto.
"Corporation Controlled Company" shall mean a company of which the
Corporation owns not less than 80% of the outstanding voting power entitled to
vote in the election of directors of such company.
"Disinterested Board Approval" shall mean the affirmative vote or written
consent of a majority of the Disinterested Directors duly obtained in
accordance with applicable provisions of the Corporation's bylaws and
applicable law.
"Disinterested Directors" means, during the Standstill Period, a member of
the Board of Directors of the Corporation who is not a Purchaser Director and,
after the Standstill Period, a member of the Board of Directors of the
Corporation who is an Independent Director.
"Disinterested Stockholder" shall mean any stockholder of the Corporation
who is not the Purchaser or an Affiliate of the Purchaser or a member of a 13D
Group in which the Purchaser or an Affiliate of the Purchaser is also a
member.
"Disinterested Stockholder Approval" shall mean the affirmative vote (or, if
written consents are permitted, the written consent) of greater than 50% of
the Total Current Voting Power of all Disinterested Stockholders duly obtained
in accordance with the applicable provisions of this Certificate of
Incorporation, the Corporation's bylaws and applicable law.
D-1-3
<PAGE>
"Event Requiring Supermajority Board Approval" shall mean (i) any amendment
of the Corporation's bylaws or this Certificate of Incorporation, (ii) a
Change in Control of the Corporation or any subsidiary of the Corporation,
(iii) a sale of more than 15% of the total assets of the Corporation or any
subsidiary of the Corporation, (iv) issuances of securities of the Corporation
representing 15% or more of the Total Current Voting Power, (v) the sale or
issuance of any securities of the Corporation for consideration of $200
million or more, (vi) transactions involving expenditures of cash by the
Corporation or any subsidiary or incurrence of indebtedness by the Corporation
or any subsidiary, in either case, in excess of $200 million, or (vii)
appointment of a new Chief Executive Officer of the Corporation.
"Governance Agreement" shall mean that certain Governance Agreement among
the Corporation and the Purchaser dated June 18, 1998.
"Independent Director" shall mean a director of the Corporation (i) who is
not and has never been an officer or employee of the Corporation, any
Affiliate of the Corporation or of an entity that derived 10% or more of its
revenues in its most recent fiscal year from transactions involving the
Corporation or any Affiliate of the Corporation, (ii) who is not and has never
been an officer or employee and is not currently a director of Purchaser or
any Affiliate of the Purchaser or of an entity that derived more than 10% of
its revenues in its most recent fiscal year from transactions involving
Purchaser or any Affiliate of the Purchaser and (iii) who has no compensation,
consulting or contracting arrangement with the Corporation, Purchaser or their
respective Affiliates or any other entity such that a reasonable person would
regard such director as likely to be unduly influenced by management of the
Corporation or Purchaser, respectively, and shall, by definition, not include
any Purchaser Director.
"License Agreement" shall mean that certain License Agreement between Disney
Enterprises, Inc., a Delaware corporation, and Infoseek Corporation, a
California corporation, dated as of June 18, 1998.
"Merger Agreements" shall mean the various agreements between the
Corporation, the Purchaser and their respective Affiliates dated as of June
18, 1998.
"Non-Voting Convertible Securities" shall mean any securities of the
Corporation which are convertible into, exchangeable for or otherwise
exercisable to acquire Voting Stock of the Corporation, including convertible
securities, warrants, rights or options to purchase Voting Stock of the
Corporation.
"Purchaser" shall mean, collectively, The Walt Disney Company, a Delaware
corporation, and Disney Enterprises, Inc., a Delaware corporation.
"Purchaser Director" shall mean a member of the Board of Directors of the
Corporation who (i) is designated for such position by Purchaser in accordance
with Section 3.2 of the Governance Agreement, or (ii) is or has been an
officer or employee of Purchaser or any Affiliate of the Purchaser or of an
entity that derived more than 10% of its revenues in its most recent fiscal
year from transactions involving Purchaser or any Affiliate of the Purchaser,
or (iii) has a compensation, consulting or contracting arrangement with
Purchaser or any of its Affiliates or any other entity such that a reasonable
person would regard such director as likely to be unduly influenced by
management of Purchaser.
"Purchaser Restricted Actions" shall mean (a) Purchaser's solicitation of
proxies with respect to any Voting Stock or becoming a "participant" in any
"election contest" (as such terms are used in Rule 14(a)-11 of Regulation 14A
promulgated under the Exchange Act) relating to the election of directors of
the Corporation; provided that Purchaser shall not be deemed to be such
"participant" merely by reason of the membership of the Purchaser Directors on
the Corporation's Board of Directors pursuant to the terms of the Governance
Agreement; (b) Purchaser's deposit of any shares of Voting Stock in a voting
trust or, except as otherwise provided or contemplated under the Governance
Agreement (including Section 2.4 thereof), Purchaser's
D-1-4
<PAGE>
subjecting of any Voting Stock to any arrangement or agreement with any third
party with respect to the voting of such Voting Stock; or (c) Purchaser's
joining in a 13D Group, partnership, limited partnership, syndicate or other
group, or otherwise acting in concert with any third person for the purpose of
acquiring, holding, voting or disposing of Voting Stock or Non-Voting
Convertible Securities of the Corporation.
"Purchaser Tender Offer" shall mean a bona fide public tender offer subject
to the provisions of Regulation 14D when first commenced within the meaning of
Rule 14d-2(a) of the rules and regulations under the Exchange Act, by the
Purchaser or any Affiliate of the Purchaser (or any 13D Group that includes
Purchaser or any Affiliate of the Purchaser) to purchase or exchange for cash
or other consideration any Voting Stock and which consists of an offer to
acquire 100% of the Total Current Voting Power of the Corporation then in
effect (other than Shares owned by the Purchaser or any Affiliate of the
Purchaser) and is conditioned (which condition may not be waived) on a
majority of the shares of Voting Stock held by Disinterested Stockholders
being tendered and not withdrawn with respect to such offer.
"Shares" shall mean any shares of Voting Stock that are Beneficially Owned
by the Purchaser, including any share of Voting Stock acquired upon exercise
of any Warrants, but specifically excluding any shares of Corporation common
stock subject to the Warrants or any other Non-Voting Convertible Securities
that have not yet been exercised, converted or exchanged for Voting Stock.
"Standstill Period" shall mean the period beginning on June 18, 1998 and
ending on the occurrence of a Standstill Termination Event.
"Standstill Reinstatement Event" shall mean the occurrence of either of the
following prior to the third anniversary of the Closing. (i) withdrawal or
termination of a Third Party Tender Offer at any time during which a Purchaser
Tender Offer is not then pending or (ii) withdrawal, termination, or material
alteration of a Purchaser Tender Offer other than an increase in price.
"Standstill Termination Event" shall mean the earliest to occur of the
following: (i) the third anniversary of the Closing; (ii) a Change in Control
of the Corporation, (iii) a Third Party Tender Offer, (iv) a Purchaser Tender
Offer, or (v) any person who is not the Purchaser or an Affiliate of the
Purchaser or 13D Group to which the Purchaser or an Affiliate of the Purchaser
is a member has acquired any Voting Stock which results in such person or 13D
Group owning or having the right to acquire more than 25% of the Total Current
Voting Power of the Corporation unless such acquisition of shares by such
person or 13D Group was approved by the Corporation's Board of Directors
pursuant to Supermajority Board Approval; provided however, that upon a
Standstill Reinstatement Event, the Standstill Termination Event shall be
deemed not to have occurred and the Standstill Period shall be deemed to be
reinstated except that, upon the third anniversary of the Closing, the
Standstill Period shall be permanently terminated for all purposes.
"Supermajority Board Approval" shall mean the affirmative vote of 75% or
more of the members of the Corporation's Board of Directors; provided that, at
any time that Purchaser Beneficially Owns more than 25% of the Total Current
Voting Power of the Corporation and, notwithstanding that Purchaser voted all
shares Beneficially Owned by Purchaser in the most recent election of members
of the Board of Directors of the Corporation for all of the designees of
Purchaser to the Board of Directors of the Corporation (which number of
designees was the maximum number Purchaser was entitled to designate pursuant
to the provisions of Section 3.2(b) of the Governance Agreement), the number
of Purchaser Directors is fewer than the number Purchaser is entitled to
designate pursuant to the provisions of Section 3.2(b) of the Governance
Agreement, a Supermajority Board Approval shall not be deemed to have been
obtained unless the written consent of Purchaser shall have been obtained with
respect to the Event Requiring Supermajority Board Approval.
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D when first commenced within the
meaning of Rule 14d-2(a) of the rules and regulations under the Exchange Act,
by a person or 13D Group (which is not made by and does not include any of the
Corporation, the Purchaser or any Affiliate of either of them) to purchase or
exchange for cash or other consideration any
D-1-5
<PAGE>
Voting Stock and which consists of an offer to acquire 25% or more of the then
Total Current Voting Power of the Corporation.
"Total Current Voting Power" shall mean, with respect to any corporation,
the total number of votes which may be cast in the election of members of the
Board of Directors of such corporation if all securities entitled to vote in
the election of such directors are present and voted.
"Total Outstanding Company Equity" shall mean the total number of shares of
outstanding capital stock of the Corporation, on a fully diluted basis
assuming the conversion, exchange or exercise of all outstanding securities,
whether vested or unvested, convertible, exchangeable or exercisable into or
for common stock of the Corporation.
"Voting Stock" shall mean shares of the Corporation's common stock and any
other securities of the Corporation having the ordinary power to vote in the
election of members of the Board of Directors of the Corporation.
"Warrants" shall mean those certain warrants, exercisable to purchase the
Corporation's common stock, sold to The Walt Disney Company pursuant to that
certain Common Stock and Warrant Purchase Agreement dated as of June 18, 1998
between the Corporation and The Walt Disney Company, and any warrants acquired
by the Purchaser from the Corporation pursuant to the exercise of Purchaser's
rights under Section 3.1 of the Governance Agreement.
"13D Group" means any group of persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder, to file a statement on a Schedule 13D pursuant to Rule 13d-1(a) or
a Schedule 13G pursuant to Rule 13d-1(c) with the Securities and Exchange
Commission (the "SEC") as a "person" within the meaning of Section 13(d)(3) of
the Exchange Act if such group beneficially owned Voting Stock representing
more than 5% of any class of Voting Stock then outstanding.
(b) Events Requiring Disinterested Stockholder Approval
Notwithstanding anything in this Certificate of Incorporation or the
Corporation's bylaws to the contrary, in addition to any other vote of
stockholders of the Corporation required by this Certificate of Incorporation,
the Corporation's bylaws or applicable law, until such time as the Purchaser
owns 90% of the Total Current Voting Power of the Corporation, none of the
following actions may be taken by the Corporation or the Purchaser (or any
Affiliate of such party) without first obtaining Disinterested Stockholder
Approval: (i) the amendment of any portion of this Article Twelfth (other than
any such amendment that constitutes only a correction of the matters set forth
in this Article Twelfth such that this Article Twelfth accurately and clearly
effectuates the provisions of Sections 4.1 and 4.2 of the Governance Agreement
in accordance with Section 4.3 of the Governance Agreement as in effect on
June 18, 1998, provided however that for purposes hereof, the reference to
"Bylaws" in Section 4.3 shall be deemed to refer to this Certificate of
Incorporation); (ii) a sale or disposition of all or substantially all of the
Corporation's assets; (iii) except with respect to the Merger Agreements and
the several transactions contemplated by the Merger Agreements, the issuance
of securities of the Corporation representing 20% or more of (a) the then
Total Outstanding Company Equity or (b) the then Total Current Voting Power of
the Corporation; or (iv) a merger, consolidation, or other reorganization of
the Corporation with or into Purchaser or any Affiliate of the Purchaser;
provided however, that Disinterested Stockholder Approval shall not be
required if, on the record date with respect to voting upon or approving any
such event, the Purchaser Beneficially Owns less than 25% of the Total Current
Voting Power of the Corporation.
(c) Events Requiring Disinterested Director Approval
Notwithstanding anything in this Certificate of Incorporation or the
Corporation's bylaws to the contrary, in addition to any other vote of
directors required under this Certificate of Incorporation, the Corporation's
bylaws or applicable law, until such time as the Purchaser owns 90% of the
Total Current Voting Power of the
D-1-6
<PAGE>
Corporation, none of the following actions may be taken by the Board of
Directors of the Corporation or the Purchaser (or any Affiliate of the
Purchaser) without first obtaining Disinterested Board Approval: (i) any
amendment to the Corporation's bylaws or this Certificate of Incorporation;
(ii) any transaction between the Corporation (or any Affiliate of the
Corporation) and the Purchaser (or any Affiliate of the Purchaser), except
with respect to the Merger Agreements and the several transactions
contemplated by the Merger Agreements, that (a) requires payments by any party
in excess of $5 million or (b) contemplates a term equal to or in excess of
three years; (iii) adoption of a "poison pill" share purchase rights plan by
the Corporation, or any amendment of, or redemption or exchange of, rights
issued pursuant to any such plan, provided that, such plan excludes from the
definition of "Acquiring Person" therein the Purchaser and wholly owned
(direct or indirect) subsidiaries of the Purchaser, so long as neither the
Purchaser nor any Affiliate of the Purchaser has breached the Purchaser's
standstill obligations under Section 2.1(a), (d), (e) or (f) of the Governance
Agreement, and so long as the Purchaser Beneficially Owns at least 5% of the
Total Current Voting Power of the Corporation; (iv) any transfer of any Shares
or Non-Voting Convertible Securities by the Purchaser to a Corporation
Competitor in a private placement (as opposed to a public offering); (v)
during the Standstill Period, any transfer of 25% or more of the Voting Stock
by the Purchaser in a private placement (as opposed to a public offering) to
any single person or 13D Group; (vi) commencing a tender offer or exchange
offer by Purchaser or any Affiliate of Purchaser (or any 13D Group that
includes Purchaser or any Affiliate of Purchaser) to purchase or exchange for
cash or other consideration any Voting Stock, except for a Purchaser Tender
Offer made (a) during a Third Party Tender Offer, or (b) following a
Standstill Termination Event, so long as the cause of the Standstill
Termination Event was not a Purchaser Tender Offer; (vii) during the
Standstill Period, any of the Purchaser Restricted Actions; (viii) any
termination by the Purchaser (not the Corporation) of the License Agreement
(a) pursuant to Section 10.1(b) thereof, at any time after a majority of the
members of the Corporation's Board of Directors are Purchaser Directors, (b)
pursuant to Section 10.1(a) thereof if the event that causes Purchaser to have
the right to terminate pursuant to such Section 10.1(a) is (x) a transfer by
the Purchaser of Shares which results in a third party owning 25% or more of
the Total Current Voting Power of the Corporation (other than a transfer
pursuant to a Third Party Tender Offer whether for 25% of the Total Current
Voting Power of the Corporation or a greater or lesser amount) or (y) after a
majority of the members of the Corporation's Board of Directors are Purchaser
Directors, an issuance of shares of common stock by the Corporation which
results in a third party owning 25% or more of the Total Current Voting Power
of the Corporation, or (c) pursuant to Section 10.1(c) thereof if the event
that causes the Purchaser to have the right to terminate pursuant to such
Section 10.1(c) is that the Purchaser, in its capacity as a stockholder (and
not as a creditor) of the Corporation, has applied for or actively supported
the appointment of a receiver for the Corporation or a Corporation Controlled
Company and such receiver has been appointed; (ix) a transfer by the Purchaser
of Shares which results in a third party owning 25% or more of the Total
Current Voting Power of the Corporation (other than a transfer pursuant to a
Third Party Tender Offer whether for 25% of the Total Current Voting Power of
the Corporation or a greater or lesser amount); (x) unless the Purchaser owns
50% or more of the Total Current Voting Power of the Corporation, any of items
(i) through (iv) set forth in paragraph (b) of this Article Twelfth as an
Event Requiring Disinterested Shareholder Approval; (xi) any dissolution or
liquidation of the Corporation or a Corporation Controlled Company; (xii)
voluntary filing of a petition for bankruptcy or receivership by the
Corporation or a Corporation Controlled Company; or the failure to oppose any
other person's petition for bankruptcy or any other person's action to appoint
a receiver of the Corporation or a Corporation Controlled Company, or (xiii)
any amendment, modification or waiver (including a termination other than in
accordance with the various termination provisions contained in the Governance
Agreement) of any of the provisions of the Governance Agreement.
D-1-7
<PAGE>
THIRTEENTH
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and in accordance with this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
IN WITNESS WHEREOF, Infoseek Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed by , its , this
day of 1998.
D-1-8
<PAGE>
ANNEX D-2
BYLAWS
OF
INFOSEEK CORPORATION
<PAGE>
BYLAWS
OF
INFOSEEK CORPORATION
ARTICLE I
Corporate Offices
1.1 Registered Office
The registered office of the corporation shall be in the City of Wilmington,
County of New Castle, State of Delaware. The name of the registered agent of
the corporation at such location is The Corporation Trust Company.
1.2 Other Offices
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
Meetings of Stockholders
2.1 Place of Meetings
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 Annual Meeting
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Friday of June in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 Special Meeting
Special meetings of stockholders for any purpose or purposes may be called
at any time by the Board of Directors, the chairman of the Board of Directors,
the president or one or more shareholders holding shares in the aggregate
entitled to cast not less than 10% of the votes cast at that meeting.
2.4 Notice of Stockholders' Meetings
Subject to the requirements of applicable law, all notices of meetings with
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date,
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has
D-2-1
<PAGE>
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. If mailed, such notice shall be deemed to be given when
deposited in the mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
2.6 Quorum
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted
that might have been transacted at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 Voting
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation
Law of the State of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.9 Waiver of Notice
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
2.10 Intentionally omitted
2.11 Record Date for Stockholder Notice; Voting; Giving Consents
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action.
D-2-2
<PAGE>
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.
2.12 Notice of Stockholders Business and Nominations
(A) Annual Meetings of Stockholders. (1) Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to
be considered by the stockholders may be made at an annual meeting of
stockholders (a) pursuant to the corporation's notice of meeting delivered
pursuant to Section 2.4 of these Bylaws, (b) by or at the direction of the
Chairman of the Board or the Board of Directors or (c) by any stockholder of
the corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clauses (2) and (3) of this paragraph (A) of
this Bylaw and who was a stockholder of record at the time such notice is
delivered to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Bylaw, the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation and such other business must otherwise be
a proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
corporation not less than seventy days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting: provided, however,
that in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than seventy days. from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than
the ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or
the seventh day following the day on which public announcement of the date of
such meeting is first made. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder, including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the corporation's books,
and of such beneficial owner, (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner and (iii) whether the stockholder or the beneficial
owner intends or is part of a group which intends to solicit proxies from
other stockholders in support of such nomination or proposal. In no event
shall the public announcement of an adjournment of an annual meeting commence
a new time period for the giving of a stockholder's notice as described above.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least
eighty days prior to the first anniversary of the preceding
D-2-3
<PAGE>
year's annual meeting, a stockholder's notice required by this Bylaw shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the corporation not later than the close
of business on the tenth day following the day on which such public
announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Bylaw and who is a stockholder of record
at the time such notice is delivered to the Secretary of the corporation. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as are specified in the corporation's Notice of
Meeting, if the stockholder's notice as required by paragraph (A)(2) of this
Bylaw shall be delivered to the Secretary at the principal executive offices
of the corporation not earlier than the ninetieth day prior to such special
meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Bylaw and, if any proposed nomination or business is not in
compliance with this Bylaw, to declare that such defective proposal or
nomination shall be disregarded.
(2) Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.13 Proxies
Each stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no
such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of the State of Delaware.
2.14 List of Stockholders Entitled to Vote
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting,
D-2-4
<PAGE>
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
ARTICLE III
Directors
3.1 Powers
Subject to the provisions of the General Corporation Law of the State of
Delaware and any limitations in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 Number of Directors
The Board of Directors shall consist of no fewer than six (6) and no more
than eleven (11) and shall be initially fixed at eight (8). The number within
six (6) to eleven (11) may be changed by a duly adopted amendment to this
bylaw adopted by resolution of the board of directors in accordance with these
bylaws. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders
having the right to vote may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the
directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of the
State of Delaware.
D-2-5
<PAGE>
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), then the Court
of Chancery may, upon application of any stockholder or stockholders holding
at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as
aforesaid, which election shall be governed by the provisions of Section 211
of the General Corporation Law of the State of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 First Meetings
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to
fix the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
3.7 Regular Meetings
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 Special Meetings; Notice
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telecopy, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose or the place of the meeting, if the meeting is to
be held at the principal executive office of the corporation.
3.9 Quorum
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by
D-2-6
<PAGE>
statute or by the certificate of incorporation. If a quorum is not present at
any meeting of the board of directors, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum is present.
3.10 Waiver of Notice
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice
unless so required by the certificate of incorporation or these bylaws.
3.11 Adjourned Meeting; Notice
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 Board Action by Written Consent Without a Meeting
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 Fees and Compensation of Directors
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the
compensation of directors.
3.14 Approval of Loans to Officers
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors,
such loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.15 Removal of Directors
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of
office.
D-2-7
<PAGE>
ARTICLE IV
Committees
4.1 Committees of Directors
The board of directors may designate one or more committees, with each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors or in the bylaws of the
corporation and to the extent permitted by applicable law, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it.
4.2 Committee Minutes
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board
of directors and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
Officers
5.1 Officers
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a chief financial officer. The corporation may
also have, at the discretion of the board of directors, a chairman of the
board, one or more assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Election of Officers
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors.
5.3 Subordinate Officers
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
D-2-8
<PAGE>
5.4 Removal and Resignation of Officers
Any officer may be removed, either with or without cause, by an affirmative
vote of the majority of the board of directors at any regular or special
meeting of the board or, except in the case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred
by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
5.5 Vacancies in Offices
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chairman of the Board
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 President
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 Vice President
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the board of directors, these
bylaws, the president or the chairman of the board.
5.9 Secretary
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
D-2-9
<PAGE>
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 Chief Financial Officer
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.11 Assistant Secretary
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 Authority and Duties of Officers
The officers of the corporation shall have such powers and duties in the
management of the corporation as may be prescribed by the Board of Directors
and, to the extent not so provided, as generally pertain to their respective
offices, subject to the control of the Board of Directors. The Board of
Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
5.13 Limitations on Powers and Duties of Officers
No officer shall take any action, enter into any agreement, make any
representation or, by purposeful inaction, effect any of the actions or
decisions which the Board of Directors is prohibited or restricted from
enacting pursuant to these Bylaws or the certificate of incorporation and
their further amendments.
ARTICLE VI
Indemnity
6.1 Indemnification of Directors and Officers
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of the State of Delaware, indemnify each of its
directors and officers (the "Indemnitees") against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any proceeding, arising by reason
of the fact that such person is or was a director or officer of the
corporation. For purposes of the first sentence of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who, while a director or
officer of the corporation, is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was a director or
officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation. Notwithstanding the first sentence of this Section 6.1, except as
otherwise provided
D-2-10
<PAGE>
in Section 6.5, the corporation shall be required to indemnify an Indemnitee
in connection with a proceeding (or part thereof) commenced by such Indemnitee
only if the commencement of such proceeding (or part thereof) by the
Indemnitee was authorized by the Board of Directors of the corporation.
6.2 Indemnification of Others
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of the State of Delaware, to
indemnify each of its employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent
of the corporation. For purposes of this Section 6.2, an "employee" or "agent"
of the corporation (other than a director or officer) includes any person (i)
who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was an employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.3 Insurance
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under the provisions of the General Corporation Law of the State of Delaware.
6.4 Prepayment of Expenses
The corporation shall pay the expenses incurred by an Indemnitee in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or officer in
advance of the final disposition of the proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise to the extent
that such undertaking is required by law.
6.5 Claims
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
6.6 Non-Exclusivity of Rights
The rights conferred on any person by this Article 6 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these by-laws,
agreement, vote of stockholders or disinterested directors or otherwise.
6.7 Other Indemnification
The corporation's obligation, if any, to indemnify or advance expenses to
any person who was or is serving at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or non-profit entity shall be reduced by any amount such person may
collect as indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, enterprise or non-profit
enterprise.
D-2-11
<PAGE>
6.8 Amendment or Repeal
Any repeal or modification of the foregoing provisions of this Article 6
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
ARTICLE VII
General Matters
7.1 Checks
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
7.2 Execution of Corporate Contracts and Instruments
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
7.3 Stock Certificates; Partly Paid Shares
The shares of the corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly paid
and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation
shall declare a dividend upon partly paid shares of the same class, but only
upon the basis of the percentage of the consideration actually paid thereon.
7.4 Special Designation on Certificates
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the corporation
shall
D-2-12
<PAGE>
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
the State of Delaware, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the corporation shall issue
to represent such class or series of stock a statement that the corporation
will furnish without charge to each stockholder who so requests the powers,
the designations, the preferences, and the relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
7.5 Lost Certificates
Except as provided in this Section 7.5, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate
or the issuance of such new certificate or uncertificated shares.
7.6 Construction; Definitions
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of the State of
Delaware shall govern the construction of these bylaws. Without limiting the
generality of this provision, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both a
corporation and a natural person.
7.7 Dividends
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of the
State of Delaware. Dividends may be paid in cash, in property, or in shares of
the corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
7.8 Fiscal Year
The fiscal year of the corporation shall be fixed by resolution of the board
of directors and may be changed by the board of directors.
7.9 Seal
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
7.10 Transfer of Stock
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
7.11 Stock Transfer Agreements
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of the State of Delaware.
D-2-13
<PAGE>
7.12 Registered Stockholders
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
7.13 Representation of Shares of Other Corporations
The chairman of the board, the president, any vice president, the treasurer,
the secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to
do so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE XIII
Amendments
These bylaws may be adopted, amended or repealed by the stockholders
entitled to vote; provided, however, that the corporation has conferred the
power to adopt, amend or repeal these bylaws upon the directors pursuant to
Article Eighth of the corporation's certificate of incorporation. The fact
that such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
bylaws.
D-2-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes corporations to eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for
breach or alleged breach of the directors' "duty of care." While the relevant
statute does not change directors' duty of care, it enables corporations to
limit available relief to equitable remedies such as injunction or rescission.
The statute has no effect on directors' duty of loyalty, acts or omissions not
in good faith or involving intentional misconduct or knowing violations of
law, illegal payment of dividends and approval of any transaction from which a
director derives an improper personal benefit.
The Registrant has adopted provisions in its Certificate of Incorporation
which eliminate the personal liability of its directors to the Registrant and
its stockholders for monetary damages for breach or alleged breach of their
duty of care. The Bylaws of the Registrant provide for indemnification of its
directors, officers, employees and agents to the full extent permitted by the
General Corporation Law of the State of Delaware, the Registrant's state of
incorporation, including those circumstances in which indemnification would
otherwise be discretionary under Delaware Law. Section 145 of the General
Corporation Law of the State of Delaware provides for indemnification in terms
sufficiently broad to indemnify such individuals, under certain circumstances,
for liabilities (including reimbursement of expenses incurred) arising under
the Securities Act of 1933, as amended.
The Registrant has entered into agreements with each of its directors and
executive officers to indemnify such persons against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of June 18, 1998, by and
among Infoseek Corporation, a California corporation ("Infoseek
California"), the Registrant, Starwave Corporation, a Washington
corporation ("Starwave"), and Disney Enterprises, Inc., a Delaware
corporation ("DEI") (Reference is made to Annex A-1 to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement).
2.2 Common Stock and Warrant Purchase Agreement by and between the Registrant
and The Walt Disney Company, a Delaware corporation ("The Walt Disney
Company").
2.3 Form of Merger Agreement by and between the Registrant, Infoseek
California and ICO Acquisition Corp., a California corporation (Reference
is made to Annex A-2 to the Joint Proxy Statement/Prospectus which is a
part of this Registration Statement).
2.4 Form of Merger Agreement by and between the Registrant, Starwave and
Starwave Acquisition Corp., a Washington corporation (Reference is made
to Annex A-3 to the Joint Proxy Statement/Prospectus which is part of
this Registration Statement).
2.5 Form of Shareholders' Agreement (Infoseek California shareholders).
2.6 Form of Shareholders' Agreement (Starwave shareholders).
2.7 Shareholders' Agreement (DEI).
3.1 Amended and Restated Certificate of Incorporation of Registrant
(Reference is made to Annex D-1 to the Joint Proxy Statement/Prospectus
which is a part of this Registration Statement and to Exhibit 10.13).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
3.2 Bylaws of Registrant (Reference is made to Annex D-2 to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement).
4.1 Specimen Stock Certificate of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
with respect to the securities being issued.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
8.2 Tax Opinion of Dewey Ballantine LLP.
10.1 Form of Registrant Common Stock Warrant to be executed at Closing.
10.2 Form of The Walt Disney Company Promissory Note to be executed at
Closing.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Form of Registration Rights Agreement by and among the Registrant, DEI
and The Walt Disney Company to be executed at Closing.
10.5 Form of Tax Sharing Agreement by and among the Registrant and The Walt
Disney Company to be executed at Closing.
10.6 Governance Agreement by and among the Registrant, The Walt Disney
Company and DEI.
10.7 License Agreement by and between DEI and Infoseek California.*
10.8 Licensing and Services Option Agreement by and between DEI and Infoseek
California.*
10.9 Product Management Agreement by and between DEI and Infoseek
California.
10.10 Promotional Service Agreement by and between American Broadcasting
Companies, Inc. and Infoseek California.*
10.11 Representation Agreement by and among ESPN/Starwave Partners, a New
York General Partnership ("ESPN Partners"), Starwave and the
Registrant.
10.12 Representation Agreement by and among ABC/Starwave Partners, a New York
General Partnership ("ABC News Partners"), Starwave and the Registrant.
10.13 Preferred Shares Rights Agreement by and between Infoseek Delaware and
BankBoston N.A. Rights Agent (including Form of Certificate of
Designations of Rights, Preferences and Privileges of Series A
Preferred Stock and Form of Rights Certificate).
16.1 Letter of KPMG Peat Marwick LLP regarding change in certifying
accountant of Starwave.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors (Infoseek).
23.2 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
Starwave).
23.3 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
ESPN/Starwave Partners).
23.4 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
ABC/Starwave Partners).
23.5 Consent of Independent Auditors (KPMG Peat Marwick LLP / Starwave).
23.6 Consent of Independent Auditors (KPMG Peat Marwick LLP / Quando, Inc.).
23.7 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibits 5.1 and 8.1).
23.8 Consent of Dewey Ballantine LLP (included in Exhibit 8.2).
23.9 Consent of Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
24.1 Power of Attorney (see Page II-5).
99.1 Infoseek California Form of Proxy.
99.2 Starwave Form of Proxy.
99.3 Amended and Restated ESPN/Starwave Partnership Agreement by and between
ESPN Online Investments, Inc. and Starwave Ventures, a Washington
corporation ("Starwave Partner").
99.4 Amended and Restated ESPN/Starwave Management and Services Agreement by
and between ESPN Enterprises Inc., a Delaware corporation, Starwave and
ESPN Starwave Partners.
99.5 Amended and Restated ABC News/Starwave Partnership Agreement by and
between DOL Online Investments, Inc., a California corporation, and
Starwave Partner.
99.6 Amended and Restated ABC News/Starwave Management and Services
Agreement by and between ABC, Inc., a Delaware corporation, Starwave
and ABC News Partners.
99.7 Employment Agreement by and between Starwave and Michael B. Slade.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
99.8 Employment Agreement by and between Starwave and Patrick J. Naughton.
99.9 Employment Agreement by and between Starwave and Curt D. Blake.
99.10 Employment Agreement by and between Starwave and David Chamberlain.
99.11 Consent of Steven Bornstein to be nominated as director.
99.12 Consent of Robert Iger to be nominated as director.
99.13 Consent of Jake Winebaum to be nominated as director.
99.14 Consent to use of name of Infoseek California by the Registrant.
99.15 First Offer Letter Agreement between Disney and Steven T. Kirsch.
</TABLE>
(b) Financial Statement Schedules
None.
- --------
* A request for confidential treatment has been filed with the Commission
with respect to portions of this Exhibit and such portions have therefore been
omitted and filed separately with the Commission.
ITEM 22. UNDERTAKINGS
(a) (A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
(C) The undersigned Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (B) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used
II-3
<PAGE>
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Certificate of Incorporation, as amended, and the Bylaws, as
amended, of the Registrant and the Delaware General Corporation Law, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form S-4,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUNNYVALE, STATE OF CALIFORNIA, ON
THE 14TH DAY OF OCTOBER, 1998.
Infoseek Corporation
a Delaware corporation
By: /s/ Harry M. Motro
----------------------------------
HARRY M. MOTRO
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry M. Motro, Leslie E. Wright and Andrew E.
Newton, and each of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute
or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING IN THE CAPACITIES AND
ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Harry M. Motro President, Chief October 14, 1998
- ------------------------------------- Executive Officer
HARRY M. MOTRO (Principal
Executive Officer)
and Director
/s/ Remo E. Canessa Vice President and October 14, 1998
- ------------------------------------- Chief Financial
REMO E. CANESSA Officer (Principal
Accounting Officer)
/s/ Steven T. Kirsch Chairman of the October 14, 1998
- ------------------------------------- Board of Directors
STEVEN T. KIRSCH
/s/ Matthew J. Stover Director October 14, 1998
- -------------------------------------
MATTHEW J. STOVER
/s/ John E. Zeisler Director October 14, 1998
- -------------------------------------
JOHN E. ZEISLER
/s/ L. William Krause Director October 14, 1998
- -------------------------------------
L. WILLIAM KRAUSE
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of June 18, 1998, by
and among Infoseek Corporation, a California corporation ("Infoseek
California"), the Registrant, Starwave Corporation, a Washington
corporation ("Starwave"), and Disney Enterprises, Inc., a Delaware
corporation ("DEI") (Reference is made to Annex A-1 to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement).
2.2 Common Stock and Warrant Purchase Agreement by and between the
Registrant and The Walt Disney Company, a Delaware corporation ("The
Walt Disney Company").
2.3 Form of Merger Agreement by and between the Registrant, Infoseek
California and ICO Acquisition Corp., a California corporation
(Reference is made to Annex A-2 to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement).
2.4 Form of Merger Agreement by and between the Registrant, Starwave and
Starwave Acquisition Corp., a Washington corporation (Reference is
made to Annex A-3 to the Joint Proxy Statement/Prospectus which is
part of this Registration Statement).
2.5 Form of Shareholders' Agreement (Infoseek California shareholders).
2.6 Form of Shareholders' Agreement (Starwave shareholders).
2.7 Shareholders' Agreement (DEI).
3.1 Amended and Restated Certificate of Incorporation of Registrant
(Reference is made to Annex D-1 to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement
and to Exhibit 10.13).
3.2 Bylaws of Registrant (Reference is made to Annex D-2 to the Joint
Proxy Statement/Prospectus which is a part of this Registration
Statement).
4.1 Specimen Stock Certificate of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
with respect to the securities being issued.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
8.2 Tax Opinion of Dewey Ballantine LLP.
10.1 Form of Registrant Common Stock Warrant to be executed at Closing.
10.2 Form of The Walt Disney Company Promissory Note to be executed at
Closing.
10.3 Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.4 Form of Registration Rights Agreement by and among the Registrant, DEI
and The Walt Disney Company to be executed at Closing.
10.5 Form of Tax Sharing Agreement by and among the Registrant and The Walt
Disney Company to be executed at Closing.
10.6 Governance Agreement by and among the Registrant, The Walt Disney
Company and DEI.
10.7 License Agreement by and between DEI and Infoseek California.*
10.8 Licensing and Services Option Agreement by and between DEI and
Infoseek California.*
10.9 Product Management Agreement by and between DEI and Infoseek
California.
10.10 Promotional Service Agreement by and between American Broadcasting
Companies, Inc. and Infoseek California.*
10.11 Representation Agreement by and among ESPN/Starwave Partners, a New
York General Partnership ("ESPN Partners"), Starwave and the
Registrant.
10.12 Representation Agreement by and among ABC/Starwave Partners, a New
York General Partnership ("ABC News Partners"), Starwave and the
Registrant.
10.13 Preferred Shares Rights Agreement by and between Infoseek Delaware and
BankBoston N.A. Rights Agent (including Form of Certificate of
Designations of Rights, Preferences and Privileges of Series A
Preferred Stock and Form of Rights Certificate).
16.1 Letter of KPMG Peat Marwick LLP regarding change in certifying
accountant of Starwave.
21.1 Subsidiaries of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
23.1 Consent of Ernst & Young LLP, Independent Auditors (Infoseek).
23.2 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
Starwave).
23.3 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
ESPN/Starwave Partners).
23.4 Consent of Independent Accountants (PricewaterhouseCoopers LLP /
ABC/Starwave Partners).
23.5 Consent of Independent Auditors (KPMG Peat Marwick LLP / Starwave).
23.6 Consent of Independent Auditors (KPMG Peat Marwick LLP / Quando,
Inc.).
23.7 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibits 5.1 and 8.1).
23.8 Consent of Dewey Ballantine LLP (included in Exhibit 8.2).
23.9 Consent of Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
24.1 Power of Attorney (see Page II-5).
99.1 Infoseek California Form of Proxy.
99.2 Starwave Form of Proxy.
99.3 Amended and Restated ESPN/Starwave Partnership Agreement by and
between ESPN Online Investments, Inc. and Starwave Ventures, a
Washington corporation ("Starwave Partner").
99.4 Amended and Restated ESPN/Starwave Management and Services Agreement
by and between ESPN Enterprises Inc., a Delaware corporation, Starwave
and ESPN Starwave Partners.
99.5 Amended and Restated ABC News/Starwave Partnership Agreement by and
between DOL Online Investments, Inc., a California corporation, and
Starwave Partner.
99.6 Amended and Restated ABC News/Starwave Management and Services
Agreement by and between ABC, Inc., a Delaware corporation, Starwave
and ABC News Partners.
99.7 Employment Agreement by and between Starwave and Michael B. Slade.
99.8 Employment Agreement by and between Starwave and Patrick J. Naughton.
99.9 Employment Agreement by and between Starwave and Curt D. Blake.
99.10 Employment Agreement by and between Starwave and David Chamberlain.
99.11 Consent of Steven Bornstein to be nominated as director.
99.12 Consent of Robert Iger to be nominated as director.
99.13 Consent of Jake Winebaum to be nominated as director.
99.14 Consent to use of name of Infoseek California by the Registrant.
99.15 First Offer Letter Agreement between Disney and Steven T. Kirsch.
</TABLE>
- --------
* A request for confidential treatment has been filed with the Commission
with respect to portions of this Exhibit and such portions have therefore been
omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 2.2
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
by and between
INFOSEEK CORPORATION
a Delaware Corporation
and
THE WALT DISNEY COMPANY
a Delaware Corporation
June 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Issuance and Sale of the Securities...................................................... 1
1.1 Issuance and Sale of Common Stock and Warrants........................................... 1
1.2 Sale Closing............................................................................. 2
1.3 Sale Closing Deliveries.................................................................. 2
2. Representations and Warranties of the Company..................................................... 3
2.1 Organization, Standing and Power......................................................... 3
2.2 Authority................................................................................ 3
2.3 Representations and Warranties Contained in the Merger Agreement......................... 4
3. Representations and Warranties of the Purchaser................................................... 4
3.1 Organization and Standing................................................................ 4
3.2 Authority................................................................................ 4
3.3 No Conflicts............................................................................. 4
3.4 Brokers' and Finder's Fees............................................................... 5
3.5 Purchase Entirely for Own Account........................................................ 5
3.6 Accredited Investor; Investment Experience............................................... 5
3.7 Restricted Securities.................................................................... 5
3.8 Governance Agreement..................................................................... 6
3.9 Legends.................................................................................. 6
4. Conditions to the Issuance and Sale of the Securities............................................. 6
4.1 Conditions to Obligations of the Parties................................................. 6
4.2 Additional Conditions of Purchaser's Obligations at Sale Closing......................... 7
4.3 Additional Conditions of the Company's Obligations at the Sale Closing................... 7
5. Additional Agreements............................................................................. 8
5.1 Conduct of Company Prior to Closing...................................................... 8
5.2 Confidentiality.......................................................................... 8
5.3 Expenses. .............................................................................. 8
5.4 Public Disclosure........................................................................ 8
5.5 Regulatory Filings; Reasonable Efforts................................................... 8
5.6 Additional Documents and Further Assurances.............................................. 9
6. Termination....................................................................................... 9
7. Miscellaneous..................................................................................... 9
7.1 Survival of Warranties................................................................... 9
7.2 Transfer, Successors and Assigns......................................................... 9
7.3 Governing Law............................................................................ 9
7.4 Counterparts............................................................................. 9
7.5 Titles and Subtitles; Headings........................................................... 9
7.6 Notices.................................................................................. 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.7 Attorneys' Fees.......................................................................... 11
7.8 Amendments and Waivers................................................................... 11
7.9 Severability............................................................................. 11
7.10 Entire Agreement......................................................................... 11
7.11 Remedies................................................................................. 11
7.12 Extension; Waiver........................................................................ 11
7.13 Mutual Drafting.......................................................................... 11
</TABLE>
EXHIBITS
EXHIBIT A FORM OF WARRANT
EXHIBIT B FORM OF PROMISSORY NOTE
EXHIBIT C FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D FORM OF TAX SHARING AGREEMENT
<PAGE>
EXHIBIT 2.2
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "AGREEMENT") is made
as of June 18, 1998 by and between Infoseek Corporation, a Delaware corporation
(the "COMPANY") and The Walt Disney Company, a Delaware corporation (the
"PURCHASER").
WITNESSETH
WHEREAS, Company and Disney Enterprises, Inc., a Delaware corporation
("DEI") and a subsidiary of Purchaser, have entered into that certain Agreement
and Plan of Reorganization by and among DEI, the Company, Infoseek Corporation,
a California corporation ("INFOSEEK") and Starwave Corporation ("STARWAVE"), a
Washington corporation, of even date herewith (the "MERGER AGREEMENT") pursuant
to which, among other things, certain transactions contemplated therein,
including the execution of this Agreement, are contemplated.
WHEREAS, upon the terms and subject to the conditions set forth herein, the
Company wishes to issue and sell to the Purchaser, and the Purchaser wishes to
purchase from the Company, two million six hundred forty-two thousand
(2,642,000) newly issued shares of Common Stock of the Company, no par value
(the "SHARES") and a warrant to purchase fifteen million seven hundred twenty
thousand (15,720,000) shares of Common Stock of the Company in substantially the
form attached hereto as EXHIBIT A with terms and conditions as set forth therein
(the "WARRANT") which Warrant shall be subject to the restrictions on exercise
contained therein and contain an exercise price determined in accordance with
the terms of the Warrant, in exchange for the Cash Consideration (as defined
herein) payable in cash at the Sale Closing (as defined herein) and the Note
Consideration (as defined herein) to be delivered at the Sale Closing.
WHEREAS, the Company and the Purchaser desire to make certain
representations and warranties in connection with the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations and warranties, covenants and other agreements hereinafter set
forth, the mutual benefits to be gained by the performance thereof, and other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged and accepted, the parties hereto hereby agree as follows:
1. ISSUANCE AND SALE OF THE SECURITIES.
1.1 ISSUANCE AND SALE OF COMMON STOCK AND WARRANTS. On the
Sale Closing Date and effective as of the Sale Closing (each as defined in
SECTION 1.2 hereof), upon the terms and subject to the conditions of this
Agreement, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, the Shares and the Warrant in exchange for an
aggregate purchase price of (a) cash consideration equal to the product of (i)
two million six hundred forty-two thousand (2,642,000) and (ii) the Price Per
Share (the "CASH CONSIDERATION") and (b) a
<PAGE>
promissory note in the principal amount of one hundred thirty-nine million
dollars ($139,000,000) (the "NOTE CONSIDERATION") in the form attached hereto as
EXHIBIT B with terms and conditions as set forth therein. The Shares and the
Warrant shall hereinafter be referred to collectively as the "SECURITIES." The
"PRICE PER SHARE" shall be equal to $26.50.
1.2 SALE CLOSING. Subject to the satisfaction or waiver of the conditions
set forth in Section 4 hereof and effective upon the Closing (as such term is
defined in the Merger Agreement), the consummation of the transactions
contemplated hereby pursuant to the terms and provisions hereof (the "SALE
CLOSING") shall take place simultaneously with the Closing at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, located at 650 Page
Mill Road, Palo Alto, California, unless another place or time is agreed to in
writing by the Company and the Purchaser. The date upon which the Sale Closing
occurs shall be referred to herein as the "SALE CLOSING DATE."
1.3 SALE CLOSING DELIVERIES.
(a) PURCHASER. At the Sale Closing, on the terms and subject to
the conditions set forth herein and in reliance on the representations and
warranties, covenants and other agreements set forth herein, the Purchaser
shall deliver, or cause to be delivered, to the Company each of the
following:
(i) the Cash Consideration payable by wire transfer of
immediately available funds to an account or accounts designated in
writing by the Company;
(ii) the Note Consideration; and
(iii) such other agreements, instruments, certificates and
other documents as may be necessary or reasonably appropriate to
effectuate completely the transactions contemplated hereby.
(b) COMPANY. At the Sale Closing, on the terms and subject to
the conditions set forth herein and in reliance on the representations and
warranties, covenants and other agreements set forth herein, the Company
shall deliver, or cause to be delivered, to the Purchaser each of the
following:
(i) a certified copy of the Company's current Certificate
of Incorporation as filed with the Secretary of State of Delaware and
a Certificate of Good Standing for the Company from the Secretary of
State of Delaware;
(ii) an executed copy of the certificate signed by the
Chief Executive Officer of the Company described in Section 4.2(c);
-2-
<PAGE>
(iii) certificate(s) representing the Shares, validly
executed by the appropriate duly authorized officers of the Purchaser
registered in the name of the Purchaser or any Purchaser Controlled
Corporation as such term is defined in that certain Governance
Agreement by and among the Company, Infoseek, DEI and the Purchaser of
even date herewith (the "GOVERNANCE AGREEMENT");
(iv) the executed Warrant;
(v) a Registration Rights Agreement by and between the
Company and the Purchaser (the "REGISTRATION RIGHTS AGREEMENT") and
Tax Sharing Agreement by and between the Company and the Purchaser
(the "TAX SHARING AGREEMENT") substantially in the forms attached
hereto as EXHIBIT C and EXHIBIT D, respectively, duly executed by the
parties thereto; and
(vi) such other agreements, instruments, certificates and
other documents as may be necessary or reasonably appropriate to
effectuate completely the transactions contemplated hereby.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser as follows:
2.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the corporate power to own its properties
and to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect (as such term in defined in
the Merger Agreement) on the ability of the Company to consummate the
transactions contemplated hereby. The Company has made available a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company, as
amended to date, to counsel for the Purchaser.
2.2 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and, upon the Sale Closing, the Warrant
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and, upon the Sale Closing, the Warrant
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Company, and no further action is required on the part of Parent to authorize
the Agreement, the Warrant and the transactions contemplated hereby and thereby,
subject only to the approval of this Agreement by the Company's stockholders.
This Agreement has been duly executed and delivered by the Company and
constitutes or, in the case of the Warrant, when executed will constitute, a
valid and binding obligation of the Company, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution and delivery by the Company of this Agreement and, upon the Sale
Closing, the Warrant do not, and the performance
-3-
<PAGE>
and consummation of the transactions contemplated hereby and thereby will not
result in any conflict with (i) any provisions of its Certificate of
Incorporation or Bylaws, (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which the
Company is subject or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Body (as such term is
defined in the Merger Agreement) is required by or with respect to the Company
in connection with the execution and delivery of this Agreement or the Warrant
or the consummation of the transactions contemplated hereby or thereby, except
(x) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, and (y) any applicable filings required under the HSR Act (as
such term is defined in the Merger Agreement).
2.3 REPRESENTATIONS AND WARRANTIES CONTAINED IN THE MERGER AGREEMENT.
The Company herein makes the representation and warranties made in Sections 3.2,
3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12 and 3.15 of the Merger Agreement
as if such Representations and Warranties were set forth in this Agreement, each
as qualified by the Parent Disclosure Schedule provided in connection with the
Merger Agreement, and each using the defined terms as set forth in the Merger
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company that:
3.1 ORGANIZATION AND STANDING. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 AUTHORITY. The Purchaser has all requisite power and authority
to enter into this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby. The execution and delivery by
the Purchaser of this Agreement, the performance by the Purchaser of its
obligations hereunder, and the consummation by the Purchaser of the transactions
contemplated hereby, have been duly authorized by all necessary corporate action
on the part of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes the valid and binding obligation of
the Purchaser enforceable against it in accordance with the terms hereof, except
as such enforceability may be limited by principles of general application
relating to bankruptcy, insolvency, creditor's rights, and the relief of
debtors, and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3 NO CONFLICTS. The execution and delivery by the Purchaser of
this Agreement, the performance by the Purchaser of its obligations hereunder,
and the consummation by the Purchaser of the transactions contemplated hereby,
will not (i) give rise to any conflict, violation, default, termination,
cancellation, modification, acceleration or loss under (A) any provision of the
Restated Certificate of Incorporation or Bylaws of the Purchaser, or (B) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Purchaser or its properties
-4-
<PAGE>
or assets, other than any such conflicts, violations, defaults, terminations,
cancellations, modifications, accelerations or losses which would not have a
material adverse effect on the ability of the Purchaser to consummate the
transactions contemplated hereby, or (ii) violate any order, injunction,
judgment, ruling, law or regulation of any governmental authority applicable to
the Purchaser or any of its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority or any third party, including, without limitation, a party to any
agreement with the Purchaser, is required by or with respect to the Purchaser in
connection with the execution and delivery by the Purchaser of this Agreement,
the performance by the Purchaser of its obligations hereunder, and the
consummation by the Purchaser of the transactions contemplated hereby, except
for (x) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state and federal
securities and antitrust laws and (y) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not
have a material adverse effect on the ability of the Purchaser to consummate the
transactions contemplated hereby.
3.4 BROKERS' AND FINDER'S FEES. The Purchaser has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement, or the consummation of the transactions contemplated hereby.
3.5 PURCHASE ENTIRELY FOR OWN ACCOUNT. Securities to be acquired by
the Purchaser will be acquired for investment for the Purchaser's own account,
not as a nominee or agent, and not with a view to the resale, distribution or
offering of any part thereof, and the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Purchaser does not presently have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
3.6 ACCREDITED INVESTOR; INVESTMENT EXPERIENCE. The Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the prospective investment in the
Securities, it is able to bear the economic consequences thereof, and it
qualifies as an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act. Purchaser is experienced in
evaluating and investing in securities of emerging publicly traded high
technology companies and acknowledges that it can bear the economic risk of its
investment. Purchaser is a "U.S. Person" as that term is defined in the
Internal Revenue Code of 1986, as amended, and has not been formed for the
specific purpose of acquiring the Securities.
3.7 RESTRICTED SECURITIES. Purchaser understands that the Securities
have not been, and will not be, registered under the Securities Act or any state
securities ("BLUE SKY") law, by reason of a specific exemption from the
registration provisions of the Securities Act and the applicable Blue Sky laws,
which depend upon, among other things, the bona fide nature of the investment
intent and the accuracy of such Purchaser's representations as expressed herein.
Such Purchaser understands that as such the Securities are characterized as
"restricted securities" under the
-5-
<PAGE>
Securities Act and that under the Securities Act and applicable regulations such
Securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, such Purchaser represents
that it is familiar with Rule 144 promulgated under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
3.8 GOVERNANCE AGREEMENT. The Securities shall be subject to the
restrictions contained in the Governance Agreement.
3.9 LEGENDS. It is understood that the Securities, and any
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT THAT A PROPOSED TRANSFER OR SALE
IS IN COMPLIANCE WITH THE ACT, EXCEPT THAT NO SUCH OPINION SHALL BE REQUIRED FOR
TRANSFERS OR SALES PURSUANT TO REGISTRATION UNDER THE ACT. COPIES OF THE
AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDERS OF RECORD OF
THIS SECURITY TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE CORPORATION."
(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND VOTING CONTAINED IN A GOVERNANCE
AGREEMENT WHICH MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS SECURITY TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
OFFICES OF THE CORPORATION."
(c) Any legend required by the laws of the State of Delaware or
the State of California, including any legend required by the California
Department of Corporations.
(d) Any legend required by the Blue Sky laws of any other state
to the extent such laws are applicable to the shares represented by the
certificate so legended.
4. CONDITIONS TO THE ISSUANCE AND SALE OF THE SECURITIES.
4.1 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The respective
obligations of each party to this Agreement shall be subject to the satisfaction
at or prior to the Sale Closing Date of the following conditions:
-6-
<PAGE>
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the transactions
contemplated by this Agreement shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the sales contemplated hereby, which
makes the consummation of such sales unlawful, void, voidable or
unenforceable under applicable law, rules and regulations of any
governmental authority, domestic or foreign.
(b) GOVERNMENT APPROVALS. The Company and Purchaser shall have
obtained all other authorizations, consents, orders and approvals
required from or of, or declarations or filings with, or expirations
of waiting periods imposed by, any Governmental Body required for the
consummation of the transactions contemplated by this Agreement.
(c) GOVERNANCE AGREEMENT. The Governance Agreement shall
continue to be in full force and effect.
(d) STOCKHOLDER APPROVAL. This Agreement and the Warrant shall
have been approved and adopted, and the issuance of the securities
shall have been duly approved, by the requisite vote under applicable
law, by the shareholders of Infoseek, a California corporation.
4.2 ADDITIONAL CONDITIONS OF PURCHASER'S OBLIGATIONS AT SALE CLOSING.
The obligations of the Purchaser to the Company under this Agreement are
additionally subject to the fulfillment on or before the Closing, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true in all
material respects on and as of the Sale Closing Date with the same
effect as though such representations and warranties had been made on
and as of the Sale Closing Date.
(b) PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on
or before the Sale Closing Date.
(c) OFFICER'S CERTIFICATE. The Company shall have provided a
certificate signed by the Chief Executive Officer of the Company to
the effect that the conditions contained in Sections 4.2(a) and 4.2(b)
have been met.
-7-
<PAGE>
(d) MERGER COMPLETED. The conditions of DEI's obligations in the
Merger Agreement shall have been satisfied or waived and the Merger (as defined
in the Merger Agreement) shall have been effected.
4.3 ADDITIONAL CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE SALE
CLOSING. The obligations of the Company to the Purchaser under this Agreement
are subject to the fulfillment, on or before the Sale Closing, of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 3 shall be true in all material
respects on and as of the Sale Closing Date with the same effect as though such
representations and warranties had been made on and as of the Sale Closing Date.
(b) MERGER COMPLETED. The conditions of the Company's obligations in
the Merger Agreement shall have been satisfied or waived and the Merger (as
defined in the Merger Agreement) shall have been effected.
5. ADDITIONAL AGREEMENTS.
5.1 CONDUCT OF COMPANY PRIOR TO CLOSING. The Company agrees that it
shall not take any action inconsistent with Infoseek obligations under
subsection 4.1(b) of the Merger Agreement.
5.2 CONFIDENTIALITY. Both parties hereby agree that the information
obtained in any investigation pursuant to Section 5.3 of the Merger Agreement,
or pursuant to the negotiation and execution of this Agreement or any of the
transactions contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective as of on or about February 17, 1998
by and between the Purchaser and Infoseek.
5.3 EXPENSES. Except as expressly set forth in the Merger Agreement
and the Registration Rights Agreement, whether or not this Agreement and the
transactions contemplated hereby are consummated, all expenses incurred by party
in connection with the transactions contemplated by this transactions
contemplated hereby, including without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("THIRD PARTY EXPENSES") incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
5.4 PUBLIC DISCLOSURE. The Company and the Purchaser shall consult
with each other and DEI and Starwave (and in accordance with Section 5.6 of the
Merger Agreement) before issuing any press release or otherwise making any
public statements with respect to the Merger Agreement, the Merger (as such
term is defined in the Merger Agreement), this Agreement or any of the
transactions contemplated by the foregoing and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law, the Nasdaq Stock
-8-
<PAGE>
Market (as such term is defined in the Merger Agreement), or any listing
agreement with a national securities exchange.
5.5 REGULATORY FILINGS; REASONABLE EFFORTS. The Company and the
Purchaser will participate in and assist in the preparation of the filings and
actions contemplated by Section 5.14 of the Merger Agreement, including with
respect to the transactions contemplated herein. The parties hereto each shall
promptly (a) supply DEI and Starwave and each other with any information which
may be required to effectuate such filings and (b) supply any additional
information which reasonably may be required by the FTC, the DOJ, or the
competition or merger control authorities of any other jurisdiction and which
the parties may reasonably deem appropriate.
5.6 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto,
at the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6. TERMINATION. This Agreement shall terminate and the transactions
contemplated hereby abandoned at any time prior to the Closing if the Merger
Agreement is terminated pursuant to its terms, in such case the termination of
this Agreement shall be as of the time of such termination.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and the Purchasers contained in or made pursuant to
this Agreement shall not survive the execution and delivery of this Agreement
and the Sale Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Purchaser or the Company.
7.2 TRANSFER, SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
-9-
<PAGE>
7.5 TITLES AND SUBTITLES; HEADINGS. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The table of contents and headings
contained in this Agreement are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement, or any of the
terms and provisions hereof.
7.6 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by a recognized
commercial overnight delivery service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(i) if to the Purchaser, to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone No.: (818) 560-7707
Facsimile No.: (818) 563-1766
with a copy to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: Chief Financial Officer
Telephone No.: (818) 560-6977
Facsimile No.: (818) 846-8726
with a copy to: O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, CA 90071
Attention: C. James Levin, Esq.
Telephone No.: (213) 430-6578
Facsimile No.: (213) 430-6407
with a copy to: Dewey Ballentine LLP
1775 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-4605
Attention: Joseph M. Pari, Esq.
Telephone No.: (202) 862-4516
Facsimile No.: (202) 862-1093
-10-
<PAGE>
(ii) if to the Company, to: Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (408) 734-9350
with a copy to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: David J. Segre, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6911
7.7 ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
7.8 AMENDMENTS AND WAIVERS. Any term of this Agreement
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchaser.
Any amendment or waiver effected in accordance with this Section shall be
binding upon each transferee of any Securities, each future holder of all such
Securities, and the Company.
7.9 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
7.10 ENTIRE AGREEMENT. This Agreement and the exhibits hereto,
together with that certain Governance Agreement between the Company and the
Purchaser of even date herewith, the Warrant, the Note, the Registration Rights
Agreement and the Tax Sharing Agreement, constitute the entire Agreement between
the parties hereto pertaining to the purchase of the Securities.
7.11 REMEDIES. The Purchaser and the Company agree that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and each hereby agrees to waive
the defense in any action for specific performance that a remedy at law would be
adequate. Accordingly, it is agreed that the Company or the Purchaser, as the
case may be, shall be entitled to an injunction, restraining order or other
-11-
<PAGE>
equitable relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or any state thereof. Such remedies shall be
cumulative and non-exclusive and shall be in addition to any other rights and
remedies the parties may have under the Agreement.
7.12 EXTENSION; WAIVER. At any time, the Purchaser and the Company
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
7.13 MUTUAL DRAFTING. Both parties waive the application of any law,
resolution, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Common Stock and Warrant
Purchase Agreement as of the date first above written.
COMPANY:
INFOSEEK CORPORATION
By: /s/ Harry M. Motro
------------------------------------------
Harry M. Motro
President and Chief Executive Officer
PURCHASER:
THE WALT DISNEY COMPANY
By: /s/ John R. Ball
------------------------------------------
John R. Ball
Vice President
[COMMON STOCK AND WARRANT PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
FORM OF WARRANT
<PAGE>
EXHIBIT B
FORM OF PROMISSORY NOTE
<PAGE>
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
FORM OF TAX SHARING AGREEMENT
<PAGE>
EXHIBIT 2.5
SHAREHOLDER AGREEMENT (the "Agreement") dated as of June 18, 1998, among
The Walt Disney Company, a Delaware corporation ("TWDC"), and the
individual listed on the signature page hereto ("Shareholder").
WHEREAS, Infoseek Corporation, a California corporation ("Parent," which term
shall include Infoseek Corporation, a Delaware corporation ("HoldCo")), HoldCo,
Disney Enterprises, Inc., a Delaware corporation ("DEI"), and Starwave
Corporation, a Washington corporation ("Company"), have entered into an
Agreement and Plan of Reorganization dated as of the date hereof (as the same
may be amended or supplemented, the "Merger Agreement;" capitalized terms used
but not defined herein shall have the meanings set forth in the Merger
Agreement) providing for, among other things, the merger of a wholly owned
subsidiary of HoldCo with and into the Company and the merger of another wholly
owned subsidiary of HoldCo with and into Parent (the "Mergers"), upon the terms
and subject to the conditions set forth in the Merger Agreement;
WHEREAS, as of the date hereof Shareholder beneficially owns the number of
shares of common stock of Parent ("Parent Common Stock") set forth opposite his
name on Schedule A attached hereto (such shares of Parent Common Stock, together
with any other shares of capital stock of Parent acquired by Shareholder after
the date hereof and during the term of this Agreement (including through the
exercise of any stock options, warrants or similar instruments), being
collectively referred to herein as "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger Agreement,
TWDC has requested that Shareholder enter into this Agreement and that certain
other shareholders of Parent enter into similar voting agreements with TWDC.
NOW, THEREFORE, to induce TWDC to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the promises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder hereby
represents and warrants to TWDC as of the date hereof in respect of himself as
follows:
(a) AUTHORITY. The Shareholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Shareholder
in accordance with its terms. Except for the expiration or termination of the
waiting periods under the HSR Act and informational filings with the SEC, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
(i) conflict with, or result in any violation of, or default (with or without
notice of lapse of time or both) under any provision of any trust agreement,
loan or credit agreement, bond, note, mortgage, indenture, lease or other
contract, agreement, obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule, regulation, judgment, order, notice or decree, applicable to the
Shareholder or to the Shareholder's property or assets, (ii) require any filing
with, or permit, authorization, consent or approval of, any Federal, state or
local
1
<PAGE>
government or any court, tribunal, administrative agency or commission or
other governmental or regulatory authority or agency, domestic or foreign or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Shareholder or any of the Shareholder's properties or assets,
including the Subject Shares. If the Shareholder is married, and the
Shareholder's Subject Shares constitute community property or otherwise need
spousal or other approval for this Agreement to be legal, valid and binding,
this Agreement has been duly executed and delivered by, and constitutes a valid
and binding agreement of, the Shareholder's spouse, enforceable against such
spouse in accordance with its terms. No trust of which the Shareholder is a
trustee requires the consent of any beneficiary to the execution and delivery of
this Agreement or to the consummation of the transactions contemplated hereby.
(b) THE SUBJECT SHARES. The Shareholder is the beneficial owner of,
and on or prior to the date hereof will be the record owner of, or is trustee of
a trust that is the record holder of, and whose beneficiaries are the beneficial
owners of, and has good and marketable title to, the Subject Shares set forth
opposite his name on Schedule A attached hereto, free and clear of any Liens
whatsoever. The Shareholder does not own, of record or beneficially, any shares
of capital stock of Parent other than the Subject Shares set forth opposite his
name on Schedule A attached hereto. The Shareholder has the sole right to vote
such Subject Shares, and none of such Subject Shares is subject to any voting
trust or other agreement, arrangement or restriction with respect to the voting
of such Subject Shares, except as contemplated by this Agreement. The
Shareholder has no plan or intention to sell, transfer or otherwise dispose of
any shares of capital stock of Parent or HoldCo.
2. REPRESENTATIONS AND WARRANTIES OF TWDC. TWDC hereby represents and
warrants to Shareholder that TWDC has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by TWDC and constitutes a valid and binding obligation of TWDC
enforceable against TWDC in accordance with its terms. Except for the
expiration or termination of the waiting periods under the HSR Act and
informational filings with the SEC, the execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both) under
any provisions of, the Certificate of Incorporation or Bylaws of TWDC, any trust
agreement, loan or credit agreement, bond, note, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule, regulation, judgment, order, notice or decree applicable to TWDC or TWDC's
property or assets.
3. COVENANTS OF SHAREHOLDER WITH RESPECT TO THE MERGERS AND ANY COMPETING
TRANSACTION AND THE ELECTION OF DIRECTORS.
(a) Subject to Section 7, Shareholder agrees without in any way
limiting the Shareholder's right to vote the Subject Shares in its sole
discretion on any other matters that may be submitted to a Shareholder vote,
consent or other approval (including by written consent), at
2
<PAGE>
any meeting of the Shareholders of Parent called upon to vote upon the Mergers
and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including written
consent) with respect to the Mergers and the Merger Agreement is sought, the
Shareholder shall vote (or cause to be voted) the Subject Shares (and each class
thereof).
(b) Until termination of the Standstill Period, as defined in the
Governance Agreement by and among Parent, TWDC and DEI, Shareholder agrees as
follows:
Without in any way limiting the Shareholder's rights to vote the
Subject Shares in its sole discretion on any other matters that may be submitted
to a shareholder vote, consent or other approval (including by written consent),
at any meeting of the shareholders of Parent called upon to elect member(s) to
the board of Directors of Parent or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including written
consent) with respect to the election of member(s) to the Board of Directors of
Parent, the Shareholder shall vote (or cause to be voted) the Subject shares
(and each class thereof) in favor of those persons designated by the Purchaser
as nominees to be included in the slate of nominees recommended by the Company's
management to Shareholders for election as directors.
(c) The Shareholder shall not, except as contemplated by this Agreement,
directly or indirectly, grant any proxies or powers of attorney with respect to
the Subject Shares, deposit the Subject Shares into a voting trust or enter into
a voting agreement with respect to the Subject Shares.
(d) The Shareholder, and any beneficiary of a revocable trust for which
the Shareholder serves as trustee, shall not take any action to revoke or
terminate such trust or take any other action which would restrict, limit or
frustrate the Shareholder's right to vote the Subject Shares on behalf of such
trust in accordance with this Agreement.
(e) Shareholder shall cause this Agreement to be filed with the Secretary
of Parent.
(f) Subject to Section 7, Shareholder shall not transfer, sell or
otherwise dispose of any Subject Shares.
(g) Each Certificate representing Subject Shares now or hereafter
owned by Shareholder shall be endorsed with a legend conspicuously noting the
existence of this Agreement, until such time as this Agreement is terminated.
4. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Without in any way limiting the Shareholder's right to vote the
Subject Shares in its sole discretion on any other matters that may be submitted
to a shareholder vote, consent or other approval (including by written consent),
Shareholder hereby irrevocably grants to,
3
<PAGE>
and appoints, Thomas O. Staggs, Larry Shapiro and David K. Thompson, in their
respective capacities as officers of TWDC, any individual who shall hereafter
succeed to any such office of TWDC, and each of them individually, the
Shareholder's proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of the Shareholder, to vote the Shareholder's
Subject Shares, or grant a consent or approval in respect of such Subject
Shares, in accordance with Shareholder's covenants in Section 3(a) and 3(b)
hereof.
(b) The Shareholder represents that any proxies heretofore given in
respect of the Shareholder's Subject Shares are not irrevocable, and that all
such proxies are hereby revoked.
(c) The Shareholder hereby affirms that the irrevocable proxy set forth
in this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Shareholder under this Agreement. The Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. The Shareholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof.
5. CERTAIN EVENTS.
(a) The Shareholder agrees that this Agreement and the obligations
hereunder shall attach to Shareholder's Subject Shares and shall be binding upon
any person or entity to which legal or beneficial ownership of such Subject
Shares shall pass, whether by operation of law or otherwise, including
Shareholder's heirs, guardians, administrators or successors. In the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of Parent affecting Parent Common Stock,
or the acquisition of additional shares of Parent Common Stock or other voting
securities of Parent by the Shareholder, the number of Subject Shares listed in
Schedule A beside the name of the Shareholder shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to any additional
shares of Parent Common Stock or other voting securities of Parent issued to or
acquired by the Shareholder.
(b) In any event, and notwithstanding termination of this Agreement prior
to the Closing Date pursuant to the provisions of Section 7 hereof, the
Shareholder agrees to provide a written confirmation of the representation
contained in the last sentence of Section 1(b) of this Agreement on the Closing
Date and prior to the Effective Time in the form attached to this Agreement as
Exhibit A.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by the Shareholder, on the one hand,
without the prior written consent of TWDC nor by TWDC, on the other hand,
without the prior written consent of the Shareholder, except that TWDC may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of TWDC.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
4
<PAGE>
7. TERMINATION. Other than Section 3(b), which shall terminate and be of no
further force or effect upon termination of the Standstill Period, as defined in
the Governance Agreement, this Agreement shall terminate, and the provisions
hereof shall be of no further force or effect, upon the earlier of (i) 120 days
from the date of this Agreement, (ii) effectiveness of the Mergers or (iii)
termination of the Merger Agreement other than pursuant to Section 8.1(h) of the
Merger Agreement.
8. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to TWDC in accordance with Section 9.1 of the Merger Agreement and to the
Shareholder at his respective address set forth on Parent's stock ledger (or at
such other address for a party as shall be specified by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of or Schedule to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties.
(e) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
(f) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
9. ENFORCEMENT. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
5
<PAGE>
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of California or in a California state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. Without limiting the generality of the foregoing, the parties hereto
expressly agree that the obligations of Shareholder set forth in Section 1(b)
hereof shall be subject to the foregoing provisions of this Section 9. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any court of the United States located in the State of
California or any California court in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) agrees that such
party will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (iii) agrees that such party will
not bring any action related to this Agreement or the transactions contemplated
hereby in any court other than a court of the United States located in the State
of California or a California court and (iv) waives any right to trial by jury
with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby.
10. PUBLIC ANNOUNCEMENTS. Except as required by law, no Shareholder shall
issue any press release or other public statement with respect to the
transactions contemplated by this Agreement and the Merger Agreement without the
prior written consent of TWDC.
11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
6
<PAGE>
IN WITNESS WHEREOF, TWDC has caused this Agreement to be signed by its officer
thereunto duly authorized and Shareholder has signed this Agreement, all as of
the date first written above.
"TWDC"
The Walt Disney Company
By:_____________________________________
Name:
Title:
"SHAREHOLDER"
-----------------------------------------
Name:
7
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE
The undersigned, being the spouse of _____________, acknowledges that she has
read and understands the terms of this Shareholder Agreement and hereby agrees
to be bound by the terms hereof to the extent she has a community property or
other interest in the Subject Shares.
--------------------------------
8
<PAGE>
EXHIBIT A
FORM OF REPRESENTATION REQUIRED ON THE CLOSING DATE
Shareholder hereby represents and warrants to TWDC as of the Closing Date in
respect of himself that the Shareholder has no plan or intention to sell,
transfer or otherwise dispose of any shares of capital stock of Parent or
HoldCo. Shareholder agrees that in the event of any breach of this
representation, TWDC may enforce any rights that TWDC may have as a result of a
breach of this representation until expiration of the applicable statute of
limitations with respect to any Taxes for the period including the Closing Date.
9
<PAGE>
EXHIBIT 2.6
SHAREHOLDER AGREEMENT (this "Agreement") dated as of June 16, 1998,
among Infoseek Corporation, a California Corporation ("Parent", which term
shall include Infoseek Corporation, a Delaware corporation and wholly-owned
subsidiary of Parent formed for purposes of consummating the transactions
contemplated hereby ("HoldCo")), and the individual listed on the signature
page hereto ("Shareholder").
WHEREAS, Parent, HoldCo, Disney Enterprises, Inc., a Delaware corporation
("DEI"), and Starwave Corporation, a Washington corporation (the "Company"),
have entered into an Agreement and Plan of Reorganization dated as of the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement) providing for the merger of a wholly owned subsidiary
of Parent with and into the Company (the "Merger"), upon the terms and subject
to the conditions set forth in the Merger Agreement;
WHEREAS, as of the date hereof Shareholder beneficially owns the number of
shares of common stock of the Company ("Company Common Stock") set forth
opposite his name on Schedule A attached hereto (such shares of Company Common
Stock, together with any other shares of capital stock of the Company acquired
by Shareholder after the date hereof and during the term of this Agreement
(including through the exercise of any stock options, warrants or similar
instruments), being collectively referred to herein as "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that certain shareholders of the Company
including Shareholder enter into voting agreements with Parent, each of which is
together with each other a single agreement.
NOW, THEREFORE, to induce Parent to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the promises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder hereby
represents and warrants to Parent as of the date hereof in respect of himself as
follows:
(a) AUTHORITY. The Shareholder has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Shareholder
in accordance with its terms. Except for the expiration or termination of the
waiting periods under the HSR Act and informational filings with the SEC, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
(i) conflict with, or result in any violation of, or default (with or without
notice of lapse of time or both) under any provision of any trust agreement,
loan or credit agreement, bond, note, mortgage, indenture, lease
1
<PAGE>
or other contract, agreement, obligation, commitment, arrangement,
understanding, instrument, permit, concession, franchise, license, statute, law,
ordinance, rule, regulation, judgment, order, notice or decree, applicable to
the Shareholder or to the Shareholder's property or assets, (ii) require any
filing with, or permit, authorization, consent or approval of, any Federal,
state or local government or any court, tribunal, administrative agency or
commission or other governmental or regulatory authority or agency, domestic or
foreign or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Shareholder or any of the Shareholder's properties
or assets, including the Subject Shares. If the Shareholder is married, and the
Shareholder's Subject Shares constitute community property or otherwise need
spousal or other approval for this Agreement to be legal, valid and binding,
this Agreement has been duly executed and delivered by, and constitutes a valid
and binding agreement of, the Shareholder's spouse, enforceable against such
spouse in accordance with its terms. No trust of which the Shareholder is a
trustee requires the consent of any beneficiary to the execution and delivery of
this Agreement or to the consummation of the transactions contemplated hereby.
(b) THE SUBJECT SHARES. The Shareholder is the beneficial owner of,
and on or prior to the date hereof will be the record owner of, or is trustee of
a trust that is the record holder of, and whose beneficiaries are the beneficial
owners of, and has good and marketable title to, the Subject Shares set forth
opposite his or its name on Schedule A attached hereto, free and clear of any
Liens whatsoever. The Shareholder does not own, of record or beneficially, any
shares of capital stock of the Company other than the Subject Shares set forth
opposite his or its name on Schedule A attached hereto. The Shareholder has the
sole right to vote such Subject Shares, and none of such Subject Shares is
subject to any voting trust or other agreement, arrangement or restriction with
respect to the voting of such Subject Shares, except as contemplated by this
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents
and warrants to Shareholder that:
(a) AUTHORITY. Parent has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
Parent and constitutes a valid and binding obligation of Parent enforceable
against Parent in accordance with its terms. Except for the expiration or
termination of the waiting periods under the HSR Act and informational filings
with the SEC, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time or both) under any provisions of, the
Articles of Incorporation or Bylaws of Parent, any trust agreement, loan or
credit agreement, bond, note, mortgage, indenture, lease or other contract,
agreement, obligation, commitment, arrangement, understanding, instrument,
permit, concession, franchise, license, statute, law, ordinance, rule,
regulation, judgment, order, notice or decree applicable to the Parent or the
Parent's property or assets.
2
<PAGE>
(b) EXCHANGE PROCEDURES. At the Effective Time, each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive, upon surrender of the certificate
representing such share of Company Capital Stock in the manner provided for in
the Merger Agreement, that number of shares of Parent Common Stock equal to the
Exchange Ratio. The "Exchange Ratio" shall equal the quotient obtained by
dividing (i) 28,138,000 by (ii) the sum of (x) the aggregate number of Total
Outstanding Company Shares and (y) the aggregate number of shares of Company
Capital Stock subject to Company Options outstanding as of the Effective Time.
3. COVENANTS OF SHAREHOLDER WITH RESPECT TO THE MERGER AND ANY COMPETING
TRANSACTION. Subject to Section 7, Shareholder agrees as follows:
(a) Without in any way limiting the Shareholder's right to vote the
Subject Shares in its sole discretion on any other matters that may be submitted
to a Shareholder vote, consent or other approval (including by written consent),
at any meeting of the Shareholders of the Company called upon to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including written
consent) with respect to the Merger and the Merger Agreement is sought, the
Shareholder shall vote (or cause to be voted) the Subject Shares (and each class
thereof):
(i) in favor of the Merger, the approval and adoption by the Company
of the Merger Agreement and approval of the other transactions
contemplated by the Merger Agreement; and
(ii) against (A) any merger agreement or merger (other than the Merger
and the Merger Agreement), consolidation, combination, sale of
substantial assets, sale or issuance of securities of the Company or
its subsidiaries, reorganization, joint venture, recapitalization,
dissolution, liquidation or winding up of or by the Company or its
subsidiaries and (B) any amendment of the Company's Articles of
Incorporation or bylaws or other proposal or transaction involving the
Company or any of its subsidiaries which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent, nullify
or result in a breach of any covenant, representation or warranty or
any other obligation or agreement of the Company under or with respect
to, the Merger, the Merger Agreement or any of the transactions
contemplated by the Merger Agreement or by this Agreement.
(b) The Shareholder shall not, except as contemplated by this
Agreement, directly or indirectly, grant any proxies or powers of attorney with
respect to the Subject Shares, deposit the Subject Shares into a voting trust or
enter into a voting agreement with respect to the Subject Shares.
3
<PAGE>
(c) The Shareholder, and any beneficiary of a revocable trust for
which the Shareholder serves as trustee, shall not take any action to revoke or
terminate such trust or take any other action which would restrict, limit or
frustrate the Shareholder's right to vote the Subject Shares on behalf of such
trust in accordance with this Agreement.
(d) Shareholder shall cause this Agreement to be filed with the
Secretary of the Company.
(e) Subject to Section 7, Shareholder shall not transfer, sell or
otherwise dispose of any Subject Shares.
(f) Each Certificate representing Subject Shares now or hereafter
owned by Shareholder shall be endorsed with a legend conspicuously noting the
existence of this Agreement, until such time as this Agreement is terminated.
4. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Without in any way limiting the Shareholder's right to vote the
Subject Shares in its sole discretion on any other matters that may be submitted
to a shareholder vote, consent or other approval (including by written consent),
Shareholder hereby irrevocably grants to, and appoints, Harry M. Motro and
Leslie E. Wright, in their respective capacities as officers of Parent, any
individual who shall hereafter succeed to any such office of Parent, and each of
them individually, the Shareholder's proxy and attorney-in-fact (with full power
of substitution), for and in the name, place and stead of the Shareholder, to
vote the Shareholder's Subject Shares, or grant a consent or approval in respect
of such Subject Shares, in favor of adoption of the Merger Agreement and the
Merger.
(b) The Shareholder represents that any proxies heretofore given in
respect of the Shareholder's Subject Shares are not irrevocable, and that all
such proxies are hereby revoked.
(c) The Shareholder hereby affirms that the irrevocable proxy set
forth in this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Shareholder under this Agreement. The Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. The Shareholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section RCW 23B.07.220 of the laws of the
State of Washington (the "WCL").
4
<PAGE>
5. CERTAIN EVENTS. The Shareholder agrees that this Agreement and the
obligations hereunder shall attach to Shareholder's Subject Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Subject Shares shall pass, whether by operation of law or otherwise, including
Shareholder's heirs, guardians, administrators or successors. In the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of the Company affecting the Company
Common Stock, or the acquisition of additional shares of Company Common Stock or
other voting securities of the Company by the Shareholder, the number of Subject
Shares listed in Schedule A beside the name of the Shareholder shall be adjusted
appropriately and this Agreement and the obligations hereunder shall attach to
any additional shares of Company Common Stock or other voting securities of the
Company issued to or acquired by the Shareholder.
6. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by the Shareholder, on the one hand,
without the prior written consent of Parent nor by Parent, on the other hand,
without the prior written consent of the Shareholder, except that Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
7. TERMINATION. This Agreement shall terminate, and the provisions
hereof shall be of no further force or effect, upon the earlier of (i) 180 days
from the date of this Agreement, (ii) effectiveness of the Merger or (iii)
termination of the Merger Agreement other than pursuant to Section 8.1(j) of the
Merger Agreement.
8. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to Parent in accordance with Section 9.1 of the Merger Agreement and to the
Shareholder at his respective address set forth on the Company's stock ledger
(or at such other address for a party as shall be specified by like notice).
5
<PAGE>
(c) INTERPRETATION. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of or Schedule to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties.
(e) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein including all of the
voting agreements referenced herein between the shareholders of the Company and
Parent) (i) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(f) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Washington, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
9. ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically,
as provided by RCW 23B.07.310, the terms and provisions of this Agreement in any
court of the United States located in the State of Washington or in a Washington
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. Without limiting the generality of the foregoing,
the parties hereto expressly agree that the obligations of Shareholder set forth
in Section 1(b) hereof shall be subject to the foregoing provisions of this
Section 9. In addition, each of the parties hereto (i) consents to submit such
party to the personal jurisdiction of any court of the United States located in
the State of California or any California court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action related to this Agreement or
the transactions contemplated hereby in any court other than a court of the
United States located in the State of California or a California court and (iv)
waives any right to
6
<PAGE>
trial by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby.
10. PUBLIC ANNOUNCEMENTS. Except as required by law, no Shareholder shall
issue any press release or other public statement with respect to the
transactions contemplated by this Agreement and the Merger Agreement without the
prior written consent of Parent.
11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
7
<PAGE>
IN WITNESS WHEREOF, Parent has caused this Agreement to be signed by its officer
thereunto duly authorized and Shareholder has signed this Agreement, all as of
the date first written above.
"PARENT"
INFOSEEK CORPORATION
By:______________________________________
Name: Harry M. Motro
Title: President and Chief
Executive Officer
"SHAREHOLDER"
_________________________________________
Name:
8
<PAGE>
SCHEDULE A
SCHEDULE OF SHARE OWNERSHIP
Curt Blake 421,876
9
<PAGE>
SCHEDULE A
SCHEDULE OF SHARE OWNERSHIP
Michael Slade 1,668,752
10
<PAGE>
SCHEDULE A
SCHEDULE OF SHARE OWNERSHIP
Patrick Naughton 219,000
11
<PAGE>
SCHEDULE A
SCHEDULE OF SHARE OWNERSHIP
Tom Phillips 356,100
12
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE
The undersigned, being the spouse of _____________, acknowledges that she
has read and understands the terms of this Shareholder Agreement and hereby
agrees to be bound by the terms hereof to the extent she has a community
property or other interest in the Subject Shares.
________________________________________
Name:
13
<PAGE>
EXHIBIT 2.7
SHAREHOLDER AGREEMENT (this "Agreement") dated as of June 18, 1998,
among Infoseek Corporation, a California corporation ("Parent," which term
shall include Infoseek Corporation, a Delaware corporation and wholly owned
subsidiary of Parent formed for purposes of consummating the transactions
contemplated hereby ("HoldCo")), and Disney Enterprises, Inc., a Delaware
corporation ("Shareholder").
WHEREAS, Parent, Holdco, Shareholder, and Starwave Corporation, a
Washington corporation (the "Company"), have entered into an Agreement and Plan
of Reorganization dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") (capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing for
the merger of Merger Sub B with and into the Company (the "Merger"), upon the
terms and subject to the conditions set forth in the Merger Agreement; and
WHEREAS, as of the date hereof Shareholder beneficially owns the number of
shares of common stock of the Company ("Company Common Stock") set forth
opposite his name on Schedule A attached hereto (such shares of Company Common
Stock, together with any other shares of capital stock of the Company acquired
by Shareholder after the date hereof and during the term of this Agreement
(including through the exercise of any stock options, warrants or similar
instruments), being collectively referred to herein as "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that certain shareholders of the Company
including Shareholder enter into voting agreements with Parent, each of which is
together with each other a single agreement.
NOW, THEREFORE, to induce Parent to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the promises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder hereby
represents and warrants to Parent as of the date hereof in respect of itself as
follows:
(a) AUTHORITY. The Shareholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Shareholder in accordance with its terms. Except for the expiration or
termination of the waiting periods under the HSR Act and informational filings
with the SEC, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, (i) conflict with, or result in any violation of, or
default (with or without notice of lapse of time or both) under any provision of
the Articles of Incorporation or Bylaws (or other comparable organizational
documents, if any) of the Shareholder any trust agreement, loan or credit
agreement, bond, note, mortgage, indenture, lease or other contract, agreement,
obligation, commitment,
1
<PAGE>
arrangement, understanding, instrument, permit, concession, franchise, license,
statute, law, ordinance, rule, regulation, judgment, order, notice or decree,
applicable to the Shareholder or to the Shareholder's property or assets, (ii)
require any filing with, or permit, authorization, consent or approval of, any
Federal, state or local government or any court, tribunal, administrative agency
or commission or other governmental or regulatory authority or agency, domestic
or foreign or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Shareholder or any of the Shareholder's
properties or assets, including the Subject Shares. No trust of which the
Shareholder is a trustee requires the consent of any beneficiary to the
execution and delivery of this Agreement or to the consummation of the
transactions contemplated hereby.
(b) THE SUBJECT SHARES. The Shareholder is the beneficial owner of, and on
or prior to the date hereof will be the record owner of, or is trustee of a
trust that is the record holder of, and whose beneficiaries are the beneficial
owners of, and has good and marketable title to, the Subject Shares set forth
opposite his or its name on Schedule A attached hereto, free and clear of any
Liens whatsoever. The Shareholder does not own, of record or beneficially, any
shares of capital stock of the Company other than the Subject Shares set forth
opposite his or its name on Schedule A attached hereto. The Shareholder has the
sole right to vote such Subject Shares, and none of such Subject Shares is
subject to any voting trust or other agreement, arrangement or restriction with
respect to the voting of such Subject Shares, except as contemplated by this
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby represents and
warrants to Shareholder that Parent has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by Parent and constitutes a valid and binding obligation of Parent
enforceable against Parent in accordance with its terms. Except for the
expiration or termination of the waiting periods under the HSR Act and
informational filings with the SEC, the execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time or both) under
any provisions of, the Articles of Incorporation or Bylaws of Parent, any trust
agreement, loan or credit agreement, bond, note, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule, regulation, judgment, order, notice or decree applicable to the Parent or
the Parent's property or assets.
3. COVENANTS OF SHAREHOLDER. Subject to Section 7, Shareholder agrees as
follows:
(a) Without in any way limiting the Shareholder's right to vote
the Subject Shares in its sole discretion on any other matters that may be
submitted to a shareholder vote, consent or other approval (including by written
consent), at any meeting of the shareholders of the Company called upon to vote
upon the Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval (including
written consent) with respect to the Merger and the Merger Agreement is sought,
the Shareholder shall vote (or cause to be voted) the Subject Shares (and each
class thereof):
2
<PAGE>
(i) in favor of the Merger, the approval and adoption by the
Company of the Merger Agreement and approval of the other
transactions contemplated by the Merger Agreement; and
(ii) against (A) any merger agreement or merger (other than the
Merger and the Merger Agreement), consolidation, combination, sale
of substantial assets, sale or issuance of securities of the
Company or its subsidiaries, reorganization, joint venture,
recapitalization, dissolution, liquidation or winding up of or by
the Company or its subsidiaries and (B) any amendment of the
Company's Articles of Incorporation or bylaws or other proposal or
transaction involving the Company or any of its subsidiaries which
amendment or other proposal or transaction would in any manner
impede, frustrate, prevent, nullify or result in a breach of any
covenant, representation or warranty or any other obligation or
agreement of the Company under or with respect to, the Merger, the
Merger Agreement or any of the transactions contemplated by the
Merger Agreement or by this Agreement.
(b) The Shareholder shall not, except as contemplated by this
Agreement, directly or indirectly, grant any proxies or powers of attorney with
respect to the Subject Shares, deposit the Subject Shares into a voting trust or
enter into a voting agreement with respect to the Subject Shares.
(c) The Shareholder, and any beneficiary of a revocable trust for
which the Shareholder serves as trustee, shall not take any action to revoke or
terminate such trust or take any other action which would restrict, limit or
frustrate the Shareholder's right to vote the Subject Shares on behalf of such
trust in accordance with this Agreement.
(d) The Shareholder shall cause this Agreement to be filed with
the Secretary of the Company.
(e) Subject to Section 7, Shareholder shall not transfer, sell or
otherwise dispose of any Subject Shares.
(f) Each Certificate representing Subject Shares now or hereafter
owned by Shareholder shall be endorsed with a legend conspicuously noting the
existence of this Agreement, until such time as this Agreement is terminated.
4. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Without in any way limiting the Shareholder's right to vote
the Subject Shares in its sole discretion on any other matters that may be
submitted to a shareholder vote, consent or other approval (including by written
consent), Shareholder hereby irrevocably grants to, and appoints, Harry M. Motro
and Leslie E. Wright, in their respective capacities as officers of
3
<PAGE>
Parent, any individual who shall hereafter succeed to any such office of Parent,
and each of them individually, the Shareholder's proxy and attorney-in-fact
(with full power of substitution), for and in the name, place and stead of the
Shareholder, to vote the Shareholder's Subject Shares, or grant a consent or
approval in respect of such Subject Shares, in favor of adoption of the Merger
Agreement and the Merger.
(b) The Shareholder represents that any proxies heretofore given
in respect of the Shareholder's Subject Shares are not irrevocable, and that all
such proxies are hereby revoked.
(c) The Shareholder hereby affirms that the irrevocable proxy set
forth in this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Shareholder under this Agreement. The Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. The Shareholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section RCW 23B.07.220 of the laws of the
State of Washington (the "WCL").
5. CERTAIN EVENTS. The Shareholder agrees that this Agreement and the
obligations hereunder shall attach to Shareholder's Subject Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Subject Shares shall pass, whether by operation of law or otherwise, including
Shareholder's successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Company Common Stock, or the acquisition
of additional shares of Company Common Stock or other voting securities of the
Company by the Shareholder, the number of Subject Shares listed in Schedule A
beside the name of the Shareholder shall be adjusted appropriately and this
Agreement and the obligations hereunder shall attach to any additional shares of
Company Common Stock or other voting securities of the Company issued to or
acquired by the Shareholder.
6. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by the Shareholder, on the
one hand, without the prior written consent of Parent nor by Parent, on the
other hand, without the prior written consent of the Shareholder, except that
Parent may assign, in its sole discretion, any or all of its rights, interests
and obligations hereunder to any direct or indirect wholly owned subsidiary of
Parent. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
7. TERMINATION. This Agreement shall terminate, and the provisions
hereof shall be of no further force or effect, upon the earlier of (i) 180 days
from the date of this Agreement, (ii) effectiveness of the Merger or (iii)
termination of the Merger Agreement.
8. GENERAL PROVISIONS.
4
<PAGE>
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to Parent in accordance with Section 9.1 of the Merger Agreement and to the
Shareholder at his respective address set forth on the Company's stock ledger
(or at such other address for a party as shall be specified by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement to a
Section or Schedule, such reference shall be to a Section of or Schedule to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties.
(e) ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein including all of the
voting agreements referenced herein between the shareholders of the Company and
Parent) (i) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
(f) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Washington, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
9. ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically,
as provided by RCW 23B.07.310, the terms and provisions of this Agreement in any
court of the United States located in the State of Washington or in a Washington
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. Without limiting the generality of the foregoing,
the parties hereto expressly agree that the obligations of Shareholder set forth
in Section 3 hereof shall be subject to the foregoing provisions of this Section
9. In addition, each of the parties hereto (i) consents to submit such party to
the personal jurisdiction of any court of the United States located in the State
of California or any California court in the event any dispute arises out of
this Agreement or any of the transactions contemplated hereby, (ii) agrees that
such party will not attempt to deny or defeat such personal jurisdiction by
motion or other request
5
<PAGE>
for leave from any such court, (iii) agrees that such party will not bring any
action related to this Agreement or the transactions contemplated hereby in any
court other than a court of the United States located in the State of California
or a California court and (iv) waives any right to trial by jury with respect to
any claim or proceeding related to or arising out of this Agreement or any of
the transactions contemplated hereby.
10. PUBLIC ANNOUNCEMENTS. Except as required by law, no Shareholder
shall issue any press release or other public statement with respect to the
transactions contemplated by this Agreement and the Merger Agreement without the
prior written consent of Parent.
11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
6
<PAGE>
IN WITNESS WHEREOF, Parent has caused this Agreement to be signed by its
officer thereunto duly authorized and Shareholder has signed this Agreement, all
as of the date first written above.
"PARENT"
INFOSEEK CORPORATION
By: /s/ Harry Motro
---------------------------------------
Name: Harry M. Motro
Title: President and Chief Executive Officer
. "SHAREHOLDER"
DISNEY ENTERPRISES, INC
By: /s/ John R. Ball
---------------------------------------
Name: John R. Ball
Title: Vice President
S-1
<PAGE>
SCHEDULE A
SCHEDULE OF SHARE OWNERSHIP
Disney Enterprises, Inc. 88,550,088
Schedule A-1
<PAGE>
EXHIBIT 4.1
===============================================================================
COMMON STOCK [LOGO OF INFOSEEK] COMMON STOCK
NUMBER SHARES
SEEK
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN
IN BOSTON, MA OR NEW YORK, NY DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
- -------------------------------------------------------------------------------
CUSIP 45678M 10 7
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Andrew E. Newton [CORPORATE SEAL /s/ Harry M. Motro
OF INFOSEEK]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ Mary Penezic
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JP TEN - as joint tenants with Minors Act..................
right of survivorship (State)
and not as tenants in UNIF TRF MIN ACT- .....Custodian (until age..)
common (Cust)
......under Uniform Transfer
(Minor)
to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________________
__________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[Letterhead of Wilson Sonsini Goodrich & Rosati]
October 13, 1998
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4, which will be
filed by you with the Securities and Exchange Commission (the "Commission") on
October 13, 1998 (as amended, the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of the shares of
your Common Stock to be issued to the shareholders of Starwave Corporation, a
Washington corporation, as described in the Registration Statement (the
"Shares"). As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sales and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement/prospects constituting a
part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 8.1
[Letterhead of Wilson Sonsini Goodrich & Rosati]
October 14, 1998
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
RE: Registration Statement on Form S-4 of Infoseek Corporation dated
October 14, 1998
Ladies and Gentlemen:
We have acted as counsel to Infoseek Corporation, a Delaware corporation
("Infoseek") in connection with the proposed merger (the "Merger") of ICO
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
Infoseek ("Merger Sub"), with and into Infoseek Corporation, a California
corporation ("Infoseek California") pursuant to an Agreement and Plan of
Reorganization dated as of June 18, 1998, as amended (the "Reorganization
Agreement"), among Infoseek, Infoseek California, Starwave Corporation and
Disney Enterprises, Inc. The Merger and certain related transactions incident
thereto are described in the Registration Statement on Form S-4 (the
"Registration Statement") which contains a prospectus and joint proxy statement.
This opinion is being rendered pursuant to the requirements of Item 21(a) of
Form S-4 under the Securities Act of 1933, as amended. Unless otherwise
indicated, any capitalized terms used herein and not otherwise defined have the
meaning ascribed to them in the Registration Statement.
Based upon the foregoing and on representations expected to be formalized
in connection with our closing opinion described in the Registration Statement,
the discussion contained in the Registration Statement under the caption
"Certain Federal Income Tax Consequences," subject to the limitations and
qualifications described therein, constitutes our opinion as to the material
federal income tax consequences of the exchange of shares of Infoseek California
Common Stock for Infoseek Common Stock pursuant to the Merger.
<PAGE>
Infoseek Corporation
October 14, 1998
Page 2
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. We also consent to the reference to our
firm name wherever appearing in the Registration Statement with respect to the
opinion and discussion of the material federal income tax consequences of the
Merger, including the prospectus and joint proxy statement constituting a part
thereof, and any amendment thereto. In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 8.2
[DEWEY BALLANTINE LLP LETTERHEAD]
October 14, 1998
Starwave Corporation
13810 S.E. Eastgate Way
Suite 400
Bellevue, Washington 98005
Re: Registration Statement on Form S-4 of Infoseek Corporation,
including a Joint Proxy Statement/Prospectus of Infoseek
Corporation and Starwave Corporation to be filed October 14,
1998
Ladies and Gentlemen:
You have requested our opinion as to the material United States
federal income tax consequences applicable to the holders of common stock of
Starwave Corporation, a Washington corporation ("Starwave"), with respect to the
exchange of stock in the merger involving Starwave and Infoseek Corporation, a
Delaware corporation, (the "Starwave Merger") that is more fully described in
the above-referenced Registration Statement and the exhibits thereto filed
with the Securities and Exchange Commission (the "Registration Statement").
Capitalized terms not defined herein have the meanings ascribed to them in the
Registration Statement.
The facts, as we understand them are set forth in the Registration
Statement. Based on such facts and on representations expected to be
formalized in connection with our closing opinion described in the
Registration Statement, it is our opinion that the material United States
federal income tax consequences to the shareholders of Starwave expected to
result from the receipt of Infoseek Delaware common stock in exchange for
Starwave common stock pursuant to the Starwave Merger, under currently
applicable law, are set forth under the caption "THE MERGERS AND RELATED
TRANSACTIONS -- Certain Federal Income Tax Consequences" in the Registration
Statement.
This opinion is based on current provisions of the Internal Revenue
Code of 1986, as amended, applicable Treasury regulations promulgated
thereunder, and judicial and administrative decisions and rulings, all of
which are subject to change either prospectively or retroactively. Also, any
variation or difference from the facts as set forth in the Registration
Statement and incorporated herein might affect the conclusion stated herein.
<PAGE>
Starwave Corporation
October 14, 1998
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "THE
MERGERS AND RELATED TRANSACTIONS -- Certain Federal Income Tax Consequences"
in the Registration Statement. In giving this consent, we do not concede that
we are experts within the meaning of the Securities Act of 1933, as amended
(the "Act") or the rules and regulations thereunder, or that this consent is
required by Section 7 of the Act.
Very truly yours,
/s/ DEWEY BALLANTINE LLP
<PAGE>
EXHIBIT 10.1
[FORM OF INFOSEEK CORPORATION COMMON STOCK WARRANT]
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO. TWDC-1 INFOSEEK CORPORATION
___________, 1998
COMMON STOCK WARRANT
This certifies that The Walt Disney Company (the "Investor" or the
"Original Holder"), or its registered assigns, is entitled, upon the terms and
subject to the conditions and restrictions on exercise hereinafter set forth, at
any time (subject to Section 2 below) on or after the date hereof and at or
prior to 11:59 pm., Pacific Time, on ________, 2003 (the "Expiration Time"), but
not thereafter, to acquire from Infoseek Corporation, a Delaware corporation
(the "Company"), in whole or from time to time in part, up to Fifteen Million
Seven Hundred Twenty Thousand (15,720,000) fully paid and nonassessable shares
of Common Stock of the Company ("Warrant Stock") at a purchase price per share
equal to the Exercise Price as defined herein. Such number of shares, type of
security and Exercise Price are subject to adjustment as provided herein, and
all references to "Warrant Stock" and "Exercise Price" herein shall be deemed to
include any such adjustment or series of adjustments.
1. EXERCISE OF WARRANT
As to Shares which are exercisable pursuant to Section 2 and in accordance
with the terms of this Warrant, the purchase rights represented by this Warrant
are exercisable by the registered holder hereof, in whole or in part, at any
time and from time to time at or prior to the Expiration Time by the surrender
of this Warrant and a Notice of Exercise form attached hereto duly executed to
the office of the Company at 1399 Moffett Park Drive, Sunnyvale, California
94089 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
(as defined below) for the shares thereby purchased (by wire transfer to the
order of the Company at the time of exercise in an amount equal to the purchase
price of the shares thereby purchased); whereupon the holder of this Warrant
shall receive from the Company one or more stock certificates (as reasonably
requested by the holder) in proper form representing the number of shares of
Warrant Stock so purchased, and a new Warrant in substantially identical form
and dated as of such exercise for the purchase of that number of shares of
Warrant Stock equal to the difference, if any, between the number of shares of
Warrant Stock subject hereto and the number of shares of Warrant Stock as to
which this Warrant is so exercised. Provided that all the terms of this Warrant
have been complied with, the holder of this Warrant shall be deemed to be the
record and beneficial owner of shares receivable upon exercise from and after
the time that this Warrant, Notice of Exercise and the Exercise Price are
delivered to the Company pursuant to this paragraph.
<PAGE>
2. VESTING
This Warrant shall become exercisable pursuant to the following schedule:
(i) thirty-three and one-third percent (33 1/3%) of the Warrant Stock, upon the
one year anniversary of the date of issuance of the Warrant set forth above,
(ii) an additional thirty-three and one-third percent (33 1/3%) of the Warrant
Stock upon the second anniversary of the date of issuance of the Warrant set
forth above; and (iii) the remainder of the Warrant Stock upon the third
anniversary of the date of issuance of the Warrant set forth above. Each of the
first, second and third anniversaries of the date of issuance shall be referred
to as a "Vesting Date." Notwithstanding the foregoing, in the event of a
Standstill Termination Event (as such term is defined in the Governance
Agreement, dated as of June 15, 1998 by and between the Original Holder, Disney
Enterprises, Inc. and the Company (the "Governance Agreement")), the Warrant
shall become immediately exercisable for all of the Warrant Stock and the
"Vesting Date" for any of the Warrant Stock not already exercisable shall be the
date of such Standstill Termination Event.
3. EXERCISE PRICE
The Exercise Price per share for each of the shares of Warrant Stock for
which the Warrant becomes exercisable at each Vesting Date (upon such Vesting
Date, the "Vested Price") shall be equal: (i) to one hundred twenty percent
(120%) of the Current Market Price or (ii) if the Common Stock of the Company is
not quoted on Nasdaq or is not listed on a Market, the Exercise Price shall be
the fair market value of a share of Common Stock as determined by a unanimous
vote of the Board of Directors of the Company within forty-five (45) days
following delivery of Notice of Exercise (the "Board Determination Period"). The
determination of the Board of Directors shall be final and binding. If the Board
of Directors is unable to unanimously agree on the fair market value or if the
Board Determination Period expires, the fair market value shall be determined by
a Selected Appraiser (as defined herein), who shall determine the fair market
value of the Common Stock in accordance with recognized valuation techniques
within 60 days following the expiration of the Board Determination Period. For
purposes of this Warrant, "Current Market Price" means the average of the
closing sale prices for the Common Stock of the Company on the Nasdaq National
Market ("Nasdaq") (or any other stock exchange or national market on which the
Company's Common Stock is primarily traded (a "Market")) for the thirty (30)
trading days prior to such Vesting Date. For purposes of this Agreement, the
"Selected Appraiser" shall be any investment banking firm of national reputation
as mutually agreed by the Company and the holder of this Warrant at the time of
exercise, such agreement not to be unreasonably withheld. Upon mutual agreement
of the Selected Appraiser, such Selected Appraiser's determination shall be
final and binding. The fees and expenses of such Selected Appraiser shall be
borne equally by the Company and the holder. If the parties are unable to agree
on a Selected Appraiser within 30 days, then each of the Company and the holder
of this Warrant at the time of exercise shall be entitled to retain their own
appraiser, which appraiser shall be any investment banking firm of national
reputation, to value the shares in accordance with recognized valuation methods.
In such case the Exercise Price shall be the average of the two valuations
obtained by the Company and the holder and such determination shall be final and
binding, and each party shall bear the costs of their respective appraiser.
Notwithstanding anything to the contrary herein, in no event shall the Exercise
Price per share exceed fifty dollars ($50.00) (the "Maximum Price"), as adjusted
pursuant to Section 12.
4. ISSUANCE OF SHARES
Certificates evidencing the shares purchased hereunder shall be delivered
to the holder hereof within a reasonable time (in no event exceeding seven (7)
days) after the date on which this Warrant shall have been
-2-
<PAGE>
exercised in accordance with the terms hereof. The Company hereby represents and
warrants that all shares of Warrant Stock which may be issued upon the exercise
of this Warrant will, upon such exercise, be duly and validly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issuance thereof (other than liens or charges created by or
imposed upon the holder of the Warrant Stock).
5. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise of
this Warrant shall be made without charge to the holder hereof for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of Warrant Stock
are to be issued in a name other than the name of the holder of this Warrant,
subject to Section 8 below, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof.
6. NO RIGHTS AS SHAREHOLDERS
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company prior to the exercise hereof.
7. REGISTRATION RIGHTS
The Warrant Stock issuable upon exercise of this Warrant shall be entitled
to the registration rights set forth in that certain Registration Rights
Agreement by and among the Company, the Original Holder and Disney Enterprises,
Inc.
8. TRANSFERABILITY
Subject to the provisions of the Common Stock and Warrant Purchase
Agreement dated of even date herewith by and between the Company and the
Original Holder and the Governance Agreement, prior to the Expiration Time and
subject to compliance with applicable laws (including federal and state
securities laws), this Warrant and all rights hereunder are transferable by the
holder hereof, in whole or in part, at the office or agency of the Company
referred to in Section 1 hereof only to any subsidiary of the Original Holder,
provided that the Original Holder owns no less than eighty percent (80%)
(directly or indirectly, including without limitation, through any other entity)
of the voting power represented by the outstanding capital stock of such
subsidiary. Any such transfer shall be made upon surrender of this Warrant
together with, if applicable, the Assignment Form attached hereto properly
endorsed. Any transfer not in compliance with this Section 8 shall be deemed
void by the Company.
THIS WARRANT AND ANY SHARES OF WARRANT STOCK ISSUED UPON EXERCISE OF THIS
WARRANT ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A GOVERNANCE
AGREEMENT BETWEEN, AMONG OTHERS, THE COMPANY AND THE ORIGINAL HOLDER HEREOF. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND
WILL BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY THE
-3-
<PAGE>
HOLDER OF RECORD OF THIS WARRANT OR THE SHARES OF WARRANT STOCK ISSUED UPON
EXERCISE OF THIS WARRANT.
9. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the registered
holder at the above-mentioned office or agency of the Company, for a new Warrant
in substantially identical form and dated as of such exchange. The Company shall
maintain at the above-mentioned office or agency a registry showing the name and
address of the registered holder of this Warrant. This Warrant may be
surrendered for exchange, transfer, exercise, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
10. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the holder, in lieu thereof, a
new warrant in substantially identical form, dated as of the date of such
cancellation and reissuance.
11. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday, then such action may be taken or such right may be exercised
on the next succeeding business day.
12. ADJUSTMENT TO NUMBER AND TYPE OF SECURITIES, EXERCISE PRICE
The type and number of securities of the Company issuable upon exercise of
this Warrant, the Maximum Price, and the Vested Price for each share of Warrant
Stock for which this Warrant becomes exercisable are subject to adjustment and
termination as set forth below:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
the Company shall (i) declare a dividend or otherwise make a distribution to the
holders of its Common Stock in the form of additional shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock, or (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then the number of shares of
Warrant Stock for which this Warrant is exercisable shall be adjusted as
follows:
(A) the number share of shares of Warrant Stock for which this Warrant
is exercisable shall be adjusted to equal the number of shares of
Warrant Stock for which this Warrant is exercisable immediately before
the occurrence of any such event multiplied by fraction, (1) the
numerator of which is the total number of shares of Common Stock
outstanding immediately after the
-4-
<PAGE>
occurrence of such event and (2) the denominator of which is the total
number of shares of Common Stock outstanding immediately before the
occurrence of such event; and
(B) the Vested Price and the Maximum Price shall be adjusted to equal
the Vested Price and Maximum Price, respectively, in effect
immediately before the occurrence of such event multiplied by a
fraction (1) the numerator of which is the total number of shares of
Warrant Stock for which this Warrant is exercisable immediately before
the adjustment and (2) the denominator of which is the total number of
shares of Warrant Stock for which this Warrant is exercisable
immediately after the adjustment.
(b) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in or implementation of a par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation or other
entity, other than a merger with another corporation or other entity in which
the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant, or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall execute a new Warrant providing that the holder of this
Warrant shall have the right to exercise such new Warrant and procure upon such
exercise, in lieu of each share of Warrant Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
consolidation, merger or sale by a holder of one share of Warrant Stock. Such
new Warrant shall provide for adjustments provided for in this Section 12. The
provisions of this subsection (b) shall similarly apply to successive
reclassification, change, consolidations, mergers and sales.
(c) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. With respect to any
securities which are of the same class and series as any Warrant Stock for which
this Warrant is exercisable pursuant to Section 2 hereof, if at any time the
Company shall fix a record date for the purpose of determining the holders of
such securities entitled to receive any dividend or other distribution
(including any such distribution made in connection with a consolidation or
merger, but excluding any distribution referred to in subparagraph (b) above) of
(i) any evidence of indebtedness, shares of its capital stock (including any
securities convertible into such securities but excluding Common Stock for which
an adjustment is made pursuant to Section 12(a)) or any other securities or
property of any nature whatsoever, or (ii) any warrants or other rights to
subscribe for or purchase any evidence of its indebtedness, any shares of its
stock (including any securities convertible into such securities but excluding
Common Stock for which an adjustment is made pursuant to Section 12(a)) or any
other of its securities or its property of any nature whatsoever (other than
normal cash dividends or cash distributions permitted under applicable law),
then the number of shares of Warrant Stock for which this Warrant is
exercisable, the Maximum Price and the related Vested Price shall be adjusted as
follows:
(A) the number of shares of Warrant Stock for which this Warrant
is exercisable shall be adjusted to equal the number of shares of
Warrant Stock for which this Warrant is exercisable immediately
prior to such distribution or dividend multiplied by a fraction,
(1) the numerator of which shall be either (i) the Current Market
Price per share of Warrant Stock on such record date or (ii) if
the Warrant Stock is not quoted on Nasdaq or is not listed on a
Market, the fair market value determined in accordance with the
procedures set forth in clause (ii) of paragraph 3 hereof, and (2)
the denominator of
-5-
<PAGE>
which shall be either (i) the Current Market Price per share of
the Warrant Stock on such record date or (ii) if the Warrant Stock
is not quoted on Nasdaq or is not listed on a Market, the fair
market value determined in accordance with the procedures set
forth in clause (ii) of paragraph 3 hereof, minus the amount
allocable to one share of the Warrant Stock of the fair value (as
determined in good faith by the Board of Directors of the Company
and, unless waived by the holder hereof, supported by an opinion
from an investment banking firm of nationally recognized standing
approved by the Holder, which approval shall not be unreasonably
withheld) of any and all such evidences of indebtedness, shares of
stock, other securities or property or warrants or other
subscription or purchase rights so distributable; and
(B) the Vested and Maximum Price shall be adjusted to equal the
Vested Price and Maximum Price, respectively, in effect
immediately before the occurrence of any such event multiplied by
a fraction, (1) the numerator of which is the total number of
shares of Warrant Stock for which the Warrant is exercisable
immediately before the adjustment, and (2) the denominator of
which is the total number of shares of Warrant Stock for which
this Warrant is exercisable immediately after the adjustment;
PROVIDED THAT (i) a reclassification of the Warrant Stock (other
than a change in par value from par value to no par value or from
no par value to par value) into shares of Warrant Stock and shares
of any other class of stock shall be deemed a distribution by the
Company to the holders of its Warrant Stock of such shares of such
other class of stock within the meaning of this subparagraph (c)
and, (ii) if the outstanding shares of Warrant Stock shall be
changed into a larger or smaller number of shares of Warrant Stock
as a part of such reclassification, such change shall be deemed a
subdivision or combination, as the case may be, of the outstanding
shares of Warrant Stock within the meaning of subparagraph (a).
(d) CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment in the
Exercise Price, Maximum Price or number and type of securities issuable on the
exercise of this Warrant, the Company will promptly give written notice thereof
to the holder of this Warrant in the form of a certificate, certified and
confirmed by an officer of the Company, setting forth such adjustment and
showing in reasonable detail the facts upon which such adjustment is based.
(e) FRACTIONAL INTERESTS. In computing adjustments under this Section
12, fractional interests in Common Stock shall be taken into account by rounding
up to the nearest whole number of shares.
(f) WHEN ADJUSTMENT TO BE MADE. No adjustment in the Maximum Price or
the Exercise Price shall be required by this Section 12 if such adjustment
either by itself or with other adjustment not previously made would require an
increase or decrease of less than one percent (1%) in such price. Any such
adjustment representing a change of less than such minimum amount which is
postponed shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Section 12 and not previously made,
would result in a minimum adjustment. Notwithstanding the foregoing, any
adjustment carried forward shall be made no less than ten Business Days prior to
the Termination Date. All calculations under this Section 12 shall be made to
the nearest cent. For the purposes of any adjustment, any specified event shall
be deemed to have occurred at the close of business on the date of its
occurrence.
-6-
<PAGE>
(g) WHEN ADJUSTMENTS NOT REQUIRED. If the Company shall fix a record
date for the purpose of determining the holders of its Common Stock entitled to
receive a dividend or distribution and shall, thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay or deliver
such dividend or distribution then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(h) In addition, the Company acknowledges that the Original Holder is
entitled to certain rights to maintain its percentage ownership of the Company
as set forth in Section 3.1 of the Governance Agreement.
13. NOTICES OF RECORD DATE, ETC.
In the event of:
(a) any taking by the Company of a record of the holders of any
securities issuable upon exercise of this Warrant for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, or any transfer of all or
substantially all the assets of the Company to, or consolidation or merger of,
the Company with or into any person,
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, or
(d) any proposed issue or grant by the Company to the holders of any
securities issuable upon exercise of this Warrant of any shares of stock of any
class or any other securities, or any right or warrant to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities,
then, and in each such event, the Company will mail to the holder hereof a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as to which the holders of record of
Warrant Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, (iii) the amount and character of any
stock or other securities, or rights or warrants with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made, and (iv) in reasonable detail, the facts, including the
proposed date, concerning any other such event. Such notice shall be delivered
to the holder hereof at least twenty (20) days prior to the date therein
specified.
-7-
<PAGE>
14. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the holder hereof that:
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise of this
Warrant;
(b) the issuance of this Warrant shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares of
Warrant Stock issuable upon exercise of this Warrant;
(c) the Company has all requisite legal and corporate power to execute
and deliver this Warrant, to sell and issue the Warrant Stock hereunder and to
carry out and perform its obligations under the terms of this Warrant;
(d) all corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale, issuance
and delivery of the Warrant Stock issuable upon exercise of the Warrant, the
grant of registration rights as provided herein and the performance of the
Company's obligations hereunder has been taken;
(e) the Warrant Stock, when issued in compliance with the provisions
of this Warrant will be validly issued, fully paid and nonassessable, and free
of any liens or encumbrances created by or through the Company, and will be
issued in compliance with all applicable federal and state securities laws; and
(f) the issuance of the Warrant Stock will not be subject to any
preemptive rights, rights of first refusal or similar rights other than those
granted to the Original Holder in the Governance Agreement.
15. COOPERATION
The Company will not, by amendment of its Certificate of Incorporation or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of the Warrant against impairment.
16. MISCELLANEOUS
(a) REMEDIES. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate. Accordingly,
it is agreed that the holder of this Warrant shall be entitled to an injunction,
restraining order or other equitable relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court
-8-
<PAGE>
of competent jurisdiction in the United States or any state thereof. Such
remedies shall be cumulative and non-exclusive and shall be in addition to any
other rights and remedies the parties may have under the Agreement.
(b) SEVERABILITY. If the event that any provision of this Warrant or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this Warrant
will continue in full force and effect and the application of such provision to
other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Warrant with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
(c) SUCCESSORS AND ASSIGNS. Subject to the provisions of paragraph 8
hereof, this Warrant shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, including without limitation and
without the need for an express assignment.
17. GOVERNING LAW
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN SUCH STATE.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officers.
Dated:______________, 1998 INFOSEEK CORPORATION
By: ________________________________
Harry M. Motro
President and Chief Executive Officer
Attest:
__________________________
Andrew E. Newton
Secretary
-9-
<PAGE>
FORM OF
NOTICE OF EXERCISE
To: INFOSEEK CORPORATION
(1) The undersigned hereby elects to purchase _________________ shares of
Common Stock of Infoseek Corporation pursuant to the terms of the attached
Warrant, and has tendered herewith payment of the purchase price in full by wire
transfer.
(2) Please issue a certificate or certificates representing said shares in
the name of the undersigned.
(3) The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, except in
compliance with applicable federal and state securities laws and that the
aforesaid shares are subject, if applicable, to the Governance Agreement between
Infoseek Corporation, Disney Enterprises, Inc. and The Walt Disney Company dated
as of June 15, 1998.
(4) The undersigned accepts such shares, subject to the terms relating to
registration rights under the Registration Rights Agreement dated as of
______________, 1998.
____________________ __________________________________
(Date) (Signature)
-10-
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
__________________________________________________________
(Please Print)
who, by signature below, is confirmed to be a subsidiary of the Original Holder
(as defined in the Warrant) such that the Original Holder owns no less than
eighty percent (80%) of the voting power represented by the outstanding capital
stock of the subsidiary and whose address is____________________________________
(Please Print)
____________________________
Dated:_____________________________________________
Holder's Signature:________________________________
Holder's Address:__________________________________
___________________________________________________
Guaranteed Signature:___________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
EXHIBIT 10.2
[FORM OF THE WALT DISNEY COMPANY PROMISSORY NOTE]
THE WALT DISNEY COMPANY
PROMISSORY NOTE
US$139,000,000.00
Date: _________, 1998
FOR VALUE RECEIVED, The Walt Disney Company, a Delaware corporation,
("Maker") hereby absolutely and unconditionally promises to pay to the order of
Infoseek Corporation, a Delaware corporation or its successors and assigns
("Payee") in immediately available funds the principal amount of One Hundred
Thirty-Nine Million United States Dollars ($139,000,000.00) (the "Principal
Sum") on the payment schedule set forth herein, together with accrued and unpaid
interest on the principal balance thereof outstanding from time to time, at the
rate hereinafter provided.
1. REPAYMENT.
(a) The Principal Sum and interest on this Note at the rate provided
in Section 2 hereof shall be paid in twenty (20) quarter-annual installments
consisting of (i) Six Million Nine Hundred Fifty Thousnd Dollars ($6,950,000) in
payment of such portion of the principal balance plus (ii) all accrued and
unpaid interest to the date of such payment, the first such installment becoming
payable on the three month anniversary of the date hereof, and each subsequent
installment becoming due and payable on each subsequent three month anniversary
of the prior payment, together with all accrued and unpaid interest on such
installment calculated from the date hereof at the rate provided in Section 2 of
this Note, and with the final payment due on the fifth anniversary of the date
hereof ("Final Payment Date"). Provided, however, that if payment shall be due
on a Saturday, Sunday or United States legal holiday (a "Non-Business Day"),
then payment will be due on the next day immediately following that is not a
Non-Business Day.
(b) This Note may be repaid, in whole or in part, at any time without
premium or penalty together with accrued and unpaid interest calculated to the
date of repayment. Repayment shall be applied first to interest accrued and
payable and then to the outstanding principal balance of the Principal Sum.
2. INTEREST.
This Note shall bear interest on the balance of the Principal Sum then
outstanding at a rate per annum equal to six and one-half percent (6.50%),
calculated without compounding; additional interest on any amounts outstanding
after the Final Payment Date shall accrue at a compounded annual rate of eight
percent (8.00%).
<PAGE>
3. METHOD AND PLACE OF PAYMENT.
All payments of the Principal Sum and interest pursuant hereto shall
be made by wire transfer in United States Dollars in immediately available funds
of the United States. All payments shall be made to Payee at the wire transfer
location described in EXHIBIT A attached hereto.
Anything in this Note to the contrary notwithstanding, it is expressly
stipulated and agreed that the intent of Payee and Maker is to comply at all
times with all usury and other laws relating to this Note. If the laws of the
State of California would now or hereafter render usurious, or are revised,
repealed or judicially interpreted so as to render usurious, any amount called
for under this Note, or contracted for, charged or received with respect to the
loan evidenced by this Note, or if any prepayment by Maker results in Maker
having paid any interest in excess of that permitted by law, then it is Maker's
and Payee's express intent that all excess amounts theretofore collected by
Payee be credited to the principal balance of this Note (or, if this Note has
been paid in full, refunded to Maker), and the provisions of this Note
immediately be deemed reformed and the amounts therefor collectible hereunder
reduced, without the necessity of execution of any new document, so as to comply
with the then applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder. In the event Maker pays any interest on
this Note and it is determined that such rate was in excess of the then-legal
maximum interest rate, then the portion of the interest payment representing an
amount in excess of the then-legal maximum interest rate shall be deemed a
payment of principal and applied against the principal of the Note.
4. DEFAULTS AND REMEDIES.
(a) An "Event of Default" with respect to this Note occurs:
(i) if Maker defaults in the payment of the Principal Sum or any
installment thereof or interest thereon when the same becomes due and payable in
accordance with Section 1 above and remains in default for fifteen (15) days
following written notice of such default by Payee to Maker;
(ii) Maker files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors, or takes any corporate action in
furtherance of any of the foregoing; or
(iii) An involuntary petition is filed against Maker (unless such
petition is dismissed or discharged within sixty (60) days), under any
bankruptcy statute now or hereafter in effect, or a custodian, receiver,
trustee, assignee for the benefit of creditors (or other similar official) is
appointed to take possession, custody, or control of any property of Maker
(unless such appointment is rescinded or removed within sixty (60) days).
-2-
<PAGE>
(b) Upon the occurrence and during the continuation of any Event of
Default, (in addition to any other rights and remedies Payee may have
hereunder), Payee may by written notice of default to Maker declare all or a
portion of the entire amount outstanding under this Note as due and payable
immediately, without regard to the payment schedule set forth in Section 1.
(c) Maker agrees to pay all collection expenses, court costs and
reasonable attorneys' fees and disbursements that are incurred in connection
with the successful collection under or enforcement of this Note.
5. WAIVER.
(a) Except as otherwise specifically provided in this Note, Maker
hereby waives presentment, demand, notice, protest, and all other demands and
notice in connection with the delivery, acceptance, performance or enforcement
of this Note.
(b) No failure or delay on the part of Payee in exercising any of its
rights, powers or privileges hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any right, power or privilege. The remedies provided herein are
cumulative and are not exclusive of any remedies provided by law.
(c) This Note may be amended, waived or discharged only with the
written consent of Payee and Maker.
6. GOVERNING LAW; JURISDICTION.
THIS NOTE IS MADE AND DELIVERED AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT
TO THE CONFLICTS OF LAW PRINCIPALS THEREOF. Each of Maker and Payee irrevocably
and unconditionally (i) agrees that any action or proceeding against it seeking
specific performance or other equitable relief or other remedy arising out of
this Note shall be brought only in an appropriate court located in the State of
California, (ii) submits to the jurisdiction and venue of the courts referred to
above in connection with any such action or proceeding and (iii) consents to the
service of process outside the territorial jurisdiction of the courts referred
to above in any such action and proceeding by delivery of copies thereof by
overnight courier or certified mail to its address as specified in Section 8
hereof.
7. SEVERABILITY.
Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by, or invalid under, applicable law,
such provision shall be ineffective only to the extent of such
-3-
<PAGE>
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
8. NOTICES.
All notices and other communications provided hereunder shall be in
writing or by facsimile and addressed, delivered or transmitted
(1) if to Maker, to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone No.: (818) 560-7707
Facsimile No.: (818) 563-1766
with a copy to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: Chief Financial Officer
Telephone No.: (818) 560-6977
Facsimile No.: (818) 846-8726
with a copy to: O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, CA 90071-2899
Attention: C. James Levin, Esq.
Telephone No.: (213) 430-6578
Facsimile No.: (213) 430-6407
with a copy to: Dewey Ballentine, L.L.P.
1775 Pennsylvania Avenue
Washington D.C. 20006-4605
Attention: Joseph M. Pari, Esq.
Telephone No.: (202) 862-4516
Facsimile No.: (202) 862-1093
-4-
<PAGE>
(2) if to Payee, to: Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (408) 734-9350
with a copy to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: David J. Segre, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6911
or at such other address or facsimile number as may be designated by such party
in a notice to the other party. Any notice, if mailed and properly addressed
with postage prepaid or if properly addressed and sent by a nationally
recognized prepaid overnight courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted and confirmed by telephone call to the recipient at the number
specified herein.
9. NO ASSIGNMENT.
Neither this Note nor any of the rights, interests or obligations
hereunder may be assigned, by operation of law or otherwise, in whole or in
part, by the Maker without the prior written consent of the holder except in
connection with an assignment in whole to a successor corporation to the Maker
provided that such successor corporation acquires all or substantially all of
the Maker's property and assets and the holder's rights hereunder are not
impaired. Neither this Note nor any of the rights, interests or obligations
hereunder may be assigned, in whole or in part, by Payee except by operation of
law to a successor corporation.
"MAKER"
THE WALT DISNEY COMPANY
a Delaware corporation
By:_____________________________________
Name:___________________________________
Title: Chief Financial Officer
-5-
<PAGE>
EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
<PAGE>
EXHIBIT 10.3
INFOSEEK CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this
_____ day of __________, 1998, by and between Infoseek Corporation, a Delaware
corporation (the "Company"), and _________________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding,
<PAGE>
had no reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in
a manner which Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while
an officer or director or by reason of the fact that Indemnitee is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such action or suit if Indemnitee, acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, except that no indemnification shall be
made in respect of any claim, issue or matter as to which Indemnitee shall
have been adjudged to be liable to the Company unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery of the State of Delaware or such other court shall
deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in Subsections (a) and (b) of this Section 1 or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by Indemnitee in connection therewith.
2. AGREEMENT TO SERVE. In consideration of the protection afforded by
this Agreement, if Indemnitee is a director of the Company he agrees to serve at
least for the balance of the current term as a director and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. If Indemnitee is an officer of the Company not serving
under an employment contract, he agrees to serve in such capacity at least for
the balance of the current fiscal year of the Company and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. Following the applicable period set forth above, Indemnitee
agrees to continue to serve in such capacity at the will of the Company (or
under separate agreement, if such agreement exists) so long as he is duly
appointed or elected and qualified in accordance with the applicable provisions
of the by-laws of the Company or any subsidiary of the
-2-
<PAGE>
Company or until such time as he tenders his resignation in writing. Nothing
contained in this Agreement is intended to create in Indemnitee any right to
continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referenced in
Section l(a) or (b) hereof. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to the
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or By-laws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 13 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board
-3-
<PAGE>
of Directors or any committee or subgroup of the Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its Board of
Directors or any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such action, suit, proceeding, inquiry or investigation in accordance with
the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitee's
counsel in any such Claim at Indemnitee's expense and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's counsel shall be
at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's By-laws or by statute.
In the event of any change, after the date of this Agreement, in any
applicable law, statute, or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
such changes shall be, IPSO FACTO, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, such changes, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement shall have no effect on this
Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's
-4-
<PAGE>
Certificate of Incorporation, its By-laws, any agreement, any vote of
stockholders or disinterested Directors, the General Corporation Law of the
State of Delaware, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity
even though he may have ceased to serve in an indemnified capacity at the time
of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken, and may be required in the future
to undertake, with the SEC to submit the question of indemnification to a court
in certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's
-5-
<PAGE>
inability, pursuant to court order, to perform its obligations under this
Agreement shall not constitute a breach of this Agreement. The provisions of
this Agreement shall be severable as provided in this Section 8. If this
Agreement or any portion hereof shall be invalidated on any ground by any
court of competent jurisdiction, then the Company shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law of otherwise
as required under Section 145 of the Delaware General Corporation Law, but
such indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that if Indemnitee is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions
of this Agreement with respect to the resulting or
-6-
<PAGE>
surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants,
or beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as
referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipt is acknowledged by the party addressee, on the
date of such receipt, or (ii) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
-7-
<PAGE>
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INFOSEEK CORPORATION,
A DELAWARE CORPORATION
By:_________________________
Title:______________________
Address:____________________
____________________
AGREED TO AND ACCEPTED
INDEMNITEE:
___________________________
(Signature)
___________________________
(Name of Indemnitee)
___________________________
___________________________
(Address)
-8-
<PAGE>
EXHIBIT 10.4
FORM OF
REGISTRATION RIGHTS AGREEMENT
by and among
INFOSEEK CORPORATION
a Delaware Corporation,
DISNEY ENTERPRISES, INC.
a Delaware Corporation
and
THE WALT DISNEY COMPANY
a Delaware Corporation
_________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Certain Definitions............................................. 1
2. Registration.................................................... 2
2.1 Requested Registration................................. 2
2.2 Company Registration................................... 5
2.3 Expenses of Registration............................... 6
2.4 Registration Procedures................................ 6
2.5 Indemnification........................................ 10
2.6 Information by Purchaser............................... 12
2.7 Rule 144 Reporting..................................... 12
2.8 Transfer of Registration Rights........................ 13
2.9 Termination of Registration Rights..................... 13
3. Standoff Agreement.............................................. 13
4. Amendment....................................................... 14
5. Governing Law................................................... 14
6. Entire Agreement................................................ 14
7. Notices......................................................... 14
8. Remedies........................................................ 16
9. Severability.................................................... 16
10. Attorneys' Fees................................................. 16
11. Counterparts.................................................... 16
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made as of
________, 1998 by and among Infoseek Corporation, a Delaware corporation (the
"Company"), Disney Enterprises, Inc., a Delaware corporation ("DEI") and The
Walt Disney Company, a Delaware Corporation (the "TWDC"). As used herein,
"Purchaser" shall mean TWDC and any "Purchaser Controlled Corporation" as that
term is defined in that certain Governance Agreement (as defined herein).
RECITALS
WHEREAS, the Company and the Purchaser have entered into that certain
Agreement and Plan of Reorganization by and among the Company, Infoseek
Corporation, a California corporation, DEI, and Starwave Corporation, a
Washington corporation, dated June 16, 1998 (the "Reorganization Agreement")
pursuant to which, among other things, certain transactions contemplated therein
shall be completed including the receipt by Purchaser of shares of the Company;
and
WHEREAS, the Company seeks to grant certain registration rights with
respect to the securities of the Company held by the Purchaser.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Company and the Purchasers agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act and the
Exchange Act (as defined herein).
"EFFECTIVE DATE" shall mean the date on which the transactions
contemplated by the Reorganization Agreement are consummated.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and rules and regulation of the
Commission thereunder, all as the case shall be in effect all at that time.
"GOVERNANCE AGREEMENT" shall mean that certain Governance Agreement by
and among TWDC, DEI and the Company;
"REGISTRABLE SECURITIES" means shares of Common Stock of the Company
held by the Purchaser, or its transferees pursuant to Section 2.8, whether
acquired through that certain Common Stock and Warrant Purchase Agreement (the
"Purchase Agreement") by and between the
<PAGE>
Company and TWDC of even date herewith, the Reorganization Agreement, upon
exercise of the Warrant purchased pursuant to the Purchase Agreement or
otherwise, PROVIDED, HOWEVER, such shares shall only be treated as Registrable
Securities if and so long as they have not been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction and therefore are no longer "Restricted Securities" under the Act.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act or the Exchange Act, and the declaration or
ordering of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except Selling
Expenses (as defined below), incurred by the Company in complying with Sections
2.1, 2.2 and 2.4 hereof, including, without limitation, all registration,
qualification listing and filing fees, underwriters' expenses other than Selling
Expenses (as defined herein), "road show" expenses, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company) and the reasonable fees and
disbursements of one counsel for all shareholders selling securities pursuant to
such registration.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Purchaser and, except as set forth under "Registration Expenses", all
reasonable fees and disbursements of counsel for the Purchaser.
"SHELF REGISTRATION" shall mean a registration on Form S-3 (or any
successor thereto) or any other appropriate form pursuant to Rule 415 under the
Securities Act (or any successor rule that may be adopted by the Commission)
providing for the sale of Securities on a delayed or continuous basis.
2. REGISTRATION.
2.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive
from the Purchaser a written request that the Company effect any registration,
qualification or compliance under the Securities Act or Exchange Act with
respect to a number of the shares of Registrable Securities, such that the
anticipated aggregate offering price, net of underwriting discounts and
commissions, is at least ten million dollars ($10,000,000) or, if less, all of
the Purchaser's remaining Registrable Securities, the Company will within 45
days of such request file such registration, qualification or compliance
(including, without limitation, appropriate qualification under applicable
-2-
<PAGE>
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and/or the Exchange Act
and any other governmental requirements or regulations) in the manner reasonably
requested by the Purchaser and as would permit or facilitate the sale and
distribution of all such Registrable Securities which are specified in such
request and the Company shall thereafter use its best efforts to cause such
registration, qualification or compliance to become effective.
(b) Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated to take any action pursuant to this Section 2.1;
(i) prior to the earlier of (A) three (3) years after the
Effective Date and (B) the termination of the Standstill Period (as defined in
the Governance Agreement) except in the case of a pro rata distribution by TWDC
to its stockholders;
(ii) during the period starting with the date thirty (30) days
prior to the Company's reasonably estimated date of filing of, and ending on the
date ninety (90) days immediately following the effective date of, any
registration statement pertaining to securities offered by the Company (other
than a registration of securities on Form S-8 (as promulgated under the
Securities Act), a registration of securities on Form S-4, a registration of
securities in a Rule 145 (as promulgated under the Securities Act) transaction,
a registration of securities with respect to an employee benefit plan, or, a
Shelf Registration (including in each case pursuant to successor forms and
rules)), provided that the Company is actively employing in good faith its best
efforts to cause such registration statement to become effective and the
managing underwriter of such offering certifies in writing that the registration
of Registrable Securities would have in its reasonable estimation a material
adverse effect on the marketability of the offering for which such registration
statement was filed;
(iii) if the Company has already effected two such registrations
pursuant to subparagraph 2.1(a);
(iv) if the Company shall furnish to the Purchaser a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors, as determined by a majority vote thereof, it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use best efforts to register, qualify or comply under this Section 2.1 shall
be deferred for a period not to exceed 60 days from the date of receipt of
written request from the Purchaser; provided that, the Company may not exercise
this deferral right more than once in any consecutive twelve-month period; or
(v) if the Company has effected one such registration pursuant
to Section 2.1 in the preceding year, such registration having been declared or
ordered effective and remained subject to the declaration of any Suspension
Periods (as defined in Section 2.4(e)) in compliance with Section 2.4(e)
effective until the earlier to occur of (x) 120 days, plus the number of days in
any Suspension Periods during such time, after such declaration or order of
effectiveness or
-3-
<PAGE>
(y) the sale of all the securities offered pursuant to each such registration
or, if such offering consists of a Shelf Registration, such registration having
been declared or ordered effective and remained effective until the earlier to
occur of (a) 360 days, plus the number of days in any Suspension Periods during
such time, or (b) the sale of all the securities offered pursuant to each such
registration.
(c) FORM OF REGISTRATION; UNDERWRITING. The Purchaser shall determine
the method of distribution of the Registrable Securities covered by its request,
whether by means of an underwritten offering or any other lawful means, and the
Purchaser shall determine the form of the registration statement to be used in
connection therewith, whether an underwritten or non-underwritten offering on
Form S-1 or Form S-3, a Shelf Registration statement on Form S-3 providing for a
delayed or continuous offering of Registrable Securities, subject to the
Company's approval such approval, such approval not to be unreasonably withheld;
provided, however, that, in any event, the Company shall allow the Purchaser to
use a delayed or continuous offering if available, or any other lawful means
(provided that the Company meets the requirements for use of such form). In the
event the registration is proposed to be part of a firm commitment underwritten
public offering, the Purchaser shall so notify the Company and the Company
shall, together with the Purchaser, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting,
subject to the Company's reasonable approval.
(d) A registration requested pursuant to this Section 2.1 shall not be
deemed to be effected for purposes of this Section 2.1 if it has not been
declared effective by the Commission or become effective in accordance with the
Securities Act and/or the Exchange Act and the rules and regulations thereunder
or its effectiveness has not been maintained for the applicable period required
hereunder.
(e) The Purchaser may, at any time prior to the effective date of the
Registration Statement relating to such registration, revoke such request by
providing a written notice to the Company revoking such request. In such event,
the Purchaser may, at its election, either (i) count such revoked registration
as one of the two available registrations under this Section 2.1, in which case
all Registration Expenses related thereto shall be paid by the Company, or (ii)
not count such revoked registration as one of the two available registrations
under this Section 2.1, in which case all Registration Expenses related thereto
shall be paid by the Purchaser.
(f) The Company shall not include any securities which are not
Registrable Securities in any Registration Statement filed pursuant to a demand
made under this Section 2.1 without the prior written consent of the Purchaser.
Without limitation of the foregoing, upon the Purchaser's request, the Company
shall comply with any request of the Purchaser for a registration under the
Securities Act or the Exchange Act in connection with a spin-off of Registrable
Securities to the Purchaser's stockholders.
-4-
<PAGE>
2.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time after three (3) years
after the Effective Date, the Company shall determine to register any of its
equity securities, either for its own account or the account of a security
holder or holders (other than the Purchaser), other than (i) a registration
relating solely to employee benefit plans, (ii) a registration relating solely
to a Rule 145 transaction, or (iii) a registration in which the only equity
security being registered is capital stock issuable upon conversion of
convertible (or exchange of exchangeable) debt securities which are also being
registered, the Company will:
(i) give to the Purchaser written notice thereof at least
twenty (20) days prior to the filing of a registration therefore; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
made within twenty (20) days after receipt of such written notice from the
Company, by the Purchasers.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, (i) the
Company shall so advise the Purchaser as a part of the written notice given
pursuant to Section 2.2(a)(i); (ii) the right of the Purchaser to registration
pursuant to Section 2.2 shall be conditioned upon the Purchaser's participation
in such underwriting and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein; and (iii) the
Purchaser shall, together with the Company, enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company.
(c) MARKETING CUT-BACK. Notwithstanding any other provision of
this Section 2.2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration to the extent such managing underwriter deems reasonably necessary.
The Company shall so advise the Purchaser of the number of shares of Registrable
Securities that may be included in the registration and underwriting. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to the Purchaser to the nearest
100 shares. The foregoing notwithstanding, the Purchaser's right to participate
in the underwritten offering shall have priority over all other parties
exercising registration rights in connection with such offering other than the
Company.
(d) RIGHT TO WITHDRAW FROM REGISTRATION. If the Purchaser
disapproves of the terms of any such underwriting, the Purchaser may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
-5-
<PAGE>
(e) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not the
Purchaser has elected to include securities in such registration.
(f) COMPANY REGISTRATION NOT DEMAND. A request by the Purchaser
to include Registrable Securities in a proposed offering pursuant to this
Section 2.2 will not be deemed to be a request for a demand registration
pursuant to Section 2.1.
2.3 EXPENSES OF REGISTRATION.
(a) The Registration Expenses incurred in connection with (i) two
(2) registrations pursuant to Section 2.1, and (ii) all registrations pursuant
to Section 2.2 shall be borne by the Company.
(b) Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Purchaser shall be borne by the
Purchaser.
2.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep the Purchaser advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof, and will:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities on a form, for which the Company
then qualifies, selected pursuant to Section 2.1(c) and use its best efforts to
cause such Registration Statement to become and remain effective;
(b) prepare and file with the Commission amendments and post-
effective amendments to such Registration Statement and such amendments to the
prospectus used in connection therewith as may be necessary to maintain the
effectiveness of such registration or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or the Exchange Act or the rules and
regulations thereunder necessary to keep such Registration Statement effective
for up to one hundred twenty (120) calendar days or three hundred sixty (360)
calendar days, in the case of a Shelf Registration, and cause the prospectus as
so supplemented to be filed pursuant to Rule 424 under the Securities Act, and
to otherwise comply with the provisions of the Securities Act and/or the
Exchange Act with respect to the disposition of all Registrable Securities
covered by such Registration Statement until the earlier of (i) such 120th or
360th calendar day, as the case may be, and (ii) such time as all Registrable
Securities covered by such Registration Statement have ceased to be Registrable
Securities; provided that a reasonable time before filing a Registration
Statement or prospectus, or any amendments or supplements thereto, the Company
will furnish to Purchaser, the managing underwriter and their respective counsel
for review and comment, copies of all documents proposed to be filed and will
not file any such documents to which any of them reasonably object prior to the
filing thereof;
-6-
<PAGE>
(c) furnish to Purchaser such number of copies of such Registration
Statement and of each amendment and post-effective amendment thereto (in each
case including all exhibits), any prospectus or prospectus supplement and such
other documents as Purchaser may reasonably request in order to facilitate the
disposition of the Registrable Securities by Purchaser (the Company hereby
consenting to the use of the prospectus or any amendment or supplement thereto
in connection with such disposition);
(d) use commercially reasonable efforts to register or qualify such
Registrable Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as Purchaser reasonably
requests, and do any and all other acts and things which may be reasonably
necessary or advisable to enable Purchaser to consummate the disposition in such
jurisdictions of the Registrable Securities owned by Purchaser, except that the
Company will not for any such purpose be required to qualify generally to do
business as a foreign corporation, to subject itself to taxation or to consent
to general service of process in any such jurisdiction where, but for the
requirements of this paragraph, it would not be obligated to be so qualified or
to be so subject to taxation or to general service of process;
(e) notify Purchaser at any time (a "Suspension Period") when a
prospectus relating to any such Registrable Securities is required to be
delivered under the Securities Act and the Company has become aware that the
prospectus included in such Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and prepare and furnish
to Purchaser a reasonable number of copies of an amendment to such Registration
Statement or related prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; provided
that, the Company may not initiate Suspension Periods consisting of in excess of
ninety (90) days in the aggregate and the time during which such Registration
Statement shall remain effective pursuant to Section 2.4(b) will be extended by
the number of days that Purchaser is prevented from selling because it is unable
to deliver a prospectus.
(f) notify Purchaser at any time,
(i) when the prospectus or any prospectus supplement or post-
effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus or for additional
information;
(iii) of the issuance by the Commission of any stop order of
which the Company or its counsel is aware or should be aware suspending the
effectiveness of the
-7-
<PAGE>
Registration Statement or any order preventing the use of a related prospectus,
or the initiation or any threats of any proceedings for such purposes; and
(iv) of the receipt by the Company of any written notification
of the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction of the initiation or any threats of any proceeding for
that purpose;
(g) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available to
Purchaser an earnings statement which shall satisfy the provisions of Section
11(a) of the Securities Act, provided that the Company will be deemed to have
complied with this Section 2.4(g) if it has satisfied the provisions of Rule 158
under the Securities Act;
(h) use commercially reasonable efforts to cause all such Registrable
Securities to be listed on any securities exchange or automated quotation system
on which the Company Common Stock is then listed, if such Registrable Securities
are not already so listed and if such listing is then permitted under the rules
of such exchange or automated quotation system, and to provide a transfer agent
and registrar for such Registrable Securities covered by such Registration
Statement no later than the effective date of such Registration Statement;
(i) enter into agreements (including underwriting agreements) and
take all other appropriate and reasonable actions in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
(i) make such representations and warranties to Purchaser and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in comparable underwritten offerings;
(ii) use commercially reasonable efforts to obtain opinions of
counsel to the Company thereof (which counsel and opinions (in form, scope and
substance) will be reasonably satisfactory to the managing underwriters, if any,
and Purchaser) addressed to Purchaser and the underwriters, if any, covering the
matters customarily covered in opinions requested in comparable underwritten
offerings and such other matters as may be reasonably requested by Purchaser and
the managing underwriter, if any;
(iii) use commercially reasonable efforts to obtain "cold
comfort" letters and bring-downs thereof from the Company's independent
certified public accountants addressed to Purchaser and the underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by independent accountants in
connection with underwritten offerings;
-8-
<PAGE>
(iv) if requested, provide indemnification in accordance with the
provisions and procedures of Section 2.5 to all parties to be indemnified
pursuant to said section; and
(v) deliver such documents and certificates as may be reasonably
requested by Purchaser and the managing underwriters, if any, to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(j) cooperate with Purchaser and the managing underwriter or
underwriters or agents, if any, to facilitate, to the extent reasonable under
the circumstances, the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing the Registrable Securities to be
sold under such Registration Statement, and enable such Registrable Securities
to be in such denominations and registered in such names as the managing
underwriter or underwriters or agents, if any, or Purchaser may request;
(k) if reasonably requested by the managing underwriter or
underwriters or Purchaser, incorporate in a prospectus supplement or post-
effective amendment such information as the managing underwriters and Purchaser
agree should be included therein relating to the plan of distribution with
respect to such Registrable Securities, including without limitation information
with respect to the purchase price being paid by such underwriters and with
respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering and make all required filings of such
prospectus supplement or post-effective amendment as promptly as practicable
upon being notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(l) provide Purchaser, any underwriter participating in any
disposition pursuant to such Registration Statement and any attorney, accountant
or other agent retained by Purchaser or underwriter (collectively, the
"Inspectors") reasonable access to appropriate officers of the Company and the
Company's subsidiaries to ask questions and to obtain information reasonably
requested by any such Inspector and make available for inspection all financial
and other records and other information, pertinent corporate documents and
properties of any of the Company and its subsidiaries and affiliates
(collectively, the "Records") as may be reasonably necessary to enable them to
exercise their due diligence responsibilities;
(m) in the event of the issuance of any stop order of which the
Company or its counsel is aware or should be aware suspending the effectiveness
of the Registration Statement or of any order suspending or preventing the use
of any related prospectus or suspending the qualification of any Registrable
Securities included in the Registration Statement for sale in any jurisdiction,
the Company will use its best efforts promptly to obtain its withdrawal; and the
period for which the Registration Statement will be kept effective will be
extended by a number of days equal to the number of days between the issuance
and withdrawal of any stop orders; and
(n) reasonably cooperate to make available members of senior
management of the Company to participate in any meetings and conferences or
"road shows" with
-9-
<PAGE>
potential purchasers of the Registrable Securities as the underwriters (if any)
or the Purchaser may reasonably request, the parties recognizing that the
regular responsibilities of such managers will take priority over any such
activities.
2.5 INDEMNIFICATION.
(a) The Company will indemnify and hold harmless the Purchaser,
each of its officers, directors and partners, and each person controlling the
Purchaser within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, (commenced or threatened), arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse the Purchaser, each of its officers,
directors, and partners, and each person controlling the Purchaser, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by the Purchaser, controlling person or
underwriter specifically for use therein; provided, however, that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement, alleged untrue statement, omission or alleged
omission made in a preliminary prospectus on file with the Commission at the
time the registration statement becomes effective or the amended prospectus
filed with the Commission pursuant to Rule 424(b), such indemnity agreement
shall not inure to the benefit of: (1) the Purchaser to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission is made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by the Purchaser and stated to be
specifically for use therein; or (2) any underwriter, to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission is made
in reliance on and in conformity with written information furnished to the
Company by an instrument duly executed by such underwriter and stated to be
specifically for use therein.
(b) The Purchaser will indemnify and hold harmless the Company, each
of its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each of its officers, directors, and partners, and each person
controlling the Purchaser within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages and liabilities (or actions
in respect thereof), including any of the
-10-
<PAGE>
foregoing incurred in settlement of any litigation (commenced or threatened),
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to such registration, qualification or compliance, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and will reimburse the Company, the
Purchaser, such directors, officers, persons, underwriters or control persons
for any legal and any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Purchaser specifically for use therein.
Notwithstanding the foregoing, the liability of the Purchaser under this
subsection 2.6(b) shall be limited in an amount equal to the gross proceeds
received by the Purchaser from the sale of shares in such registration.
(c) Each party entitled to indemnification under this Section 2.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement, except to the extent the failure to give
such notice is prejudicial to an Indemnifying Party's ability to defend such
action, and provided further that an Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
Indemnifying Party, if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 2.6 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any losses, claims, damages or liabilities referred to herein, the
Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The
-11-
<PAGE>
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by a court of law by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to prevent such statement or omission; provided,
that in no event shall any contribution by the Purchaser hereunder exceed the
proceeds from the offering received by the Purchaser.
(e) The obligations of the Company and the Purchaser under this
Section 2.6 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation;
provided, that no Indemnified Party shall consent to entry of any judgment or
enter into any settlement without the consent of Indemnifying Party.
(f) The provisions of this Section 2.5 will be in addition to any
liability which any Indemnifying Party may have to any Indemnified Party and
will survive the termination of this Agreement.
2.6 INFORMATION BY PURCHASER. The Purchaser, if included in any
registration, shall furnish to the Company such information regarding the
Purchaser, the Registrable Securities held by it and the distribution proposed
by the Purchaser as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Agreement.
2.7 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to use commercially reasonable efforts after the Effective Date
to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, pursuant to the
reporting requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) So long as the Purchaser owns any Registrable Securities, to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
and of the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company
-12-
<PAGE>
as the Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Purchaser to sell any such securities
without registration.
2.8 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted to the Purchaser under Sections 2.1, 2.2 and 2.4
may not be transferred or assigned (in each case, by operation of law or
---
otherwise) to any transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the Purchaser who is not a Purchaser
Controlled Corporation (as such term is defined in that certain Governance
Agreement by and among TWDC, DEI and the Company, of even date herewith).
2.9 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant
to this Agreement shall terminate at such time as the Company has registered all
of the Purchaser's shares of Common Stock under the Securities Act, or the
Purchaser owns less than one percent (1%) of the outstanding Common Stock of the
Company.
2.10 SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Purchaser, enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder registration rights
senior to those granted to the Purchaser hereunder.
3. STANDOFF AGREEMENT. In connection with any public offering of the
Company's Common Stock in connection with an effective registration statement
under the Securities Act, with respect to any shares of Common Stock owned by it
which are not being registered in the offering, the Purchaser agrees, upon the
request of the Company or the underwriters managing any under written offering
of the Company's securities, not to (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock
of the Company (whether such shares or any such securities are now owned by the
Purchaser or are hereafter acquired) in any public offering; provided that in
any such transaction not involving a public offering, Parent will effect such
transaction at such times and in such manner consistent with the price, market
conditions and with preserving an orderly trading market for the Company's
securities and such that no public short position in the Company's securities
will be created thereby, or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock of the Company, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time, not to exceed ninety
(90) days (or such lesser period as officers or directors of the Company are so
restricted with respect to the transfer of shares of capital stock of the
Company held by them) after the effective date of the registration statement
relating thereto. The Purchaser further agrees that during any Suspension Period
(as defined in Section 2.4(e)), the Purchaser will not sell any Registrable
Securities pursuant to the Registration Statement until (i) such Purchaser is
advised in writing by the Company that the use of the applicable prospectus may
be resumed, (ii) the Purchaser
-13-
<PAGE>
has received copies of any additional, supplemental or amended prospectus, if
applicable, and (iii) the Purchaser has received copies of any additional or
supplemental filings which are incorporated or deemed to be incorporated by
reference in such prospectus. The Purchaser agrees that the Company may instruct
its transfer agent to place stop-transfer notations in its records to enforce
the provisions of this Section 3.
4. AMENDMENT. Any provision of this Agreement may be amended or the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the Purchaser.
5. GOVERNING LAW. This Agreement and the legal relations between the
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
7. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by a recognized
commercial overnight delivery service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to the Purchaser, to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone No.: (818) 560-7707
Facsimile No.: (818) 563-1766
with a copy to: The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attention: Chief Financial Officer
Telephone No.: (818) 560-6977
Facsimile No.: (818) 846-8726
-14-
<PAGE>
with a copy to: O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, CA 90071
Attention: C. James Levin, Esq.
Telephone No.: (213) 430-6578
Facsimile No.: (213) 430-6407
with a copy to: Dewey Ballentine LLP
1775 Pennsylvania Avenue, N.W.
Washington, DC 20006-4605
Attention: Joseph M. Pari
Telephone No.: (202) 862-4516
Facsimile No.: (202) 862-1093
if to the Company, to: Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (408) 734-9350
with a copy to: Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: David J. Segre, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6911
8. REMEDIES. The Purchaser and the Company agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and each hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate. Accordingly, it is agreed that the Company or the Purchaser, as the
case may be, shall be entitled to an injunction, restraining order or other
equitable relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or any state thereof. Such remedies shall be
cumulative and non-exclusive and shall be in addition to any other rights and
remedies the parties may have under the Agreement.
9. SEVERABILITY. If the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or
-15-
<PAGE>
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
10. ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12. THIRD PARTY BENEFICIARIES. There shall be no third party
beneficiaries to this Agreement except that any Purchaser Controlled Corporation
that owns any Registrable Securities shall be entitled to exercise the rights of
Purchaser hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-16-
<PAGE>
The foregoing agreement is hereby executed as of the date first above written.
"COMPANY"
INFOSEEK CORPORATION
By:______________________________________
Harry M. Motro
President and Chief Executive Officer
"TWDC"
THE WALT DISNEY CORPORATION
By:______________________________________
______________________________________
Chief Financial Officer
"DEI"
DISNEY ENTERPRISES, INC.
By:______________________________________
______________________________________
______________________________________
[REGISTRATION RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 10.5
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (the "Agreement"), dated as of June __,
1998, is by and between The Walt Disney Company, a Delaware corporation
("TWDC"), and Infoseek Corporation, a Deleware corporation ("Holding Company").
WITNESSETH:
WHEREAS, upon the consummation of the transactions described in the
Agreement and Plan of Reorganization, dated as of June __, 1998 (the "Closing"),
Disney Enterprises, Inc., a wholly-owned subsidiary of TWDC, will own
approximately forty-three percent (43%) of the issued and outstanding shares of
Holding Company common stock;
WHEREAS, following the Closing, one or more members of each of a TWDC
Separate Group (as hereinafter defined) and a Holding Company Group (as
hereinafter defined) may become members of one or more consolidated, combined or
unitary groups ("Consolidated Groups"), which, at TWDC's option, may (or, if
otherwise required by law, will) file one or more consolidated, combined and/or
unitary Tax returns ("Consolidated Returns"); and
WHEREAS, it is the intent and desire of the parties hereto that a
method be established for reimbursing TWDC (or any other entity designated by
TWDC) for the Tax liability allocated to Holding Company pursuant to Section 4
of this Agreement.
NOW THEREFORE, in consideration of the promises, covenants and
agreements contained herein, the parties hereto agree as follows:
<PAGE>
1. DEFINITIONS.
"Holding Company Group" means, with respect to any Consolidated
Return, Holding Company and all member corporations in which Holding Company
directly or indirectly (including through any other entity) owns stock and which
are included in such Consolidated Return.
"TWDC Group" means, with respect to any Consolidated Return, TWDC
and/or any member corporation in which TWDC directly or indirectly (including
through any other entity) owns stock and which are included in such Consolidated
Return.
"TWDC Separate Group" means, with respect to any Consolidated Return,
all members of the relevant TWDC Group that are included in such Consolidated
Return and that are not also members of any Holding Company Group.
"Tax" means any form of taxation, whenever created or imposed, and
whenever imposed by a national, municipal, governmental, state, federal,
foreign, or other body (a "Taxing Authority"), and without limiting the
generality of the foregoing, shall include any net income, alternative or add-on
minimum tax, gross income, sales, use, ad valorem, gross receipts, value added,
franchise, profits, license, transfer, recording, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profit, custom duty, or other tax, government fee or other like assessment or
charge of any kind whatsoever, together with any related interest, penalties, or
other additions to tax, or additional amount imposed by any such Taxing
Authority.
"Tax Attribute" means any net operating loss, net capital loss, excess
charitable contribution, foreign Tax credit, investment Tax credit or other
similar item.
2
<PAGE>
2. FILING OF CONSOLIDATED RETURNS. At TWDC's option, TWDC (or any other
corporation in which TWDC directly or indirectly owns stock) may file, and
Holding Company agrees to join (and, at the direction of TWDC, to cause any and
all members of any Holding Company Group to join) in any such filing of a
Consolidated Return for any taxable year (or portion thereof) for which such
corporations are permitted or required to file a Consolidated Return.
3. COOPERATION ON CONSOLIDATED RETURN MATTERS. Holding Company (on behalf
of itself and all members of any Holding Company Group) hereby designates TWDC
(or TWDC's designee) as its agent for the purpose of taking any and all action
necessary or incidental to the filing of all Consolidated Returns. Holding
Company agrees to furnish TWDC with any and all information (including, without
limitation, the Holding Company Group's pro-forma consolidated tax returns with
supporting separate company pro-forma tax returns), in the manner and format
requested by TWDC, with respect to any Holding Company Group in order to carry
out the provisions of this Agreement; to cooperate with TWDC in any Tax return
or consent contemplated by this Agreement; to take such action with respect to
Taxes and such Tax returns as TWDC may request, including, without limitation,
the filing of all elections and the filing of all requests for the extension of
time within which to file and/or audit or challenge Tax returns; to cooperate in
connection with any audit or refund claim; and to undertake all of the foregoing
obligations on a timely basis as requested by TWDC. TWDC (or its designee) shall
control the preparation and filing of all Consolidated Returns and all audits,
investigations, actions or proceedings with respect to any matter relating to
any Consolidated Return.
3
<PAGE>
4. APPORTIONMENT OF TAXES. For each taxable period (or portion
thereof) for which a Consolidated Return is filed pursuant to this Agreement,
Holding Company shall be allocated (on behalf of the Holding Company Group) a
Tax liability equal to the Tax liability that would be imposed if the members of
the Holding Company Group that are included in such Consolidated Return had
filed such a Consolidated Return including solely those members of the Holding
Company Group and/or had filed separate returns, as the case may be, for all
relevant periods; PROVIDED, HOWEVER, that the computation of such allocation
shall be consistent with any positions taken or elections, adjustments or
amendments made by Holding Company in determining its Tax liability, which
positions, elections, adjustments and amendments must be properly supportable by
applicable law.
5. PAYMENT OF TAXES. For each taxable period (or portion thereof)
for which a Consolidated Return is filed pursuant to this Agreement, TWDC shall
prepare or cause to be prepared the Consolidated Returns of the TWDC Group and
shall pay all Taxes reported on each such Consolidated Return to the relevant
Taxing Authority. At least five (5) business days prior to the due date of any
payment any member of the TWDC Group is required to make to any Taxing Authority
of any Taxes due with respect to any Consolidated Return (including, without
limitation, estimated Tax payments, extension Tax payments and Tax payments due
with a Consolidated Return), Holding Company shall pay to TWDC (or any other
entity designated by TWDC) the amount determined under Section 4 of this
Agreement with respect to such Consolidated Return (unless TWDC directs in
writing to Holding Company that Holding Company shall make such payment directly
to any Taxing Authority, in which event Holding Company shall comply with such
request within two (2) business days). In no event shall TWDC or any
4
<PAGE>
other entity be required to make any payment to Holding Company hereunder based
on (a) the allocation of a negative Tax liability to Holding Company under
Section 4 or (b) the use of any Tax Attribute of any Holding Company Group by
any TWDC Separate Group until or unless Holding Company demonstrates that (i)
such member of the Holding Company Group that generated the attribute has ceased
to be a member of a TWDC Group and (ii) such member could have used that
attribute to reduce its Tax liability on a stand-alone basis under applicable
law at that time.
6. SUBSEQUENT ADJUSTMENTS. If for any taxable period (or portion thereof)
----------------------
for which a Consolidated Return is filed pursuant to this Agreement, the Tax
liability (or any component thereof) as reported on such Consolidated Return is
adjusted, including, without limitation, by means of an amended return, a claim
for refund, notification of audit changes, or an audit by the relevant Taxing
Authority, then the liabilities of the TWDC Separate Group, the TWDC Group and
the Holding Company Group shall be recomputed under the relevant sections of
this Agreement to give effect to those adjustments as if such adjustments had
been part of the original determination of the consolidated income Tax
liability. In the case of a refund payable to a member of the TWDC Separate
Group or the Holding Company Group, TWDC (or any other entity designated by
TWDC) or Holding Company, as the case may be, shall make payment to the other of
such group's share of the refund within five (5) business days after the refund
is received by such group. In the case of an increase in Tax liability, Holding
Company shall pay to TWDC (or any other entity designated by TWDC) its share of
such increased Tax liability at least five (5) business days prior to the date
on which the relevant TWDC Group member would expect to pay such Tax liability
to the relevant Taxing Authority.
5
<PAGE>
If any interest is to be paid as a result of any Tax deficiency with respect to
a Consolidated Return, that interest shall be allocated to each of the TWDC
Separate Group and the Holding Company Group in the ratio that each such group's
positive change in Tax liability bears to the total change in the Tax liability,
but not to exceed the amount of the interest to be paid to the relevant Taxing
Authority. If any interest is to be received as a result of any Tax refund with
respect to a Consolidated Return, that interest shall be allocated to each of
the TWDC Separate Group and the Holding Company Group in the ratio that each
such group's negative change in Tax liability bears to the total change in the
Tax liability, but not to exceed the amount of the interest to be received from
the relevant Taxing Authority. If any penalty is to be paid with respect to a
Consolidated Return as a result of any Tax deficiency, that penalty shall be
allocated to the TWDC Separate Group or the Holding Company Group, as the case
may be, whose income resulted in the imposition of such penalty.
7. OTHER TAX ITEMS AND PRINCIPLES. This Agreement shall not apply with
respect to the carryback of any Tax Attribute generated by a corporation that
ceases to be a member of the Holding Company Group and attributable to a taxable
year beginning after the date hereof in which such member is no longer a member
of the relevant TWDC Group. All computations of payments between members of the
Holding Company Group and the TWDC Separate Group hereunder shall (i) be made by
TWDC, and (ii) be adjusted to take into account any corresponding federal Tax
benefit or Tax detriment (whether or not a federal Consolidated Return is
filed). Interest shall be imposed upon any late payment hereunder at the rate
prescribed by Section 6621(a)(2) of the Internal Revenue Code of 1986, as
amended. Holding Company shall provide all Tax returns of
6
<PAGE>
or including any member of the Holding Company Group for TWDC's review and
comment at least fifteen days prior to filing.
8. FEES AND EXPENSES. All fees and expenses (including, without
limitation, allocation of internal overhead costs) associated with administering
this Agreement (including, without limitation, preparing and filing such Tax
returns and addressing audit and controversy matters as are described herein)
shall be shared proportionately by TWDC (or any other entity designated by TWDC)
taking into account other relevant members of the TWDC Group and Holding
Company.
9. DISPUTES. Any dispute concerning the interpretation of a Section or an
amount of payment due under this Agreement shall be resolved by a mutually
selected and jointly engaged independent nationally recognized accounting firm,
the fees and expenses of which to be shared equally by the parties, whose
judgement shall be conclusive and binding on the parties.
10. SUCCESSORS. Unless otherwise provided herein, a party's rights and
obligations under this Agreement may not be assigned without the prior written
consent of the other party to this Agreement. This Agreement shall be binding
upon and inure to the benefit of any successor to any party hereto.
11. EXCLUSIVE AGREEMENT. This Agreement embodies the entire understanding
among the parties as to the subject matter hereof, and no change or modification
may be made except in writing by each of the parties.
12. WAIVERS. The waiver of a breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other breach of
the same or any other term or condition.
7
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
14. CHOICE OF LAW; HEADINGS. This Agreement shall be governed by the
internal laws of the State of California. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
15. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
INFOSEEK CORPORATION, a Deleware
corporation
By: ___________________________________
Name:
Title:
THE WALT DISNEY COMPANY, a Delaware
corporation
By: ___________________________________
Name:
Title:
9
<PAGE>
EXHIBIT 10.6
GOVERNANCE AGREEMENT
BY AND
AMONG
INFOSEEK CORPORATION
A DELAWARE CORPORATION,
DISNEY ENTERPRISES, INC.,
A DELAWARE CORPORATION
AND
THE WALT DISNEY COMPANY,
A DELAWARE CORPORATION
<PAGE>
GOVERNANCE AGREEMENT
This Governance Agreement (hereinafter the "Agreement") is made as of June
18, 1998, by and among Disney Enterprises, Inc., a Delaware corporation ("DEI"),
The Walt Disney Company, a Delaware corporation ("TWDC") (DEI and TWDC are
together referred to herein as the "Purchaser" and for all purposes hereunder
are treated as a single person), and Infoseek Corporation, a Delaware
corporation (the "Company" which term, during the Interim Period, shall be
deemed to refer to Infoseek Corporation, a California corporation, the parent
corporation of the Delaware corporation until the Effective Time). This
Agreement shall be effective on the date hereof; provided, however, that this
Agreement shall terminate in its entirety, and be of no further force and effect
in the event that the Merger Agreement (as defined in Article I below)
terminates pursuant to Section 8 thereof.
A. The Company and DEI have executed the Merger Agreement and entered into
those certain Transaction Agreements (as defined in the Merger Agreement);
B. The Company and the Purchaser desire, in connection with the
consummation of the several transactions contemplated by the Merger Agreement,
to make certain covenants and agreements with one another pursuant to this
Agreement;
C. It is a mutual condition to the execution of the Merger Agreement that
the Purchaser and the Company shall have entered into this Agreement.
NOW THEREFORE, in consideration of the covenants and promises set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings specified with respect thereto below:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and
regulations promulgated under the Exchange Act; provided, however, that for
purposes of this Agreement, the Purchaser and its Affiliates, on the one hand,
and the Company and its Affiliates, on the other, shall not be deemed to be
"Affiliates" of one another.
"Beneficially Own" or "Beneficial Ownership" shall have the meaning set
forth in Rule 13d-3 of the rules and regulations promulgated under the Exchange
Act.
1
<PAGE>
"Change in Control of the Company" shall mean any of the
following: (i) a merger, consolidation or other business combination or
transaction to which the Company is a party if the shareholders of the Company
immediately prior to the effective date of such merger, consolidation or other
business combination or transaction, as a result of such share ownership, have
Beneficial Ownership of voting securities representing less than 50% of the
Total Current Voting Power of the surviving corporation following such merger,
consolidation or other business combination or transaction; (ii) an acquisition
by any person, entity or 13D Group of direct or indirect Beneficial Ownership of
Voting Stock of the Company representing 25% or more of the Total Current Voting
Power of the Company; (iii) a sale of all or substantially all the assets of the
Company; or (iv) a liquidation or dissolution of the Company.
"Change in Control of the Purchaser" shall mean, with respect to either of
TWDC or DEI, any of the following: (i) a merger, consolidation or other business
combination or transaction to which such person is a party if the shareholders
of such person immediately prior to the effective date of such merger,
consolidation or other business combination or transaction have Beneficial
Ownership of voting securities representing less than 50% of the Total Current
Voting Power of the surviving corporation following such merger, consolidation
or other business combination or transaction; (ii) an acquisition by any person,
entity or 13D Group of direct or indirect Beneficial Ownership of voting
securities of such person representing 50% or more of the Total Current Voting
Power of such person; (iii) a sale of all or substantially all the assets of
such person; or (iv) a liquidation or dissolution of such person.
"Closing" shall have the meaning set forth in the Merger Agreement.
"Company Competitor" shall mean Yahoo! Inc., Lycos, Inc., Excite, Inc.,
Netscape Communications Corporation, Microsoft Corporation, CNET, America
Online, Inc. or any of their respective Affiliates, or any successor thereto.
"Company Common Stock" shall mean shares of the Common Stock of the
Company.
"Company Controlled Corporation" shall mean a corporation of which the
Company owns not less than 80% of the outstanding voting power entitled to vote
in the election of directors of such corporation.
"Company Acquisition Issuance Notice" shall have the meaning set forth in
Section 3.1(c)(i).
"Company Financing Issuance Notice" shall have the meaning set forth in
Section 3.1(b)(i).
"Company's Notice" shall have the meaning set forth in Section 3.1(c)
below.
"Company's Other Issuance Notice" shall have the meaning set forth in
Section 3.1(d).
2
<PAGE>
"Disinterested Board Approval" shall mean the affirmative vote or written
consent of a majority of the Disinterested Directors duly obtained in accordance
with the applicable provisions of the Company's bylaws and applicable law.
"Disinterested Director" means, during the Standstill Period, a member of
the Board of Directors of the Company who is not a Purchaser Director and, after
the Standstill Period, a member of the Board of Directors of the Company who is
an Independent Director.
"Disinterested Shareholder" shall mean any shareholder of the Company who
is not the Purchaser or an Affiliate of the Purchaser or a member of a 13D
Group in which the Purchaser or an Affiliate of the Purchaser is also a member.
"Disinterested Shareholder Approval" shall mean the affirmative vote or
written consent of greater than 50% of the Total Current Voting Power of all
Disinterested Shareholders duly obtained in accordance with the applicable
provisions of the Company's bylaws and applicable law.
"Effective Time" shall have the meaning set forth in the Merger Agreement.
"Estimated Purchase Price" shall have the meaning set forth in Section
3.1(b).
"Event Requiring Disinterested Board Approval" shall mean: (i) any
amendment to the Company's bylaws or Certificate of Incorporation, (ii) any
transaction between the Company (or any Affiliate of the Company) and the
Purchaser (or any Affiliate of the Purchaser), except with respect to the
several transactions contemplated by the various agreements between the Company
and the Purchaser entered into on the date hereof, which (a) requires payments
by any party in excess of $5 million or (b) contemplates a term equal to or in
excess of three years, (iii) adoption of a "poison pill" share purchase rights
plan by the Company, or any amendment of, or redemption or exchange of, rights
issued pursuant to any such plan provided that, such plan excludes from the
definition of "Acquiring Person" therein Purchaser and wholly owned (direct or
indirect) subsidiaries of the Purchaser so long as neither Purchaser nor any
Purchaser Affiliate has breached Section 2.1(a), (d), (e) or (f) of this
Agreement and so long as Purchaser Beneficially owns at least 5% of the Total
Current Voting Power, (iv) any transfer of any Shares or Non-Voting Convertible
Securities by the Purchaser to a Company Competitor in a private placement (as
opposed to a public offering), (v) during the Standstill Period, any transfer of
25% or more of the Voting Stock by the Purchaser in a private placement (as
opposed to a public offering) to any single person or 13D Group, (vi) commencing
a tender offer or exchange offer by Purchaser or any Affiliate of Purchaser (or
any 13D Group that includes Purchaser or any Affiliate of Purchaser) to purchase
or exchange for cash or other consideration any Voting Stock, except for a
Purchaser Tender Offer made (A) during a Third Party Tender Offer, or (B)
following a Standstill Termination Event so long as the cause of the Standstill
Termination Event was not a Purchaser Tender Offer, (vii) any of the events
described in Sections 2.1(d), 2.1(e) or 2.1(f) below, (viii) any termination by
the Purchaser (not the Company) of that certain License Agreement of even date
herewith between DEI and the Company (A) pursuant to Section 10.1(b) thereof, at
any time after a majority of
3
<PAGE>
the members of the Company's Board of Directors are Purchaser Directors, (B)
pursuant to Section 10.1(a) thereof if the event that causes Purchaser to have
the right to terminate pursuant to such Section 10.1(a) is (y) a transfer by
the Purchaser of Shares which results in a third party owning 25% or more of
the Total Current Voting Power of the Company (other than a transfer pursuant
to a Third Party Tender Offer whether for 25% of the Total Current Voting
Power or a greater or lesser amount) or (z) after a majority of the members of
the Company's Board of Directors are Purchaser Directors, an issuance of
shares of common stock by the Company which results in a third party owning
25% or more of the Total Current Voting Power of the Company, or (C) pursuant
to Section 10.1(c) thereof if the event that causes the Purchaser to have the
right to terminate pursuant to Section 10.1(c) is that the Purchaser, in its
capacity as a shareholder (and not as a creditor) of the Company, has applied
for or actively supported the appointment of a receiver for the Company or a
Company Controlled Corporation and such receiver has been appointed, (ix) a
transfer by the Purchaser of Shares which results in a third party owning 25%
or more of the Total Current Voting Power of the Company (other than a
transfer pursuant to Third Party Tender Offer whether for 25% of the Total
Current Voting Power or a greater or lesser amount) (x) during the Standstill
Period, or after the Standstill Period, unless the Purchaser owns 50% or more
of the Total Current Voting Power, any of items (i) through (iv) set forth as
an Event Requiring Disinterested Shareholder Approval, (xi) any dissolution or
liquidation of the Company or a Company Controlled Corporation, (xii)
voluntary filing of a petition for bankruptcy or receivership by the Company
or a Company Controlled Corporation, or the failure to oppose any other
person's petition for bankruptcy or any other person's action to appoint a
receiver of the Company or a Company Controlled Corporation, or (xiii) any
amendment, modification or waiver (including a termination other than in
accordance with the various termination provisions contained herein) of any of
the provisions of this Agreement.
"Event Requiring Disinterested Shareholder Approval" shall mean: (i) the
amendment of any portion of the Company's bylaws that effectuates therein the
provisions of Section 4.1 or 4.2 of this Agreement, (ii) a sale or disposition
of all or substantially all of the Company's assets, (iii) except with respect
to the several transactions contemplated by the various agreements between the
Company and the Purchaser entered into as of the date hereof, the issuance of
securities of the Company representing 20% or more of (a) the then Total
Outstanding Company Equity or (b) the then Total Current Voting Power of the
Company, or (iv) a merger, consolidation, or other reorganization of the Company
with or into Purchaser or any Affiliate of the Purchaser.
"Event Requiring Supermajority Board Approval" shall mean (i) any amendment
of the Company's bylaws or the Company's Certificate of Incorporation, (ii) a
Change in Control of the Company or any subsidiary of the Company, (iii) a sale
of more than 15% of the total assets of the Company or any subsidiary of the
Company, (iv) issuances of securities of the Company representing 15% or more of
the Total Current Voting Power, (v) the sale or issuance of any securities of
the Company for consideration of $200 million or more, (vi) transactions
involving expenditures of cash by the Company or any subsidiary or incurrence of
indebtedness by the Company or any subsidiary, in either case, in excess of $200
million, or (vii) appointment of a new Chief Executive Officer of the
4
<PAGE>
Company; provided that, during the Interim Period, the amount of consideration
set forth in clauses (v) and (vi) above shall be $25 million.
"Excess Directors" shall have the meaning set forth in Section 3.2(e).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any date of determination, (i) in the case
of Company Common Stock, the average of the closing sale prices of Company
Common Stock during the 10 trading days immediately preceding such date of
determination on the principal U.S. or foreign securities exchange on which such
Company Common Stock is listed or, if such Company Common Stock is not listed or
primarily traded on any such exchange, the average of the closing sale prices or
the closing bid quotations of such security during the 10-day period preceding
such date of determination on Nasdaq or any comparable system then in use or, if
no such quotations are available, the fair market value of such security as of
such date of determination as determined in good faith by a majority of the
Independent Directors and (ii) in the case of property other than cash or a
security, the fair market value of such property on such date of determination
as determined in good faith by a majority of Independent Directors; provided,
however, if Purchaser disputes such determination, then the fair market value
shall be as determined by two Investment Banks, with one Investment Bank to be
selected by each of the Company and the Purchaser for such purpose. Each such
Investment Bank shall determine the fair market value and shall deliver its
written valuation to the Company and the Purchaser within thirty (30) days after
selection. In the event that such Investment Banks do not agree on the fair
market value, the fair market value shall be the average of the two valuations,
except that if the higher of the two valuations is greater than 100% of the
lower valuation, the Investment Banks shall select another Investment Bank of
similar qualifications who shall determine the fair market value independently
of such selection in accordance with the procedures specified in the foregoing
sentence. None of the Company, the Purchaser or the initial Investment Banks
shall provide the third Investment Bank with information regarding the valuation
of the initial Investment Banks. The valuation of the third Investment Bank
shall be arithmetically averaged with the two prior valuations and the valuation
farthest from the average of the three valuations shall be disregarded. The
fair market value shall be the average of the two remaining valuations. The
Company and the Purchaser shall each pay one-half of the expense of the
valuation.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Independent Director" shall mean a director of the Company (i) who is not
and has never been an officer or employee of the Company, any Affiliate of the
Company or of an entity that derived 10% or more of its revenues in its most
recent fiscal year from transactions involving the Company or any Affiliate of
the Company, (ii) who is not and has never been an officer or employee and is
not currently a director of Purchaser or any Affiliate of Purchaser or of an
entity that derived more than 10% of its revenues in its most recent fiscal year
from transactions involving Purchaser or any Affiliate of Purchaser and (iii)
who has no compensation, consulting or contracting arrangement with the Company,
5
<PAGE>
Purchaser or their respective Affiliates or any other entity such that a
reasonable person would regard such director as likely to be unduly influenced
by management of the Company or Purchaser, respectively, and shall, by
definition, not include any Purchaser Director.
"Interim Period" shall mean the period of time from the date first written
above until the Effective Time.
"Investment Bank" means any nationally recognized investment banking firm
that has not had any significant relationship with the Company or its Affiliates
or the Purchaser or its Affiliates in the last 12 months.
"Merger Agreement" shall mean that certain Agreement and Plan of
Reorganization by and among Starwave Corporation, a Washington corporation, and
the parties hereto except TWDC.
"Nasdaq" shall mean the Nasdaq Stock Market.
"New Securities" shall mean an issuance by the Company of Voting Stock or
Non-Voting Convertible Securities, excluding any such issuance (i) upon
exercise, conversion or exchange of any security convertible into or exercisable
or exchangeable for Voting Stock outstanding on the date of this Agreement
(including, but not limited to Non-Voting Convertible Securities issued under
the Company's 1996 Stock Option/Stock Issuance Plan), (ii) upon exercise of any
option, warrant or other right to acquire any Voting Stock or Non-Voting
Convertible Securities that was previously subject to the Purchaser's right to
maintain under Section 3.1 below, (iii) of Voting Stock and Warrants to
Purchaser in connection with the several transactions contemplated by the Merger
Agreement and Securities Purchase Agreement, or (iv) Securities issued pursuant
to the exercise by the Purchaser of its rights pursuant to Section 3.1 below.
"Non-Voting Convertible Securities" shall mean any securities of the
Company which are convertible into, exchangeable for or otherwise exercisable to
acquire Voting Stock of the Company, including convertible securities, warrants,
rights or options to purchase Voting Stock of the Company.
"Purchase Price" shall have the meaning set forth in Section 3.1(a) below.
"Purchaser Competitor" shall mean Time Warner Inc., NewsCorp, Viacom Inc.,
Sony Corporation, Seagrams/Universal, Dreamworks SKG, MGM, Polygram, CBS
Corporation, NBC, TCI Satellite Entertainment Inc., USA Networks Inc., America
Online, Inc., Microsoft Corporation and any of their respective Affiliates, or
any successor thereto.
"Purchaser Controlled Corporation" shall mean a corporation of which the
Purchaser owns not less than 80% of the outstanding voting power entitled to
vote in the election of directors of such corporation.
6
<PAGE>
"Purchaser Director" shall mean a member of the Board of Directors of the
Company who (i) is designated for such position by Purchaser in accordance with
Section 3.2 below, or (ii) is or has been an officer or employee of Purchaser or
any Affiliate of Purchaser or of an entity that derived more than 10% of its
revenues in its most recent fiscal year from transactions involving Purchaser or
any Affiliate of Purchaser, or (iii) has a compensation, consulting or
contracting arrangement with Purchaser or any of its Affiliates or any other
entity such that a reasonable person would regard such director as likely to be
unduly influenced by management of Purchaser.
"Purchaser's Acquisition Issuance Notice" shall have the meaning set forth
in Section 3.1(c)(ii).
"Purchaser's Financing Issuance Notice" shall have the meaning set forth in
Section 3.1(b)(ii).
"Purchaser's Pro Rata Portion" shall mean either (i) in the case of any
issuances of New Securities for cash consideration in the manner described in
Section 3.1(b) hereof, 43% of the number of New Securities, or (ii) in the case
of any issuance of New Securities for non-cash consideration in the manner
described in Section 3.1(c) hereof that number of New Securities that solves for
"X" according to the following formula: X/(the number of New Securities +
X)=43%.
"Purchaser Pro Rata Vote Threshold" means 43% of the Total Current Voting
Power.
"Purchaser Tender Offer" shall mean a bona fide public tender offer subject
to the provisions of Regulation 14D when first commenced within the meaning of
Rule 14d-2(a) of the rules and regulations under the Exchange Act, by the
Purchaser or any Affiliate of the Purchaser (or any 13D Group that includes
Purchaser or any Affiliate of Purchaser) to purchase or exchange for cash or
other consideration any Voting Stock and which consists of an offer to acquire
100% of the Total Current Voting Power of the Company then in effect (other than
Shares owned by the Purchaser or any Affiliate of the Purchaser) and is
conditioned (which condition may not be waived) on a majority of the shares of
Voting Stock held by Disinterested Shareholders being tendered and not withdrawn
with respect to such offer.
"Purchaser's Notice" shall have the meaning set forth in Section 3.1(c)
below.
"Response Notice" shall have the meaning set forth in Section 2.3(a)(ii)
below.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Purchase Agreement" shall mean that certain Common Stock and
Warrant Purchase Agreement, between the Company and TWDC.
7
<PAGE>
"Shares" shall mean any shares of Voting Stock that are Beneficially Owned
by the Purchaser, including any share of Voting Stock acquired upon exercise of
any Warrants, but specifically excluding any shares of Company Common Stock
subject to the Warrant or any other Non-Voting Convertible Securities that have
not yet been exercised, converted or exchanged for Voting Stock.
"Share Repurchase Price" shall have the meaning set forth in Section 2.5
below.
"Standstill Limit" shall mean 49.9% of the Total Current Voting Power.
"Standstill Period" shall mean the period beginning on the date hereof and
ending on the occurrence of a Standstill Termination Event.
"Standstill Reinstatement Event" shall mean the occurrence of either of the
following prior to the third anniversary of the Closing: (i) withdrawal or
termination of a Third Party Tender Offer at any time during which a Purchaser
Tender Offer is not then pending or (ii) withdrawal, termination, or material
alteration of a Purchaser Tender Offer other than an increase in price.
"Standstill Revised Limit" shall mean the percentage of the Total Current
Voting Power represented by all Shares held by the Purchaser as of the
occurrence of a Standstill Reinstatement Event.
"Standstill Termination Event" shall mean the earliest to occur of the
following: (i) the third anniversary of the Closing, (ii) a Change in Control
of the Company, (iii) a Third Party Tender Offer, (iv) a Purchaser Tender Offer,
or (v) any person who is not the Purchaser or an Affiliate of the Purchaser or
13D Group to which the Purchaser or an Affiliate of the Purchaser is a member
has acquired any Voting Stock which results in such person or 13D Group owning
or having the right to acquire more than 25% of the Total Current Voting Power
unless such acquisition of shares by such person or 13D Group was approved by
the Company's Board of Directors pursuant to Supermajority Board Approval;
provided however, that upon a Standstill Reinstatement Event, the Standstill
Termination Event shall be deemed not to have occurred and the Standstill Period
shall be deemed to be reinstated except that, upon the third anniversary of the
Closing, the Standstill Period shall be permanently terminated for all purposes
hereunder; and provided further that, upon a Standstill Reinstatement Event, if
the Standstill Revised Limit is greater than the Standstill Limit, then the
Standstill Revised Limit and not the Standstill Limit shall thereafter be deemed
the Standstill Limit for all purposes hereunder.
"Supermajority Board Approval" shall mean the affirmative vote of 75% or
more of the members of Company's Board of Directors; provided that, during the
Interim Period or at any time that Purchaser Beneficially Owns more than 25% of
the Total Current Voting Power of the Company and, notwithstanding that
Purchaser voted all shares Beneficially Owned by Purchaser in the most recent
election of members of the Board of Directors of the Company for all of the
designees of Purchaser to the Board of Directors of the Company (which number of
designees was the maximum number Purchaser was entitled to designate pursuant to
the provisions of Section 3.2(b)), the number of Purchaser Directors is fewer
than the number Purchaser is entitled to designate pursuant to the provisions
8
<PAGE>
of Section 3.2(b), a Supermajority Board Approval shall not be deemed to have
been obtained unless the written consent of Purchaser shall have been obtained
with respect to the Event Requiring Supermajority Board Approval.
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D when first commenced within the
meaning of Rule 14d-2(a) of the rules and regulations under the Exchange Act, by
a person or 13D Group (which is not made by and does not include any of the
Company, the Purchaser or any Affiliate of either of them) to purchase or
exchange for cash or other consideration any Voting Stock and which consists of
an offer to acquire 25% or more of the then Total Current Voting Power of the
Company.
"Total Current Voting Power" shall mean, with respect to any corporation
the total number of votes which may be cast in the election of members of the
Board of Directors of the corporation if all securities entitled to vote in the
election of such directors are present and voted.
"Total Outstanding Company Equity" shall mean the total number of shares of
outstanding capital stock of the Company, on a fully diluted basis assuming the
conversion, exchange or exercise of all outstanding securities, whether vested
or unvested, convertible, exchangeable or exercisable into or for Company Common
Stock.
"Transfer Notice" shall have the meaning set forth in Section 2.3(a)(i)
below.
"Voting Stock" shall mean shares of the Company Common Stock and any other
securities of the Company having the ordinary power to vote in the election of
members of the Board of Directors of the Company.
"Warrants" shall mean those certain warrants exercisable to purchase
Company Common Stock sold to TWDC pursuant to the Securities Purchase Agreement
and any warrants acquired by the Purchaser from the Company pursuant to the
exercise of Purchaser's rights under Section 3.1 below.
"Warrant Coverage" shall have the meaning set forth in Section 3.1(a)(ii)
below.
"Warrant Price" shall have the meaning set forth in Section 3.1(a)(ii)
below.
"Warrant Repurchase Price" shall have the meaning set forth in Section 2.5
below.
"13D Group" means any group of persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder, to file a statement on Schedule 13D pursuant to Rule 13d-1(a) or a
Schedule 13G pursuant to Rule 13d-1(c) with the SEC as a "person" within the
meaning of Section 13(d)(3) of the Exchange Act if such group beneficially owned
Voting Stock representing more than 5% of any class of Voting Stock then
outstanding.
9
<PAGE>
ARTICLE II
THE PURCHASER'S COVENANTS AND THE COMPANY'S RIGHTS
2.1 THE PURCHASER'S STANDSTILL OBLIGATIONS.
(a) Notwithstanding anything to the contrary contained herein and
only during the Standstill Period, none of the Purchaser, any Affiliate of the
Purchaser or any 13D Group of which Purchaser or any of its Affiliates is a
member shall, directly or indirectly, acquire or Beneficially Own Voting Stock
or authorize or make a tender offer, exchange offer or other offer therefor,
if the effect of such acquisition would be to increase the percentage of Total
Current Voting Power represented by all Shares Beneficially Owned by the
Purchaser (including any Shares acquired by the Purchaser pursuant to the
exercise of any Warrant but excluding any Shares that remain subject to the
Warrant) to more than the Standstill Limit, provided that, the foregoing shall
not prohibit the Purchaser and/or any of its Affiliates from making a
Purchaser Tender Offer during the Standstill Period that has been approved by
a majority of Disinterested Directors.
(b) The Purchaser shall not be deemed to have violated its
covenants under this Section 2.1 by virtue of any increase in the aggregate
percentage of the Total Current Voting Power of the Company represented by
Shares Beneficially Owned by the Purchaser or its Affiliates if such increase
is the result of a recapitalization of the Company, a repurchase of securities
by the Company or other actions taken by the Company or any of the Company's
Affiliates that have the effect of reducing the Total Current Voting Power.
(c) During the Standstill Period, the Purchaser shall notify the
Company of the Purchaser's acquisition of the Beneficial Ownership of Voting
Stock or Non-Voting Convertible Securities (other than pursuant to the
Securities Purchase Agreement, the Warrant or an exercise of Purchaser's rights
to maintain set forth in Article III of this Agreement) promptly after each such
acquisition and in any event not more than five (5) business days thereafter.
All of the Purchaser's acquisitions of Shares shall comply with applicable
federal and state securities laws and be subject to the provisions of this
Agreement.
(d) During the Standstill Period, the Purchaser shall not, without
first obtaining Disinterested Board Approval, solicit proxies with respect to
any Voting Stock, nor shall it become a "participant" in any "election
contest" (as such terms are used in Rule 14(a)-11 of Regulation 14A
promulgated under the Exchange Act) relating to the election of directors of
the Company. Purchaser shall not be deemed to be such "participant" merely by
reason of the membership of the Purchaser's Directors on the Company's Board
of Directors pursuant to the terms of this Agreement.
(e) During the Standstill Period, the Purchaser shall not, without
first obtaining Disinterested Board Approval, deposit any shares of Voting
Stock in a voting trust or, except as
10
<PAGE>
otherwise provided or contemplated herein (including Section 2.4 hereof), or
subject any Voting Stock to any arrangement or agreement with any third party
with respect to the voting of such Voting Stock.
(f) During the Standstill Period, the Purchaser shall not, without
first obtaining Disinterested Board Approval, join a 13D Group, partnership,
limited partnership, syndicate or other group, or otherwise act in concert with
any third person for the purpose of acquiring, holding, voting or disposing of
Voting Stock or Non-Voting Convertible Securities.
2.2 THE PURCHASER'S TRANSFER RESTRICTIONS.
(a) Unless the Purchaser Beneficially Owns less than 5% of the
Total Current Voting Power or until the Purchaser owns at least 90% of the
Total Current Voting Power, the Purchaser shall not, directly or indirectly,
sell, transfer, pledge, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise dispose of, any Shares or Non-Voting
Convertible Securities except: (i) to the Company; (ii) to a Purchaser
Controlled Corporation, so long as such Purchaser Controlled Corporation
agrees to hold such Shares subject to all of the provisions of Sections 2.1,
2.2, 2.3, 2.4 and 2.5 of this Agreement, and agrees to transfer such Voting
Stock to the Purchaser or another Purchaser Controlled Corporation if it
ceases to be a Purchaser Controlled Corporation; (iii) after the Standstill
Period, pursuant to a bona fide firmly underwritten public offering (which
underwriter or underwriters of such offering shall include, if requested by a
majority of the Disinterested Directors, an underwriter selected by a majority
of the Disinterested Directors) registered under the Securities Act; (iv)
after the Standstill Period, pursuant to a rights offering, dividend or other
pro rata distribution to the stockholders of the Purchaser; (v) after the
Standstill Period, pursuant to Rule 144 promulgated under the Securities Act
(including observance of the requirements of paragraph (f) of such rule,
whether or not otherwise applicable to such disposition); (vi) after the
Standstill Period, in private placement transactions exempt from the
registration requirements of the Securities Act; provided that if such private
placement transactions described in this subclause, directly or indirectly,
result in the transfer to any single person or 13D Group of 5% or more of the
Total Current Voting Power of the Company, such transfer shall be subject to
the provisions of Section 2.3 below; (vii) in response to a bona fide public
tender offer or exchange offer subject to Regulation 14D or Rule 13e-3
promulgated under the Exchange Act for cash or other consideration which is
made by or on behalf of the Company, or (viii) in response to a Third Party
Tender Offer (whether for 25% of the Total Current Voting Power or a greater
or lesser amount) which is not opposed by the Board of Directors of the
Company within the time such Board is required, pursuant to the rules and
regulations promulgated under the Exchange Act, to advise Company shareholders
of such Board's position on such offer, or (ix) in response to any Third Party
Tender Offer which, if successful, would result in such person or group owning
or having the right to acquire more than 50% of the Total Current Voting
Power.
(b) Notwithstanding the foregoing paragraph, unless the Purchaser
Beneficially Owns less than 5% of the Total Current Voting Power or until the
Purchaser owns at least 90% of the Total Current Voting Power, any sale,
transfer or other disposition that constitutes an Event Requiring
Disinterested
11
<PAGE>
Board Approval under subclause (iv) or (v) of the definition thereof shall be
prohibited, unless Disinterested Board Approval is first obtained in
connection with such proposed transfer. In addition, except in the case of a
bona fide offer or proposal that, if consummated, would result in a Change in
Control of the Company (in which event the following restrictions would
terminate), unless the Purchaser Beneficially Owns less than 5% of the Total
Current Voting Power or until the Purchaser owns at least 90% of the Total
Current Voting Power, the Purchaser agrees (i) not to transfer any Shares
acquired upon exercise of any Warrants for a one year period after the date of
the acquisition of such Shares, except to a Purchaser Controlled Corporation
or upon the occurrence of a Third Party Tender Offer as described in paragraph
(a) (vii), (viii) or (ix) above and (ii) not to transfer any Warrants except
to a Purchaser Controlled Corporation.
(c) No Transferee of the Shares or Non-Voting Convertible Securities
sold, transferred or otherwise disposed of by the Purchaser as permitted by
this Section 2.2 shall be bound (other than a Purchaser Controlled Corporation
after a transfer of shares in accordance with the provisions of (a)(ii) of
this Section) by the terms of this Agreement, nor shall such transferee be
entitled, in any manner whatsoever, to any rights afforded Purchaser under
this Agreement (other than a Purchaser Controlled Corporation after a transfer
of Shares in accordance with the provisions of (a)(ii) of this Section.)
(d) Any attempted sale, transfer or other disposition by Purchaser or
a Purchaser Controlled Corporation which is not in compliance with this
Section 2.2 shall be null and void.
2.3 THE COMPANY'S RIGHT OF FIRST REFUSAL.
(a) Unless the Purchaser Beneficially Owns Shares representing
less than 5% of the Total Current Voting Power or until the Purchaser owns at
least 90% of the Total Current Voting Power, prior to the Purchaser effecting
any sale, transfer or other disposition of Shares or Non-Voting Convertible
Securities pursuant to Section 2.2(a)(vi) above, the Company shall have a
first refusal right to purchase such Shares or Non-Voting Convertible
Securities on the following terms and conditions:
(i) The Purchaser shall give prior notice (the "Transfer
Notice") to the Company in writing of such intention, specifying the name of
the proposed purchaser or transferee, the number of Shares or Non-Voting
Convertible Securities proposed to be sold or transferred, the proposed price
therefor and the other material terms upon which such disposition is proposed
to be made.
(ii) The Company shall have the right, exercisable by
written notice given by the Company to the Purchaser within ten (10) business
days after receipt of such Transfer Notice (the "Response Notice"), to
purchase all, but not less than all the Shares or Non-Voting Convertible
Securities specified in such Transfer Notice for cash at the price per share
or, if consideration other than cash is specified in the Transfer Notice, in
an amount equal to the Fair Market Value of such non-cash consideration,
specified in the Transfer Notice.
12
<PAGE>
(iii) If the Company exercises its right of first refusal
hereunder, the Closing of the purchase of the Shares or Non-Voting Convertible
Securities with respect to which such right has been exercised shall take
place within sixty (60) calendar days after the Company gives the Response
Notice to the Purchaser or, if later, within 5 business days of the
determination of the Fair Market Value of any non-cash consideration. Upon
exercise of its right of first refusal, the Company and the Purchaser shall be
legally obligated to consummate the purchase and sale contemplated thereby and
shall use their best efforts to secure any approvals required in connection
therewith.
(iv) If the Company does not exercise its right of first
refusal hereunder within the time specified for such exercise, the Purchaser
shall be free, during the period of ninety (90) calendar days following the
expiration of such time for exercise, to sell the Shares or Non-Voting
Convertible Securities specified in such Transfer Notice to the proposed
purchaser or transferee specified in such Transfer Notice and on terms not
materially less favorable to the Purchaser than the terms specified in such
Transfer Notice.
(b) The Company may assign its right of first refusal hereunder
to any other person or persons except a Purchaser Competitor.
2.4 THE PURCHASER'S VOTING OBLIGATIONS.
(a) The Purchaser shall take such action as may be required so
that all shares of Voting Stock Beneficially Owned by the Purchaser are voted
for or cast in favor of: (i) during the Standstill Period, nominees to the
Board of Directors of the Company in accordance with this Agreement and the
joint recommendations of management of the Company and a majority of the
Disinterested Directors, (ii) increases in the authorized capital stock of the
Company and amendments to stock option plans and employee stock purchase
plans, in each case approved by the Company's Board of Directors, and (iii)
all matters approved by a majority of the Purchaser's Directors whether such
matters are submitted to a vote, action by written consent or other approval
of the holders of Voting Stock of the Company.
(b) Unless otherwise approved by a majority of the Disinterested
Directors, during the Standstill Period, on all matters submitted to the vote,
written consent or approval of the holders of Voting Stock other than those
matters set forth in clauses (i), (ii) or (iii) of paragraph (a) above, the
Purchaser shall take such action as may be required so that all Shares of Voting
Stock Beneficially Owned by the Purchaser which are in excess of the number of
Shares representing the Purchaser Pro Rata Voting Threshold are voted or cast on
all matters submitted to a vote, consent or other approval of the shareholders
of the Company on each such matter in the same proportion as the votes cast by
the Voting Stock held by the Disinterested Shareholders with respect to such
matters.
(c) Except as set forth in paragraphs (a) and (b) above, and in
Section 3.2(c) below, nothing in this Agreement shall preclude the Purchaser
from voting shares of Voting Stock which it Beneficially Owns in such manner as
the Purchaser determines, in its sole discretion, on any matter
13
<PAGE>
presented to the holders of Voting Stock for a vote, consent or other
approval; provided, however, that, in no event shall the Purchaser exercise
dissenter's rights under applicable law in connection with any merger,
consolidation or other reorganization which is approved by the Company's Board
of Directors and which is intended to qualify for pooling-of-interests
accounting treatment (to be reflected in a comfort letter from a nationally
recognized accounting firm in customary form) and in connection with any such
pooling-of-interests transaction, Purchaser hereby covenants to enter into a
standard affiliate lock-up agreement if requested by the Company, regardless
of the manner in which the Purchaser may have voted or cast Shares of Voting
Stock Beneficially Owned by the Purchaser with respect to such transaction.
(d) So long as the Purchaser Beneficially Owns at least 10% of
the Total Current Voting Power, the Purchaser, as the holder of Shares (or, if
applicable, any Purchaser Controlled Corporation), shall be present, in person
or by proxy, at all meetings of shareholders of the Company so that all shares
of Voting Stock held by the Purchaser (or such Purchaser Controlled
Corporation) may be counted for purposes of determining the presence of a
quorum at such meetings.
2.5 THE COMPANY'S REPURCHASE RIGHT. If at any time there is a Change in
Control of the Purchaser and Purchaser does not then Beneficially Own Shares
representing a majority of the then Total Current Voting Power of the Company,
then the Company shall have the right to purchase all, but not less than all, of
the Shares and the Warrants then owned by the Purchaser and its Affiliates, at
any time not to exceed sixty (60) days after Purchaser informs the Company in
writing of such Change in Control of the Purchaser, provided that, not later
than 10 business days after receipt of such notice, the Company notifies the
Purchaser in writing of its intent to exercise the right of repurchase under
this Section 2.5. The purchase price per share of such Shares shall be the Fair
Market Value thereof as of the date of occurrence of the Change in Control of
the Purchaser (the "Share Repurchase Price") and the purchase price for any
Warrant(s) shall be the purchase price of such Warrant(s) paid by Purchaser to
the Company for such Warrant(s) (the "Warrant Repurchase Price"). Payment of
the Share Repurchase Price and the Warrant Repurchase Price, as applicable,
shall be made by the Company in cash (by wire transfer) to the Purchaser within
the 60-day period specified above. The Company may not assign its right of
repurchase under this Section except to a Company Controlled Corporation.
ARTICLE III
THE COMPANY'S COVENANTS AND THE PURCHASER'S RIGHTS
3.1 THE PURCHASER'S RIGHTS TO MAINTAIN.
(a) IN GENERAL
(i) During the Standstill Period, provided that the
Purchaser Beneficially Owns at least 10% of the Total Outstanding Company
Equity, if the percentage interest of the Purchaser
14
<PAGE>
in the Total Outstanding Company Equity is or would be reduced at any time as
a result of an issuance of New Securities (as described in subsections (b),
(c) and (d) below), the Purchaser shall have the right to purchase for cash
the Purchaser's Pro Rata Portion, in whole or in part, at an aggregate
purchase price equal to the product of the price per share at which such New
Securities were or will be sold in such issuance (as determined in accordance
with subsection (b), (c)or (d) below, as applicable) multiplied by the
Purchaser's Pro Rata Portion or any part thereof (the "Purchase Price").
(ii) In addition, upon any issuance of New Securities,
and only if any of (A) the Purchaser purchases at least 15% of the Purchaser's
Pro Rata Portion from the Company or in the market in accordance with
paragraph (c)(iv) below, or (B) during the Standstill Period, the Purchaser
owns at least 35% of the Total Outstanding Company Equity or (C) after the
Standstill Period, the Purchaser owns at least 30% of the Total Outstanding
Company Equity, then the Purchaser shall also have the right to purchase for
cash a Warrant of the Company exercisable for such number of New Securities,
either (A) in the event of an issuance of New Securities in the manner
described in paragraph (b) of this Section, then equal to 15% of the New
Securities, or (B) in the event of an issuance of New Securities in the manner
described in paragraph (c) of this Section, then equal to 15% of the New
Securities plus that number of New Securities of the Purchaser's Pro Rata
Portion actually purchased by the Purchaser (either (A) or (B) as applicable,
the "Warrant Coverage"). Any such Warrant shall be in the form of the Warrants
purchased by the Purchaser pursuant to the Securities Purchase Agreement,
provided however, that any Warrants purchased hereunder shall be fully vested
and exercisable, and the per share exercise price for such New Securities
underlying such Warrant shall be equal to the price per share at which such
New Securities were sold in such issuance of such New Securities (as
determined in accordance with subsection (b), (c) or (d) below, as
applicable). In connection with the exercise of its rights under this
paragraph, Purchaser shall pay the Company in cash for any such Warrant an
amount determined by (A) the Company and the Purchaser or (B) an Investment
Bank mutually agreed upon by the Company and the Purchaser to be the fair
market value (based on a Black-Scholes option pricing model) of such Warrant
(the "Warrant Price"). If the Company and the Purchaser cannot agree on a
Warrant Price or Investment Bank within thirty (30) days after the Company's
receipt of the applicable Purchaser's Notice, then the Warrant Price shall be
determined (on a Black-Scholes option pricing model) by two Investment Banks,
with one Investment Bank to be selected by each of the Company and the
Purchaser for such purpose. Unless otherwise waived by the Company or the
Purchaser, respectively, the Investment Banks selected pursuant to the
preceding sentence shall not have had any significant relationship with the
Purchaser or the Company, respectively, during the prior twelve month period.
Each such Investment Bank shall determine fair market value by reference to
the Black-Scholes option pricing model and shall deliver its written valuation
to the Company and the Purchaser within thirty (30) days after selection. In
the event that such Investment Banks do not agree on the fair market value,
the fair market value shall be the average of the two valuations, except that
if the higher of the two valuations is greater than 100% of the lower
valuation, the Investment Banks shall select another Investment Bank of
similar qualifications who shall determine the fair market value independently
of such selection in accordance with the procedures specified in the foregoing
sentence. None of the Company, the Purchaser or the initial Investment Banks
shall provide the third Investment Bank with information regarding the
valuation of the initial Investment Banks. The
15
<PAGE>
valuation of the third Investment Bank shall be arithmetically averaged with
the two prior valuations and the valuation farthest from the average of the
three valuations shall be disregarded. The fair market value shall be the
average of the two remaining valuations. The Company and the Purchaser shall
each pay one-half of the expenses of the valuations.
(b) FINANCING ISSUANCES.
(i) No less than ten (10), and no more than thirty (30),
calendar days prior to the issuance and sale of any New Securities for cash
consideration in a financing transaction (which shall not include any
transaction specifically described in subsections (c) or (d) below), the
Company shall notify the Purchaser of the Company's intention to make such
issuance by written dated notice (the "Company's Financing Issuance Notice")
setting forth the number and type of New Securities, the calculation of the
Purchaser's Pro Rata Portion, the closing price of the Company Common Stock on
the prior trading day, and the Warrant Coverage.
(ii) Within seven (7) calendar days after receipt by the
Purchaser of the Company's Financing Issuance Notice, the Purchaser shall
notify the Company by written notice (the "Purchaser's Financing Issuance
Notice") stating whether the Purchaser desires to buy the Purchaser's Pro Rata
Portion, or any part thereof, for the Purchase Price and, if entitled to a
Warrant pursuant to paragraph (a)(ii)(A), (B) or (C) of this Section 3.1, the
Warrant for the Warrant Price. The closing price of the Company Common Stock
on Nasdaq or other securities exchange on which the Voting Stock is traded on
the date of the Purchaser's Financing Issuance Notice shall be the "Estimated
Purchase Price".
(iii) If the Company issues and sells the New Securities in
the financing transaction, then the Purchaser shall be obligated to purchase
(if it has elected to exercise its right to maintain in the Purchaser's
Financing Issuance Notice) the Purchaser's Pro Rata Portion (or part thereof)
for the Purchase Price and the Warrant for the Warrant Price (with such
Purchase Price and Warrant Price based on the price per share paid by the
ultimate investors in the financing); provided, however, that if a preliminary
"red herring" prospectus is filed and the Fair Market Value of the Company's
Common Stock is 10% greater than the Estimated Purchase Price as set forth in
the Purchaser's Financing Issuance Notice at the closing of Nasdaq or other
securities exchange on which the Voting Stock is traded on the date three (3)
trading days after such filing, the Purchaser shall be under no obligation to
purchase the Purchaser's Pro Rata Portion or the Warrant (even if it has
elected to purchase the Purchaser's Pro Rata Portion and/or the Warrant in the
Purchaser's Financing Issuance Notice) but shall have the right to buy the
Purchaser's Pro Rata Portion, or any part thereof, and/or the Warrant (as
applicable) if the Purchaser delivers a second Purchaser's Financing Issuance
Notice within five (5) calendar days after the end of the three-day trading
period set forth above, but the Purchaser shall then be committed in
accordance with its election detailed in such Purchaser's Financing Issuance
Notice. The closing of any purchases pursuant to this Section (b) shall take
place contemporaneously with such financing, subject to the provisions of
paragraph (e) below. If the Purchaser either (A) does not deliver a
Purchaser's Financing Issuance Notice within the time periods specified above
or (B) elects
16
<PAGE>
in the Purchaser's Financing Issuance Notice not to purchase the Purchaser's
Pro Rata Portion or any part thereof and/or the Warrant (as applicable), the
the Company shall not be obligated to sell to the Purchaser the Purchaser's
Pro Rata Portion, and/or the Warrant, as the case may be.
(c) ACQUISITION ISSUANCES.
(i) No less than ten (10) calendar days after the
issuance and sale of any New Securities for consideration consisting primarily
of non-cash consideration, the Company shall notify the Purchaser of the
Company's issuance by written dated notice (the "Company's Acquisition
Issuance Notice") setting forth the number and type of New Securities, the
calculation of the Purchaser's Pro Rata Portion, the Purchase Price, the
Warrant Coverage and the Warrant Price as calculated by the Company according
to a Black-Scholes Option Pricing Model. For purposes of this subsection (c),
the Purchase Price shall be based on the value of the New Securities to be
issued in the transaction as provided for in the principal agreement or
document governing the transaction (such as an acquisition agreement). If such
agreement does not provide a method for determining the value of the New
Securities to be issued or there is no such acquisition agreement, the
Purchase Price shall be determined based on the Fair Market Value (as defined
in Article I hereof) of the New Securities to be issued in the transaction.
(ii) Within seven (7) calendar days after receipt by the
Purchaser of the Company's Acquisition Issuance Notice, the Purchaser shall
notify the Company by written notice (the "Purchaser's Acquisition Issuance
Notice") stating whether the Purchaser desires to buy the Purchaser's Pro Rata
Portion or any part thereof for the Purchase Price and/or the Warrant, as
applicable, for the Warrant Price.
(iii) If the Purchaser either (A) does not deliver a
Purchaser's Acquisition Issuance Notice within the time specified above or (B)
elects in the Purchaser's Acquisition Issuance Notice not to purchase the
Purchaser's Pro Rata Portion (or any part thereof) and/or the Warrant (as
applicable), the Company shall not be obligated to sell to the Purchaser the
Purchaser's Pro Rata Portion or the Warrant.
(iv) The Purchaser may, at any time and from time to
time, in lieu of purchasing the Purchaser's Pro Rata Portion (or any part
thereof) from the Company as permitted under this Section (c), purchase on the
open-market such number of shares of Voting Stock as have the equivalent
equity interest as such Purchaser's Pro Rata Portion. In order to be entitled
to a Warrant pursuant to paragraph (a)(ii)(A) above with respect to any
particular issuance of New Securities pursuant to this Section (c), such open
market purchases must be made within sixty (60) calendar days from the date of
receipt of the Company's Acquisition Issuance Notice. Purchaser may elect to
purchase both from the Company and in the open market in its discretion in
connection with any equity issuance subject to the Standstill Limit during the
Standstill Period.
17
<PAGE>
(d) OTHER ISSUANCES.
(i) No more than ten (10) calendar days after each six-
month anniversary of the date of this Agreement (until the termination of the
Standstill Period), the Company shall notify the Purchaser of the number of
New Securities issued pursuant to the Company's employee stock plans, purchase
plans or otherwise during such six month period by written dated notice (the
"Company's Other Issuances Notice") setting forth the number and type of New
Securities (such number to be net of any New Securities returned to an option
plan), the calculation of the Warrant Coverage and the Warrant Price as
calculated by the Company according to a Black-Scholes option pricing model.
In the case of New Securities that are stock options issued pursuant to a
Company employee stock option plan, the Purchaser's right to maintain under
this subsection (d) shall relate to the Voting Stock underlying such stock
options and the Purchase Price of such Voting Stock shall be the weighted
average exercise price of such stock options regardless of the net effect of
any New Securities returned to an option plan.
(ii) Within five (5) business days after receipt by the
Purchaser of the Company's Other Issuances Notice, the Purchaser shall notify
the Company by written notice (the "Purchaser's Other Issuances Notice")
stating whether the Purchaser desires to buy the Warrant for the Warrant
Price. If the Purchaser elects to purchase the Warrant, the closing of such
transaction shall take place within three (3) business days after the
Company's receipt of such notice in accordance with subsection (e) below.
(e) CLOSING; OTHER MATTERS.
(i) The purchase and sale of any New Securities and
Warrants pursuant to this Section shall take place at the offices of the
Company set forth in this Agreement at 10:00 a.m. on the earlier of the: (A)
closing date specified in the applicable subsection of this Section or (B) the
third (3rd) business day following the expiration or early termination of all
waiting periods imposed on such purchase and sale by the HSR Act, or at such
other time and place as the Company and the Purchaser may agree; provided
however, that with respect to any Warrant that does not yet have a determined
fair market value in accordance with paragraph (a)(ii) of this Section, then
five (5) business days following the date of such determination or such other
time and place as the Company and the Purchaser may agree.
(ii) The Company and the Purchaser shall use their best
efforts to comply with all federal and state laws and regulations and Nasdaq
and stock exchange listing requirements applicable to any purchase and sale of
shares of New Securities and Warrants under this Section 3.1. The issuance of
such shares shall be subject to compliance with applicable laws and
regulations and requirements of Nasdaq and any applicable stock exchange.
(iii) Except as otherwise specifically provided herein,
upon receipt of the applicable Purchaser's Notice by the Company, the
Purchaser and the Company each shall be obligated, subject to the other terms
and conditions of this Agreement, to consummate the purchase and sale
18
<PAGE>
contemplated by this Section 3.1 and shall use their best efforts to secure
any approvals required in connection therewith.
(iv) In the event of any issuance of New Securities that
occurs following the date of this Agreement but prior to the Closing, the
Purchaser shall have the same rights with respect to the New Securities as are
set forth in this Section 3.1 (as if the Purchaser then owned all of the
Shares that it is expected to own as of the Closing), provided that the
Purchaser shall be entitled to provide the applicable Purchaser's Notice and
exercise its rights under this Section 3.1 at any time up to and including the
sixtieth (60th) day following the Closing.
(v) Any Shares or Warrants acquired by the Purchaser
hereunder, any Shares acquired upon exercise thereof, and all of Purchaser's
rights to maintain, shall be subject to all restrictions and obligations of
the Purchaser set forth elsewhere in this Agreement including, but not limited
to, Section 2.1 of this Agreement.
3.2 THE PURCHASER'S BOARD REPRESENTATION RIGHTS.
(a) As a condition to the Closing, (i) the bylaws of the
Company shall authorize eight (8) members of the Board of Directors of the
Company, and (ii) the three persons designated by the Purchaser pursuant to
Section 5.12 of the Merger Agreement shall have been elected to the Company's
Board of Directors.
(b) So long as the Purchaser Beneficially Owns at least 10% of
the Total Current Voting Power, the Company shall include in the slate of
nominees recommended by the Company's management to shareholders for election
as directors at any special or annual meeting of shareholders of the Company,
commencing with the first meeting of shareholders following the Closing, and
shall use its best efforts in all other respects to cause the election of,
that number of persons designated by the Purchaser equal to the greater of (i)
one, or (ii) that number determined by multiplying the then number of members
of the Board of Directors by the percentage of Total Current Voting Power of
the Company then owned by the Purchaser. If the calculation set forth in
clause (ii) of the preceding sentence results in a whole number plus a
fraction, the Purchaser shall only be permitted to designate such whole number
of persons; provided however, that if the Purchaser Beneficially Owns more
than 25% of the Total Current Voting Power of the Company and the Purchaser is
not entitled pursuant to the foregoing calculation to appoint more than 25% of
the members of the Board of Directors, then such fraction shall be rounded up
to the next nearest whole number for purposes of determining the number of
Purchaser designees on the Company's Board of Directors. The Company's Board
of Directors and management shall vote all shares for which the Company's
management or Board of Directors holds proxies or is otherwise entitled to
vote in favor of the election of such designee(s) of Purchaser. In the event
that any such Purchaser Director shall cease to serve as a director for any
reason (other than by virtue of Purchaser no longer being entitled to
designate such director pursuant to the provisions of this Section 3.2(b)),
the vacancy resulting thereby shall be filled by a designee of the Purchaser
and the Company's Board of Directors shall promptly take all actions necessary
to elect such designee of the
19
<PAGE>
Purchaser and, during any period in which such a vacancy remains open,
provided that the Purchaser has designated a nominee to fill such vacancy, the
Company's Board of Directors shall not, without the Purchaser's written
consent, take any action with respect to an Event Requiring Supermajority
Board Approval other than to elect Purchaser's designee to fill such vacancy.
(c) Notwithstanding anything to the contrary contained herein,
at any time during the Standstill Period, the Purchaser shall not be entitled,
and the Purchaser agrees not to cast votes for Purchaser Directors in excess
of the lesser of (i) the number of Purchaser Directors which the Purchaser is
entitled to elect pursuant to paragraph (b) above or (ii) 49.9% of the members
of the Board of Directors. Subject only to the immediately preceding clause,
nothing contained in this Agreement shall limit, restrict or prohibit the
Purchaser's right to vote all of the Shares (and any other voting securities
of the Company) Beneficially Owned by the Purchaser in favor of the
Purchaser's designees for the Company's Board of Directors under Section
3.2(b) hereof.
(d) In the event that the Purchaser's percentage Beneficial
Ownership of the Total Current Voting Power is reduced because of any issuance
of securities by the Company to which the Purchaser's rights set forth in
Section 3.1 do not apply, for a period of six months after the date of any
such issuance, Purchaser's Beneficial Ownership of the Total Current Voting
Power for purposes of paragraph (b) above shall be determined as if such
issuance had not occurred.
(e) During the Standstill Period, in the event that the number
of Purchaser Directors exceeds the number of designees that Purchaser is
entitled to designate pursuant to Section 3.2(b) (the "Excess Directors"),
Purchaser shall cause that number of Excess Directors to resign and not stand
for reelection in connection with any special or annual meeting of
stockholders of the Company.
3.3 SUPERMAJORITY BOARD RIGHTS. The Company shall not effectuate any
Event Requiring Supermajority Board Approval without first having obtained
Supermajority Board Approval; provided, however, that this section shall
terminate and be of no further force and effect in the event that Purchaser's
percentage Beneficial Ownership of the Total Outstanding Company Equity falls
below 10%.
ARTICLE IV
MUTUAL COVENANTS
4.1 EVENTS REQUIRING DISINTERESTED BOARD APPROVAL. Until such time as
the Purchaser owns 90% of the Total Current Voting Stock, no party hereto
(including any Affiliate of such party) shall effectuate an Event Requiring
Disinterested Board Approval without first having obtained Disinterested Board
Approval with respect to such event.
20
<PAGE>
4.2 EVENTS REQUIRING DISINTERESTED SHAREHOLDER APPROVAL. Until such
time as the Purchaser owns 90% of the Total Current Voting Stock, no party
hereto (including any Affiliate of such party) shall effectuate an Event
Requiring Disinterested Shareholder Approval without first having obtained
Disinterested Shareholder Approval with respect to such event; provided
however, that Disinterested Shareholder Approval shall not be required, if on
the record date for such approval of such Event Requiring Disinterested
Shareholder Approval, the Purchaser Beneficially Owns less than 25% of the
Total Current Voting Power.
4.3 AMENDMENT OF CHARTER DOCUMENTS. Not later than the Effective Time
(as defined in the Merger Agreement) of the Merger (as defined in the Merger
Agreement), the Board of Directors shall amend the Company's bylaws to carry out
the purposes of the provisions of Sections 4.1 and 4.2.
4.4 POISON PILL LIMITATION. Purchaser agrees that the Company may
adopt a "poison pill" share purchase rights plan, provided that such plan
excludes from the definition of "Acquiring Person" therein Purchaser and
wholly owned (direct or indirect) subsidiaries of the Purchaser so long as
neither Purchaser nor any Purchaser Affiliate has breached the provisions of
Section 2.1 (a), (d), (e) or (f) of this Agreement and so long as Purchaser
Beneficially Owns at least 5% of the Total Current Voting Power.
4.5 PURCHASER TENDER OFFER. Following the Standstill Period, Purchaser
and Purchaser's Affiliates (or any 13D Group that includes Purchaser or any
Affiliate of Purchaser) shall be entitled to commence a tender or exchange
offer to purchase or exchange for cash or other consideration any Voting Stock
provided that such offer is conditioned upon a majority of the shares of Voting
Stock held by Disinterested Shareholders tendering their shares of Voting Stock,
and provided further, that such offer may not be consummated unless a majority
of the shares of Voting Stock held by Disinterested Shareholders are tendered
and not withdrawn with respect to such tender or exchange offer.
ARTICLE V
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Delaware.
5.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the Closings
of the transactions contemplated hereby.
5.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective successors
and assigns. Except as otherwise provided in this Agreement, this Agreement
may not be assigned by a party without the prior written consent of the other
party except by operation of law, in which case the assignee shall be subject
to all of the provisions of this Agreement.
21
<PAGE>
5.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with-regard to the
subject hereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought,
including on behalf of the Company, Disinterested Director Approval.
5.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
or by telephone facsimile, addressed:
(f) If to the Purchaser, to:
The Walt Disney Company
500 South Buena Vista Street
Burbank, CA 91521
Attn: Chief Financial Officer and
Attn: General Counsel
(Telephone) (818) 560-4370
(Facsimile) (818) 563-4160
With a copy to:
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, CA 90071
Attn: C. James Levin, Esq.
(Telephone) (213) 430-6578
(Facsimile) (213) 430-6407
With a copy to:
Dewey Ballantine LLP
1775 Pennsylvania Avenue
Washington DC 20006-4605
Attn: Joseph M. Pari
(Telephone) (202) 862-4516
(Facsimile) (202) 862-1093
22
<PAGE>
(g) If to the Company, to:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attn: Harry M. Motro, President & CEO
Attn: Andrew E. Newton, Esq.
(Telephone) (408) 543-6000
(Facsimile) (408) 734-9350
With a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Two Palo Alto Square
Palo Alto, CA 94306
Attn: David J. Segre, Esq.
(Telephone) (650) 493-9300
(Facsimile) (650) 493-6811
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or, if
sent by telephone facsimile, upon confirmation of receipt.
5.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to a party
under this Agreement, shall impair any such right, power or remedy nor shall
it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
5.7 EXPENSES. Except as otherwise specifically provided, the Company
and Purchaser shall bear their own expenses incurred with respect to this
Agreement and the transactions contemplated hereby, provided, that the
Purchaser shall pay any filing fee required under the HSR Act arising out of
this Agreement or the transactions contemplated hereby, including any
issuances and sales of New Securities or Warrants pursuant to Purchaser's
rights to maintain set forth in Section 3.1 above.
5.8 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached and that such damage would not be compensable in
23
<PAGE>
money damages and that it would be extremely difficult or impracticable to
measure the resultant damages. It is accordingly agreed that any party hereto
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of the Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy to which it may be entitled
at law or equity, and such party that is sued for breach of this Agreement
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the party bringing such action.
5.9 FURTHER ASSURANCES. The parties hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as any other party may reasonably request from time to time in order
to carry out the intent and purposes of this Agreement and the consummation of
the transactions contemplated hereby. Neither the Company nor the Purchaser
shall voluntarily undertake any course of action inconsistent with
satisfaction of the requirements applicable to them set forth in this
Agreement and each shall promptly do all such acts and take all such measures
as may be appropriate to enable them to perform as early as practicable the
obligations herein and therein required to be performed by them.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of the parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
5.11 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, that no such severability shall be effective
if it materially changes the economic impact of this Agreement on any party.
5.12 CAPTIONS. Headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be relied upon in
construing this Agreement. Use of any gender herein to refer to any person
shall be deemed to comprehend masculine, feminine, and neuter unless the context
clearly requires otherwise.
5.13 ATTORNEYS' FEES. In any action at law or suit in equity in relation
to this Agreement, the prevailing party in such action or suit shall be entitled
to receive a reasonable sum for its attorneys' fees and all other reasonable
costs and expenses incurred in such action or suit.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY"
INFOSEEK CORPORATION
By /s/ Harry M. Motro
------------------------------
Name: Harry M. Motro
Title: President and CEO
"PURCHASER"
THE WALT DISNEY COMPANY
By /s/ John R. Ball
------------------------------
Name: John R. Ball
Title: Vice President
DISNEY ENTERPRISES, INC.
By /s/ John R. Ball
------------------------------
Name: John R. Ball
Title: Vice President
25
<PAGE>
EXHIBIT 10.7
A REQUEST FOR CONFIDENTIAL TREATMENT HAS BEEN FILED WITH THE COMMISSION
WITH RESPECT TO PORTIONS OF THIS EXHIBIT AND SUCH PORTIONS HAVE THEREFORE BEEN
OMITTED, AS INDICATED BY A BRACKETED ASTERISK [*], AND FILED SEPARATELY
WITH THE COMMISSION.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "AGREEMENT") is entered into as of June 18, 1998 by
and between DISNEY ENTERPRISES, INC., a Delaware corporation ("LICENSOR") that
is a wholly-owned subsidiary of THE WALT DISNEY COMPANY, a Delaware corporation
("TWDC") and INFOSEEK CORPORATION, a California corporation ("LICENSEE");
provided that this Agreement shall only become effective upon the Effective
Time, as defined in and pursuant to that certain Agreement and Plan of
Reorganization, of even date herewith, by and among Licensee, Infoseek
Corporation, a Delaware corporation, Starwave Corporation., a Washington
corporation, and Licensor, and shall cease and be of no further force and effect
in the event that the Effective Time does not occur; and each of the parties
hereto agrees not to terminate, amend or otherwise alter this Agreement or waive
any of its rights hereunder at any time prior to immediately following the
Effective Time.
RECITALS
1. Pursuant to an agreement and plan of reorganization and merger and a stock
and warrant purchase agreement, each dated as of the date hereof (collectively,
the "ACQUISITION AGREEMENTS," Licensor and TWDC agreed to acquire approximately
a 43% interest in the outstanding voting equity of Licensee, subject to the
terms and conditions set forth in the Acquisition Agreements."
2. In connection with the execution of the Acquisition Agreements, Licensee
desires to develop the Portal Products (as defined below) and license the
Licensor Properties (as defined below) for use in and associated with the Portal
Products and Licensor desires to license the Licensor Properties for such uses,
on the terms and conditions specified herein.
3. Pursuant to a product management agreement, dated as of the date hereof
(the "PRODUCT MANAGEMENT AGREEMENT"), Licensor and Licensee agreed to a
mechanism for the management and governance of the Portal Products.
4. In the event of a termination of this Agreement in accordance with its
terms, Licensee has agreed to license to Licensor, and Licensor agrees to
license from Licensee, the Licensee Technology (as defined below) for the
purposes set forth below.
NOW, THEREFORE, in consideration of the agreements set forth herein, the parties
hereto agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms have the indicated
meanings:
-1-
<PAGE>
1.1. "ADVISORY COMMITTEE" means the committee currently comprised of the
Licensor Representative and the Licensee Representative, as set forth in the
Product Management Agreement.
1.2. "AFFILIATE" means with respect to any person, any person directly or
indirectly through one or more intermediaries controlling, controlled by or
under common control with such person. For purposes of this Section 1.2,
"CONTROL" shall mean ownership or control, directly or indirectly, of at least
50% of the outstanding stock or other voting rights entitled to elect directors
or if the person is not a corporation, the corresponding managing authority.
Notwithstanding the foregoing, in no event will Licensee be considered an
Affiliate of Licensor nor will Licensor be considered an Affiliate of Licensee.
1.3. "BROADBAND PRODUCTS" means programming that requires transmission at
data rates which would enable real time, full screen, full motion video at equal
to or better than NTSC broadcast resolution. Programming that does not require
transmission at such data rates but which is nevertheless transmitted at such
data rates is not considered to be "Broadband Products" for the purposes of this
definition.
1.4. "CONSUMER AND COMMERCIAL PRODUCTS" means goods and services that are
based on, incorporate or display the Licensor Properties, other than the Portal
Products. Examples of Consumer and Commercial Products include, without
limitation, hats and t-shirts; publications and TV shows.
1.5. "DERIVATIVE WORK" means: (A) without limitation, any computer
program, work product, service, improvement, supplement, modification,
alteration, addition, revision, enhancement, new version, new edition, remake,
sequel, translation, adaptation, design, plot, theme, character, story line,
concept, scene, audio-visual display, interface element or aspect, in any
medium, format, use or form whatsoever, whether interactive or linear and
whether now known or unknown, that is derived in any manner, directly or
indirectly, from any Licensor Property, or any part or aspect thereof, or that
uses or incorporates any Licensor Property, or any part or aspect thereof; (B)
any "derivative work" of any Licensor Property, or any part or aspect thereof,
as defined in the Copyright Law of the U.S., Title 17 U.S.C. (S) 101 et seq.
(the "COPYRIGHT LAW"); and (C) any material or documentation related to any of
the foregoing.
1.6. "INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or
term known or designated) tangible and intangible and now known or hereafter
existing (A) rights associated with works of authorship throughout the universe,
including but not limited to copyrights (including without limitation the sole
and exclusive right to prepare "derivative works" (as defined in the Copyright
Law) of the copyrighted work and to copy, manufacture, reproduce, distribute
copies of, modify, publicly perform and publicly display the copyrighted work
and all derivative works thereof), moral rights (including without limitation
any right to identification of authorship and any limitation on subsequent
modification) and mask-works, (B) rights in and relating to the protection of
trademarks, service marks, trade names, goodwill,
-2-
<PAGE>
rights in packaging, rights of publicity and privacy, merchandising rights,
advertising rights and similar rights, (C) rights in and relating to the
protection of trade secrets and confidential information, (D) patents, designs,
algorithms and other industrial property rights and rights associated therewith,
(E) Web addresses, sites, and domain names, (F) other intellectual and
industrial property and proprietary rights (of every kind and nature throughout
the universe and however designated) relating to intangible property that are
analogous to any of the foregoing rights (including without limitation logos,
character rights, "rental" rights and rights to remuneration), whether arising
by operation of law, contract, license or otherwise, (G) registrations,
applications, renewals, extensions, continuations, divisions or reissues thereof
now or hereafter in force throughout the universe (including without limitation
rights in any of the foregoing), and (H) rights in and relating to the sole and
exclusive possession, ownership and use of any of the foregoing throughout the
universe, including without limitation the right to license and sublicense,
franchise, assign, pledge, mortgage, sell, transfer, convey, grant, gift over,
divide, partition and use (or not use) in any way any of the foregoing now or
hereafter (including without limitation any claims and causes of action of any
kind with respect to, and any other rights relating to the enforcement of, any
of the foregoing).
1.7. "LAWS" mean any and all applicable laws, rules and regulations,
including, but not limited to, local and national laws, rules and regulations,
and treaties pertaining to any of Licensee's activities in connection with this
Agreement.
1.8. "LICENSEE AFFILIATES" means Licensee and all of its Affiliates.
1.9. "LICENSEE REPRESENTATIVE" means the representative of Licensee on the
Advisory Committee.
1.10. "LICENSEE TECHNOLOGY" means all proprietary computer systems,
computer software (including all source code, object code, firmware, development
tools, files, records and data and all media on which any of the foregoing is
recorded), and all techniques, methods, applications and other technology that
Licensee owns, Controls or acquires, to the extent utilized within or for the
development, production, operation or distribution of the Portal Products during
the term hereof. For the purposes of this Section 1.10, "CONTROL" means the
ability to grant the licenses set forth herein without payment of royalties or
other consideration to third parties. In the event that any technology would be
considered to be Licensee Technology but for the obligation of the Licensee to
pay royalties or other consideration to a third party, then Licensor shall have
the right, at its option, to pay such royalties or other consideration and
include such technology in the definition of Licensee Technology.
1.11. "LICENSOR AFFILIATES" means Licensor and all of its Affiliates.
1.12. "LICENSOR COMPETITOR" means Dream Works, Time Warner, Comcast, News
Corp., Viacom, Sony, Seagrams/Universal, MGM, CBS, NBC, TCI, USA Networks, AOL,
Microsoft, Yahoo, Excite, Lycos and CNET, and their respective Affiliates and
successors.
-3-
<PAGE>
1.13. "LICENSOR PROPERTIES" means (i) the brands, names, logos, trademarks
and service marks used in the Portal Products, (ii) the specifications (both
functional and design-oriented) and user interface mock-ups, prototype
development work, market research and business development planning work and
materials prepared by Starwave Corporation on a work-for-hire basis for Licensor
prior to the Effective Time, (iii) all URLs and other Web addresses, sites and
domain names owned, licensed or applied for, from time to time, by or on behalf
of Licensor for use in the Portal Products or otherwise used in the operation of
the Portal Products, and (iv) the copyrights in the design of all the Portal
Products user interfaces, and "derivative works" thereof, as defined in the
Copyright Law, prepared by or on behalf of Licensor or Licensee during the term
of this Agreement; provided, that Licensee brands, URLs and other Web addresses,
sites and domain names, names, trademarks, service marks and other marks
existing as of the date first written above and third party brands, URLs and
other Web addresses, sites and domain names, names, trademarks, service marks
and other marks shall not be considered to be Licensor Properties.
1.14. "LICENSOR REPRESENTATIVE" means the representative of Licensor on
the Advisory Committee.
1.15. "PORTAL PRODUCTS" means the internet portal service to be named "Go
Networks," or another name mutually agreed by the parties, to be developed and
produced by Licensee utilizing the Licensor Properties, including but not
limited to all channels, sub-channels, sections, sites, features, services,
utilities and applications relating thereto; provided, however, that "Portal
Products" shall not in any event include Broadband Products or Consumer and
Commercial Products.
1.16. "PROMOTIONAL SERVICE AGREEMENT" has the meaning specified in the
Recitals.
1.17. "STANDARDS" means the standards and practices for content and
advertising materials that appear on, or are reachable by direct links from, the
Portal Products but excluding directory listings and search results that direct
a viewer outside the Portal Products, as such standards and practices are agreed
to between Licensee and Licensor pursuant to the Product Management Agreement,
as amended or modified from time to time in accordance with the Product
Management Agreement.
1.18. "VENTURES" means ESPN/Starwave Partners, a New York General
Partnership (or its successor) and ABCNews/Starwave Partners, a New York
General Partnership (or its successor).
2. TERM.
The term of this Agreement shall commence as of the Effective Time and
shall continue in perpetuity, unless terminated earlier in accordance with
Section 10 hereof (the "TERM").
-4-
<PAGE>
3. GRANT OF RIGHTS BY LICENSOR.
Licensor grants to Licensee the exclusive (subject to Section 5 hereof),
perpetual (subject to Section 10 hereof), worldwide, irrevocable (except as
expressly set forth in Section 10.1), sublicensable (subject to Section 4
hereof) right and license to utilize, reproduce, distribute, and otherwise
exploit (i) the Licensor Properties, (ii) Derivative Works of the Licensor
Properties and (iii) any modifications or improvements to the Licensor
Properties, in the development, operation, production, marketing, promotion,
distribution, sale, license and other exploitation of the Portal Products; and
to (whether by Licensee or by a third party on behalf of Licensee) modify,
improve and prepare Derivative Works of, incorporating or based upon the
Licensor Properties. The right to distribute includes without limitation the
right to sell, market, transmit by any means whether now known or hereafter
devised, display, advertise and otherwise promote the Portal Products in
accordance with and subject to the terms and conditions of this Agreement. In
addition, for so long as the Product Management Agreement is in effect, the
foregoing license rights shall also be subject to the terms and conditions of
the Product Management Agreement. Licensee acknowledges and agrees that the
license granted under this Section 3 is limited to the Portal Products as
specifically defined in Section 1.15 and does not grant Licensee any rights or
licenses with respect to any other products or services. All rights not
specifically, expressly and/or exclusively granted by Licensor to Licensee are
hereby reserved by Licensor.
4. SUBLICENSE RIGHTS.
Licensee may sublicense any and all of the rights and licenses granted in
Section 3 above with respect to the Licensor Properties to the extent necessary
or convenient, as reasonably determined by the Licensee Representative after
consultation with the Licensor Representative. Licensee acknowledges and agrees
that this Section 4 is intended to permit Licensee to sublicense the Licensor
Properties solely for the Portal Products as specifically defined in Section
1.15 above and does not grant Licensee any rights or licenses with respect to
any other products or services. Notwithstanding the foregoing, (a) Licensee
shall not sublicense all or any part of the Licensor Properties to any Licensor
Competitor, and (b) Licensee shall require, as a condition to any permissible
sublicense, that each sublicensee shall be made aware of, and agree in writing
to comply with, the Standards as well as Licensor's Code of Conduct for
licensees, a copy of which is attached as Exhibit A hereto. Notwithstanding the
foregoing provisions of this Section 4, nothing in this Agreement will restrict
Licensee, without the consent of Licensor, from placing links that incorporate
Licensor Properties on any and all third party internet and intranet sites,
which links permit users to connect to the Portal Products from third-party
sites, subject to compliance by any such third party, as required by Licensor,
with the Standards.
5. LICENSOR RIGHTS TO LICENSOR PROPERTIES.
Licensor shall not, and shall not appoint, permit or license any third
party (including but not limited to Affiliates of the Licensor) to, use or
otherwise exploit the Licensor Properties for
-5-
<PAGE>
any purpose without the prior written consent of Licensee; provided, however,
that such consent shall not be unreasonably withheld if such use (a) is not
competitive with the Portal Products or any other products or services then
offered by Licensee or any of its Affiliates or the Ventures or anticipated to
be offered by Licensee set forth in the Annual Business Plan and Budget for the
Portal Products, or (b) would not otherwise be reasonably expected to have an
adverse impact on the business of the Portal Products, in each case, as
reasonably determined by the Licensee Representative in good faith, upon
consultation with the Licensor Representative. The parties agree that, without
limiting the generality of the foregoing, any internet portal service in any
other county or region is competitive with the Portal Products.
6. ROYALTIES AND PAYMENTS.
6.1 LICENSEE ROYALTIES.
(A) As used in this Section 6, the following words have the following
meanings. (i) "GOODS" means goods, securities, data, software, information or
other services other than Consumer and Commercial Products. (ii) "EXCLUDED
BUSINESSES" means Licensee's software sales and related services (such as
maintenance, support and training) and services that are unrelated to the Portal
Products (such as Web hosting). By way of example, sales of Licensee's Ultraseek
software product and related services are Excluded Businesses. (iii) "LICENSEE
NET REVENUE" means one-half (1/2) of the following: Licensee's revenue, less the
Licensee Revenue Exclusions and less the following deductions: (a) advertising
commissions; (b) credit card charges; (c) customs duties and taxes other than
taxes based upon Licensee=s income (e.g., sales, excise, withholding, and value-
added taxes); and (d) discounts, rebates, returns or credits, freight,
insurance, packaging, and other shipment expenses. In addition, in the event
that Licensee collects revenue with respect to the sale, license or other
distribution of Goods offered over the Portal Products as an agent or
distributor for the vendor, only the distributor or agency fee or commission
shall be included in the definition for "Licensee Net Revenue". (iv) "LICENSEE
REVENUE EXCLUSIONS" means (a) revenue attributable to Excluded Businesses, (b)
Licensor Royalties paid to Licensee under Section 6.2, and (c) any and all
revenue derived under each of the Partnership Agreements and the Management and
Services Agreements for the Ventures, including but not limited to revenue
derived from the Representation Agreements entered into between each of the
Ventures and Starwave Corporation. (v) "LICENSOR LICENSE REVENUE" means any
license fees and royalties received by Licensor to the extent attributable to
licensing of Consumer and Commercial Products. (vi) "LICENSOR NET REVENUE" means
revenue (other than Licensor License Revenue) received by Licensor to the extent
attributable to any Consumer and Commercial Products, less the following
deductions: (a) advertising commissions; (b) credit card charges; (c) customs
duties and taxes other than taxes based upon Licensor's income (e.g., sales,
excise, withholding, and value-added taxes); and (d) discounts, rebates, returns
or credits, freight, insurance, packaging, and other shipment expenses.
-6-
<PAGE>
(B) As payment for the rights granted by Licensor hereunder, Licensee
shall pay Licensor royalties (the "LICENSEE ROYALTIES") equal to two percent
(2%) of Licensee Net Revenue in any fiscal year.
(C) Notwithstanding the foregoing provisions of this Section 6, (i)
Licensee shall not be obligated to pay Licensor any Licensee Royalties and
Licensee Royalties shall not be earned or accrued until the completion of the
first full Licensee fiscal year in which there are positive earnings before
interest, taxes and amortization ("EBITA") excluding EBITA attributable to
Licensee Revenue Exclusions, and (ii) Licensee Royalty payments in any fiscal
year shall not exceed fifteen percent (15%) of EBITA in such fiscal year
excluding EBITA attributable to Licensee Revenue Exclusions.
6.2 LICENSOR ROYALTIES. If Licensor produces or sublicenses the
production of Consumer and Commercial Products under the terms of this
Agreement, Licensor shall pay Licensee royalties ("LICENSOR ROYALTIES) equal to
a percentage of the Licensor Net Revenue and Licensor License Revenue in any
fiscal year attributable to any Consumer and Commercial Products as follows.
For Licensor Net Revenue, the percentage shall be (i) [*] for Consumer and
Commercial Products that are sold or distributed through the Portal Products and
(ii) [*] for Consumer and Commercial Products that are sold or distributed by
any other means. For Licensor License Revenue, the percentage shall be [*] for
Consumer and Commercial Products that are sold or distributed through the Portal
Products and [*] for Consumer and Commercial Products that are sold or
distributed by any other means. An example of a calculation of Licensor
Royalties under this Section 6.2 is set forth in Exhibit C.
6.3 PAYMENT.
(A) Licensee Royalties for a fiscal year are due and payable to Licensor
within forty-five (45) days after the end of such fiscal year.
(B) Licensor Royalties for a fiscal year are due and payable to Licensee
within forty-five (45) days after the end of such fiscal year.
6.4 PAYMENT FORMS/TAXES. All payments due to Licensor hereunder shall be
made by wire transfer to an account notified to Licensee. Licensor shall be
responsible for any and all taxes that are payable with respect to payments made
to Licensor hereunder and Licensor shall indemnify and hold harmless Licensee
from and against all damages, costs, losses, liabilities and expenses arising
out of or relating to nonpayment of such taxes. All payments due to Licensee
hereunder shall be made by wire transfer to an account notified to Licensor.
Licensee shall be responsible for any and all taxes that are payable with
respect to payments made to Licensor hereunder and Licensor shall indemnify and
hold harmless Licensee from and against all
-7-
<PAGE>
damages, costs, losses, liabilities and expenses arising out of or relating to
nonpayment of such taxes.
6.5 PERIODIC STATEMENTS. Licensee shall deliver to Licensor, within forty-
five (45) days after the end of each calendar quarter of the Term, income
statements for the Portal Products for the prior calendar quarter (that reflect
the calculation of Licensee Net Revenue), together with royalty reports and
traffic reports for such quarter. In addition, in each twelve (12) month period
during the Term, Licensee shall provide Licensor with a statement signed by
Licensee's external auditors certifying the accuracy of all royalty reports
provided hereunder. Licensor shall deliver to Licensee, within forty-five (45)
days after the end of each calendar quarter of the Term, income statements for
any Consumer and Commercial Products for the prior calendar quarter (that
reflect the calculation of Licensor Net Revenue and Licensor License Revenue),
together with royalty reports for such quarter. In addition, in each twelve (12)
month period during the Term, Licensor shall provide Licensee with a statement
signed by Licensor's external auditors certifying the accuracy of all royalty
reports provided hereunder.
6.6 AUDITS. Each party (the "Payor Party") agrees to retain, for three
(3) years after the Term, accurate records of all transactions relating to this
Agreement. No more than one time in any twelve (12) month period, during the
Term and for a period of three (3) years thereafter, the other party (the "Payee
Party") shall have the right, during the Payor Party's normal business hours
upon at least fifteen (15) business days prior notice to the Payor Party, to
have an independent auditor mutually agreed upon by the parties examine and make
extracts of all such records that relate to the revenue of the products subject
to Royalties hereunder, subject to reasonable confidentiality protections with
respect to information disclosed by the Payor Party. If any audit pursuant to
this Section 6.6 detects a shortfall in calculation of Royalties paid to the
Payee Party, the Payee Party shall pay interest, at a rate of ten percent (10%)
per annum (or, if less, the maximum rate permitted by law) from the date due, on
any unpaid amount. In addition, if in an audit of the Payee Party's records it
is determined that there is a shortfall of ten percent (10%) or more in the
amount of Royalties for the period which is the subject of such audit, the Payor
Party shall reimburse the Payee Party for reasonable out-of-pocket costs of the
audit and any overpayment discovered in the course of such audit shall be
refunded by the Payee Party to the Payor Party.
7. OWNERSHIP OF PROPRIETARY RIGHTS.
7.1 LICENSOR OWNERSHIP. Licensee acknowledges that, except for the license
expressly granted in this Agreement, Licensee has not acquired and will not
acquire any right, interest or title to the Licensor Properties by reason of
this Agreement or through the exercise of any rights in the Licensor Properties
granted to Licensee hereunder. Licensee further acknowledges that all
proprietary rights in the Licensor Properties and the good will associated
therewith are solely owned by and belong to Licensor, and that all additional
goodwill associated with the Licensor Properties created through the use thereof
by Licensee shall inure to the sole benefit of Licensor. As between Licensor
and Licensee and its permitted sublicensees, Licensor
-8-
<PAGE>
shall be considered the creator of the Licensor Properties, and all rights in
the Licensor Properties shall be the property of Licensor. In addition, Licensee
hereby grants, assigns and conveys to Licensor any and all rights Licensee may
now have or may be deemed to have in the future with respect to the Licensor
Properties, or any portion thereof. Licensee agrees not to register or attempt
to register any brand, names, marks, or other elements of the Licensor
Properties as a trademark, service mark, Internet domain name, trade name, or
any similar trademarks or name, with any domestic or foreign governmental or
quasi-governmental authority which would be likely to cause confusion with any
of the Licensor Properties.
7.2 LICENSEE OWNERSHIP. Licensor shall not acquire any right, interest,
or title to the Licensee Technology or any derivative works thereof (as defined
in the Copyright Law) through the exercise of any rights granted to Licensor
hereunder. As between Licensee and Licensor, Licensee shall be considered the
creator of the Licensee Technology and such derivative works, and all rights in
the Licensee Technology and such derivative works, including without limitation
the copyrights in and to the Licensee Technology and such derivative works,
shall be the property of Licensee. In addition, Licensor hereby grants, assigns
and conveys to Licensee any and all rights Licensor may now have or may be
deemed to have in the future with respect to the Licensee Technology and such
derivative works, including without limitation, any copyright to the Licensee
Technology and such derivative works, or any portion thereof.
8. PROTECTION OF PROPRIETARY RIGHTS.
8.1. CONTROL MEASURES. Each party shall implement adequate control
measures to protect Licensor's Intellectual Property Rights and to cooperate in
the other party's efforts to protect such Intellectual Property Rights. Neither
party shall commit any act or omit to take any act or permit any act to be taken
or not to be taken that would cause any of the Licensor Properties to vest in
the public domain anywhere in the United States and Canada.
8.2. MARKS AND NOTICES. Licensee shall use all brands, names and marks
included within the Licensor Properties in the form stipulated by Licensor, and
shall include such trademark and copyright notices as Licensor may request in
connection with Licensee's use of the Licensor Properties hereunder, and
Licensee shall place, as Licensor shall reasonably direct, such copyright and
trademark notices within the Portal Products. Other than as set forth in this
Agreement, Licensee shall make no use of the Licensor Properties or of any
designation confusingly similar to any of the Licensor Properties without the
prior written consent of Licensor.
8.3. DISNEY. Except as set forth in this Agreement, neither Licensee nor
any Licensee Affiliate or other party shall acquire any right under this
Agreement to use, and Licensee shall not use, and shall not knowingly allow or
assist any Licensee Affiliate or other party to use, (A) the name "Disney"
(either alone or in conjunction with or as a part of any other word, name or
phrase) or (B) any Licensor Property or any other fanciful character or design,
any music or any Intellectual Property Right of any Licensor Affiliate (i) in
any advertising, publicity or
-9-
<PAGE>
promotion or other disclosure, (ii) in any in-house publication, (iii) to
express or imply any endorsement of the Portal Products, Licensee, or any of its
products or services, or (iv) in any other manner or for any purpose whatsoever
(whether or not similar to any of the foregoing).
8.4 NOTICE OF INFRINGEMENT. Each party shall promptly report to the
other party if an officer of such party becomes aware of (a) any infringement of
any of such other party's Intellectual Property Rights by any third party, (b)
any infringement by any such third party of any right granted hereunder and (c)
any unauthorized copying or distribution of the Portal Products or any component
thereof (including without limitation any artwork or music contained therein) by
any third party.
8.5 ENFORCEMENT.
(A) Licensor shall have the right, in its discretion after consultation
with Licensee, to maintain and enforce Licensor's Intellectual Property Rights
in the Licensor Properties against third parties and to employ attorneys and
institute and defend actions and proceedings and take any other appropriate
steps to protect all of Licensor's rights and interests in and to the Licensor
Properties and every portion thereof, at Licensor's expense. Licensor shall
settle, compromise in good faith, or in any other manner dispose of any matter,
claim, action or proceeding and satisfy any judgment that may be rendered in any
manner as Licensor in its sole discretion may determine; provided, however, that
Licensee shall have the right to participate in the defense and/or settlement of
any such matter, claim, action or proceeding with counsel of its own choosing,
at Licensee's expense, and Licensor shall not enter into any settlement which
may require Licensee to admit liability or have an adverse impact on Licensee,
without Licensee's prior written approval. Licensor shall have the right to
recoup from any recovery its costs and expenses incurred in enforcing the
Licensor Properties. Any remaining amounts after recoupment of such costs and
expenses shall be divided equally between Licensee and Licensor within thirty
(30) days of receipt thereof. Licensee shall have the right to examine
Licensor's records with respect to the computation of such costs and expenses
and the amount of any recovery obtained by Licensor during Licensor's normal
business hours upon fifteen (15) business days prior notice and subject to
reasonable confidentiality protections for information disclosed.
(B) In the event that Licensor informs Licensee of its election not to
maintain or enforce Licensor's Intellectual Property Rights in the Licensor
Properties against third parties, or fails to maintain or enforce such
Intellectual Property Rights within a reasonable period of time after
notification by Licensee of infringing activity and request by Licensee to do
so, then Licensor agrees that Licensee shall have the right to employ attorneys
and institute and defend actions and proceedings and take any other appropriate
steps to protect all of Licensor's rights and interests in and to the Licensor
Properties and every portion thereof, at Licensee's expense. Licensee shall
settle, compromise in good faith or in any other manner dispose of any matter,
claim, action or proceeding and satisfy any judgment that may be rendered in any
manner as Licensee may determine after consultation with Licensor; provided,
however, that Licensor shall
-10-
<PAGE>
have the right to participate in the defense and/or settlement of any such
matter, claim, action or proceeding with counsel of its own choosing, at
Licensor's expense, and Licensee shall not enter into any settlement which may
require Licensor to admit liability or have an adverse impact on Licensor,
without Licensor's prior written approval. Licensee shall have the right to
recoup from any recovery its costs and expenses incurred in enforcing the
Licensor Properties. Any remaining amounts after recoupment of such costs and
expenses shall be divided equally between Licensee and Licensor within thirty
(30) days of receipt thereof. Licensor shall have the right to examine
Licensee's records with respect to the computation of such costs and expenses
and the amount of any recovery obtained by Licensee during Licensee's normal
business hours upon fifteen (15) business days prior notice and subject to
reasonable confidentiality protections for information disclosed. Licensor shall
take all such actions as may be necessary or convenient under the laws of any
jurisdiction to give Licensee the benefit of the rights granted in this Section
8.5(b), including the execution of documents and instruments and, if necessary,
naming Licensor as a party in legal action.
8.6. QUALITY. Licensee agrees to maintain a consistent level of quality
of the Portal Products substantially equal to that found in Licensee's existing
internet services, and further agrees to maintain a level of quality in
connection with its use of the Licensor Properties that is consistent with
general industry standards. Licensee acknowledges that Licensor shall
periodically monitor Licensee's use of the Licensor Properties in connection
with the Portal Products.
9. REPRESENTATIONS, WARRANTIES, LIMITATIONS AND INDEMNIFICATION.
9.1. REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee represents and
warrants that (A) it has the right, power and authority to enter into this
Agreement and to fully perform its obligations under this Agreement; and (B) the
making of this Agreement by it does not violate any agreement existing between
it and any other person or entity.
9.2. INDEMNIFICATION BY LICENSEE. Licensee shall defend, at its sole
expense, any claim, suit or proceeding brought against Licensor by any third
party (A) which if true would be any breach of any of the representations,
warranties or agreements made by Licensee under this Agreement, or (B) a claim
that the Licensee Technology when used as permitted in Exhibit A violates or
infringes any copyright of any third party (each, a "LICENSOR CLAIM").
Licensee shall pay any damages and costs finally awarded against Licensor and/or
any settlement amounts entered into with respect to such Licensor Claim;
provided that (a) Licensor shall promptly notify Licensee of any Licensor Claim
for which indemnification is sought pursuant to this Section 9.2 by Licensor and
Licensee shall be provided with a copy of each communication, notice or other
action relating to said claim; (b) Licensee shall have the right to assume sole
authority to conduct the trial or settlement of such claim or any negotiations
related thereto at Licensee's expense and (c) Licensor shall have provided
Licensee with all information and assistance reasonably requested by Licensee in
connection with such claim or suit. If it is
-11-
<PAGE>
adjudicatively determined, or if Licensee believes, that the Licensee Technology
infringes any Intellectual Property Right, or if the license or use of the
Licensee Technology, or any part thereof, is, as a result, enjoined, then
Licensee may, at its election, option and expense: (i) replace the Licensee
Technology or part thereof, with other noninfringing suitable technology; or
(ii) modify the Licensee Technology or part thereof to become noninfringing.
Licensee will not be liable for any costs or expenses incurred without its prior
written authorization. Notwithstanding the foregoing provisions of this Section
9.2, Licensee shall have no liability for (i) any infringement claims alleging
infringement by any completed equipment or any assembly, circuit, combination,
method or process in which any of the Licensee Technology may be used but not
covering the Licensee Technology standing alone; or (ii) any modification of the
Licensee Technology, or part thereof, (unless such modification was made by or
at the written request of Licensee) where such infringement would not have
occurred but for such modifications; or (iii) any suits or proceedings covered
under Section 9.6 below. Licensee shall keep Licensor informed of, and consult
with Licensor in connection with the progress of each Licensor Claim; and
Licensee shall not have any right, without Licensor's written consent, to settle
any Licensor Claim if such settlement arises from or is part of any criminal
action, suit or proceeding or contains an acknowledgment of any liability on the
part of any Licensor Affiliate. Licensor shall have the right, in its absolute
discretion, to employ at its own expense attorneys of its own choice and subject
to the foregoing, to participate in the defense of any Licensor Claim.
9.3. REPRESENTATIONS AND WARRANTIES OF LICENSOR. Licensor represents and
warrants that (A) it has the right, power and authority to enter into this
Agreement and to fully perform its obligations under this Agreement and (B) the
making of this Agreement by it does not violate any agreement existing between
it and any other person or entity and (C) as of the Effective Time, Licensor is
a wholly owned subsidiary of TWDC.
9.4. DISCLAIMER OF WARRANTIES. Except for the express warranties set
forth in this Section 9, neither party makes any warranties, express, implied,
statutory or otherwise, with respect to the subject matter hereof. THE PARTIES
SPECIFICALLY DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT
AND FITNESS FOR A PARTICULAR PURPOSE.
9.5. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE
UNDER OR IN CONNECTION WITH THIS AGREEMENT FOR ANY LOSS OF PROFIT OR ANY OTHER
INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR OTHER INDIRECT
DAMAGES OF ANY NATURE, FOR ANY REASON, INCLUDING WITHOUT LIMITATION THE BREACH
OF THIS AGREEMENT EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. THE FOREGOING PROVISIONS OF THIS SECTION 9.4 WILL NOT OPERATE TO LIMIT
EITHER PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN SECTIONS 9.2 AND 9.6.
9.6. INDEMNIFICATION BY LICENSOR. Licensor shall defend, at its sole
expense, any claim, suit or proceeding brought against Licensee by a third party
insofar as such suit or
-12-
<PAGE>
proceeding shall be based upon a claim (A) that if true would be a breach of the
representations, warranties or agreements made by Licensor under this Agreement,
or (B) a claim that the Licensor Properties or any modifications made by
Licensor to the Licensee Technology or part thereof (unless any such
modification was made by or at the written request of Licensee) where such
infringement would not have occurred but for such modification, violate or
infringe any copyright of such third party. Licensor shall pay any damages and
costs finally awarded against Licensee, and/or settlement amounts agreed to with
respect to any such claim, provided that: (A) Licensor shall have been promptly
notified of the suit or claim by Licensee and provided with a copy of each
communication, notice or other action relating to said claim; (B) Licensor shall
have the right to assume sole authority to conduct the trial or settlement of
such claim or any negotiations related thereto at Licensor's expense; and (c)
Licensee shall have provided Licensor all information and assistance reasonably
requested by Licensor in connection with such claim or suit. Subject to the
foregoing, Licensee shall have the right, at its own expense and in its absolute
discretion, to employ attorneys of its own choice and to participate in the
defense and/or settlement of any claim, suit or proceeding covered under this
Section 9.6.
10. TERMINATION.
10.1. TERMINATION BY LICENSOR. Licensor shall have the right to
immediately terminate this Agreement upon written notice to Licensee in the
event of the occurrence of one or more of the following:
(A) At the date of the consummation of an acquisition by any person or
group (within the meaning of Rule 13d-5(b)(1) promulgated under the Securities
Exchange Act of 1934) of 25% or more of the then-outstanding voting equity of
Licensee; provided, however, that in the event that such acquisition constitutes
a "Triggering Event" (as defined in Section 1 of the "poison pill" share
purchase rights plan of Licensee) and the Licensee does not redeem the share
purchase rights under the plan, the foregoing percentage shall be calculated
assuming that the share purchase rights that would be issued as a result of such
Triggering Event are exercised in full pursuant to the "flip-in" provisions of
Section 11(a)(ii) of such plan as of immediately prior to such acquisition.; or
(B) If Licensee fails to use commercially reasonable efforts to spend
(including but not limited to promotional spending) the Investment Amount (as
defined below) for the Portal Products (i) by more than fifteen percent (15%) in
each of two consecutive fiscal years and (ii) by more than twenty five percent
(25%) in the aggregate for that two year period; provided, however, that
Licensor's right to terminate this Agreement under this Section 10.1(b) shall
terminate upon the earlier to occur of the following after the first three (3)
full fiscal years: (x) after Licensee's EBITA (as defined in Section 6) less
EBITA attributable to Licensee Revenue Exclusions has been positive for two (2)
consecutive fiscal years and (y) ten (10) years after the date first set forth
above. As used in this Section 10.1(b), the "INVESTMENT AMOUNT" is the
investment amount for a fiscal year approved by a unanimous vote of the Advisory
Committee. The parties have agreed on the following initial Investment Amounts
for the first three fiscal
-13-
<PAGE>
years: (A) $40,500,000 in the first full fiscal year, (B) $58,300,000 in the
second full fiscal year and (C) $64,800,000 in the third full fiscal year. If
(i) in any of the first three full fiscal years after the date hereof, the
Investment Amount is not approved by a unanimous vote of the Advisory Committee
by the last day of the preceding fiscal year, then, until a new Investment
Amount is approved, the corresponding year of the initial Investment Amounts set
forth above will remain in effect and (ii) after the first three years, if an
Investment Amount for any fiscal year is not approved by a unanimous vote of the
Advisory Committee by the last day of the preceding fiscal year, then, until a
new Investment Amount is approved, the Investment Amount for the immediately
preceding fiscal year will remain in effect (or, if no Investment Amount is
approved in the first three years, the last year of the initial Investment
Amount will remain in effect), and in each case in clause (ii), increased in an
amount equal to 50% of the increase in the projected revenue growth for the
Portal Products between the current fiscal year and the subsequent fiscal year,
provided, that, if such projected revenue growth is a negative number, such
aggregate amount shall be increased in an amount equal to the percentage
increase or decrease in the Consumer Price Index for Urban Wage Earners and
Clerical Workers [All Urban Consumers], U.S. City Average (1982-84=100]
Unadjusted, all items index, published by the Bureau of Labor Statistics, United
States Department of Labor (the "CPI Factor") for the preceding twelve-month
period. In the event that the Advisory Committee cannot agree on a projected
revenue growth for the Portal Products for a particular fiscal year, the
Investment Amount for such fiscal year shall be increased in an amount equal to
the actual growth rate in revenue for the Portal Products between the prior two
fiscal years. If such growth rate is a negative number, such Investment Amount
shall be adjusted by the CPI Factor. In each year, the Investment Amount
adjusted as provided above shall be the baseline for any adjustments for the
subsequent year.; or
(C) In the event that Licensee files a petition in bankruptcy through a
decision of the majority of Licensee's Disinterested Directors (as defined in
that certain Governance Agreement by and between the parties of even date
herewith) or is adjudged bankrupt or is placed in the hands of a receiver.
(D) Except as expressly provided in this Section 10.1, Licensor shall
have no right to terminate this Agreement or the rights or licenses set forth
herein.
10.2. TERMINATION BY LICENSEE. Licensee shall have the right to
immediately terminate this Agreement upon written notice to Licensor in the
event that Licensor makes any assignment for the benefit of creditors or files a
petition in bankruptcy or is adjudged bankrupt or becomes insolvent or is placed
in the hands of a receiver.
10.3 GRANT OF LICENSE OF LICENSEE TECHNOLOGY. In the event of and
effective upon the effective date of termination of this Agreement by Licensor
pursuant to Section 10.1(a), (b) or (c) above, Licensee grants to Licensor the
license set forth in Exhibit B on the terms and conditions set forth in Exhibit
B.
-14-
<PAGE>
10.4. EFFECT OF TERMINATION. Sixty (60) days after the effective date of
termination pursuant to Section 10.1, all rights granted to Licensee under or
pursuant to this Agreement shall terminate. The following provisions of this
Agreement shall survive expiration or termination of this Agreement for any
reason: 5, 7, 8, 9, 10.3, 10.4, and 11.
11. GENERAL PROVISIONS.
11.1. NOTICES. All notices which either party is required or may desire
to serve upon the other party shall be in writing, addressed to the party to be
served as follows:
(A) if to Licensor:
The Walt Disney Company
500 South Buena Vista Street
Burbank, California 91521
Attention: Thomas O. Staggs
Telephone: (818) 560-6977
Facsimile: (818) 846-8726
with a copy to:
Buena Vista Internet Group
500 S. Buena Vista Street
Burbank, California 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
(B) if to Licensee:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone: (408) 543-6000
Facsimile: (408) 734-9350
-15-
<PAGE>
(C) with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre
Telephone: (650) 493-9300
Facsimile: (650) 496-7556
Any such notice may be served by courier, facsimile (provided oral
confirmation of receipt is immediately obtained or a hard copy is concurrently
sent by national overnight delivery service) or national overnight delivery
service. Notice shall be deemed served upon personal or courier delivery or
upon the date sent.
11.2. ENTIRE AGREEMENT. This Agreement, together with the exhibits
attached hereto constitutes the complete understanding and agreement between
Licensor and Licensee with respect to the transactions contemplated herein.
11.3. WAIVER. No waiver of any provision of this Agreement or relating
thereto shall be effective, except pursuant to a written instrument signed by
the party waiving compliance.
11.4. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the parties hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
11.5. ASSIGNMENT. This Agreement may not be assigned by a party hereto,
by operation of law or otherwise, without the other party's prior written
consent, in its sole discretion; provided, however, that either party may assign
this Agreement to its parent corporation or any entity of which its parent owns
at least 80% of the voting equity.
11.6. FURTHER ASSURANCES. Licensee agrees to do and perform all such
further acts and things and shall execute and deliver such other agreements,
certificates, instruments and documents necessary or that Licensor may deem
advisable in order to carry out the intent and accomplish the purposes of this
Agreement and to evidence, perfect or otherwise confirm Licensor's Licensee's
rights hereunder.
11.7. SEVERABILITY. If any of the provisions of this Agreement shall be
adjudged by a court of competent jurisdiction to be void, such provision shall
apply with such modifications as may be necessary to make it valid and
effective.
11.8. GOVERNING LAW, FORUM AND JURISDICTION. This Agreement shall be
governed by the laws of the State of California without giving effect to
principles of conflicts of law. Any action arising out of or relating to this
Agreement shall be filed only in the courts of the State of
-16-
<PAGE>
California for the County of Los Angeles, or the United States District Court
for the Central District of California. The parties hereby consent and submit to
the personal jurisdiction of such courts for the purposes of litigating any such
action.
11.9. REMEDIES. Except as expressly provided herein, either party hereto
shall have all rights and remedies available to it in the event of a breach of
this Agreement by the other party, including without limitation the right to
seek specific performance of the terms hereof and injunctive relief in respect
of any such breach by the other party. All remedies provided for herein shall
be cumulative, and the exercise of any particular remedy by a party shall not
limit or preclude the exercise of any other remedy available to such party.
IN WITNESS WHEREOF, the duly authorized representatives of each of the parties
hereto have executed this Agreement as of the day and year first written above.
DISNEY ENTERPRISES, INC. INFOSEEK CORPORATION
/s/ Kevin A. Mayer /s/ Harry M. Motro
- ------------------------- ---------------------------
Name: Kevin A. Mayer Name: Harry M. Motro
Title: Sr. Vice President Title: President and CEO
-17-
<PAGE>
EXHIBIT B
TERMS OF LICENSE OF LICENSEE TECHNOLOGY
1. GRANT OF LICENSE.
(A) Licensee grants to Licensor and its Affiliates a nonexclusive,
nontransferable, royalty-free, perpetual right to utilize the Licensee
Technology (along with the source code and related documentation which shall be
delivered to Licensor within ten (10) days of the effective date of this
license) solely in the development, production, operation and distribution of
the Portal Products (as such service may be operated by Licensor and its
Affiliates), to the extent that Licensee owns or controls such Licensee
Technology as of the effective date of termination of this Agreement by Licensor
under Section 10.1(a), (b) or (c) and to the extent that the Licensee Technology
is actually being utilized by Licensee in the development, production or
distribution of Portal Products within one year before such date. For purposes
of this Section 1(a), "control" means the ability to grant the licenses set
forth herein without payment of royalties or other consideration to third
parties; provided, that if any technology would be included in the definition of
Licensee Technology but for the obligations of Licensee to pay such royalties or
other consideration, Licensor shall be entitled to pay such royalties or other
consideration and include such technology in the license granted herein.
(B) Licensor agrees that it will not: (i) sublicense the Licensee
Technology (except as necessary for the development of the Portal Products, in
which case Licensor agrees that it will not sublicense the Licensee Technology
to any competitors of Licensee); (ii) decompile, disassemble, reverse engineer
or otherwise attempt to derive source code from the Licensee Technology, in
whole or in part; (iii) modify or prepare derivative works of the Licensee
Technology, except to the extent necessary or desirable for the production,
distribution, operation, development and exploitation of the Portal Products
(and such derivative works shall be owned by Licensor); (iv) copy the Licensee
Technology (except for one (1) copy to be used by Licensor for back up purposes
only); or (v) use the Licensee Technology for the benefit of or on behalf of any
third party or otherwise on a service bureau basis. As used in this Section
1(b), "competitor" means Yahoo, Excite, Lycos, CNET, Netscape, Microsoft and
America Online and their respective Affiliates and successors and any other
entity a substantial portion of whose revenue is derived from internet or
intranet search and directory activities.
(C) Licensor shall have the right to fully integrate the Licensed
Technology into the Portal Products.
(D) All rights not specifically and/or expressly granted by Licensee to
Licensor are hereby reserved by Licensee.
B-2
<PAGE>
2. MAINTENANCE AND SUPPORT.
(A) For so long as Licensor pays to Licensee the consideration required
under Section 2(b) below but in no event more than five (5) years after the
effective date of this license, the rights granted in Section 1 above shall
include all "Upgrades" to the Licensee Technology. For purposes of this
section, "Upgrades" shall mean updates and enhancements to the Licensee
Technology which are prepared by or for Licensee for commercial use and not for
testing.
(B) In consideration for the right to such Upgrades, Licensor agrees to
pay to Licensee royalty rates which are as favorable as those then offered to
any third party, and further agrees to similar terms and conditions as those
agreed to by the most favorably treated third party; provided however, that if
Licensee does not offer any or all or any such Upgrades to the Licensee
Technology for license to any third party, the license granted hereunder shall
be offered at fair market rates, as reasonably determined by the parties based
on the license rates for similar technology.
(C) Unless agreed in writing by the parties, this Agreement does not
include, and Licensee shall have no obligation to provide to Licensor, any
support or technical assistance.
3. TERMINATION.
(A) If either party materially breaches any material term or condition of
this Agreement and fails to remedy such breach within a period of thirty (30)
days after written notice of such breach is given to it by the other party, such
other party may terminate this Agreement immediately upon written notice.
(B) In the event of termination of this Agreement, (i) all rights and
licenses granted herein shall automatically terminate, (ii) Licensor shall ship
to Licensee, within thirty (30) days, all tangible items in its possession which
contain any Licensee Technology and shall promptly erase all copies of the
Licensee Technology from computer memory, and (iii) Licensor shall cease to
utilize any Licensee Technology.
4. CONFIDENTIALITY. Licensor agrees to keep confidential all Licensee
Technology, not to use any Licensee Technology except as set forth herein, and
not to disclose any Licensee Technology to any third party (except as necessary
in connection with a permitted sublicense, subject to confidentiality provisions
and the right of Licensee to audit such third party's compliance with such
confidentiality provisions). Without limiting the foregoing, Licensor shall use
at least the same degree of care which it uses to prevent the disclosure of its
own confidential information of like importance (which, in the case of source
code, is of the utmost importance) to prevent the disclosure of Licensee
Technology. Licensor shall promptly notify Licensee of any actual or suspected
misuse or unauthorized disclosure of Licensee Technology.
5. DISCLAIMER OF LIABILITY. IN NO EVENT SHALL LICENSEE BE LIABLE UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE LICENSE FOR ANY
B-3
<PAGE>
LOSS OF PROFIT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR OTHER
INDIRECT DAMAGES OF ANY NATURE FOR ANY REASON, INCLUDING WITHOUT LIMITATION
BREACH OF THIS AGREEMENT AND EVEN IF LICENSEE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6. DISCLAIMER OF WARRANTIES. LICENSEE MAKES NO WARRANTIES, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE WITH RESPECT TO THE LICENSEE TECHNOLOGY AND
LICENSEE SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
7. REPRESENTATIONS AND WARRANTIES. The provisions of Section 9 apply to
this Exhibit B.
8. MISCELLANEOUS. The provisions of Section 11 apply to this Exhibit B.
B-4
<PAGE>
EXHIBIT 10.8
A REQUEST FOR CONFIDENTIAL TREATMENT HAS BEEN FILED WITH THE COMMISSION
WITH RESPECT TO PORTIONS OF THIS EXHIBIT AND SUCH PORTIONS HAVE THEREFORE
BEEN OMITTED, AS INDICATED BY A BRACKETED ASTERISK [*], AND FILED
SEPARATELY WITH THE COMMISSION.
LICENSING AND SERVICES OPTION AGREEMENT
THIS LICENSING AND SERVICES OPTION AGREEMENT (hereinafter "the Agreement") is
entered into as of June 18, 1998 by and between DISNEY ENTERPRISES, INC., a
Delaware corporation ("Disney") and INFOSEEK CORPORATION, a California
corporation ("Infoseek").
RECITALS
1. Pursuant to the Agreement and Plan of Reorganization By and Among Infoseek,
Infoseek Corporation, a Delaware Corporation, Starwave Corporation, and Disney
("the Agreement and Plan of Reorganization") and the Common Stock and Warrant
Agreement and a series of related transactions, each dated as of the date hereof
and referred to collectively as "the Acquisition Agreements," Disney and The
Walt Disney Company, a Delaware corporation, have agreed to acquire
approximately a 43% interest in the voting equity of Infoseek, subject to the
terms and conditions set forth in those agreements.
2. Pursuant to a license agreement, dated as of the date hereof ("the License
Agreement"), and as more fully set forth therein, Disney has agreed to license
to Infoseek the names and brands "Go Networks" and associated Intellectual
Property Rights for the production, distribution, operation, development and
exploitation by Infoseek of an Internet portal service named "Go Networks" or
another name mutually approved by Licensor and Licensee (hereinafter referred to
as the "Portal Products").
3. In connection with the Acquisition Agreements and the License Agreement,
Disney and Infoseek have entered into an agreement with respect to the
management and governance of the Portal Products (the "Product Management
Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, Disney and Infoseek hereby agree as follows:
1. CERTAIN DEFINITIONS
These definitions apply to this Agreement and the Exhibits attached hereto.
"ABOVE THE FOLD" means, with respect to an Image, Image Link, Link or text
that such is immediately visible to an end user, without any scrolling or
navigation on a 640 by 480 pixel page.
"AFFILIATE" means a person controlling, controlled by or under common control
of another person. Control shall mean, for the purposes of this definition,
ownership or control, directly or indirectly, of at least 50% of the outstanding
stock or other voting rights entitled to elect directors or the corresponding
non-corporate managing authority.
-1-
<PAGE>
"BANNER ADVERTISEMENT" means any Image displayed on a Web Page that is
intended to serve as an advertisement for a product, service or Web Page.
Banner Advertisements include, if applicable, Hyper-Links to another Web Page.
"CONTRACT YEAR" means each twelve (12) month period following the effective
date of Disney's exercise of the option to make effective the terms and
conditions of Exhibit A, Exhibit B or both Exhibit A and B.
"DERIVATIVE WORK" means (a) without limitation, any computer program, object
code, source code, work product, service, improvement supplement, modification,
alteration, addition, revision, enhancement, new version, new edition, remake,
sequel, translation, adaptation, design, plot, theme, character, story line,
concept, scene, audio-visual display, interface element or aspect, in any
medium, format, use or form whatsoever, whether interactive or linear and
whether now known or unknown, that is derived in any manner, directly or
indirectly, from any Infoseek Search Technology or Infoseek Communication
Technology, or any part or aspect thereof, or that uses or incorporates any such
Infoseek property, or any part or aspect thereof; (b) any "derivative work" of
any Infoseek Search Technology or Infoseek Communication Technology or part or
aspect of any thereof, as defined in the Copyright Laws of the U.S., Title 17
U.S.C. ` 101 et seq. ("the Copyright Law"); and (c) any material or
documentation related to any of the foregoing.
"DISNEY SERVICES" means any and all Narrowband online services or sites owned
by Disney or any Disney Affiliate and developed and operated by or on behalf of
Disney or any Disney Affiliate.
"EFFECTIVE TIME" means the time and date of the filing of the Certificates of
Merger referred to in the Agreement and Plan of Reorganization.
"HYPER-LINK" means a link to another Web Page ("URL") that sends an
instruction to a Web browser to open a designated Web Page activated when a user
selects an image or text so linked.
"IMAGE" means any bitmapped representation of a graphic or text, including
without limitation those stored in files ending in suffixes of .bmp, .gif or
.jpg.
"IMAGE LINK" means an Image that is Hyper-Linked to another Web Page.
"INFOSEEK CHANNEL" means the topical or other designations that Infoseek
devises that serve as a an organizational method for locating, organizing or
aggregating content on the Infoseek Web Presence and each is single click away
from the Infoseek home page. Infoseek currently labels these topical
designations as "channels." However designated in the future, any functional or
organizational equivalent developed or used by Infoseek shall be considered a
"channel."
"INFOSEEK COMMUNICATION TECHNOLOGY" means any and all proprietary computer
systems, software (including source code), techniques, methods, applications and
other
-2-
<PAGE>
technology, and related documentation, that Infoseek owns or controls as of the
date of exercise by Disney of its Exhibit A option pursuant to Section 2 for
chat applications (whereby two or more Internet users communicate by inputting
text or other transmittable data that appears in a common dialogue box or other
display medium, whether delivered over the Web or by other means). For purposes
of this definition, "control" shall mean the ability to grant the rights and
licenses set forth herein without payment of royalties or other consideration to
unrelated third parties. In the event that any Infoseek Communication Technology
would be included in this definition but for the obligations of Infoseek to pay
royalties or other consideration to an unrelated third party, then Disney shall
have the right, at its option, to pay such royalties or other consideration and
include such technology in this definition.
"INFOSEEK SEARCH TECHNOLOGY" means any and all proprietary computer systems,
software, (including source code) techniques, methods, applications and other
technology, and related documentation that Infoseek owns or controls as of the
date of exercise by Disney of its Exhibit B option pursuant to Section 2, for
the Web-crawler (referred to as a "spider") that constitutes the Infoseek Search
tool for searching the World Wide Web currently available at
http://www.infoseek.com and related Web sites, including, without limitation,
the weighted service that returns Web Pages which Infoseek markets as "Extra
Search Precision," "E.S.P.", or "ESP." For purposes of this definition,
"control" shall mean the ability to grant the rights and licenses set forth
herein without payment of royalties or other consideration to unrelated third
parties. In the event that any Infoseek Search Technology would be included in
this definition but for the obligations of Infoseek to pay royalties or other
consideration to an unrelated third party, then Disney shall have the right, at
its option, to pay such royalties or other consideration and include such
technology in this definition.
"INFOSEEK WEB PRESENCE" means any and all Web Pages owned by Infoseek and
developed or operated by or on behalf of Infoseek, including Infoseek's current
Web Presence which originates at http://www.infoseek.com.
"INITIAL WEB PAGE" means the first Web Page that is viewed in response to a
Web-based search, or the selection of a button, Image Link or a Hyper-Link.
When used in reference to a Web Presence, the Initial Web Page indicates the
page returned by the entry of the basic URL or root address (which for Infoseek
is currently http://www.infoseek.com).
"INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or term
known or designated) tangible and intangible and now known or hereafter existing
(a) rights associated with works of authorship, including but not limited to
copyrights (including without limitation the sole and exclusive right to prepare
"derivative works" (as defined in the Copyright Law) of the copyrighted work and
to copy, manufacture, reproduce, distribute copies of, modify, publicly perform
and display the copyrighted work and all derivative works thereof), moral rights
(including without limitation any right to identification of authorship and any
limitation on subsequent modification) and mask-works, (b) rights in and
relating to the protection of trademarks, service marks, trade names, goodwill,
rights in packaging, rights of publicity and privacy, merchandising rights and
similar rights, (c) rights in and relating to the protection of trade secrets
and confidential information, (d) patents, designs, algorithms and other
industrial
-3-
<PAGE>
property rights and rights associated therewith, (e) other intellectual and
industrial property and proprietary rights (of every kind and nature however
designated) relating to intangible property that are analogous to any of the
foregoing rights (including without limitation logos, character rights, "rental
rights" and rights to remuneration), whether arising by operation of law,
contract, license or otherwise, (f) registrations, applications, renewals,
extensions, continuations, divisions or reissues thereof now or hereafter in
force throughout the universe (including without limitation rights in any of the
foregoing), and (g) rights in and relating to the sole and exclusive possession,
ownership and use of any of the foregoing throughout the universe,including
without limitation the right to license and sublicense, franchise, assign,
pledge, mortgage, sell, transfer, convey, grant gift over, divide, partition and
sue (or not sue) in any way any of the foregoing now or hereafter (including
without limitation any claims and causes of action of any kind with respect to,
and any other rights relating to the enforcement of, any of the foregoing).
"MOST PROMINENT PLACEMENT" shall mean, at a minimum (1) an Above the Fold
placement of an Image, Image Link, Hyper-Link or text on the Initial Web Page of
the relevant Infoseek Channel, which Image, Image Link, Hyper-Link or text shall
be at least equal in size to the largest Image, Image Link, Hyper-Link or text
featured on such Initial Web Page (excluding Banner Advertisements), and (2)
that the content, brand, icons, Images, Image Links, Hyper-Links or text of the
Disney Services referenced in Section 2 of Exhibit B shall be placed within the
appropriate Infoseek Channels with the largest size on the same page as compared
with any other content, brand, icons, Images, Image Links, Hyper-Links or text
(excluding Banner Advertisements). For example and without limitation, on the
first page seen by viewers of each section of each Infoseek Channel for sports
(e.g., sports home page, sports news page, scores pages, teams page, league
page, information pages, etc.) such page will include a link to ESPN.com (to the
extent that such page contains any links to content pages) that is the largest
in size. If there is a headline or scores box for sports or news headlines or
scores on a page, ABC News headlines and ESPN headlines and scores shall appear
as the first headlines/scores in the appropriate boxes. To the extent that any
such page includes content (e.g., sports headlines, columnists, polls, scores,
specialized league information), ESPN.com content shall have most prominent
placement on any such page, subject to availability of appropriate content
(i.e., if ESPN.com does not have original content on high school football, if
there is a sports page featuring high school football, such page shall not be
required to feature content from ESPN.com).
"NARROWBAND" means programming that does not require transmissions at date
rates which would enable real time, full motion video at equal to or better than
the NTSC broadcast resolution.
"PERSONAL START PAGE" means the Initial Web Page on the Infoseek Web Presence
that results from the user customizing the display and search features of
Infoseek. Infoseek currently provides limited customization of the Personal
Start Page under the option "personalize." The phrase "Personal Start Page"
includes more robust customization that Infoseek may undertake in the future.
"URL" means Uniform Resource Locator and indicates the address of a Web Page.
-4-
<PAGE>
"WEB" means the World Wide Web, the designation for the viewing of integrated
text, graphics, sound and other media through software known as a browser over
the Internet, a world-wide network of computers communicating using standard
protocols. Web also includes any future enhancement to the browsing software or
Internet backbone and protocols that deliver such content.
"WEB PAGE" means a single file displayed through Web browser software and made
available for viewing, by means of a download to local cache memory, over the
Internet through a common protocol.
"WEB PRESENCE" means any number of associated Web Pages.
2. OPERATION AND EFFECT
(a) If Infoseek is required to pay a termination fee to Starwave pursuant to
Sections 8.3(a) or 8.3(b) of the Agreement and Plan of Reorganization and if
Disney is not then in material breach of the Agreement and Plan of
Reorganization, Disney shall have the sole, exclusive, irrevocable option to
make effective the terms and conditions of the license attached as Exhibit A or
the service agreement and license attached as Exhibit B or both the license
attached as Exhibit A and the service agreement and license attached as Exhibit
B by providing written notice of the exercise of such option to Infoseek. Such
option shall be exercised, if at all, with respect to either or both such
license and service agreement and license, by written notice given to Infoseek
within sixty (60) days following the date on which such a termination fee
becomes payable (the "Option Period"). From the date hereof until Disney's
exercise of the option or expiration of the Option Period, Infoseek shall not
take any action that would interfere with or preclude its performance of the
terms or conditions of the license attached as Exhibit A or the service
agreement and license attached as Exhibit B except as may be set forth on the
Schedule attached to Exhibit B.
(b) This Agreement shall terminate upon the earlier of (i) the expiration of
the Option Period (if either or both of the options are not exercised by Disney
prior thereto), and (ii) the Effective Time.
3. REPRESENTATIONS AND WARRANTIES
CONFLICTING AGREEMENTS. Except as set forth in the Schedule attached to
Exhibit B, each party represents and warrants that it has not and will not enter
into any agreement with any third party which inhibits, precludes or adversely
affects performance of any of its obligations under this Agreement or Exhibits A
and B hereto or its compliance with any of the terms hereof and thereof.
STATUS. Disney is a corporation in good standing under the laws of the state
of Delaware, and has the full right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. Infoseek is a
corporation in good standing under the laws of
-5-
<PAGE>
the state of California, and has the full right, power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
AUTHORITY: NO CONFLICT: CONSENTS. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Disney and
Infoseek and no further action is required on the part of either Disney or
Infoseek to authorize the Agreement. This Agreement has been duly executed and
delivered by Disney and Infoseek, and, assuming the due authorization, execution
and delivery by each to the other constitutes the valid and binding obligations
of Disney and Infoseek, enforceable in accordance with the terms of this
Agreement, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies. The execution and
delivery by Disney and Infoseek, each unto the other, of this Agreement does
not, and the performance and consummation of the transactions contemplated
hereby will not, result in any conflict with or violation of (i) any provision
of the Articles or Certificate of Incorporation or Bylaws of either Disney or
Infoseek, (ii) any material, contract, or license to which either Disney or
Infoseek, or any of their properties or assets, are subject (except as set forth
on the Schedule attached to Exhibit B) or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Disney or Infoseek or
their respective properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any governmental
body or third party is required by or with respect to Disney or Infoseek in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, (ii) or any
other filings or approvals as may be required under California or Delaware law.
EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT AND ITS
EXHIBITS, NEITHER PARTY MAKES ANY WARRANTIES, WHETHER EXPRESS OR IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT AND
ITS EXHIBITS, AND EACH PARTY SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.
4. GENERAL PROVISIONS
REFERENCED URLS (WEB ADDRESSES): All URLs referenced in this Agreement or
Exhibits A or B may be changed upon written notification by Disney to Infoseek.
Infoseek shall immediately update all such referenced URLs on the Infoseek Web
Presence or on any Web Page, Banner Advertisement, Image Link or Link where any
such URL was utilized. For Disney Web Pages referenced without provision of a
URL, Disney shall provide Infoseek with appropriate URLs following commencement
of the operation of this Agreement.
-6-
<PAGE>
INTERPRETATION. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
COUNTERPARTS. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
ENTIRE AGREEMENT: ASSIGNMENT. This Agreement and the Exhibits hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof; (b) are
not intended to confer upon any other person any rights or remedies hereunder,
and (c) no party shall, directly or indirectly, assign this Agreement to any
third party, except that either party may assign this Agreement to its parent
corporation or any entity of which its parent owns at least 80% of the voting
equity.
SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
SPECIFIC PERFORMANCE. Disney and Infoseek expressly agree that this Agreement
will be specifically enforceable in any court of competent jurisdiction in
accordance with its terms by each party hereto.
OTHER REMEDIES. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
-7-
<PAGE>
INDEMNIFICATION. Infoseek shall defend, at its sole expense, any claim, suit
or proceeding brought against Disney by any third party (a) which if true would
be a breach of any of the representations, warranties or agreements made by
Infoseek under this Agreement or Exhibits attached hereto, or (b) a claim that
the Infoseek Search Technology or Infoseek Communication Technology, when used
as permitted herein, violates or infringes any copyright of any third party
(each, a "Disney Claim"). Infoseek shall pay any damages and costs finally
awarded against Disney and/or any settlement amounts entered into with respect
to such Disney Claim to the extent based upon such a Disney Claim, provided that
(a) Disney shall promptly notify Infoseek of any Disney Claim for which
indemnification is sought pursuant to this paragraph by Disney and provide
Infoseek with a copy of each communication, notice or other action relating to
said claim; (b) Infoseek shall have the exclusive right to control the defense
and/or settlement of such Disney Claim and (c) Disney shall have provided
Infoseek with all information and assistance reasonably requested by Infoseek in
connection with such claim or suit. If it is adjudicatively determined, or if
Infoseek believes, that the Infoseek Search Technology or the Infoseek
Communication Technology infringes any copyright, or if the license or use of
the Infoseek Search Technology or Infoseek Communication Technology, or any part
thereof, is, as a result, enjoined, then Infoseek may, at is election, option
and expense either (i) replace the Infoseek Search Technology and/or the
Infoseek Communication Technology or any part thereof, as applicable, with other
noninfringing suitable technology; or (ii) modify the Infoseek Search Technology
or the Infoseek Communication Technology or any part thereof, as applicable, to
become noninfringing. Infoseek shall keep Disney informed of, and consult with
Disney in connection with the progress of each Disney Claim and Infoseek shall
not have any right, without Disney's written consent, to settle any Disney Claim
if such settlement arises from or is part of any criminal action, suit or
proceeding or contains an acknowledgement of any liability on the part of Disney
or any Disney Affiliate. Disney shall have the right, in its absolute
discretion, to employ attorneys of its own choice at its expense and to
participate in the defense of any Disney Claim. Infoseek's obligations pursuant
to this paragraph shall survive the termination of this Agreement or the
Exhibits attached hereto. Infoseek is not obligated to indemnify Disney for
claims based solely on Disney's modifications or Derivative Works to the
Infoseek Search Technology or the Infoseek Communication Technology and Disney
shall indemnify Infoseek for copyright infringement by such modifications
according to the same terms as apply to Infoseek's indemnity obligations under
this Section.
ATTORNEY FEES. If any action or other proceeding relating to the enforcement
of any provision of this Agreement is brought by any party hereto, the
prevailing party shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which the prevailing party
may be entitled).
WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder (a) no waiver or
extension of time shall be effective unless expressly contained in a writing
signed by the waiving party; and (b) no alteration, modification or impairment
shall be implied by reason of any previous waiver, extension of time, delay or
omission in exercise, or other indulgence.
-8-
<PAGE>
IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ITS EXHIBITS FOR ANY LOSS OF PROFIT OR ANY OTHER INCIDENTAL,
CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE OR OTHER INDIRECT DAMAGES OF ANY
NATURE, FOR ANY REASON, INCLUDING WITHOUT LIMITATION THE BREACH OF THIS
AGREEMENT OR ITS EXHIBITS EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. THE FOREGOING PARAGRAPH SHALL NOT OPERATE TO LIMIT EITHER
PARTY'S INDEMNITY OBLIGATIONS EXPRESSLY ASSUMED IN THIS AGREEMENT OR THE
EXHIBITS.
NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial messenger or
courier service, or mailed by registered or overnight mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice), provided however that notices sent by
mail will not be deemed given until received:
(a) If to Infoseek, to:
Infoseek
1399 Moffett Park Drive
Sunnyvale, CA 94809
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone No: (408) 543-6000
Facsimile No: (508) 734-9350
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: David J. Segre, Esq.
Telephone No: (650) 493-9300
Facsimile No: (650) 493-6811
(b) If to Disney, to:
500 South Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone No: (818) 560-7707
Facsimile No: (818) 563-1766
-9-
<PAGE>
with a copy to:
500 South Buena Vista Street
Burbank, CA 91521
Attention: Chief Financial Officer
Telephone No: (818) 560-6977
Telephone No: (818) 563-8726
IN WITNESS WHEREOF, the duly authorized representative of each party have
executed this Agreement as of the day and year first written above.
DISNEY ENTERPRISES, INC. INFOSEEK CORPORATION
By: /s/ Kevin A. Mayer By: /s/ Harry M. Motro
------------------- -------------------
Name: Kevin A. Mayer Name: Harry M. Motro
Title: Sr. Vice President Title: President and CEO
By: /s/ John R. Ball
-------------------
Name: John R. Ball
Title: Vice President
-10-
<PAGE>
EXHIBIT A
LICENSE OF INFOSEEK TECHNOLOGY TO DISNEY
1. Grant of License
(a) Infoseek grants to Disney and all of its Affiliates a non-exclusive,
non-transferable (except as permitted under "Assignment" in Section 7 below),
worldwide, license to use the Infoseek Search Technology and Infoseek
Communication Technology in any manner in connection with the production,
distribution, operation, development and exploitation of the Disney Services,
including without limitation to do on its behalf and/or authorize others to do
on its behalf, in any medium now known or hereafter developed, the following:
(1) to use, reproduce, distribute, transmit, make, sell, market and
publicly perform and publicly display the results of any Infoseek Search
Technology or Infoseek Communication Technology within or in association
with the Disney Services;
(2) to sublicense the Infoseek Search Technology and Infoseek
Communication Technology, but only to the extent necessary or desirable for
the production, distribution, operation, development and exploitation of
the Disney Services on behalf of Disney or its Affiliates;
(3) to design, develop, manufacture, and create technology
incorporating or based upon the Infoseek Search Technology and Infoseek
Communication Technology, but only to the extent necessary or desirable for
the production, distribution, operation, development and exploitation of
the Disney Services on behalf of Disney or its Affiliates; and
(4) to modify, improve and prepare derivative works incorporating or
based upon the Infoseek Search Technology and Infoseek Communication
Technology, but only to the extent necessary or desirable for the
production, distribution, operation, development and exploitation of the
Disney Services on behalf of Disney or its Affiliates; provided, however,
that Disney shall not sublicense or provide all or any part of the Infoseek
Search Technology or Infoseek Communication Technology to any competitor of
Infoseek, where "competitor" means Yahoo, Excite, Lycos, CNET, Microsoft,
AOL, Netscape and their respective Affiliates and successors and any other
company where a substantial portion of such company's revenues is derived
from internet or intranet search and directory activities.
(b) Without limiting the foregoing, Disney shall have the right pursuant
to this license to fully integrate the Infoseek Search Technology and the
Infoseek Communication Technology into all Disney Services.
A-1
<PAGE>
(c) Disney shall own any Derivative Works created by Disney or its
Affiliates based on the licensed Infoseek Search Technology and
Infoseek Communication Technology, provided, however, that the
underlying original Infoseek Search Technology and Infoseek
Communication Technology shall remain owned by Infoseek and its
licensors.
2. Consideration. In consideration of the rights granted hereunder, Disney
shall pay Infoseek [*] per Contract Year, payable in equal quarterly
installments on or before the fifth day after the start of each quarter. The
amount shall be prorated for periods of less than a full quarter. If Disney
desires to receive updates pursuant to section 3(b) below during any Contract
Year, Disney shall pay an additional 15% of the yearly consideration provided
for in this paragraph for such Contract Year, payable in equal quarterly
installments on or before the fifth day after the start of each quarter.
3. Maintenance and Support
(a) Infoseek personnel shall provide Disney reasonable and timely technical
assistance in utilizing Infoseek Search Technology and Infoseek Communication
Technology up to 80 person-hours of Infoseek personnel time per month. In
consideration for such assistance, Disney shall pay to Infoseek $100 per person
per hour of time provided, payable within 15 days after Disney's receipt of
Infoseek's invoice.
(b) Infoseek shall provide Disney with updates to the Infoseek Search
Technology and Infoseek Communication Technology as soon as Infoseek implements
or makes use of such updated technology as part of Infoseek's services other
than for internal development purposes.
4. Access to Source Materials
Within thirty (30) days of the effective date of this license, Infoseek
shall provide Disney a complete copy of all source code and object code for the
Infoseek Search Technology and Infoseek Communication Technology and all
documentation reasonably sufficient to permit technical personnel skilled in the
relevant art to, including without limitation, modify, enhance, maintain and
otherwise create Derivative Works from the Infoseek Search Technology and the
Infoseek Communication Technology, provided, however, that Infoseek is under no
obligation to create any such documentation not already available for internal
Infoseek use.
5. Confidentiality
Disney agrees to keep confidential all Infoseek Search Technology and all
Infoseek Communication Technology, not to use any Infoseek Search Technology or
Infoseek Communication Technology except as set forth herein, and, except to the
extent necessary to exercise Disney's rights specifically granted in Section 1
above (which disclosure shall be subject to confidentiality provisions and the
right of Infoseek to audit such third party's compliance with all applicable
confidentiality provisions), not to disclose any Infoseek Search
A-2
<PAGE>
Technology or any Infoseek Communication Technology to any third party. Without
limiting the foregoing, Disney shall use at least the same degree of care which
it uses to prevent the disclosure of its own confidential information of like
importance (which, in the case of source code, is of the utmost importance) to
prevent the disclosure of Infoseek Search Technology or Infoseek Communication
Technology. Disney shall promptly notify Infoseek of any actual or suspected
misuse or unauthorized disclosure of Infoseek Search Technology or Infoseek
Communication Technology. Disney shall not have any obligation to keep
confidential: (i) information that is within the public domain or becomes part
of the public domain through no fault of Disney, (ii) information received by
Disney from a third party that, to Disney's knowledge, is not by such disclosure
violating a written confidentiality agreement between such third party and
Infoseek, (iii) information independently developed by Disney without the use of
or reference to the Infoseek Search Technology or Infoseek Communication
Technology by persons who have not had access to the Disney Search Technology or
Disney Communication Technology, (iv) information that Infoseek consents
specifically in writing with reference to this agreement to the disclosure
thereof, and (v) information that is required to be disclosed by any applicable
law, regulation, ordinance, decree, order or any other legal process; provided,
that Disney shall promptly notify Infoseek if it becomes aware of any such
requirement and assist Infoseek in obtaining protective orders.
6. Termination
This license shall continue for a period of five years from the effective
date of Disney's exercise of its option to make the license herein effective
pursuant to the Licensing and Services Option Agreement. Each party shall have
the right to terminate this license at any time in the event of a material
breach by the other party not cured within sixty (60) days after written notice
thereof and Disney shall further have the right to terminate this license for
any reason at the end of any Contract Year, provided Disney has provided
Infoseek with written notice at least sixty (60) days prior to the end of that
Contract Year. Notwithstanding the foregoing, the provisions contained in
section 5 of this Exhibit shall survive the termination or expiration of this
license. In the event of expiration or termination of this Agreement for any
reason, (i) all rights and licenses granted herein shall automatically
terminate, (ii) Disney shall ship to Infoseek, within thirty (30) days, all
tangible items in its possession which contain any Infoseek Search Technology or
Infoseek Communication Technology and shall promptly erase all copies of the
Infoseek Search Technology and Infoseek Communication Technology from computer
memory, and (iii) Disney and its sublicensees shall cease to utilize any
Infoseek Search Technology and Infoseek Communication Technology.
7. Representations, Warranties and General Provisions
All of the Representations and Warranties and General Provisions set forth
in the Licensing and Services Option Agreement ("the Agreement") to which this
Exhibit is attached are hereby incorporated by reference into this license of
Infoseek Search Technology and Infoseek Communication Technology to Disney,
except as the same are modified by the provisions in this section within this
license. Where the Representations, Warranties and General
A-3
<PAGE>
Provisions set forth in this license, or any of them, conflict with those of the
Agreement, the express provisions of this license supersede those of the
Agreement.
ASSIGNMENT. This license shall not be assigned by either party WITHOUT THE
WRITTEN CONSENT of the other party but may be assigned by Disney to any Disney
Affiliate or by either party in connection with any sale of all or substantially
all of such party's business or assets to which this agreement relates, whether
by merger, acquisition or otherwise, and in the case of any such sale the seller
shall require the purchaser to agree in writing to be bound by this license.
The party making an assignment provided for in this paragraph shall timely
notify the other party thereof. Notwithstanding the foregoing, Disney may not
assign this license, by operation of law or otherwise, to a competitor of
Infoseek (as defined in Section 1 above).
TITLE. Infoseek warrants that (i) it has the right to grant the rights to
Disney as set forth in this license, (ii) Disney shall not be obligated to pay
any consideration for using the Infoseek Search Technology or the Infoseek
Communication Technology other than as specifically set forth in this license or
as contemplated by the definitions of Infoseek Search Technology and Infoseek
Communication Technology and (iii) there are no pending or, to the best of
Infoseek's knowledge, threatened lawsuits concerning any aspect of the
Intellectual Property Rights in and to the Infoseek Search Technology and the
Infoseek Communication Technology, except as may be disclosed in the Acquisition
Agreements.
PERFORMANCE. Infoseek warrants that the Infoseek Search Technology and the
Infoseek Communication Technology will function substantially in accordance with
the level of functionality and performance Infoseek provides with respect to any
of its Web Pages. Infoseek shall undertake to correct any programming errors in
the Infoseek Search Technology or the Infoseek Communication Technology and
shall complete such repair within a reasonable period of time commensurate with
the severity of the malfunction after notice of such condition by Disney.
SPECIFIC PERFORMANCE. Disney and Infoseek expressly agree that this license
will be specifically enforceable in any court of competent jurisdiction in
accordance with its terms by each party hereto.
A-4
<PAGE>
EXHIBIT B
SERVICE AGREEMENT AND LICENSE BETWEEN INFOSEEK AND DISNEY
1. License Grant by Disney to Infoseek
Subject to the terms and conditions of this Agreement, Disney hereby grants
Infoseek the non-exclusive, world-wide, royalty-free right to reproduce and
display all material which is the subject of any Disney or Disney Affiliate
Intellectual Property Rights, including logos, trademarks, trade names and
similar identifying material, relating to the Disney Services, solely for the
purpose of fulfilling the terms of this Agreement and provided that any such
material so used is in no way altered, changed or modified by Infoseek without
Disney's consent. Such use must conform to the advertising and content policies
in force for the Disney Services. Upon Disney's request, Infoseek will make
available samples of any uses of any such Disney or Disney Affiliate material
for approval by Disney. Such approval is within Disney's sole and exclusive
discretion. Disney shall retain all right, title and interest in and to all
such material displayed and/or reproduced by Infoseek.
2. Provision of Web Services by Infoseek
Infoseek will provide the following services to Disney provided that the
referenced service is a Disney Service:
a. Most Prominent Placement
Disney.com (http://www.disney.com), Family.com (http://www.family.com),
Disney's Daily Blast (http://www.disneyblast.com), ABC.com (http://www.abc.com),
ABCNews.com (http://abcnews.com), ESPN.com (http://espn.com) and Mr. Showbiz
(http://www.mrshowbiz.com) will each be provided Most Prominent Placement.
ABCNews.Com will be provided with Most Prominent Placement on Infoseek's
News Channel (or its replacement), and any of the Infoseek Channels containing
news-related content on the Infoseek Web Presence. Infoseek's use and display of
such content must meet Disney's then-current advertising and content policies,
which will be provided by Disney to Infoseek.
ESPN.com (http://espn.com) will be provided with Most Prominent Placement on
Infoseek's Sports Channel (or its replacement), and any of the Infoseek Channels
containing predominantly sports-related content on the Infoseek Web Presence.
Infoseek's use and display of such content must meet Disney's then current
advertising and content policies, which will be provided by Disney to Infoseek.
ABC.com and Mr. Showbiz will each be provided with Most Prominent Placement
on Infoseek's Entertainment Channel (or its replacement), and any of the
Infoseek Channels containing predominantly entertainment-related content on the
Infoseek Web Presence.
B-1
<PAGE>
Infoseek's use and display of such content must meet Disney's then current
advertising and content policies, which will be provided by Disney to Infoseek.
Disney.com (http://www.disney.com), Disney's Daily Blast, and Family.com
(http://www.family.com) will each be provided with Most Prominent Placement on
Infoseek's Kids and/or Family Channels, (or their replacements) and any of the
Infoseek Channels containing predominantly kids or family content on the
Infoseek Web Presence.
3. Consideration. In consideration of the rights granted by Infoseek
hereunder, Disney shall pay Infoseek [*] per Contract Year, payable in equal
quarterly installments on or before the fifth day after the start of such
quarter. Such amounts shall be prorated for periods of less than one quarter.
4. Confidentiality
"Confidential Information" shall mean, for purposes of this service
agreement and license, records or information in the possession or under the
control of a party relating to the technical, marketing, product and/or business
affairs or proprietary and trade secret information of that party in oral,
graphic, written, electronic or machine readable form, clearly marked as
"confidential," or if disclosed orally, information identified as confidential
at the time of disclosure.
Each party to this services agreement and license shall take reasonable
steps to protect the Confidential Information (herein defined) of the other
party, using methods at least substantially equivalent to the steps it takes to
protect its own proprietary information, but not less than a reasonable
standard, and shall prevent the duplication or disclosure of Confidential
Information, other than by or to its employees who must have access to the
Confidential Information to perform such party's obligations hereunder, provided
that each party shall make such employees aware of the restrictions of this
section.
The following information shall not be considered "Confidential
Information": (i) information that is within the public domain or becomes part
of the public domain through no fault of either party, (ii) information received
by either party from a third party that, to the receiving party's knowledge, is
not by such disclosure violating a written confidentiality agreement between
such third party and the other party to this services agreement and license,
(iii) information independently developed by either party without the use of any
material or information disclosed pursuant to this service agreement and
license, (iv) information that either Party consents to the disclosure thereof,
and (v) information that is required to be disclosed by any applicable law,
regulation, ordinance, decree, order or any other legal process.
5. Termination
This service agreement and license shall continue for a period of five years
from the effective date of Disney's exercise of its option to make the license
herein effective pursuant to the Licensing and Services Option Agreement. Each
party shall have the right to terminate this
B-2
<PAGE>
service agreement and license at any time in the event of a material breach by
the other party and Disney shall further have the right to terminate this
license for any reason at the end of any Contract Year, provided Disney has
provided Infoseek with written notice at least sixty (60) days prior to the end
of that Contract Year.
B-3
<PAGE>
6. Representations, Warranties and General Provisions
All of the Representations and Warranties and General Provisions set forth
in the Licensing and Services Option Agreement ("the Agreement") to which this
Exhibit is attached are hereby incorporated by reference into this service
agreement and license between Infoseek and Disney, except as the same are
modified by the provisions in this section within this service agreement and
license. Where the Representations, Warranties and General Provisions set forth
in this service agreement and license, or any of them, conflict with those of
the Agreement, the express provisions of this service agreement and license
supersede those of the Agreement.
ASSIGNMENT. This service agreement and license shall not be assigned by
either party without the written consent of the other party but may be assigned
by Disney to any Disney Affiliate or by either party in connection with any sale
of all or substantially all of such party's business or assets to which this
agreement relates, whether by merger, acquisition or otherwise, and in the case
of any such sale the seller shall require the purchaser to agree in writing to
be bound by this service agreement and license. The party making an assignment
provided for in this paragraph shall timely notify the other party thereof.
TITLE. Except as set forth the Schedule to this Exhibit, Infoseek warrants
that (i) it has the necessary rights to provide the services set forth in this
service agreement and license, (ii) Disney shall not be obligated to pay any
consideration for the performance of the services except as specifically set
forth herein, and (iii) there are no pending or, to the best of Infoseek's
knowledge, threatened lawsuits which would adversely affect Infoseek's provision
of the services to be provided hereunder.
Disney warrants that (i) it has the necessary rights to license the materials
subject to Disney's Intellectual Property Rights licensed in this service
agreement and license, (ii) Infoseek shall not be obligated to pay any
consideration for such material except as specifically set forth herein, and
(iii) there are no pending or, to the best of Disney's knowledge, threatened
lawsuits which would adversely affect Disney's licensing of the material subject
to Disney's Intellectual Property Rights herein licensed.
PERFORMANCE. Infoseek warrants that the display of any material subject to
any Disney or Disney Affiliate Intellectual Property Rights on any Infoseek Web
Page pursuant to the terms of this services agreement and license will be made
available on substantially similar hardware, using substantially similar
software and bandwidth or Internet connectivity, to that which Infoseek uses for
the delivery of those Web Pages associated with the Infoseek search engine
available on Infoseek's Initial Web Page, which will be substantially in
accordance with the levels of performance that Disney may require in the
ordinary and reasonable operation of the Disney Services. Infoseek shall
immediately undertake to repair any malfunctions that hinder Infoseek's
provision of the services provided herein and shall complete such repair within
a reasonable period of time commensurate with the severity of the malfunction
after notice of such condition.
B-4
<PAGE>
QUALITY. Infoseek agrees to maintain a consistent level of quality in any use
of any material subject to any Disney or Disney Affiliate Intellectual Property
Rights pursuant to this service agreement and license equal to that found on
Disney's existing Web Presence and further agrees to maintain a level of quality
in connection with its use of any such material that is consistent with general
industry standards and Disney's then-current advertising and content policies.
Infoseek acknowledges that Disney shall periodically monitor Infoseek's use of
the material subject to Disney and Disney Affiliate Intellectual Property Rights
in fulfillment of this service agreement and license. Upon request by Disney,
Infoseek shall provide Disney with representative samples of each such use prior
to the time any material which is subject to Disney or Disney Affiliate
Intellectual Property Rights is used in fulfillment of this Agreement.
INDEMNIFICATION. Disney shall indemnify, defend and hold harmless Infoseek,
its officers, employees, and agents with respect to any claim, demand, cause of
action, debt or liability, including reasonable attorneys' fees, to the extent
it is based upon a claim by a third party for infringement of its Intellectual
Property Rights by reason of Infoseek's use in accordance with the terms hereof
of the material subject to Disney's Intellectual Property Rights herein licensed
for use by Infoseek pursuant to this service agreement and license. In claiming
indemnification hereunder, Infoseek shall provide Disney with written notice of
any claim which Infoseek believes falls within the scope of this provision.
Disney shall control the defense and all negotiations relative to the settlement
of any such claim.
SPECIFIC PERFORMANCE. Disney and Infoseek expressly agree that this services
agreement and license will be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against each of the parties hereto.
USE OF NAMES. Infoseek shall not have the right to use the name, likeness or
voice of Walt Disney, the words "Disney," "ABC," "ESPN," or any Disney animated
character or any other trademark, tradename or logo of Disney for any manner
whatsoever without the prior consent of Disney or ABC, as appropriate, excepting
only in its provision of the services to be provided pursuant to this Exhibit in
accordance with the terms and conditions hereof.
B-5
<PAGE>
EXHIBIT 10.9
PRODUCT MANAGEMENT AGREEMENT
THIS PRODUCT MANAGEMENT AGREEMENT (this "Agreement") is entered into as of
June 18, 1998 by and between Disney Enterprises, Inc., a Delaware corporation,
("Disney") and Infoseek Corporation, a California corporation ("Infoseek");
provided that, this Agreement shall only become effective upon the Effective
Time, as defined in and pursuant to that certain Agreement and Plan of
Reorganization (the "Merger Agreement"), of even date herewith, by and among
Infoseek Corporation, a Delaware corporation, Starwave Corporation, a Washington
corporation, and Disney and shall cease and be of no further force and effect in
the event that the Effective Time does not occur; and provided further that,
each of the parties hereto agrees not to terminate, amend or otherwise alter
this Agreement, or waive any of its rights hereunder, at any time prior to
immediately following the Effective Time.
RECITALS
1. Pursuant to the Merger Agreement and a stock and warrant purchase
agreement, each dated as of the date hereof (collectively, the "Acquisition
Agreements"), Disney has agreed to acquire approximately a 43% interest in the
voting equity of Infoseek, subject to the terms and conditions set forth in the
Acquisition Agreements.
2. Pursuant to a license agreement, dated as of the date hereof (the "License
Agreement"), Disney has agreed to license to Infoseek the Licensor Properties
for the development, operation, production, distribution, sale, license and
other exploitation of the Portal Products.
3. In connection with the execution of the Acquisition Agreements and the
License Agreement, Disney and Infoseek have agreed to enter into agreements,
effective as of the Effective Time, with respect to, among other matters, (a)
the management and governance of the Portal Products, and (b) the establishment
of content and advertising standards and practices for the Portal Products, as
well as other services and products of Disney and Infoseek.
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Disney and Infoseek hereby agree as follows:
1. ADVISORY COMMITTEE.
The parties agree that this Agreement, and the rights and obligations of
the parties hereunder shall become effective on the Effective Time.
Capitalized terms not defined herein shall have the meanings set forth in
the License Agreement.
(a) GENERAL. As of the Effective Time, Infoseek and Disney will
respectively appoint the Infoseek CEO and the Chairman of Buena Vista
Internet Group as the sole members (the "Infoseek Member" and the
"Disney Member" respectively) of an advisory committee (the "Advisory
Committee"). Each of Infoseek and Disney will have the right to
replace its designee on the Advisory
-1-
<PAGE>
Committee; provided, that Infoseek and Disney agree to consult with
each other prior to any such replacement. Any such replacement will be
with an officer of Infoseek or Disney, or their respective Affiliates,
of similar responsibilities and experience, to the extent possible.
The Advisory Committee will meet at least every two months. For
purposes of this Agreement, "Affiliate" shall mean, with respect to
any person, any person directly or indirectly through one or more
intermediaries controlling, controlled by or under common control with
such person. Notwithstanding the foregoing, for purposes of this
Agreement, Infoseek shall not be considered as an Affiliate of Disney
and Disney shall not be considered as an Affiliate of Infoseek. Except
as expressly provided in Section 1(b)(iii) below, decisions of the
Advisory Committee shall be made by unanimous agreement of the Disney
Member and the Infoseek Member.
(b) RESPONSIBILITIES. The Advisory Committee will have the following
responsibilities:
(i) PORTAL PRODUCTS. The Advisory Committee will have overall
management responsibility for the Portal Products, will make all
significant business decisions relating to the Portal Products
and will participate regularly in the overall supervision,
direction and control of the Portal Products. Notwithstanding the
foregoing, it is understood and agreed that decisions with
respect to Infoseek-branded only search and directory services
shall not be required to be discussed by the Advisory Committee
and Infoseek shall control all decision making relating to such
search and directory services; provided, that Infoseek agrees
that the policy of standards and practices for the Infoseek
services (attached as Exhibit B-3) shall be subject to the terms
of Section 3.
(ii) OVERALL RELATIONSHIP. The Advisory Committee will be responsible
for coordinating the overall day-to-day relationship between
Disney and Infoseek with respect to all agreements and
arrangements between the companies, other than as related to the
Infoseek Stock and the Warrants (as defined in the Acquisition
Agreements). For example, the Advisory Committee would discuss
hosting, technology, marketing, and ad sales relationships
between (x) Disney and its Affiliates and (y) Infoseek and its
Affiliates that may occur between the parties that are not
related to the Portal Products, the partnership between an
Affiliate of Starwave Corporation ("Starwave") and a Disney
Affiliate (the "ABC News Venture") or the partnership between a
Starwave Affiliate and a Disney Affiliate (the "ESPN Venture").
Notwithstanding the foregoing, matters that are not related to
online services or sites owned or controlled by Disney and its
Affiliates will not be required to be discussed by the Advisory
Committee.
(iii) TIE-BREAKING VOTES. While the parties agree that the Advisory
Committee will meet and discuss all issues concerning the matters
over
-2-
<PAGE>
which they are responsible in good faith, in the following
situations, subject to Sections 2(c) and (d), a tie-breaking vote
(i.e., providing either the Disney Member or the Infoseek Member
with final decision making authority) will be provided as
follows: (A) the tie-breaking vote will reside with the Disney
Member with respect to the Portal Products, in all matters
concerning brand, name, logo and URL-branding issues as used in
Portal Products as well as the approval of each Annual Marketing
Plan (as defined in Section 2(c)), but in all events excluding
matters set forth in the Promotional Services Agreement, dated as
of the date hereof, between American Broadcasting Companies, Inc.
and Infoseek and further excluding matters concerning budgets,
spending requirements, revenue and operating income targets or
similar matters; provided, that the use of the tie breaking vote
by the Disney Member must be exercised in a manner that the
Disney Member intends in good faith is in the best interests of
the Portal Products, (B) the tie-breaking vote will reside with
the Disney Member with respect to the content and advertising
guidelines, as referenced in Section 3, in all matters relating
to any changes, modifications, interpretations or waivers of such
guidelines, (C) the tie-breaking vote will reside with the
Infoseek Member with respect to all matters concerning product
development, production, operation, distribution, advertising
sales, the execution of the Annual Marketing Plan or otherwise
relating to the day-to-day operations of the Portal Products
(except as expressly specified in clauses (A) and (B) above. The
parties, the Infoseek Member and the Disney Member (and the
Advisory Committee) agree to comply with the provisions of
Section 3 in taking any action with respect to the Portal
Products.
(c) TRAFFIC. Every six months, the Advisory Committee will check the
traffic flow between the individual services of Disney and its
Affiliates (including ESPN.com and ABC News.com) (collectively, the
"Disney Sites") and the Portal Products (including referrals to and
from Infoseek's search and directory product). If there is an overall
imbalance in traffic between any such individual Internet site or
service and the Portal Products, or if there is an overall imbalance
in traffic between the Disney Sites (in the aggregate) and the Portal
Products, the members of the Advisory Committee agree to work in good
faith to balance traffic by modifying such individual service or as
otherwise agreed, including without limitation, bridge pages and
adjustment of links.
(d) OTHER AGREEMENTS. Disney agrees, to and to cause its Affiliates to,
use good faith efforts to use Starwave Corporation or Infoseek for
hosting all of Disney and its Affiliates' online services at market
rates. Disney and Infoseek agree, and agree to cause their respective
Affiliates to, use good faith efforts to standardize navigation,
technology, advertising sales, user registration and privacy standards
across all Disney-owned, Disney Affiliate-owned, and Infoseek-owned
online services and products.
-3-
<PAGE>
2. PORTAL PRODUCTS.
(a) APPOINTMENT OF GENERAL MANAGER. The day-to-day operations of the
Portal Products will be managed by a general manager (the "General
Manager"). Infoseek will be entitled to nominate the General Manager.
Any nomination must be approved by a unanimous vote of the Advisory
Committee; provided, that if three successive nominees are not
approved, the Infoseek Member shall have the sole right of approval
for the subsequent nominee. At least one of the nominees will not be a
current or former Infoseek employee at the time of nomination. This
process will be repeated in the event of any replacement of a General
Manager. Infoseek agrees to use its good faith efforts to nominate
well qualified, "best available" candidates as General Manager
candidates. The General Manager will report to the Advisory Committee.
Either the Disney Member or the Infoseek Member will have the power to
dismiss the General Manager, after consultation in good faith with the
other. The General Manager shall be an employee of Infoseek or its
Affiliates.
(b) DUTIES OF GENERAL MANAGER. Subject to and without limiting the
provisions of Sections 1(b)(i) and 1(b)(iii) above, the General
Manager will implement the Initial Business Plan (as defined in
Section 2(c)) and subsequent Annual Business Plans and Budgets and
shall exercise control over the day-to-day operations of the Portal
Products, including editorial tactics, editorial strategy and creative
development, production (technical or otherwise), distribution,
merchandising, advertising sales and marketing and promotion.
(c) BUSINESS PLAN. Prior to the date hereof, Disney and Infoseek have
agreed on an initial three year business plan for the Portal Products
(the "Initial Business Plan"), attached hereto as Exhibit A. At least
thirty (30) days prior to the beginning of each fiscal year (ending
September 30) during the Term, the General Manager shall prepare for
the unanimous approval of the Advisory Committee an annual update to
the initial business plan and an annual budget (collectively, the
"Annual Business Plan and Budget") for the subsequent fiscal year
utilizing the categories and methods established in the Initial
Business Plan (i.e., investment commitments, revenue and operating
income targets), as well as an annual marketing plan for the Portal
Products (the "Annual Marketing Plan").
(d) ROLLOVER. If (i) in any of the first three years after the date
hereof, an Annual Business Plan and Budget is not approved by a
unanimous vote of the Advisory Committee by the last day of the
preceding fiscal year, then, until a new Annual Business Plan and
Budget is approved, the corresponding year of the Initial Business
Plan will be effective and (ii) after the first three years, if an
Annual Business Plan and Budget for any fiscal year are not approved
by a unanimous vote of the Advisory Committee by the last day of the
preceding fiscal year, then, until a new Annual Business Plan and
Budget is approved, the Annual Business Plan and Budget for the
immediately preceding fiscal year will remain in effect (or, if no
Annual Business Plan and Budget is approved in the first three
-4-
<PAGE>
years, the last year of the Initial Business Plan will remain in
effect), and in each case in clause (ii), increased in an amount equal
to 50% of the increase in the projected revenue growth for the Portal
Products between the current fiscal year and the subsequent fiscal
year, provided, that, if such projected revenue growth is a negative
number, such aggregate amount shall be increased in an amount equal to
the percentage increase or decrease in the Consumer Price Index for
Urban Wage Earners and Clerical Workers [All Urban Consumers], U.S.
City Average (1982-84 = 100) Unadjusted, all items index, published by
the Bureau of Labor Statistics, United States Department of Labor (the
"CPI Factor") for the preceding twelve-month period. In the event that
the Advisory Committee cannot agree on projected revenue growth for
the Portal Products for a particular fiscal year, the Annual Business
Plan and Budget for such fiscal year shall be increased in an amount
equal to fifty percent (50%) of the actual growth rate in revenues for
the Portal Products between the two prior fiscal years. If such growth
rate is a negative number, such Annual Business Plan and Budget shall
be adjusted by the CPI Factor. In each year, the Annual Business Plan
and Budget as adjusted as provided above shall be the baseline for any
adjustments for the subsequent year. The above provision to increase
the Annual Business Plan and Budget by the projected revenue growth
for the Portal Products shall only be effective for a five year period
beginning at the Effective Time; thereafter, if the Advisory Committee
does not approve an Annual Business Plan and Budget, the Annual
Business Plan and Budget for the prior year shall be adjusted by the
CPI Factor. For clarification purposes, the limitation of the
projected revenue growth factor to a five (5) year period shall
expressly not apply to the License Agreement which, by its terms, does
not so limit the application of the projected revenue growth factor.
(e) PLACEMENT OF DISNEY SERVICES. Infoseek agrees that the following
online services owned or controlled by Disney and its Affiliates shall
be included within the Portal Products and shall receive the most
prominent placement within the appropriate channels, services, sites
and categories (collectively, "Components") of the Portal Products and
Infoseek Services: (i) the online service produced and distributed
pursuant to the ESPN Agreement (the "ESPN Service") will be the most
prominent featured online service within the sports Component of the
Portal Products and Infoseek Services, (ii) the online service
produced and distributed pursuant to the ABC News Agreement (the "ABC
News Service") will be the most prominent featured online service
within the news Component of the Portal Products and Infoseek
Services, (iii) the Disney kids and family services (i.e., Disney.com,
Disney's Daily Blast and Family.com) (the "Disney Kids/Family
Service") will be the most prominent featured services within the
family or kids Component of the Portal Products and Disney's Internet
Guide will be featured on the family or kids Component of the Portal
Products and Infoseek Services, (iv) the ABC.com service (the "ABC
Service") will be the most prominent featured service within the
entertainment Component of the Portal Products and Infoseek Services,
(v) all Disney specialty retail shopping/commerce online services
(e.g., Disney Store, ESPN Store, ABC
-5-
<PAGE>
Store as opposed to SportsMart, which would not be considered as a
specialty retailer) shall be featured within the appropriate
Components of the shopping/commerce services of the Portal Products
and Infoseek Services and the Disney Travel Store shall be a featured
service within the appropriate Components of the Portal Products and
Infoseek Services. For all other services developed, produced or owned
by Disney and its Affiliates, Infoseek and Disney agree to negotiate
in good faith to include such service within the appropriate Component
of the Portal Products and Infoseek Services. In addition, to the
extent that the main home page, personalized pages or other similar
pages of the Portal Products and Infoseek Services includes links,
banners, or third party content, then links, banners (excluding ad
banners) or content provided by the services referenced in clauses (i)
to (iv) above shall be afforded equally prominent placement. For
purposes of this Agreement, "most prominent placement" and "most
prominent featured service" shall mean, at a minimum (1) an above the
fold placement (i.e., visible to an end user without scrolling or
navigation on a 640 by 480 pixel page) of a feature, icon or link on
the first page of the relevant Component (i.e., the sports Component
within the Portal Products), which feature, icon or link shall be at
least equal in size to the largest feature, icon or link featured on
such first page (excluding ad banners), (2) that the content, brand,
icons, and links of Disney-controlled services shall be placed within
the appropriate Components of the Portal Products with the largest
size on the same page (excluding ad banners). For example and without
limitation, on the first page seen by viewers of each section of the
sports Component (e.g., sports home page, sports news page, scores
pages, teams page, league page, information pages, etc.) such page
will include a link to ESPN.com (to the extent that such page contains
any links to content pages) that is the largest in size. If there is a
headline or scores box for sports or news headlines or scores on a
page, ABC News headlines and ESPN headlines and scores shall appear as
the first headlines/scores in the appropriate boxes. To the extent
that any such page includes content (e.g., sports headlines,
columnists, polls, scores, specialized league information), ESPN.com
content shall have most prominent placement on any such page, subject
to availability of appropriate content (i.e., if ESPN.com does not
have original content on high school football, if there is a sport
page featuring high school football, such page shall not be required
to feature content from ESPN.com). The placement and other obligations
of Infoseek hereunder shall cease with respect to the ESPN Service
and/or the ABC News Service on the end of the term of their respective
Partnership Agreements of even date herewith, including renewals, if
any (provided, however, that if either Partnership Agreement is
terminated by ESPN Partner or ABC Partner pursuant to Section 11.3(c)
of such Partnership Agreement, Infoseek's obligations under Sections
2(e) and 2(f) hereof shall continue in effect for the earlier of (i)
remaining term of the respective Partnership Agreement or (ii) one (1)
year).
(f) PLACEMENT OF INFOSEEK. Disney agrees to integrate Infoseek's search
and directory technology and service links into all of its owned and
controlled online
-6-
<PAGE>
services to the extent features of such type are integrated into the
services, as mutually agreed by the parties. The appropriate Infoseek
utility, icons, links and banners (including those branded with the
names and brands of the Portal Products) shall receive the most
prominent placement (excluding ad banners) on all pages within such
services where Disney determines to include search and directory
services. In addition, to the extent that Infoseek decides to provide
most prominent placement to any other Disney sites or services, Disney
agrees to provide Infoseek with most prominent placement for the
appropriate Infoseek search utilities, links and banners on all pages
within such services that Disney determines to include search and
directory. Navigational elements that will allow the user to access
the Portal Products within one click will be available on all pages of
all Disney Services referenced in Section 3(e) above. If such
navigational elements include search and directory, such services will
be supplied by Infoseek. For purposes of Sections 3(e) and 3(f),
"Disney" shall include Disney Enterprises, Inc. and its Affiliates.
(g) SERVICE STANDARDS. Infoseek agrees to provide the Portal Products
with services (including but not limited to web ops, ad sales,
customer service and general and administrative support) of the same
quality, reliability, availability and such other standards of
performance as it provides to any of its other services with similar
traffic activity and complexity.
3. CONTENT AND ADVERTISING STANDARDS.
Attached as Exhibits B-1, B-2 and B-3 are the written policy of standards
and practices for content and advertising which will apply to the Portal
Products, the ESPN Venture and the ABC News Venture and Infoseek, respectively.
Disney agrees that the policy for the Portal Products will also apply to all
other Disney-branded or owned internet services and Infoseek agrees that such
policy will also apply to all other Infoseek-branded or owned internet services;
provided, however, that the foregoing policy shall not apply to search results
that direct a viewer outside of the Portal Products. Disney agrees that the
policies for the Portal Products shall not be more restrictive than the policies
applied to any internet services or sites owned and operated by Disney or any
of its Affiliates. The Disney Member will have the sole ability, acting
reasonably and in good faith and after consultation with the Infoseek Member, to
approve changes in the attached written policies for the ESPN Venture, ABC News
Venture and the Portal Products, regardless of Disney's percentage ownership of
Infoseek Stock. Any change in the policy as applicable to Infoseek-branded or
owned internet services (without including the ESPN Venture, the ABC News
Venture or the Portal Products) will be subject to approval by the Advisory
Board as long as Disney owns at least 10% or more of the then-outstanding shares
of Infoseek stock.
-7-
<PAGE>
4. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
(a) INFOSEEK REPRESENTATIONS AND WARRANTIES. Infoseek represents and
warrants to Disney that (a) it has the right, power and authority to
enter into this Agreement and fully to perform its obligations under
this Agreement; (b) the making of this Agreement by it does not
violate any agreement existing between it and any other person or
entity; (c) it complies, and at all times shall comply, with all
applicable laws, rules and regulations in effect at the time services
are performed pursuant to this Agreement pertaining to the subject
matter hereof; and (d) it shall not exercise any of the rights granted
to it under or pursuant to this Agreement in a manner that shall
violate any applicable law, rule or regulation.
(b) INFOSEEK INDEMNIFICATION OBLIGATIONS. Infoseek agrees to, and shall,
indemnify, defend and hold harmless Disney and its Affiliates and
their respective directors, shareholders, officers, agents, employees,
successors and assigns from and against any and all claims, demands,
suits, judgments, damages, costs, losses, expenses (including
reasonable attorneys' fees and expenses) and other liabilities arising
from actions brought by third parties in connection with or related
to, directly or indirectly, any breach or alleged breach of any of the
representations or warranties made by it under Section 4(a) of this
Agreement, provided, that Disney gives Infoseek full control over the
defense (including any settlements) of any such claim; and Disney
provides Infoseek with full information and reasonable assistance, at
Infoseek's expense. Infoseek shall keep Disney informed of, and
consult with Disney in connection with the progress of such litigation
or settlement and (i) Infoseek shall not have any right, without
Disney's written consent, to settle any such claim if such settlement
arises from or is part of any criminal action, suit or proceeding or
contains a stipulation to or admission or acknowledgment of, any
liability or wrongdoing (whether in contract, tort or otherwise) on
the part of any Disney Affiliate, and (ii) Disney shall promptly
notify Infoseek of any such claim
(c) DISNEY REPRESENTATIONS AND WARRANTIES. Disney represents and warrants
that (a) it has the right, power and authority to enter into this
Agreement and fully to perform its obligations under this Agreement;
(b) the making of this Agreement by it does not violate any agreement
existing between it and any other person or entity; (c) it complies,
and at all times shall comply, with all applicable laws, rules and
regulations in effect at the time services are performed pursuant to
this Agreement pertaining to the subject matter hereof; and (d) it
shall not exercise any of the rights granted to it under or pursuant
to this Agreement in a manner that shall violate any applicable law,
rule or regulation.
(d) DISNEY INDEMNIFICATION OBLIGATIONS. Disney agrees to, and shall,
indemnify, defend and hold harmless Infoseek and its Affiliates, and
its directors, shareholders, officers, agents, employees, successors
and assigns from and against any and all claims, demands, suits,
judgments, damages, costs, losses, expenses (including reasonable
attorneys' fees and expenses) and other liabilities
-8-
<PAGE>
arising from actions brought by third parties, in connection with or
related to, directly or indirectly, any breach or alleged breach of
the representations or warranties made by it under Section 4(c) of
this Agreement. Infoseek shall promptly notify Disney of any such
claim; Disney gives Infoseek full control over the defense (including
any settlements) of such claim; and Infoseek provides Disney with full
information and reasonable assistance, at Disney's expense; provided
however, that (i) Disney shall keep Infoseek informed of and consult
with Infoseek in connection with the progress of such litigation or
settlement; and (ii) Disney shall not have any right, without
Infoseek's written consent, to settle any such claim if such
settlement arises from or is part of any criminal action, suit or
proceeding or contains a stipulation to or admission or acknowledgment
of, any liability or wrongdoing (whether in contract, tort or
otherwise) on the part of Infoseek.
5. TERM AND TERMINATION.
(a) TERM. The term of this Agreement shall commence as of the Effective
Time and shall continue as long as Disney and its Affiliates own any
shares of Infoseek stock.
(b) TERMINATION. Without prejudice to any other rights or remedies
available to the parties, Disney and Infoseek shall each have the
right, in its sole discretion, to terminate this Agreement upon
written notice to the other in the event of the occurrence of one or
more of the following:
(i) In the event that Licensee files a petition in bankruptcy through
a decision of the majority of Licensee's Disinterested Directors
(as defined in the Governance Agreement by and between the
parties dated the date hereof) or is adjudged bankrupt or is
placed in the hands of a receiver; or
(ii) The other party breaches any material term or provision of this
Agreement and fails to cure such breach within sixty (60) days
after the non-breaching party delivers written notice thereof to
the other party stating what actions are required to cure such
breach or indicating that such breach is incapable of being
cured; provided, that the alleged breaching party shall use its
best efforts to timely cure such breach.
(c) INJUNCTIVE RELIEF. Each party acknowledges and agrees that the other
party may be irreparably harmed by any material breach of this
Agreement by it. Therefore, each party agrees that in the event that
it breaches any of its obligations hereunder, the other parties in
addition to all other remedies available to it under this Agreement,
or at law or in equity, shall be entitled to seek all forms of
injunctive relief including decrees of specific performance, without
showing or proving that it sustained any actual damages and without
posting bond.
-9-
<PAGE>
6. GENERAL PROVISIONS.
(a) NOTICES. All notices which either party is required or may desire to
serve upon another party shall be in writing and addressed as follows:
(i) if to Disney :
The Walt Disney Company
500 South Buena Vista Street
Burbank, California 91521
Attention: Thomas O. Staggs
Telephone: (818) 560-6977
Facsimile: (818) 846-8726
with a copy to:
Buena Vista Internet Group
500 S. Buena Vista Street
Burbank, California 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
(ii) if to Infoseek:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone: (408) 543-6000
Facsimile: (408) 734-9350
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre
Telephone: (650) 493-9300
Facsimile: (650) 496-7556
-10-
<PAGE>
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately
obtained and a hard copy is concurrently sent by internationally
commercially recognized overnight delivery service), internationally
commercially recognized overnight delivery service (such as Federal
Express or D.H.L.) or courier. Notice shall be deemed served upon
personal delivery or upon actual receipt. Any party may change the
address to which notices are to be delivered by written notice to the
other parties served as provided in this Section 6(a).
(b) ENTIRE AGREEMENT. This Agreement, together with the Exhibits
attached hereto and hereby incorporated herein by reference,
constitutes the complete, final and exclusive understanding and
agreement between the parties with respect to the transactions
contemplated, and supersedes any and all prior or contemporaneous oral
or written representation, understanding, agreement or communication
between the parties concerning the subject matter hereof.
(c) AMENDMENTS. All amendments or modifications of this Agreement shall
be binding upon the parties so long as the same shall be in writing
and executed by each of the parties hereto.
(d) WAIVERS. No waiver of any provision of this Agreement or any rights
or obligations of any party hereunder shall be effective, except
pursuant to a written instrument signed by the party waiving
compliance, and any such waiver shall be effective only in the
specific instance and for the specific purpose stated in such writing.
(e) NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
(f) ASSIGNMENT. No party shall, directly or indirectly, assign this
Agreement to any third party, except that either party may assign this
Agreement to its parent corporation or any entity of which its parent
owns at least 80% of the voting equity.
(g) HEADINGS. The section and subsection headings and captions appearing
in this Agreement are inserted only as a matter of convenience and
shall not be given any legal effect.
(h) SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be
void as going beyond what is reasonable in all the circumstances for
the protection of the interests of the party seeking to enforce such
restriction, covenant or provision, such restriction, covenant or
provision shall apply with such modifications as may be necessary
-11-
<PAGE>
to make it valid and effective. In the event that any provision of
this Agreement should be found by a court of competent jurisdiction to
be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
(i) GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California without giving effect to principles of conflicts
of law. Any action arising out of or relating to this Agreement shall
be filed only in the courts of the State of California for the County
of Los Angeles or the United States District Court for the Central
District of California. The parties hereby consent and submit to the
personal jurisdiction of such courts for the purposes of litigating
any such action.
-12-
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of each party have
executed this Agreement as of the day and year first written above.
DISNEY ENTERPRISES, INC. INFOSEEK CORPORATION
By: /s/ Kevin A. Mayer By: /s/ Harry M. Motro
------------------ ------------------
Name: Kevin A. Mayer Name: Harry M. Motro
Title: Sr. Vice President Title: President and CEO
-13-
<PAGE>
EXHIBIT 10.10
A REQUEST FOR CONFIDENTIAL TREATMENT HAS BEEN FILED WITH THE COMMISSION
WITH RESPECT TO PORTIONS OF THIS EXHIBIT AND SUCH PORTIONS HAVE THEREFORE BEEN
OMITTED, AS INDICATED BY A BRACKETED ASTERISK [*], AND FILED SEPERATELY WITH THE
COMMISSION.
PROMOTIONAL SERVICE AGREEMENT
THIS PROMOTIONAL SERVICE AGREEMENT (this "AGREEMENT") is entered into as of
June 17, 1998 by and between AMERICAN BROADCASTING COMPANIES, INC., a New York
corporation ("ABC") and INFOSEEK CORPORATION, a California corporation
("INFOSEEK"); provided that, this Agreement shall only become effective upon the
Effective Time, as defined in and pursuant to that certain Agreement and Plan of
Reorganization, of even date herewith, by and among Infoseek Corporation, a
California corporation, ICO Holding Company, a Delaware corporation, Starwave
Corporation, a Washington corporation, and Disney Enterprises, Inc., a Delaware
corporation and shall cease and be of no further force and effect in the event
that the Effective Time does not occur; and provided further that, each of the
parties hereto agrees not to terminate, amend or otherwise alter this Agreement,
or waive any of its rights hereunder, at any time prior to immediately following
the Effective Time.
RECITALS
1. Pursuant to a license agreement, dated as of the date hereof (the "License
Agreement"), Disney Enterprises, Inc. ("DEI") has agreed to license to Infoseek
certain names, brands, URLs, and associated intellectual property for the
development, production and operation by Infoseek of an internet portal service
named "Go Networks" or another name, including all brands, trademarks, names,
sections, sites, features and applications relating thereto (the "Portal
Products").
2. In connection with the development, production and operation by Infoseek of
the Portal Products, ABC has agreed to provide certain promotional services and
has agreed to cause certain of its affiliated entities to provide certain other
promotional services, on the terms and conditions set forth herein, and Infoseek
agrees to accept and pay for such promotional services, on the terms and
conditions set forth herein.
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, ABC and Infoseek hereby agree as follows:
1. AMOUNTS. Infoseek agrees to purchase from ABC, and ABC agrees to
provide to Infoseek, promotional services for the Portal Products in the amount
of $165,000,000, over the five year period after the Effective Date (as defined
in Section 4(a)); provided, however, that (i) Infoseek and ABC agree that under
no circumstances shall the amounts required to be paid by Infoseek for
promotional services in an Annual Period exceed the amount set forth in the
Annual Marketing Plan for such promotional services without Infoseek's consent,
and (ii) the amounts set forth for such promotional services in the Annual
Marketing Plan for the Annual Period shall be no less than $25,000,000 or
greater than $41,000,000, with the exact amount within such range at Infoseek's
option, notwithstanding DEI's tie-breaking control with respect to the Annual
Marketing Plan. For the avoidance of doubt and without limiting the foregoing,
with respect to any Annual Period, under no circumstances shall ABC bill
Infoseek in an amount that exceeds the amount set forth in the Annual Marketing
Plan for such Annual Period,
-1-
<PAGE>
without Infoseek's prior written consent. Infoseek agrees to pay ABC for the
promotional services from traditional media sources on ABC's customary payment
terms for the applicable media source. With respect to non-traditional media
sources, the parties agree to match the required payment dates of the most
similar traditional media source. The Annual Marketing Plan shall have the
meaning set forth in and shall be prepared and approved in accordance with the
terms and conditions of the Product Management Agreement, dated as of the date
hereof between DEI and Infoseek (the "Product Management Agreement"). "Annual
Period" shall mean the twelve (12) month period mutually agreed upon and
included within the Annual Marketing Plan notwithstanding DEI's tie-breaking
control with respect to the Annual Marketing Plan, or if no such period is set
forth in the Annual Marketing Plan, the twelve (12) month period commencing upon
the first date promotional services are provided by ABC to Infoseek hereunder,
and each one year period thereafter. Notwithstanding the foregoing, the
promotional obligations of ABC are subject to the current agreement between ABC
and America Online, Inc., dated March 5, 1998, as amended, which shall not be
renewed.
2. MENU AND RATES. The promotional services will be derived from
traditionally available media sources and non-traditional media sources.
(a) TRADITIONAL MEDIA SOURCES. For purposes of this Agreement,
promotion from traditional media sources shall mean promotion that, from time to
time, may be commercially available for any particular media source, generally
on a rate card basis. Attachment A lists those traditional media sources
available as of the date of this Agreement for providing promotional services
hereunder. The estimated average representative rates (inclusive of standard
agency commissions, if applicable) for the traditional media sources are also
set forth on Attachment A. ABC acknowledges that it shall be responsible for the
payment of standard and customary agency commissions, if necessary. Infoseek
acknowledges that such rates are representational in nature and the exact rates
will depend on, with respect to any particular media source, availability,
market conditions, frequency of use and other factors. ABC agrees that the rates
charged to Infoseek for the use of any particular promotional service (e.g., a
specific prime time program or magazine issue) will reflect average rates for
the purchase of the same or a similar promotion or advertisement paid by a
similarly situated third party (i.e., a party that purchases the same or similar
promotions or advertisements as may be purchased by Infoseek, in approximately
the same amounts, and having a similar amount of overall spending on traditional
media sources and non-traditional media sources at ABC.)
(b) NON-TRADITIONAL MEDIA SOURCES. For purposes of this Agreement,
promotion from non-traditional media sources shall mean promotion that is not
commercially available at the date hereof for any particular media source. As a
general principle, the rates for promotion from non-traditional media sources
shall be based on the rates then available for related traditional media
sources, with such rates adjusted by the duration factor and the value factor,
if applicable, and the co-branding factor, if applicable, as set forth on
Attachment B. The duration factor is a comparison of the length of a particular
promotion from a non-traditional media source as compared with the length of a
corresponding promotion available from a traditional media source. Infoseek
acknowledges that the duration factor does not necessarily reflect the exact
timed amount of any particular promotion and that promotions for
-2-
<PAGE>
any particular non-traditional media source may be of longer or shorter duration
yet will retain the same duration factor. [*] On the six month anniversary of
the Effective Date and each year thereafter, Infoseek shall be entitled to
request a review of the duration factors for any particular category of
promotion. ABC agrees to act as promptly as possible to complete such review,
with assistance from Infoseek. ABC and Infoseek agree that if, as a result of
such review, the parties reasonably determine that the actual amount of
promotional time for a particular category is less or greater than reflected by
the duration factor for that category of promotion, the parties will adjust that
duration factor appropriately. The duration factor review shall only be
available for request by Infoseek one time in any twelve month period. The value
factor is a measure of the relative value of a promotion from any specific non-
traditional media source (e.g., a specific prime time program) as compared to a
corresponding promotion available from the same or similar traditional media
source (i.e., the same program or a program with an equivalent rate card). With
respect to all promotions for the Portal Products that also promote an ABC or
Disney-branded online service (e.g., ESPN.com, ABC News.com. ABC.com,
Disney.com), as set forth on Attachment B, a co-branding factor shall apply
(after application of the duration factor and the value factor). ABC agrees to
co-brand all promotions for ESPN.com and ABC News.com in non-traditional media
sources with promotions for the Portal Products; provided that in-program
mentions which, for practical or creative reasons, in ABC's good faith
judgement, preclude any such mentions are not required to be co-branded and
further provided that inadvertent failures to co-brand shall not be a breach of
this provision. Attachment C establishes a priority list for promotions
available from non-traditional media sources, as selected by ABC and approved by
Infoseek. From time to time during the term of this Agreement, ABC may, in its
discretion, amend the first column of Attachment B to include additional
categories (i.e., new promotional sources) or temporarily restrict access to a
particular category due to unavailability, remove any particular category due to
the sale or disposition of the underlying media assets or the end of a "one-
time" promotional opportunity (e.g., an event at Disney World). Any other
amendments to Attachment B (i.e., to the value factors or duration factors) or
to Attachment C shall require the mutual agreement of ABC and Infoseek.
(c) MIX. Infoseek agrees to purchase, and ABC agrees to provide, (i)
up to twenty five percent (25%) (with the percentage at Infoseek's option) of
the annual aggregate amount for promotional services from promotion made
available by ABC from traditional media sources and (ii) at least seventy-five
percent (75%) of the annual aggregate amount for promotional services from
promotion made available by ABC from non-traditional media sources. With
respect to the promotions made available from non-traditional media sources,
Infoseek and ABC agree that at least seventy percent (70%) of such promotions
shall be those identified as an "A" priority on Attachment C, and that no more
than fifteen percent (15%) of such promotions shall be those identified as a "C"
priority on Attachment C.
-3-
<PAGE>
(d) CREATIVE CONTROLS. Subject to the approvals of the Advisory
Committee, Infoseek shall be entitled to creative control and approval over all
promotional materials produced for traditional media sources (which materials
shall be prepared at Infoseek's cost). With respect to promotional materials
produced for non-traditional media sources, Infoseek may develop suggested tag
lines, artwork and logo templates for such sources and ABC shall consider such
tag lines, artwork, and logo templates in good faith; provided, that Infoseek
acknowledges and agrees that the use of any such suggested tag lines and artwork
will remain at the discretion of the business unit controlling the applicable
non-traditional media source and that such business unit may utilize different
materials in providing promotional services from non-traditional media sources.
(e) BROADBAND. To the extent that ABC offers any promotional services
during the term of this Agreement to third parties for use in any Narrowband
service or program owned or controlled by ABC that is made available for
transmission at data rates that would enable real time, full screen, full motion
video at equal to or better than NTSC resolution, ABC agrees to use reasonable
diligent efforts to provide Infoseek with opportunities to purchase both
commercially available and non-commercially available promotion on any such
service or program. In such event, ABC will amend Attachments A, B, and C as
appropriate to reflect the provision by ABC, and the opportunity to purchase by
Infoseek, of traditional and non-traditional promotional services from any such
service or program. For purposes of this Agreement, "Narrowband" means
programming that does not require transmission at data rates which would enable
real time, full screen, full motion video at equal to or better than NTSC
resolution.
(f) PERIODIC REPORTS. ABC will deliver to Infoseek, within thirty
days after the end of each month of the term of this Agreement, reports setting
forth the amounts and sources of promotional services from traditional media
sources delivered during such month. ABC will deliver to Infoseek, within
ninety days after the end of each month of the term of this Agreement, reports
setting forth the amounts and sources of promotional services from non-
traditional media sources delivered during such month.
(g) AUDIT RIGHTS. ABC agrees to retain, for three (3) years after the
term, accurate records of all transactions relating to this Agreement. No more
than one time during any twelve month period during the term of this Agreement
and for a period of three years thereafter, Infoseek shall have the right,
during ABC's normal business hours, upon fifteen business days' prior notice to
ABC, to have an independent auditor mutually agreed upon by the parties examine
and make extracts of all records of ABC that specifically relate to the
promotional services provided to Infoseek hereunder, subject to reasonable
confidentiality protections with respect to information disclosed by ABC,
provided, that ABC shall only be required to provide copies of the actual
audio/video promotion to the extent available.
3. NON-PORTAL PRODUCTS PROMOTION. Promotional services provided by ABC
that reference ESPN Sportszone, ABC News.com or any other ABC-branded service or
site which promotion does not mention the Portal Products shall not be charged
to Infoseek and shall not
-4-
<PAGE>
be included in determining the mix of promotional services provided hereunder
pursuant to Section 2(c).
4. TERM AND TERMINATION
(a) TERM. The term of this Agreement shall commence as of the later
of (i) the Effective Time and (ii) the date of the launch of the Portal
Products, as mutually agreed between the parties (such date being the "Effective
Date") and shall continue until the earlier of (i) the fifth anniversary of the
Effective Date and (ii) the date of termination of the License Agreement. In
the event that this Agreement has not been terminated prior to the fifth
anniversary of the Effective Date, Infoseek shall be entitled to renew this
Agreement on the terms stated herein; provided, that ABC shall not be required
to co-brand promotions for ABC News.com and ESPN.com with promotions for the
Portal Products during the renewal term.
(b) TERMINATION. Without prejudice to any other rights or remedies
available to the parties, ABC and Infoseek shall each have the right, in its
sole discretion, to terminate this Agreement upon written notice to the other in
the event that the other party makes any assignment for the benefit of creditors
or files a petition in bankruptcy (provided, that with respect to ABC's ability
to terminate in the event that Infoseek files a petition in bankruptcy, such
petition shall have been approved by a decision of the majority of Infoseek's
Disinterested Directors (as defined in that certain Governance Agreement by and
between Infoseek and Disney Enterprises, Inc.) or is adjudged bankrupt or is
placed in the hands of a receiver or if the equivalent of any of the proceedings
or acts referred to in this clause, though known and/or designated by some other
name or term, occurs.
(c) INJUNCTIVE RELIEF. Each party acknowledges and agrees that the
other party will be irreparably harmed by any material breach of this Agreement
by it. Therefore, each party agrees that in the event that it breaches any of
its obligations hereunder, the other parties in addition to all other remedies
available to it under this Agreement, or at law or in equity, shall be entitled
to all forms of injunctive relief including decrees of specific performance,
without showing or proving that it sustained any actual damages and without
posting bond.
5. GENERAL PROVISIONS.
(a) NOTICES. All notices which either party is required or may desire
to serve upon another party shall be in writing and addressed as follows:
-5-
<PAGE>
(i) if to ABC :
American Broadcasting Companies, Inc.
c/o The Walt Disney Company
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
with a copy to:
Buena Vista Internet Group
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
(ii) if to Infoseek:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Harry M. Motro, President
Andrew E. Newton, Esq.
Telephone: (408) 543-6000
Facsimile: (408) 734-9350
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre
Telephone: (650) 493-9300
Facsimile: (650) 496-7556
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately obtained and a
hard copy is concurrently sent by internationally commercially recognized
overnight delivery service), internationally commercially recognized overnight
delivery service (such as Federal Express or D.H.L.) or courier. Notice shall
be deemed served upon personal delivery or upon actual receipt. Any
-6-
<PAGE>
party may change the address to which notices are to be delivered by written
notice to the other parties served as provided in this Section 5(b).
(b) ENTIRE AGREEMENT. This Agreement, together with the Attachments
hereto and hereby incorporated herein by reference, constitutes the complete,
final and exclusive understanding and agreement between the parties with respect
to the transactions contemplated, and supersedes any and all prior or
contemporaneous oral or written representation, understanding, agreement or
communication between the parties concerning the subject matter hereof.
(c) AMENDMENTS. All amendments or modifications of this Agreement
shall be binding upon the parties so long as the same shall be in writing and
executed by each of the parties hereto.
(d) WAIVERS. No waiver of any provision of this Agreement or any
rights or obligations of any party hereunder shall be effective, except pursuant
to a written instrument signed by the party waiving compliance, and any such
waiver shall be effective only in the specific instance and for the specific
purpose stated in such writing.
(e) NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
(f) ASSIGNMENT. No party shall, directly or indirectly, assign its
obligations hereunder to any third party, except that either party may assign
this Agreement to its parent corporation or any entity of which its parent owns
at least 80% of the voting equity.
(g) HEADINGS. The section and subsection headings and captions
appearing in this Agreement are inserted only as a matter of convenience and
shall not be given any legal effect.
(h) SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be void as
going beyond what is reasonable in all the circumstances for the protection of
the interests of the party seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the event
that any provision of this Agreement should be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
(i) GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California without giving effect to principles of conflicts of law.
Any action arising out of or relating to this Agreement shall be filed only in
the courts of the State of California for the Country of Los Angeles, or the
United States District Court for the Central District of
-7-
<PAGE>
California. The parties hereby consent and submit to the personal jurisdiction
of such courts for the purposes of litigating any such action.
IN WITNESS WHEREOF, the duly authorized representatives of each party have
executed this Agreement as of the day and year first written above.
AMERICAN BROADCASTING COMPANIES, INFOSEEK CORPORATION
INC.
By: /s/ Laurence J. Shapiro By: /s/ Harry M. Motro
------------------------------- -----------------------------
Name: Laurence J. Shapiro Name: Harry M. Motro
Title: Vice President Title: President and CEO
-8-
<PAGE>
EXHIBIT 10.11
REPRESENTATION AGREEMENT
REPRESENTATION AGREEMENT, dated as of June 18, 1998, by and among
ESPN/Starwave Partners, a New York General Partnership ("Venture"), Starwave
Corporation, a Washington corporation ("Representative") and Infoseek
Corporation, a Delaware corporation ("Infoseek"); provided that, subject to the
earlier termination of this Agreement pursuant to the provisions of Section 11.2
hereof, this Agreement shall only become effective upon the Effective Time (as
defined in and pursuant to that certain Agreement and Plan of Reorganization
(the "Merger Agreement"), of even date herewith, by and among Infoseek
Corporation, a California corporation, Infoseek, Representative, and Disney
Enterprises, Inc., a Delaware corporation) and shall cease and be of no further
force and effect in the event that the Effective Time does not occur; and
provided further that, except as earlier terminated pursuant to Section 11.2
each of the parties hereto agrees not to terminate, amend or otherwise alter
this Agreement, or waive any of its rights hereunder, at any time prior to
immediately following the Effective Time; provided that, notwithstanding the
foregoing, the provisions of Section 11.2 hereof shall be in full force and
effect as of the date hereof and through to the Effective Time.
WHEREAS, Venture owns and operates an Internet service known as ESPN.com
and operates other Internet services such as NFL.com, NBA.com and NASCAR.com
(collectively, and including all additional Internet services that may be owned
and/or operated by the Venture during the term of this Agreement, the "Internet
Services"), which provide a variety of sports programming and information on the
Internet; and
WHEREAS, Representative is engaged, among other things, in the business of
operating Internet sites; and
WHEREAS, Venture desires to engage Representative to provide Venture with
Services (as defined below) associated with sales of available ad inventory on
the Internet Services and related products and services, and Representative is
willing to provide such representation, on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto covenant and agree as follows:
ARTICLE 1
SERVICES
Section 1.1. PROVISION OF SERVICES.
(a) DESCRIPTION. Venture hereby engages Representative, as an
independent contractor, and Representative hereby accepts such engagement, on
the terms and subject to the conditions set forth in this Agreement, to
represent Venture on an exclusive basis in the sale of advertising and other
items as designated or approved by Venture related to the Internet Services, and
to provide additional services, if any, as Venture may request in
1
<PAGE>
writing from time to time on terms mutually satisfactory to the parties hereto
(all of the foregoing collectively, the "Services"). Activities with respect to
the sale of advertising on the Internet Services and other related items include
without limitation, the negotiation, execution, renewal, amendment, modification
or termination of advertising and other related contracts. The parties hereto
acknowledge that Representative is being engaged to provide the Services
principally due to its expertise in such matters.
(b) MANNER. The Services shall be performed by Representative with
such care as a prudent manager would use in the conduct of his company's
affairs, and Representative shall accord the Internet Services the same priority
as Representative accords its own operations and the operations of internet
services that are managed, represented and afforded the most favorable treatment
by Representative or its affiliates, taking into consideration the size and
complexity of the Internet Services as compared with Representative's own
internet services for purposes of determining personnel assignments and head
count. In providing the Services, Representative shall use the best efforts it
would use if it were providing the Services on its own behalf to (i) promote the
Internet Services as an advertising medium, (ii) seek to preserve and maximize
the long-term value of the Internet Services, including the ESPN tradenames and
goodwill and (iii) comply with the standards and practices for the ESPN Service
attached as Exhibit A. Representative shall, at Representative's expense,
furnish to Venture the services of such full-time and part-time employees of
Representative, including, without limitation, marketing and sales personnel and
such other personnel as may be reasonably required properly to render the
Services. Representative hereby undertakes, on the terms set forth in the first
sentence of this Section 1.1(b), to cause the Services to be provided such that
Venture complies in all material respects with all applicable laws, rules and
regulations.
(c) CONSULTATION. Venture and Representative will consult with each
other from time to time as requested by either party with respect to the
Services, the Internet Services and the performance of their respective
obligations hereunder and under the other agreements contemplated hereby;
provided, however, that nothing in this subsection shall be deemed to in any way
limit Venture's exclusive control over the manner and use of its Marks (as
defined below) as provided for in this Agreement and the Trademark License
Agreement entered into between the parties as of the date hereof.
Section 1.2. REPORTS; ACCESS TO INFORMATION.
(a) NOTICE. Representative shall notify Venture as promptly as
practicable after the occurrence of any of the following:
(i) receipt by Representative of (A) any notice or inquiry from any
governmental authority with respect to or arising out of the Services
contemplated by this Agreement or the other agreements contemplated hereby
or (B) any written notice from any governmental authority or third party of
any claim or legal process or notification that, in the reasonable opinion
of Representative, is or is likely to become material to the Internet
Services; or
2
<PAGE>
(ii) any other development that, in the reasonable opinion of
Representative, materially affects or is likely to materially affect the
Internet Services or the ability of Representative to fulfill its
obligations under this Agreement.
(b) REQUESTS FOR INFORMATION. Representative promptly shall provide to
Venture such information (including financial information) concerning the
Services provided hereunder as Venture reasonably may request from time to time,
including, without limitation, monthly advertising sales reports, which reports
shall set forth total ad avails sold, average CPM, average revenue per page
view, ad avails per page, sellout rate, breakdown of costs incurred, list of
advertisers and revenue sold per advertiser.
(c) ACCESS. Representative shall maintain and make available for
inspection by Venture or its representatives, during normal business hours,
Representative's complete and accurate books of account relating to the Internet
Services, and all other records, books and other information received, compiled
or otherwise maintained by Representative with respect to the Internet Services,
and all other documents reasonably requested by Venture and its officers,
managerial employees, counsel and auditors.
(d) ADVERTISING INFORMATION. Without limiting the foregoing provisions of
this Section 1.2, during the last six months of the Term (as defined in Section
2.1), in order to facilitate Venture's determination of whether to seek to
extend the term of this Agreement or take other actions with respect to the
Internet Services upon expiration of the Term, Representative shall make or
cause to be made available to Venture and its Representatives such information
as Venture reasonably requests relating to the historical advertising revenues
of the Internet Services during the Term and the booked advertising sales
relating to the Internet Services.
Section 1.3. TITLE. Representative acknowledges that it will acquire no
right, title or interest in any property or assets of Venture, including,
without limitation, any trade names, trademarks or service marks owned or
licensed by Venture, by reason of this Agreement or Representative's provision
of the Services hereunder. Representative further acknowledges that all records,
books and other information received, compiled or otherwise maintained by
Representative with respect to the Internet Services in connection with
Representative's provision of the Services hereunder are solely the property of
Venture and shall be returned to Venture promptly upon the expiration or earlier
termination of the Term; provided, however, that Venture shall, upon reasonable
request of Representative and at reasonable times, and subject to such
confidentiality arrangements as Venture reasonably requests, permit
Representative to make reasonable examination of such books, records and other
information and permit Representative to make copies of the relevant portions of
such books, records and other information.
Section 1.4. POWER OF ATTORNEY. Subject to the provisions of Sections 6.1
(Trademark License Agreement), 6.2 (Programming Decisions), 6.3 (Use of Names)
and
3
<PAGE>
7.1 (Venture Approval Matters),Venture appoints Representative its attorney-in-
fact for the Internet Services for the Term, solely in performance of the
Services, and authorizes Representative, in the name and on behalf of the
Internet Services, to make, execute, deliver, acknowledge, swear to, file and
record all documents as may be necessary, in the discretion of Representative,
in connection with the performance of the Services hereunder. Representative
shall be required to notify Venture before entering into any agreement of any
nature and shall deliver copies of all agreements, invoices and similar
materials to Venture immediately upon completion.
Section 1.5. APPOINTMENT OF ADDITIONAL REPRESENTATIVES. Representative may
appoint other entities to sell advertising inventory for the Internet Services
with the prior written approval of the Venture. Additionally, upon request from
the Venture, Representative will sell ad avail inventory to an Affiliate of the
Venture for sale by such Affiliate which sale shall be at least, at the Minimum
Revenue Rate under Section 3.4. In any circumstance, responsibility for
collection of revenue and payment of minimums to the Venture resides with the
Representative.
ARTICLE 2
TERM
Section 2.1. TERM. The term during which the Services shall be provided
(the "Term") shall be the period from the Effective Time until the Termination
Date (as defined in Section 11.1).
ARTICLE 3
GUARANTEED MINIMUMS AND PAYMENTS
Section 3.1. GUARANTEED MINIMUM. Representative shall guarantee to the
Venture a minimum quarterly payment equal to (i) the number of projected page
views, multiplied by 80%, multiplied by (ii) the Minimum Revenue Rate (the
"Guaranteed Minimum Payment").
Section 3.2. INITIAL PROJECTED PAGE VIEWS. The initial projected number
of page views per quarter will be established by mutual agreement of the
Representative and Venture. In the event that the parties cannot agree upon an
initial number of page views, then such minimum shall be based on the actual
average quarterly number of page views over the previous two quarters.
Section 3.3. SUBSEQUENT PROJECTED PAGE VIEWS. In subsequent quarters, the
projected number of page views will be established for each quarter by mutual
agreement of the Representative and Venture; provided, however that should the
parties fail to agree on the projected number of page views for any quarter,
then the projected page views for
4
<PAGE>
such quarter shall be based on the actual number of page views for the
corresponding quarter of the prior year ("Prior Quarter") multiplied by 50% of
the actual year-over-year growth rate (i.e., compared with the same quarter from
the prior year) for the preceding 4 quarters.
Section 3.4. MINIMUM REVENUE RATE. The guaranteed minimum ad revenue rate
(the "Minimum Revenue Rate") per page view paid to the Venture will be based on
the average ad revenue rate per page view of publicly traded Internet companies
involved in activities comparable to those of the Venture. If a mutually
agreeable rate can not be determined, then the rate will be based on the
Venture's 12 month trailing average.
Section 3.5. GUARANTEED DELIVERY. Venture guarantees to deliver 80% of
the projected page views each quarter. In the event that Venture fails to
deliver such minimum number of page views, Representative will be entitled to a
proportional reduction in its Guaranteed Minimum Payment.
Section 3.6. REPRESENTATION RIGHTS FEES. Representative shall pay to
Venture for the right to render Services under this Agreement the greater of (i)
the Guaranteed Minimum Payment or (ii) actual ad revenues billed to third
parties in the performance of the Services, in each case less only
Representative's actual and reasonably allocated costs of providing the Services
and a profit margin of five percent (5%) of such costs (either amount, the
"Representation Rights Fee"). The Representation Rights Fee shall be payable
quarterly during the Term.
Section 3.7. UNCONDITIONAL OBLIGATIONS. Except as otherwise set forth
herein, the obligations of Representative to pay the Representation Rights Fee
are unconditional. Representative is required to pay the Venture the
Representation Rights Fees on or before the 20th day of the end of each quarter
of each month, regardless of whether Representative is able to collect the
related outstanding receivables.
ARTICLE 4
EXPENSES
Section 4.1. OPERATING EXPENSES. From and after the Effective Time, all
expenses of performing the Services shall be the responsibility of, and shall be
borne by, Representative subject only to recoupment thereof pursuant to Section
3.6 above.
ARTICLE 5
INTENTIONALLY OMITTED
5
<PAGE>
ARTICLE 6
VENTURE AGREEMENTS
Section 6.1. TRADEMARK LICENSE AGREEMENT. On the Effective Time, Venture and
Representative shall enter into a Trademark License Agreement in the form
attached hereto as Exhibit A (the "Trademark License Agreement") pursuant to
which Venture shall grant to Representative a non-exclusive, royalty-free
license to use the mark "ESPN" solely in connection with Representative's
performance of the Services during the Term. Notwithstanding the foregoing or
any provisions herein or in the Trademark License Agreement, Venture shall have
the exclusive control over the manner and use of any trade names, trademarks,
service marks, logos, copyrights and other intellectual property (the "Marks")
owned by Venture, including "ESPN.com." Representative acknowledges that the
License granted by the Trademark License Agreement is non-exclusive and, as
such, Venture is free to use, or license others to use the marks in any manner
whatsoever, other than for the purpose of selling advertising on the Internet
Services during the Term, except as provided in Section 1.5 above.
Section 6.2. PROGRAMMING DECISIONS. (i) During the Term, Venture shall have
the sole power, to make all decisions (other than decisions with respect to the
Services, except as provided herein) concerning the programming and content of
the Internet Services, including decisions relating to the execution, renewal,
amendment, modification or termination of all Agreements related thereto.
Section 6.3. USE OF NAMES. The Representative shall not have the right to
use the name, likeness or voice of Walt Disney, the words, "Disney," "ABC,"
"ESPN," (other than as part of "ESPN.com") or any Disney animated character or
any other trademark, tradename or logo of Disney for any manner whatsoever
without the prior consent of Disney or ABC, as appropriate.
ARTICLE 7
VENTURE APPROVAL MATTERS
Section 7.1. VENTURE APPROVAL MATTERS. Notwithstanding anything to the
contrary contained herein, Representative shall not, without the prior written
approval of the General Manager of Ventures (i) institute any legal proceedings
on behalf of the Internet Services (other than ordinary course collection
matters instituted by Representative following not less than thirty (30) days'
prior written notice to Venture).
6
<PAGE>
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1. REPRESENTATIONS AND WARRANTIES OF VENTUre. Venture hereby
represents and warrants that:
(a) ORGANIZATION AND STANDING. Venture is a general partnership duly
formed, validly existing and in good standing under the laws of the State of New
York, and has all necessary corporate power and authority to carry on the
business of the Internet Services and to perform its obligations hereunder.
(b) AUTHORIZATION AND BINDING OBLIGATION. Venture has all necessary
power and authority to enter into and perform this Agreement and the Trademark
License Agreement and the transactions contemplated hereby and thereby, and
Venture's execution, delivery and performance of this Agreement and the
Trademark License Agreement have been duly and validly authorized by all
necessary action on its part. This Agreement has been, and upon execution and
delivery thereof on the Effective Time of the Trademark License Agreement will
have been duly executed and delivered by Venture and constitutes and will
constitute its valid and binding obligations enforceable against Venture in
accordance with their respective terms.
(c) ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The
execution, delivery and performance of this Agreement and the Trademark License
Agreement, by Venture: (i) do not and will not violate any provision of
Venture's organizational documents; (ii) do not and will not require the consent
of or any filing with any third party or governmental authority; (iii) do not
and will not violate any applicable law, judgment, order, injunction, decree,
rule, regulation or ruling of any governmental authority; and (iv) do not and
will not, either alone or with the giving of notice or the passage of time, or
both, conflict with, constitute grounds for termination or acceleration of or
result in a breach of the terms, conditions or provisions of, or constitute a
default under any agreement, lease, instrument, license or permit to which
Venture is now subject.
(d) ABSENCE OF PROCEEDINGS. There is no action, suit or proceeding, at
law or an equity, by or before any court, tribunal or governmental authority
pending or, to the knowledge of Venture, threatened, which, if adversely
determined, would materially and adversely affect Venture's ability to perform
its obligations hereunder or under the Trademark License Agreement or the
validity or enforceability of this Agreement or the Trademark License Agreement.
Section 8.2. REPRESENTATIONS AND WARRANTIES OF REPRESENTATIVE.
Representative hereby represents and warrants that:
7
<PAGE>
(a) ORGANIZATION AND STANDING. Representative is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Washington and has all necessary corporate power and authority to perform its
obligations hereunder.
(b) AUTHORIZATION AND BINDING OBLIGATION. Representative has all
necessary power and authority to enter into and perform this Agreement and the
Trademark License Agreement, and the transactions contemplated hereby and
thereby, and Representative's execution, delivery and performance of this
Agreement have been duly and validly authorized by all necessary action on its
part. This Agreement has been, and upon execution and delivery thereof the
Trademark License Agreement will have been duly executed and delivered by
Representative and constitutes and will constitute its valid and binding
obligations enforceable against Representative in accordance with their
respective terms.
(c) ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The
execution, delivery and performance of this Agreement and the Trademark License
Agreement by Representative: (i) do not and will not violate any provision of
Representative's organizational documents; (ii) do not and will not require the
consent of or any filing with any third party or governmental authority; (iii)
do not and will not violate any applicable law, judgment, order, injunction,
decree, rule, regulation or ruling of any governmental authority; and (iv) do
not and will not, either alone or with the giving of notice or the passage of
time, or both, conflict with, constitute grounds for termination or acceleration
of or result in a breach of the terms, conditions or provisions of, or
constitute a default under any agreement, lease, instrument, license or permit
to which Representative is now subject.
(d) ABSENCE OF PROCEEDINGS. There is no action, suit or proceeding, at
law or an equity, by or before any court, tribunal or governmental authority
pending or, to the knowledge of Representative, threatened, which, if adversely
determined, would materially and adversely affect Representative's ability to
perform its obligations hereunder or under this Agreement or the Trademark
License Agreement or the validity or enforceability of this Agreement or the
Trademark License Agreement.
ARTICLE 9
INDEMNIFICATION
Section 9.1. INDEMNIFICATION.
(a) INDEMNIFICATION OF REPRESENTATIVE BY VENTURE. From and after the
Effective Time, Venture shall indemnify and hold Representative, its affiliates
and their respective directors, officers, affiliates, employees and agents, and
the successors and assigns of any of them, harmless from and against any and all
actions, claims, damages and liabilities (and all actions in respect thereof and
any legal or other expenses in giving
8
<PAGE>
testimony or furnishing documents in response to a subpoena or otherwise and
whether or not a party thereto), whether or not arising out of third party
claims, including reasonable legal fees and expenses in connection with, and
other costs of, investigating, preparing or defending any such action or claim,
whether or not in connection with litigation in which such person is a party,
and as and when incurred (collectively, "Losses"), caused by, relating to, based
upon or arising out of (directly or indirectly) (i) any liabilities, obligations
or commitments of Venture (whether absolute, accrued, contingent or otherwise)
(A) existing as of or prior to the Effective Time or arising out of facts and
circumstances existing as of or prior thereto, which were not expressly assumed
by Representative hereunder or (B) arising after the Effective Date which are
not related to the Services; (ii) any breach of, or inaccuracy in, any
representation or warranty of Venture in this Agreement or the Trademark License
Agreement, or any certificate or other documents delivered pursuant hereto or
thereto or in connection herewith or therewith; and (iii) any breach of any
covenant or agreement of Venture contained in this Agreement or the Trademark
License Agreement.
(b) INDEMNIFICATION OF VENTURE BY REPRESENTATIVE. From and after the
Effective Time, Representative shall indemnify and hold Venture, its affiliates
and their respective directors, officers, affiliates, employees and agents, and
the successors and assigns of any of them, harmless from and against any and all
Losses caused by, relating to, based upon or arising out of (directly or
indirectly) (i) any liabilities, obligations or commitments (whether absolute,
accrued, contingent or otherwise) assumed by Representative hereunder or
Representative's performance of the Services through the Termination Date hereof
(except to the extent caused by, relating to, based upon or arising out of
(directly or indirectly) the matters described in clauses (ii) and (iii) of
Section 9.1(a)); (ii) any breach of, or inaccuracy in, any representation or
warranty of Representative in this Agreement or the Trademark License Agreement,
or any certificate or other document delivered pursuant hereto or thereto or in
connection herewith or therewith; and (iii) any breach of any covenant or
agreement of Representative contained in this Agreement or the Trademark License
Agreement.
Section 9.2. PROCEDURE FOR INDEMNIFICATION.
(a) NOTICE OF CLAIMS. In the event of a claim for breach of the
representations and warranties contained in this Agreement or for failure to
fulfill a covenant or agreement, the party asserting such breach or failure
shall provide a written notice to the other party which shall state specifically
the representation, warranty, covenant or agreement with respect to which the
claim is made, the facts giving rise to an alleged basis for the claim and the
amount of liability asserted against the other party by reason of the claim.
(b) PROCEDURES THIRD PARTY CLAIMS. If any suit, action, proceeding or
investigation shall be commenced or any claim or demand shall be asserted by any
third party (a "Third Party Claim") in respect of which indemnification may be
sought by any party or parties from any other party or parties under the
provisions of this Article 9, the
9
<PAGE>
party or parties seeking indemnification (collectively, the "Indemnitee") shall
promptly provide written notice to the party or parties from which
indemnification is sought (collectively, the "Indemnitor"); provided, however,
that any failure by Indemnitee to so notify an Indemnitor will not relieve the
Indemnitor from its obligations hereunder, except to the extent that such
failure shall have prejudiced the defense of such Third Party Claim. The
Indemnitor shall have the right to control (except where an insurance carrier
has the right to control or where an insurance policy or applicable law
prohibits the Indemnitor from taking control of) the defense of any Third Party
Claim; provided, however, that the Indemnitee may participate in any such
proceeding with counsel of its choice and at its own expense unless there exists
a conflict between the Indemnitor and the Indemnitee as to their respective
legal defenses, in which case the fees and expenses of any such counsel shall be
reimbursed by the Indemnitor. Except as otherwise set forth herein, the
Indemnitee shall have the right to participate in (but not control) the defense
of any Third Party Claim and to retain its own counsel in connection therewith,
but the fees and expenses of any such counsel for the Indemnitee shall be borne
by the Indemnitee. The Indemnitor shall not, without the prior written consent
of the Indemnitee, effect any settlement of any pending or threatened proceeding
in respect of which such Indemnitee is, or with reasonable foreseeability could
have been, a party and indemnity could have been sought to be collected from the
Indemnitor, unless such settlement includes an unconditional release of such
Indemnitee from all liability arising out of such proceeding (provided, however,
that, whether or not such a release is required to be obtained, the Indemnitor
shall remain liable to such Indemnitee in accordance with Section 9.1
(Indemnification) in the event that a Third Party Claim is subsequently brought
against or sought to be collected from such Indemnitee). The Indemnitor shall be
liable for all Losses arising out of any settlement of any Third Party Claim;
provided, however, that the Indemnitor shall not be liable for any settlement of
any Third Party Claim brought against or sought to be collected from an
Indemnitee, the settlement of which is effected by such Indemnitee without such
Indemnitor's written consent, but if settled with such Indemnitor's written
consent, or if there is a final judgment for the plaintiff in any such Third
Party Claim, such Indemnitor shall (to the extent stated above) indemnify the
Indemnitee from and against any Losses in connection with such Third Party
Claim. The indemnification required by Section 9.1 (Indemnification) shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Losses are incurred.
Section 9.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties contained in this Agreement or the Trademark
License Agreement, or any certificate, document or instrument delivered pursuant
hereto or thereto shall survive for a period of six (6) months following the
termination of this Agreement (the "Survival Period"). No claim may be brought
under this Agreement unless the requisite written notice is given on or prior to
the termination of the Survival Period. In any event such notice is given prior
to the termination of the Survival Period, the right to indemnification with
respect thereto shall survive until such claim is finally resolved and any
obligations thereto are fully satisfied. Any investigation by or on behalf
10
<PAGE>
of any party thereto shall not constitute a waiver as to enforcement of any
representation or warranty contained herein.
ARTICLE 10
Section 10.1. NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE
LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ITS EXHIBITS FOR ANY LOSS
OF PROFIT OR ANY OTHER INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE
OR OTHER INDIRECT DAMAGES OF ANY NATURE, FOR ANY REASON, INCLUDING WITHOUT
LIMITATION THE BREACH OF THIS AGREEMENT OR ITS EXHIBITS EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING PARAGRAPH SHALL
NOT OPERATE TO LIMIT THE INDEMNITY OBLIGATIONS EXPRESSLY ASSUMED IN THIS
AGREEMENT.
ARTICLE 11
TERMINATION
Section 11.1. TERMINATION. This Agreement shall automatically terminate
upon the date (the "Termination Date") of termination in accordance with its
terms or expiration of the Amended and Restated Partnership Agreement dated as
of the date hereof among the parties thereto (the "Partnership Agreement")
Section 11.2. Early Termination. In the event that Infoseek would not,
immediately following the Effective Time, be entitled to properly report, in
accordance with generally accepted accounting principles, the activities of
itself and its subsidiaries under this Agreement, including the gross sales of
advertising and related products and services by Representative, as revenue in
Infoseek's publicly disclosed consolidated financial statements, at any time up
to the Effective Time, Infoseek shall have the unilateral right, exercisable in
its sole discretion, to terminate this Agreement, in which case this Agreement
shall be of no further force or effect.
Section 11.3. CERTAIN MATTERS UPON TERMINATION.
(a) RELEASE OF RIGHTS; PAYMENT. If this Agreement expires or is terminated
for any reason in accordance herewith: (i) Representative shall cease providing
the Services and, following such expiration or termination, shall cooperate with
Venture in connection with the resumption by Venture of overall management of
the Internet Services; (ii) In the case of earlier termination, Representative
shall pay to Venture, by wire transfer of immediately available funds, not later
than sixty (60) days following the termination date, all amounts in respect of
the Representation Rights Fee accrued or which will accrue with respect to
Services rendered through the termination date, together with interest thereon
11
<PAGE>
from and including the next scheduled date of payment through but excluding the
actual date of payment; and (iii) the Trademark License Agreement and
Representative's engagement and all rights hereunder shall immediately cease.
(b) INDEMNIFICATION RIGHTS SURVIVE. No expiration or termination of this
Agreement shall terminate the obligation of any party to indemnify the other
under Section 9.1 (Indemnification) or limit or impair any party's rights to
receive payments due and owing or which accrued hereunder on or before the date
of such termination.
ARTICLE 12
CONFIDENTIALITY
Section 12.1. CONFIDENTIALITY. Representative shall treat confidentially
all records, books and other information of any type received or compiled for
the benefit of Venture hereunder in connection with this Agreement.
Representative agrees not to disclose any such records, books and information to
any third party (other than directors, officers, partners, employees or outside
advisors of such party and other than expressly in the performance of such
party's obligations hereunder) without the prior written consent of Venture.
Representative will take all commercially reasonable steps to protect all
confidential information of the Venture using methods at least substantially
equivalent to the steps it takes to protect its own proprietary information.
The foregoing shall not be applicable to any information that is (i) publicly
available when provided or that thereafter becomes publicly available other than
through a breach by such party of its agreements hereunder, (ii) required to be
disclosed by Representative by judicial or administrative process in connection
with any action, suit, proceeding or claim or otherwise by applicable law or
(iii) known by Representative on the date of this Agreement, not otherwise
primarily related to the business of the Internet Services or any Network Office
and not otherwise subject to a confidentiality agreement with or other
obligation of secrecy to Venture or any other party. Information shall be deemed
"publicly available" and not subject to Representative's agreement hereunder if
such information becomes a matter of public knowledge or is contained in
materials available to the public or is obtained by Representative from any
source other than Venture (or its directors, officers, partners, employees or
outside advisors), provided that such source has not to Representative's actual
knowledge entered into a confidentiality agreement with Venture with respect to
such information.
ARTICLE 13
MISCELLANEOUS
Section 13.1. NO PARTNERSHIP OR JOINT VENTURE. This Agreement is not
intended to be and shall not be construed as a partnership or joint venture
agreement between the
12
<PAGE>
parties. Except as otherwise specifically provided in this Agreement, no party
to this Agreement shall be authorized to act as agent of or otherwise represent
the other party to this Agreement.
Section 13.2. ENTIRE AGREEMENT; SCHEDULES; AMENDMENT; WAIVER. Except as set
forth in the subsequent sentence, this Agreement and the Trademark License
Agreement and the exhibits and schedules hereto and thereto, embody the entire
agreement and understanding of the parties hereto and supersede any and all
prior agreements, arrangements and understandings relating to the matters
provided for herein. Notwithstanding anything to the contrary contained in this
Agreement, each and every term or provision contained in the Partnership
Agreement and the related Amended and Restated Management and Services Agreement
dated as of the date hereof among the parties thereto (the "Management and
Service Agreement") shall govern in the event of any conflict with any term or
provision in this Agreement, without limitation. Any ambiguities in any such
determination should be resolved in favor of the reading of the Partnership
Agreement and the Management and Services Agreement. No amendment, waiver of
compliance with any provision or condition hereof, or consent pursuant to this
Agreement, shall be effective unless evidenced by an instrument in writing
signed by the party against whom enforcement of any amendment, waiver or consent
is sought. No failure or delay on the part of Venture or Representative in
exercising any right or power under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties to this Agreement are
cumulative and are not exclusive of any right or remedies which either may
otherwise have.
Section 13.3. FURTHER ASSURANCES. Each of Venture and Representative agrees
to execute and deliver such instruments and take such other actions as may
reasonably be required to carry out the intent of this Agreement.
Section 13.4. BENEFIT AND ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Neither Representative nor Venture may assign its rights
or obligations under this Agreement except that either party may assign this
Agreement to its parent corporation or any entity of which its parent owns at
least 80% of the voting equity.
Section 13.5. HEADINGS. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
Section 13.6. GOVERNING LAW. The construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its principles of conflict of laws.
13
<PAGE>
Section 13.7. NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing, and addressed as follows:
If to Venture: Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
If to Representative: Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
If to Infoseek: Infoseek Corporation
1399 Moffett Park Boulevard
Sunnyvale, California 94089
Attn: Harry Motro
Leslie Wright
Telephone: (408) 543-6700
Facsimile: (408) 734-9356
Any such notice, request, demand or communication shall be deemed to have been
duly delivered and received (a) upon hand delivery thereof during business
hours, (b) upon the earlier of receipt of three (3) days after posting by
registered mail or certified mail, return receipt requested, (c) on the next
business day following delivery to a reliable or recognized air freight delivery
service, and (d) on the date of transmission, if sent by facsimile during normal
business hours (but only if a hard copy is also send by overnight courier), but
in each case only if sent in the same manner to all persons entitled to receive
notice or a copy. Any party may, with written notice to the other, change the
place for which all further notices to such party shall be sent. All costs and
expenses for the delivery of notices hereunder shall be borne and paid for by
the delivering party.
Section 13.8. SEVERABILITY. If any of the provisions of this Agreement
shall be held unenforceable, then the remaining provisions shall be construed as
if such unenforceable provisions were not contained herein. Any provision of
this Agreement which is unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability without
invalidating the remaining provisions hereof, and any such unenforceability in
any jurisdiction shall not invalidate or render
14
<PAGE>
unenforceable such provisions in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto hereby waive any provision of law now or
hereafter in effect which renders any provisions hereof unenforceable in any
respect.
Section 13.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Representation Agreement
as of the date first above written.
STARWAVE CORPORATION
By: /s/ Kevin Mayer
-------------------------
Name: Kevin Mayer
Title: Sr. Vice President
ESPN/STARWAVE PARTNERS
by: ESPN Online Investments, Inc.
By: /s/ Laurence J. Shapiro
-------------------------
Name: Laurence J. Shapiro
Title: Vice President
INFOSEEK CORPORATION
By: /s/ Harry M. Motro
-----------------------
Name: Harry M. Motro
Title: President and CEO
15
<PAGE>
EXHIBIT 10.12
REPRESENTATION AGREEMENT
REPRESENTATION AGREEMENT, dated as of June 16, 1998, between ABC/Starwave
Partners, a New York General Partnership ("Venture"), and Starwave Corporation,
a Washington corporation ("Representative") and Infoseek Corporation, a Delaware
corporation ("Infoseek"); provided that, subject to the earlier termination of
this Agreement pursuant to the provisions of Section 11.2 hereof, this
Agreement shall only become effective upon the Effective Time (as defined in and
pursuant to that certain Agreement and Plan of Reorganization (the "Merger
Agreement"), of even date herewith, by and among Infoseek Corporation, a
California corporation, Infoseek, Representative, and Disney Enterprises, Inc.,
a Delaware corporation) and shall cease and be of no further force and effect in
the event that the Effective Time does not occur; and provided further that,
except as earlier terminated pursuant to Section 11.2, each of the parties
hereto agrees not to terminate, amend or otherwise alter this Agreement, or
waive any of its rights hereunder, at any time prior to immediately following
the Effective Time; provided that, notwithstanding the foregoing, the provisions
of Section 11.2 hereof shall be in full force and effect as of the date hereof
and through to the Effective Time.
WHEREAS, Venture owns and operates Internet services known as ABCNEWS.com,
Mr. Showbiz, Wall of Sound, Celebsite and Money Scope (collectively, and
including all additional Internet services that may be owned and/or operated by
the Venture during the term of this Agreement, the "Internet Services"), which
provide a variety of news programming and information on the Internet; and
WHEREAS, Representative is engaged, among other things, in the business of
operating Internet sites; and
WHEREAS, Venture desires to engage Representative to provide Venture with
Services (as defined below) associated with sales of available ad inventory on
the Internet Services and related products and services, and Representative is
willing to provide such representation, on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto covenant and agree as follows:
ARTICLE 1
SERVICES
Section 1.1. PROVISION OF SERVICES.
(a) DESCRIPTION. Venture hereby engages Representative, as an independent
contractor, and Representative hereby accepts such engagement, on the terms and
subject to the conditions set forth in this Agreement, to represent Venture on
an exclusive basis in the sale of advertising and other items as designated or
approved by Venture related to
1
<PAGE>
the Internet Services, and to provide additional services, if any, as Venture
may request in writing from time to time on terms mutually satisfactory to the
parties hereto (all of the foregoing collectively, the "Services"). Activities
with respect to the sale of advertising on the Internet Services and other
related items include without limitation, the negotiation, execution, renewal,
amendment, modification or termination of advertising and other related
contracts. The parties hereto acknowledge that Representative is being engaged
to provide the Services principally due to its expertise in such matters.
(b) MANNER. The Services shall be performed by Representative with such
care as a prudent manager would use in the conduct of his company's affairs, and
Representative shall accord the Internet Services the same priority as
Representative accords its own operations and the operations of internet
services that are managed, represented and afforded the most favorable treatment
by Representative or its affiliates, taking into consideration the size and
complexity of the Internet Services as compared with Representative's own
internet services for purposes of determining personnel assignments and head
count. In providing the Services, Representative shall use the best efforts it
would use if it were providing the Services on its own behalf to (i) promote the
Internet Services as an advertising medium, (ii) seek to preserve and maximize
the long-term value of the Internet Services, including the ABC tradenames and
goodwill and (iii) comply with the standards and practices for the ABC Service
attached as Exhibit A. Representative shall, at Representative's expense,
furnish to Venture the services of such full-time and part-time employees of
Representative, including, without limitation, marketing and sales personnel and
such other personnel as may be reasonably required properly to render the
Services. Representative hereby undertakes, on the terms set forth in the first
sentence of this Section 1.1(b), to cause the Services to be provided such that
Venture complies in all material respects with all applicable laws, rules and
regulations.
(c) CONSULTATION. Venture and Representative will consult with each other
from time to time as requested by either party with respect to the Services, the
Internet Services and the performance of their respective obligations hereunder
and under the other agreements contemplated hereby; provided, however, that
nothing in this subsection shall be deemed to in any way limit Venture's
exclusive control over the manner and use of its Marks (as defined below) as
provided for in this Agreement and the Trademark License Agreement entered into
between the parties as of the date hereof.
Section 1.2. REPORTS; ACCESS TO INFORMATION.
(a) NOTICE. Representative shall notify Venture as promptly as
practicable after the occurrence of any of the following:
(i) receipt by Representative of (A) any notice or inquiry from any
governmental authority with respect to or arising out of the Services
contemplated by this Agreement or the other agreements contemplated hereby
or (B) any written notice from any governmental authority or third party of
any claim or
2
<PAGE>
legal process or notification that, in the reasonable opinion of
Representative, is or is likely to become material to the Internet
Services; or
(ii) any other development that, in the reasonable opinion of
Representative, materially affects or is likely to materially affect the
Internet Services or the ability of Representative to fulfill its
obligations under this Agreement.
(b) REQUESTS FOR INFORMATION. Representative promptly shall provide to
Venture such information (including financial information) concerning the
Services provided hereunder as Venture reasonably may request from time to time,
including, without limitation, monthly advertising sales reports, which reports
shall set forth total ad avails sold, average CPM, average revenue per page
view, ad avails per page, sellout rate, breakdown of costs incurred, list of
advertisers and revenue sold per advertiser.
(c) ACCESS. Representative shall maintain and make available for
inspection by Venture or its representatives, during normal business hours,
Representative's complete and accurate books of account relating to the Internet
Services, and all other records, books and other information received, compiled
or otherwise maintained by Representative with respect to the Internet Services,
and all other documents reasonably requested by Venture and its officers,
managerial employees, counsel and auditors.
(d) ADVERTISING INFORMATION. Without limiting the foregoing provisions of
this Section 1.2, during the last six months of the Term (as defined in Section
2.1), in order to facilitate Venture's determination of whether to seek to
extend the term of this Agreement or take other actions with respect to the
Internet Services upon expiration of the Term, Representative shall make or
cause to be made available to Venture and its Representatives such information
as Venture reasonably requests relating to the historical advertising revenues
of the Internet Services during the Term and the booked advertising sales
relating to the Internet Services.
Section 1.3. TITLE. Representative acknowledges that it will acquire no
right, title or interest in any property or assets of Venture, including,
without limitation, any trade names, trademarks or service marks owned or
licensed by Venture, by reason of this Agreement or Representative's provision
of the Services hereunder. Representative further acknowledges that all records,
books and other information received, compiled or otherwise maintained by
Representative with respect to the Internet Services in connection with
Representative's provision of the Services hereunder are solely the property of
Venture and shall be returned to Venture promptly upon the expiration or earlier
termination of the Term; provided, however, that Venture shall, upon reasonable
request of Representative and at reasonable times, and subject to such
confidentiality arrangements as Venture reasonably requests, permit
Representative to make reasonable examination of such books, records and other
information and permit Representative to make copies of the relevant portions of
such books, records and other information.
3
<PAGE>
Section 1.4. POWER OF ATTORNEY. Subject to the provisions of Sections 6.1
(Trademark License Agreement), 6.2 (Programming Decisions), 6.3 (Use of Names)
and 7.1 (Venture Approval Matters),Venture appoints Representative its attorney-
in-fact for the Internet Services for the Term, solely in performance of the
Services, and authorizes Representative, in the name and on behalf of the
Internet Services, to make, execute, deliver, acknowledge, swear to, file and
record all documents as may be necessary, in the discretion of Representative,
in connection with the performance of the Services hereunder. Representative
shall be required to notify Venture before entering into any agreement of any
nature and shall deliver copies of all agreements, invoices and similar
materials to Venture immediately upon completion.
Section 1.5. APPOINTMENT OF ADDITIONAL REPRESENTATIVES. Representative may
appoint other entities to sell advertising inventory for the Internet Services
with the prior written approval of the Venture. Additionally, upon request from
the Venture, Representative will sell ad avail inventory to an Affiliate of the
Venture for sale by such Affiliate which sale shall be at least, at the Minimum
Revenue Rate under Section 3.4. In any circumstance, responsibility for
collection of revenue and payment of minimums to the Venture resides with the
Representative.
ARTICLE 2
TERM
Section 2.1. TERM. The term during which the Services shall be provided
(the "Term") shall be the period from the Effective Time until the Termination
Date (as defined in Section 11.1).
ARTICLE 3
GUARANTEED MINIMUMS AND PAYMENTS
Section 3.1. GUARANTEED MINIMUM. Representative shall guarantee to the
Venture a minimum quarterly payment equal to (i) the number of projected page
views, multiplied by 80%, multiplied by (ii) the Minimum Revenue Rate (the
"Guaranteed Minimum Payment").
Section 3.2. INITIAL PROJECTED PAGE VIEWS. The initial projected number of
page views per quarter will be established by mutual agreement of the
Representative and Venture. In the event that the parties cannot agree upon an
initial number of page views, then such minimum shall be based on the actual
average quarterly number of page views over the previous six month period.
4
<PAGE>
Section 3.3. SUBSEQUENT PROJECTED PAGE VIEWS. In subsequent months, the
projected number of page views will be established for each quarter by mutual
agreement of the Representative and Venture; provided, however that should the
parties fail to agree on the projected number of page views for any quarter,
then the projected page views for such quarter shall be based on the actual
number of page views for the corresponding quarter of the prior year ("Prior
Quarter") multiplied by 50% of the actual year-over-year growth rate (i.e.,
compared with the same quarter from the prior year) for the preceding 4
quarters.
Section 3.4. MINIMUM REVENUE RATE. The guaranteed minimum ad revenue rate
(the "Minimum Revenue Rate") per page view paid to the Venture will be based on
the average ad revenue rate per page view of publicly traded Internet companies
involved in activities comparable to those of the Venture. If a mutually
agreeable rate can not be determined, then the rate will be based on the
Venture's 12 month trailing average.
Section 3.5. GUARANTEED DELIVERY. Venture guarantees to deliver 80% of the
projected page views each quarter. In the event that Venture fails to deliver
such minimum number of page views, Representative will be entitled to a
proportional reduction in its Guaranteed Minimum Payment.
Section 3.6. REPRESENTATION RIGHTS FEES. Representative shall pay to
Venture for the right to render Services under this Agreement the greater of (i)
the Guaranteed Minimum Payment or (ii) actual ad revenues billed to third
parties in the performance of the Services, in each case less only
Representative's actual and reasonably allocated costs of providing the Services
and a profit margin of five percent (5%) of such costs (either amount, the
"Representation Rights Fee"). The Representation Rights Fee shall be payable
quarterly during the Term.
Section 3.7. UNCONDITIONAL OBLIGATIONS. Except as otherwise set forth
herein, the obligations of Representative to pay the Representation Rights Fee
are unconditional. Representative is required to pay the Venture the
Representation Rights Fees on or before the 20th day of the end of each quarter
of each month, regardless of whether Representative is able to collect the
related outstanding receivables.
ARTICLE 4
EXPENSES
Section 4.1. OPERATING EXPENSES. From and after the Effective Time, all
expenses of performing the Services shall be the responsibility of, and shall be
borne by, Representative subject only to recoupment thereof pursuant to Section
3.6 above.
5
<PAGE>
ARTICLE 5
INTENTIONALLY OMITTED
ARTICLE 6
VENTURE AGREEMENTS
Section 6.1. TRADEMARK LICENSE AGREEMENT. On the Effective Time, Venture
and Representative shall enter into a Trademark License Agreement in the form
attached hereto as Exhibit A (the "Trademark License Agreement") pursuant to
which Venture shall grant to Representative a non-exclusive, royalty-free
license to use the mark "ABC" solely in connection with Representative's
performance of the Services during the Term. Notwithstanding the foregoing or
any provisions herein or in the Trademark License Agreement, Venture shall have
the exclusive control over the manner and use of any trade names, trademarks,
service marks, logos, copyrights and other intellectual property (the "Marks")
owned by Venture, including "ABCNEWS.com." Representative acknowledges that the
License granted by the Trademark License Agreement is non-exclusive and, as
such, Venture is free to use, or license others to use the marks in any manner
whatsoever, other than for the purpose of selling advertising on the Internet
Services during the Term, except as provided in Section 1.5 above.
Section 6.2. PROGRAMMING DECISIONS. (i) During the Term, Venture shall
have the sole power, to make all decisions (other than decisions with respect to
the Services, except as provided herein) concerning the programming and content
of the Internet Services, including decisions relating to the execution,
renewal, amendment, modification or termination of all Agreements related
thereto.
Section 6.3. USE OF NAMES. The Representative shall not have the right to
use the name, likeness or voice of Walt Disney, the words, "Disney," "ABC,"
"ESPN," (other than as part of "ABCNEWS.com") or any Disney animated character
or any other trademark, tradename or logo of Disney for any manner whatsoever
without the prior consent of Disney or ABC, as appropriate.
ARTICLE 7
VENTURE APPROVAL MATTERS
Section 7.1. VENTURE APPROVAL MATTERS. Notwithstanding anything to the
contrary contained herein, Representative shall not, without the prior written
approval of the General Manager of Ventures (i) institute any legal proceedings
on behalf of the
6
<PAGE>
Internet Services (other than ordinary course collection matters instituted by
Representative following not less than thirty (30) days' prior written notice to
Venture).
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1. REPRESENTATIONS AND WARRANTIES OF VENTURE. Venture hereby
represents and warrants that:
(a) ORGANIZATION AND STANDING. Venture is a general partnership duly
formed, validly existing and in good standing under the laws of the State of New
York, and has all necessary corporate power and authority to carry on the
business of the Internet Services and to perform its obligations hereunder.
(b) AUTHORIZATION AND BINDING OBLIGATION. Venture has all necessary power
and authority to enter into and perform this Agreement and the Trademark License
Agreement and the transactions contemplated hereby and thereby, and Venture's
execution, delivery and performance of this Agreement and the Trademark License
Agreement have been duly and validly authorized by all necessary action on its
part. This Agreement has been, and upon execution and delivery thereof on the
Effective Time of the Trademark License Agreement will have been duly executed
and delivered by Venture and constitutes and will constitute its valid and
binding obligations enforceable against Venture in accordance with their
respective terms.
(c) ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The execution,
delivery and performance of this Agreement and the Trademark License Agreement,
by Venture: (i) do not and will not violate any provision of Venture's
organizational documents; (ii) do not and will not require the consent of or any
filing with any third party or governmental authority; (iii) do not and will not
violate any applicable law, judgment, order, injunction, decree, rule,
regulation or ruling of any governmental authority; and (iv) do not and will
not, either alone or with the giving of notice or the passage of time, or both,
conflict with, constitute grounds for termination or acceleration of or result
in a breach of the terms, conditions or provisions of, or constitute a default
under any agreement, lease, instrument, license or permit to which Venture is
now subject.
(d) ABSENCE OF PROCEEDINGS. There is no action, suit or proceeding, at law
or an equity, by or before any court, tribunal or governmental authority pending
or, to the knowledge of Venture, threatened, which, if adversely determined,
would materially and adversely affect Venture's ability to perform its
obligations hereunder or under the Trademark License Agreement or the validity
or enforceability of this Agreement or the Trademark License Agreement.
7
<PAGE>
Section 8.2. REPRESENTATIONS AND WARRANTIES OF REPRESENTATIVE.
Representative hereby represents and warrants that:
(a) ORGANIZATION AND STANDING. Representative is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Washington and has all necessary corporate power and authority to perform its
obligations hereunder.
(b) AUTHORIZATION AND BINDING OBLIGATION. Representative has all necessary
power and authority to enter into and perform this Agreement and the Trademark
License Agreement, and the transactions contemplated hereby and thereby, and
Representative's execution, delivery and performance of this Agreement have been
duly and validly authorized by all necessary action on its part. This Agreement
has been, and upon execution and delivery thereof the Trademark License
Agreement will have been duly executed and delivered by Representative and
constitutes and will constitute its valid and binding obligations enforceable
against Representative in accordance with their respective terms.
(c) ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS. The execution,
delivery and performance of this Agreement and the Trademark License Agreement
by Representative: (i) do not and will not violate any provision of
Representative's organizational documents; (ii) do not and will not require the
consent of or any filing with any third party or governmental authority; (iii)
do not and will not violate any applicable law, judgment, order, injunction,
decree, rule, regulation or ruling of any governmental authority; and (iv) do
not and will not, either alone or with the giving of notice or the passage of
time, or both, conflict with, constitute grounds for termination or acceleration
of or result in a breach of the terms, conditions or provisions of, or
constitute a default under any agreement, lease, instrument, license or permit
to which Representative is now subject.
(d) ABSENCE OF PROCEEDINGS. There is no action, suit or proceeding, at law
or an equity, by or before any court, tribunal or governmental authority pending
or, to the knowledge of Representative, threatened, which, if adversely
determined, would materially and adversely affect Representative's ability to
perform its obligations hereunder or under this Agreement or the Trademark
License Agreement or the validity or enforceability of this Agreement or the
Trademark License Agreement.
ARTICLE 9
INDEMNIFICATION
Section 9.1. INDEMNIFICATION.
(a) INDEMNIFICATION OF REPRESENTATIVE BY VENTURE. From and after the Effective
Time, Venture shall indemnify and hold Representative, its affiliates and their
8
<PAGE>
respective directors, officers, affiliates, employees and agents, and the
successors and assigns of any of them, harmless from and against any and all
actions, claims, damages and liabilities (and all actions in respect thereof and
any legal or other expenses in giving testimony or furnishing documents in
response to a subpoena or otherwise and whether or not a party thereto), whether
or not arising out of third party claims, including reasonable legal fees and
expenses in connection with, and other costs of, investigating, preparing or
defending any such action or claim, whether or not in connection with litigation
in which such person is a party, and as and when incurred (collectively,
"Losses"), caused by, relating to, based upon or arising out of (directly or
indirectly) (i) any liabilities, obligations or commitments of Venture (whether
absolute, accrued, contingent or otherwise) (A) existing as of or prior to the
Effective Time or arising out of facts and circumstances existing as of or prior
thereto, which were not expressly assumed by Representative hereunder or (B)
arising after the Effective Date which are not related to the Services; (ii) any
breach of, or inaccuracy in, any representation or warranty of Venture in this
Agreement or the Trademark License Agreement, or any certificate or other
documents delivered pursuant hereto or thereto or in connection herewith or
therewith; and (iii) any breach of any covenant or agreement of Venture
contained in this Agreement or the Trademark License Agreement.
(b) INDEMNIFICATION OF VENTURE BY REPRESENTATIVE. From and after the
Effective Time, Representative shall indemnify and hold Venture, its affiliates
and their respective directors, officers, affiliates, employees and agents, and
the successors and assigns of any of them, harmless from and against any and all
Losses caused by, relating to, based upon or arising out of (directly or
indirectly) (i) any liabilities, obligations or commitments (whether absolute,
accrued, contingent or otherwise) assumed by Representative hereunder or
Representative's performance of the Services through the Termination Date hereof
(except to the extent caused by, relating to, based upon or arising out of
(directly or indirectly) the matters described in clauses (ii) and (iii) of
Section 9.1(a)); (ii) any breach of, or inaccuracy in, any representation or
warranty of Representative in this Agreement or the Trademark License Agreement,
or any certificate or other document delivered pursuant hereto or thereto or in
connection herewith or therewith; and (iii) any breach of any covenant or
agreement of Representative contained in this Agreement or the Trademark License
Agreement.
Section 9.2. PROCEDURE FOR INDEMNIFICATION.
(a) NOTICE OF CLAIMS. In the event of a claim for breach of the
representations and warranties contained in this Agreement or for failure to
fulfill a covenant or agreement, the party asserting such breach or failure
shall provide a written notice to the other party which shall state specifically
the representation, warranty, covenant or agreement with respect to which the
claim is made, the facts giving rise to an alleged basis for the claim and the
amount of liability asserted against the other party by reason of the claim.
9
<PAGE>
(b) PROCEDURES THIRD PARTY CLAIMS. If any suit, action, proceeding or
investigation shall be commenced or any claim or demand shall be asserted by any
third party (a "Third Party Claim") in respect of which indemnification may be
sought by any party or parties from any other party or parties under the
provisions of this Article 9, the party or parties seeking indemnification
(collectively, the "Indemnitee") shall promptly provide written notice to the
party or parties from which indemnification is sought (collectively, the
"Indemnitor"); provided, however, that any failure by Indemnitee to so notify an
Indemnitor will not relieve the Indemnitor from its obligations hereunder,
except to the extent that such failure shall have prejudiced the defense of such
Third Party Claim. The Indemnitor shall have the right to control (except where
an insurance carrier has the right to control or where an insurance policy or
applicable law prohibits the Indemnitor from taking control of) the defense of
any Third Party Claim; provided, however, that the Indemnitee may participate in
any such proceeding with counsel of its choice and at its own expense unless
there exists a conflict between the Indemnitor and the Indemnitee as to their
respective legal defenses, in which case the fees and expenses of any such
counsel shall be reimbursed by the Indemnitor. Except as otherwise set forth
herein, the Indemnitee shall have the right to participate in (but not control)
the defense of any Third Party Claim and to retain its own counsel in connection
therewith, but the fees and expenses of any such counsel for the Indemnitee
shall be borne by the Indemnitee. The Indemnitor shall not, without the prior
written consent of the Indemnitee, effect any settlement of any pending or
threatened proceeding in respect of which such Indemnitee is, or with reasonable
foreseeability could have been, a party and indemnity could have been sought to
be collected from the Indemnitor, unless such settlement includes an
unconditional release of such Indemnitee from all liability arising out of such
proceeding (provided, however, that, whether or not such a release is required
to be obtained, the Indemnitor shall remain liable to such Indemnitee in
accordance with Section 9.1 (Indemnification) in the event that a Third Party
Claim is subsequently brought against or sought to be collected from such
Indemnitee). The Indemnitor shall be liable for all Losses arising out of any
settlement of any Third Party Claim; provided, however, that the Indemnitor
shall not be liable for any settlement of any Third Party Claim brought against
or sought to be collected from an Indemnitee, the settlement of which is
effected by such Indemnitee without such Indemnitor's written consent, but if
settled with such Indemnitor's written consent, or if there is a final judgment
for the plaintiff in any such Third Party Claim, such Indemnitor shall (to the
extent stated above) indemnify the Indemnitee from and against any Losses in
connection with such Third Party Claim. The indemnification required by Section
9.1 (Indemnification) shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or Losses are incurred.
Section 9.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties contained in this Agreement or the Trademark
License Agreement, or any certificate, document or instrument delivered pursuant
hereto or thereto shall survive for a period of six (6) months following the
termination of this Agreement (the "Survival Period"). No claim may be brought
under this Agreement unless the requisite written notice is given on or prior to
the termination of the Survival
10
<PAGE>
Period. In any event such notice is given prior to the termination of the
Survival Period, the right to indemnification with respect thereto shall survive
until such claim is finally resolved and any obligations thereto are fully
satisfied. Any investigation by or on behalf of any party thereto shall not
constitute a waiver as to enforcement of any representation or warranty
contained herein.
ARTICLE 10
Section 10.1. NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE
LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ITS EXHIBITS FOR ANY LOSS
OF PROFIT OR ANY OTHER INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, PUNITIVE
OR OTHER INDIRECT DAMAGES OF ANY NATURE, FOR ANY REASON, INCLUDING WITHOUT
LIMITATION THE BREACH OF THIS AGREEMENT OR ITS EXHIBITS EVEN IF THAT PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING PARAGRAPH SHALL
NOT OPERATE TO LIMIT THE INDEMNITY OBLIGATIONS EXPRESSLY ASSUMED IN THIS
AGREEMENT.
ARTICLE 11
TERMINATION
Section 11.1. TERMINATION. This Agreement shall automatically terminate
upon the date (the "Termination Date") termination in accordance with its terms
or expiration of the Amended and Restated Partnership Agreement dated as of the
date hereof among the parties thereto (the "Partnership Agreement")
Section 11.2. EARLY TERMINATION. In the event that Infoseek would not,
immediately following the Effective Time, be entitled to properly report, in
accordance with generally accepted accounting principles, the activities of
itself and its subsidiaries under this Agreement, including the gross sales of
advertising and related products and services by Representative, as revenue in
Infoseek's publicly disclosed consolidated financial statements, at any time up
to the Effective Time, Infoseek shall have the unilateral right, exercisable in
its sole discretion, to terminate this Agreement, in which case this Agreement
shall be of no further force or effect.
Section 11.3. CERTAIN MATTERS UPON TERMINATION.
(a) RELEASE OF RIGHTS; PAYMENT. If this Agreement expires or is terminated
for any reason in accordance herewith: (i) Representative shall cease providing
the Services and, following such expiration or termination, shall cooperate with
Venture in connection
11
<PAGE>
with the resumption by Venture of overall management of the Internet Services;
(ii) In the case of earlier termination, Representative shall pay to Venture, by
wire transfer of immediately available funds, not later than sixty (60) days
following the termination date, all amounts in respect of the Representation
Rights Fee accrued or which will accrue with respect to Services rendered
through the termination date, together with interest thereon from and including
the next scheduled date of payment through but excluding the actual date of
payment; and (iii) the Trademark License Agreement and Representative's
engagement and all rights hereunder shall immediately cease.
(b) INDEMNIFICATION RIGHTS SURVIVE. No expiration or termination of this
Agreement shall terminate the obligation of any party to indemnify the other
under Section 9.1 (Indemnification) or limit or impair any party's rights to
receive payments due and owing or which accrued hereunder on or before the date
of such termination.
ARTICLE 12
CONFIDENTIALITY
Section 12.1. CONFIDENTIALITY. Representative shall treat confidentially
all records, books and other information of any type received or compiled for
the benefit of Venture hereunder in connection with this Agreement.
Representative agrees not to disclose any such records, books and information to
any third party (other than directors, officers, partners, employees or outside
advisors of such party and other than expressly in the performance of such
party's obligations hereunder) without the prior written consent of Venture.
Representative will take all commercially reasonable steps to protect all
confidential information of the Venture using methods at least substantially
equivalent to the steps it takes to protect its own proprietary information. The
foregoing shall not be applicable to any information that is (i) publicly
available when provided or that thereafter becomes publicly available other than
through a breach by such party of its agreements hereunder, (ii) required to be
disclosed by Representative by judicial or administrative process in connection
with any action, suit, proceeding or claim or otherwise by applicable law or
(iii) known by Representative on the date of this Agreement, not otherwise
primarily related to the business of the Internet Services or any Network Office
and not otherwise subject to a confidentiality agreement with or other
obligation of secrecy to Venture or any other party. Information shall be deemed
"publicly available" and not subject to Representative's agreement hereunder if
such information becomes a matter of public knowledge or is contained in
materials available to the public or is obtained by Representative from any
source other than Venture (or its directors, officers, partners, employees or
outside advisors), provided that such source has not to Representative's actual
knowledge entered into a confidentiality agreement with Venture with respect to
such information.
12
<PAGE>
ARTICLE 13
MISCELLANEOUS
Section 13.1. NO PARTNERSHIP OR JOINT VENTURE. This Agreement is not
intended to be and shall not be construed as a partnership or joint venture
agreement between the parties. Except as otherwise specifically provided in this
Agreement, no party to this Agreement shall be authorized to act as agent of or
otherwise represent the other party to this Agreement.
Section 13.2. ENTIRE AGREEMENT; SCHEDULES; AMENDMENT; WAIVER. Except as set
forth in the subsequent sentence, this Agreement and the Trademark License
Agreement and the exhibits and schedules hereto and thereto, embody the entire
agreement and understanding of the parties hereto and supersede any and all
prior agreements, arrangements and understandings relating to the matters
provided for herein. Notwithstanding anything to the contrary contained in this
Agreement, each and every term or provision contained in the Partnership
Agreement and the related Amended and Restated Management and Services Agreement
dated as of the date hereof among the parties thereto (the "Management and
Service Agreement") shall govern in the event of any conflict with any term or
provision in this Agreement, without limitation. Any ambiguities in any such
determination should be resolved in favor of the reading of the Partnership
Agreement and the Management and Services Agreement. No amendment, waiver of
compliance with any provision or condition hereof, or consent pursuant to this
Agreement, shall be effective unless evidenced by an instrument in writing
signed by the party against whom enforcement of any amendment, waiver or consent
is sought. No failure or delay on the part of Venture or Representative in
exercising any right or power under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties to this Agreement are
cumulative and are not exclusive of any right or remedies which either may
otherwise have.
Section 13.3. FURTHER ASSURANCES. Each of Venture and Representative
agrees to execute and deliver such instruments and take such other actions as
may reasonably be required to carry out the intent of this Agreement.
Section 13.4. BENEFIT AND ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Neither Representative nor Venture may assign its rights
or obligations under this Agreement except that either party may assign this
Agreement to its parent corporation or any entity of which its parent owns at
least 80% of the voting equity.
13
<PAGE>
Section 13.5. HEADINGS. The headings set forth in this Agreement are for
convenience only and will not control or affect the meaning or construction of
the provisions of this Agreement.
Section 13.6. GOVERNING LAW. The construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard
to its principles of conflict of laws.
Section 13.7. NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing, and addressed as follows:
If to Venture: Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
If to Representative: Starwave Corporation
13810 SE Eastgate Way
WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
If to Infoseek: Infoseek Corporation
1399 Moffett Park Blvd.
Sunnyvale, CA 94089
Attn: Harry Motro
Leslie Wright
Telephone: (408) 543-6700
Facsimile;: (408) 734-9356
Any such notice, request, demand or communication shall be deemed to have been
duly delivered and received (a) upon hand delivery thereof during business
hours, (b) upon the earlier of receipt of three (3) days after posting by
registered mail or certified mail, return receipt requested, (c) on the next
business day following delivery to a reliable or recognized air freight delivery
service, and (d) on the date of transmission, if sent by facsimile during normal
business hours (but only if a hard copy is also send by overnight courier), but
in each case only if sent in the same manner to all persons entitled to receive
notice or a copy. Any party may, with written notice to the other, change the
place for
14
<PAGE>
which all further notices to such party shall be sent. All costs and expenses
for the delivery of notices hereunder shall be borne and paid for by the
delivering party.
Section 13.8. SEVERABILITY. If any of the provisions of this Agreement
shall be held unenforceable, then the remaining provisions shall be construed as
if such unenforceable provisions were not contained herein. Any provision of
this Agreement which is unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such unenforceability without
invalidating the remaining provisions hereof, and any such unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provisions in
any other jurisdiction. To the extent permitted by applicable law, the parties
hereto hereby waive any provision of law now or hereafter in effect which
renders any provisions hereof unenforceable in any respect.
Section 13.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Representation Agreement
as of the date first above written.
STARWAVE CORPORATION
By: /s/ Laurence J. Shapiro
------------------------------
Name: Laurence J. Shapiro
Title: Vice President
ABC/STARWAVE PARTNERS
By: DOL Online Investments, Inc.
By: /s/ Laurence J. Shapiro
------------------------------
Name: Laurence J. Shapiro
Title: Vice President
INFOSEEK CORPORATION
By: /s/ Harry M. Motro
------------------------------
Name: Harry M. Motro
Title: President and CEO
15
<PAGE>
EXHIBIT 10.13
INFOSEEK CORPORATION
AND
BANKBOSTON, N.A.
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF OCTOBER 2, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
Section 1. Certain Definitions......................................... 1
Section 2. Appointment of Rights Agent................................. 8
Section 3. Issuance of Rights Certificates............................. 8
Section 4. Form of Rights Certificates................................. 10
Section 5. Countersignature and Registration........................... 11
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates................................................ 12
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights...................................................... 12
Section 8. Cancellation and Destruction of Rights Certificates......... 14
Section 9. Reservation and Availability of Preferred Shares............ 15
Section 10. Record Date................................................ 16
Section 11. Adjustment of Exercise Price, Number of Shares or Number
of Rights.................................................. 16
Section 12. Certificate of Adjusted Exercise Price or Number of Shares. 23
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.............................................. 24
Section 14. Fractional Rights and Fractional Shares.................... 28
Section 15. Rights of Action........................................... 29
Section 16. Agreement of Rights Holders................................ 29
Section 17. Rights Certificate Holder Not Deemed a Stockholder......... 30
Section 18. Concerning the Rights Agent................................ 30
Section 19. Merger or Consolidation or Change of Name of Rights Agent.. 31
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
Section 20. Duties of Rights Agent..................................... 31
Section 21. Change of Rights Agent..................................... 33
Section 22. Issuance of New Rights Certificates........................ 34
Section 23. Redemption................................................. 35
Section 24. Exchange................................................... 36
Section 25. Notice of Certain Events................................... 38
Section 26. Notices.................................................... 38
Section 27. Supplements and Amendments................................. 39
Section 28. Successors................................................. 40
Section 29. Determinations and Actions by the Board of Directors, etc.. 40
Section 30. Benefits of this Agreement................................. 40
Section 31. Severability............................................... 40
Section 32. Governing Law.............................................. 40
Section 33. Counterparts............................................... 41
Section 34. Descriptive Headings....................................... 41
EXHIBITS
Exhibit A Form of Certificate of Determination
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
-ii-
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement (the "AGREEMENT"),is entered into as of October 2,
1998, by and between Infoseek Corporation, a Delaware corporation (the
"COMPANY"), and BankBoston, N.A.
On October 2, 1998 (the "RIGHTS DIVIDEND DECLARATION DATE"), the Board of
Directors of the Company authorized and declared a dividend of one Preferred
Share Purchase Right (a "RIGHT") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on the Closing Date (as such term is defined in the Merger Agreement (as defined
in Section 1(p) below)) (the "RECORD DATE"), each Right representing the right
to purchase one one-thousandth of a share of Series A Participating Preferred
Stock (as such number may be adjusted pursuant to the provisions of this
Agreement), having the rights, preferences and privileges set forth in the form
of Certificate of Designations of Rights, Preferences and Privileges of Series A
Participating Preferred Stock attached hereto as EXHIBIT A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Right (as such number may be adjusted pursuant to the
provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the Common Shares then outstanding, but shall not include any
Excluded Person (as such term is hereinafter defined). Notwithstanding the
foregoing, no Person shall be deemed to be an Acquiring Person as the result of
an acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Shares of the Company then
outstanding; PROVIDED, HOWEVER, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), then such Person shall
be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of
such additional Common Shares of the Company such Person does not beneficially
own 15% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, (i) if the Company's Board of Directors
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as
<PAGE>
defined pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently (including, without limitation, because (A) such Person was
unaware that it beneficially owned a percentage of the Common Shares that would
otherwise cause such Person to be an "Acquiring Person," as defined pursuant to
the foregoing provisions of this paragraph (a), or (B) such Person was aware of
the extent of the Common Shares it beneficially owned but had no actual
knowledge of the consequences of such beneficial ownership under this Agreement)
and without any intention of changing or influencing control of the Company, and
if such Person divested or divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be or to have become an "Acquiring
Person" for any purposes of this Agreement; and (ii) if, as of the date hereof,
any Person is the Beneficial Owner of 15% or more of the Common Shares
outstanding, such Person shall not be or become an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), unless and
until such time as such Person shall become the Beneficial Owner of additional
Common Shares (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Person is not then
the Beneficial Owner of 15% or more of the Common Shares then outstanding.
(b) "ADJUSTMENT FRACTION" shall have the meaning set forth in Section
11(a)(i) hereof.
(c) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be
deemed to "BENEFICIALLY OWN" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly, for purposes of
Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any
comparable or successor law or regulation);
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed pursuant to
this Section 1(d)(ii)(A) to be the Beneficial Owner of, or to beneficially
own, (1) securities tendered pursuant to a tender or exchange offer made by
or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange, or (2) securities which a Person or any of such
-2-
<PAGE>
Person's Affiliates or Associates may be deemed to have the right to
acquire pursuant to any merger or other acquisition agreement between the
Company and such Person (or one or more of its Affiliates or Associates) if
such agreement has been approved by the Board of Directors of the Company
prior to there being an Acquiring Person; or (B) the right to vote pursuant
to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security under this Section 1(d)(ii)(B) if the agreement, arrangement
or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding, whether or not in writing (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by
the proviso to Section 1(d)(ii)(B)) or disposing of any securities of the
Company; PROVIDED, HOWEVER, that in no case shall an officer or director of
the Company be deemed (x) the Beneficial Owner of any securities
beneficially owned by another officer or director of the Company solely by
reason of actions undertaken by such persons in their capacity as officers
or directors of the Company or (y) the Beneficial Owner of securities held
of record by the trustee of any employee benefit plan of the Company or any
Subsidiary of the Company for the benefit of any employee of the Company or
any Subsidiary of the Company, other than the officer or director, by
reason of any influence that such officer or director may have over the
voting of the securities held in the plan.
(e) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in New York are authorized or obligated by
law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M., New
York time, on such date; PROVIDED, HOWEVER, that if such date is not a Business
Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.
(g) "COMMON SHARES" when used with reference to the Company shall mean
the shares of Common Stock of the Company, par value $0.001 per share. Common
Shares when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(h) "COMMON STOCK EQUIVALENTS" shall have the meaning set forth in
Section 11(a)(iii) hereof.
-3-
<PAGE>
(i) "COMPANY" shall mean Infoseek Corporation, a Delaware corporation,
subject to the terms of Section 13(a)(iii)(C) hereof.
(j) "CURRENT PER SHARE MARKET PRICE" on any security (a "Security" for
purposes of this definition), for all computations other than those made
pursuant to Section 11(a)(iii) hereof, shall mean the average of the daily
closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11 hereof, the Current Per Share Market Price of any
Security on any date shall be deemed to be the average of the daily closing
prices per share of such Security for the ten (10) consecutive Trading Days
immediately prior to such date; PROVIDED, HOWEVER, that in the event that the
Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use, or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. If the Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Preferred Shares shall be conclusively
deemed to be the Current Per Share Market Price of the Common Shares as
determined pursuant to this Section 1(j), as appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by 1,000. If the Security is not publicly held or so listed
or traded, Current Per Share Market Price shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(k) "CURRENT VALUE" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "DISTRIBUTION DATE" shall mean the earlier of (i) the Close of
Business on the tenth day after the Shares Acquisition Date (or, if the tenth
day after the Shares Acquisition Date occurs
-4-
<PAGE>
before the Record Date, the Close of Business on the Record Date) or (ii) the
Close of Business on the tenth Business Day (or such later date as may be
determined by action of the Company's Board of Directors) after the date that a
tender or exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if, assuming the successful consummation
thereof, such Person would be an Acquiring Person.
(m) "EQUIVALENT SHARES" shall mean Preferred Shares and any other
class or series of capital stock of the Company which is entitled to the same
rights, privileges and preferences as the Preferred Shares.
(n) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(o) "EXCHANGE RATIO" shall have the meaning set forth in Section 24(a)
hereof.
(p) "EXCLUDED PERSON" shall mean (i) the Company, any Subsidiary of
the Company or any employee benefit plan of the Company or of any Subsidiary of
the Company, or any entity holding Common Shares for or pursuant to the terms of
any such plan, or (ii) The Walt Disney Company, a Delaware corporation
("Disney"), and any Purchaser Controlled Corporation (as such term is defined in
that certain Governance Agreement, dated as of June 18, 1998 (the "Governance
Agreement"), by and among Disney, Disney Enterprises Inc., a Delaware
corporation ("DEI"), and the Company, provided that, Disney or any such
Purchaser Controlled Corporation is not in material breach of its obligations
under Sections 2.1(a), 2.1(d), 2.1(e), 2.1(f) or 4.4 of the Governance Agreement
entered into in connection with the several transactions contemplated by that
certain Agreement and Plan of Reorganization, dated as of June 18, 1998 (the
"Merger Agreement"), by and among the Company, Infoseek Corporation, a
California corporation ("Infoseek-California"), Starwave Corporation, a
Washington corporation, and DEI.
(q) "EXERCISE PRICE" shall have the meaning set forth in Section 4(a)
hereof.
(r) "EXPIRATION DATE" shall mean the earliest of (i) the Close of
Business on the Final Expiration Date, (ii) the Redemption Date, or (iii) the
time at which the Board of Directors orders the exchange of the Rights as
provided in Section 24 hereof.
(s) "FINAL EXPIRATION DATE" shall mean October 2, 2008.
(t) "INTERESTED PERSON" with respect to a Transaction shall mean any
Person who (i) is or will become an Acquiring Person if the Transaction were to
be consummated or an Affiliate or Associate of such a Person, and (ii) is, or
directly or indirectly proposed, nominated or financially supported a director
of the Company in office at the time of consideration of the Transaction in
question who was elected by written consent of stockholders.
-5-
<PAGE>
(u) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotations System.
(v) "PERSON" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(w) "POST-EVENT TRANSFEREE" shall have the meaning set forth in
Section 7(e) hereof.
(x) "PREFERRED SHARES" shall mean shares of Series A Participating
Preferred Stock, par value $0.001 per share, of the Company.
(y) "PRE-EVENT TRANSFEREE" shall have the meaning set forth in Section
7(e) hereof.
(z) "PRINCIPAL PARTY" shall have the meaning set forth in Section
13(b) hereof.
(aa) "RECORD DATE" shall have the meaning set forth in the recitals at
the beginning of this Agreement.
(bb) "REDEMPTION DATE" shall have the meaning set forth in Section
23(a) hereof.
(cc) "REDEMPTION PRICE" shall have the meaning set forth in Section
23(a) hereof.
(dd) "RIGHTS AGENT" shall mean BankBoston, N.A. or its successor or
replacement as provided in Sections 19 and 21 hereof.
(ee) "RIGHTS CERTIFICATE" shall mean a certificate substantially in
the form attached hereto as Exhibit B.
(ff) "RIGHTS DIVIDEND DECLARATION DATE" shall have the meaning set
forth in the recitals at the beginning of this Agreement.
(gg) "SECTION 11(a)(ii) TRIGGER DATE" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(hh) "SECTION 13 EVENT" shall mean any event described in clause (i),
(ii) or (iii) of Section 13(a) hereof.
(ii) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(jj) "SHARES ACQUISITION DATE" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such;
PROVIDED THAT, if such Person is determined not to have become an Acquiring
-6-
<PAGE>
Person pursuant to Section 1(a) hereof, then no Shares Acquisition Date shall be
deemed to have occurred.
(kk) "SPREAD" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(ll) "SUBSIDIARY" of any Person shall mean any corporation or other
entity of which an amount of voting securities sufficient to elect a majority of
the directors or Persons having similar authority of such corporation or other
entity is beneficially owned, directly or indirectly, by such Person, or any
corporation or other entity otherwise controlled by such Person.
(mm) "SUBSTITUTION PERIOD" shall have the meaning set forth in Section
11(a)(iii) hereof.
(nn) "SUMMARY OF RIGHTS" shall mean a summary of this Agreement
substantially in the form attached hereto as Exhibit C.
(oo) "TOTAL EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) hereof.
(pp) "TRADING DAY" shall mean a day on which the principal national
securities exchange on which a referenced security is listed or admitted to
trading is open for the transaction of business or, if a referenced security is
not listed or admitted to trading on any national securities exchange, a
Business Day.
(qq) "TRANSACTION" shall mean any merger, consolidation or sale of
assets described in Section 13(a) hereof or any acquisition of Common Shares
which would result in a Person becoming an Acquiring Person.
(rr) A "TRIGGERING EVENT" shall be deemed to have occurred upon any
Person becoming an Acquiring Person.
Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable upon ten (10) days prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such co-Rights Agent.
Section 3. ISSUANCE OF RIGHTS CERTIFICATES.
(a) Until the Distribution Date, (i) the Rights will be evidenced
(subject to the provisions of Sections 3(b) and 3(c) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Rights Certificates) and not
-7-
<PAGE>
by separate Rights Certificates and (ii) the right to receive Rights
Certificates will be transferable only in connection with the transfer of Common
Shares. Until the earlier of the Distribution Date or the Expiration Date, the
surrender for transfer of such certificates for Common Shares shall also
constitute the surrender for transfer of the Rights associated with the Common
Shares represented thereby. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common Share
has been made pursuant to Section 11 hereof, then at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14 hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of the Distribution Date, the
Rights will be evidenced solely by such Rights Certificates and may be
transferred by the transfer of the Rights Certificates as permitted hereby,
separately and apart from any transfer of Common Shares, and the holders of such
Rights Certificates as listed in the records of the Company or any transfer
agent or registrar for the Rights shall be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send a copy of the Summary of Rights by first-class, postage-
prepaid mail, to each record holder of Common Shares as of the Close of Business
on the Record Date, at the address of such holder shown on the records of the
Company's transfer agent and registrar. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution
Date (or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Unless the Board of Directors by resolution adopted at or before
the time of the issuance of any Common Shares specifies to the contrary, Rights
shall be issued in respect of all Common Shares that are issued after the Record
Date but prior to the earlier of the Distribution Date or the Expiration Date
or, in certain circumstances provided in Section 22 hereof, after the
Distribution Date. Certificates representing such Common Shares shall also be
deemed to be certificates for Rights, and shall bear the following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN INFOSEEK CORPORATION AND
BANKBOSTON, N.A. AS THE RIGHTS AGENT, DATED AS OF OCTOBER 2, 1998 (THE
"RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY
REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF INFOSEEK UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
-8-
<PAGE>
RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES
AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. INFOSEEK WILL MAIL TO
THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT
CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD
BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE
OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT
HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(d) In the event that the Company purchases or acquires any Common
Shares after the Record Date but prior to the Distribution Date, any Rights
associated with such Common Shares shall be deemed canceled and retired so that
the Company shall not be entitled to exercise any Rights associated with the
Common Shares which are no longer outstanding.
Section 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (and the forms of election to purchase
Common Shares and of assignment to be printed on the reverse thereof) shall be
substantially in the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of one-
thousandths of a Preferred Share as shall be set forth therein at the price set
forth therein (such exercise price per one one-thousandth of a Preferred Share
being hereinafter referred to as the "EXERCISE PRICE" and the aggregate Exercise
Price of all Preferred Shares issuable upon exercise of one Right being
hereinafter referred to as the "TOTAL EXERCISE PRICE"), but the number and type
of securities purchasable upon the exercise of each Right and the Exercise Price
shall be subject to adjustment as provided herein.
-9-
<PAGE>
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Company's Board of Directors has determined
is part of a plan, arrangement or understanding which has as a primary purpose
or effect avoidance of Section 7 hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION
7(e) OF THE RIGHTS AGREEMENT.
Section 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the Company
by its Chairman of the Board, its Chief Executive Officer, its Chief Financial
Officer, its President or any Vice President, either manually or by facsimile
signature, and by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal (if any) or a facsimile thereof. The Rights Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates on behalf of the Company had not
ceased to be such officer of the Company; and any Rights Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of the Company
to sign such Rights Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the
-10-
<PAGE>
Rights Certificates, the number of Rights evidenced on its face by each of the
Rights Certificates and the date of each of the Rights Certificates.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS
CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 14 and 24 hereof, at
any time after the Close of Business on the Distribution Date, and at or prior
to the Close of Business on the Expiration Date, any Rights Certificate or
Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and deliver
to the person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
Section 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Subject to Sections 7(e), 23(b), 23(c), 24(g) and 24(b) hereof,
the registered holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date and prior to the Close of Business on the
Expiration Date by surrender of the Rights Certificate, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the office of the Rights Agent designated for such purpose, together
with payment of the Exercise Price for each one-thousandth of a Preferred Share
-11-
<PAGE>
(or, following a Triggering Event, other securities, cash or other assets as the
case may be) as to which the Rights are exercised.
(b) The Exercise Price for each one-thousandth of a Preferred Share
issuable pursuant to the exercise of a Right shall initially be one hundred
fifty dollars ($150.00), shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Exercise Price for the number of one-thousandths of a Preferred
Share (or, following a Triggering Event, other securities, cash or other assets
as the case may be) to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9 hereof, the Rights Agent shall, subject to Section
20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Shares (or make available, if the Rights Agent is the transfer
agent for the Preferred Shares) a certificate or certificates for the number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests or (B) if the Company shall have elected to deposit the total number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) issuable upon exercise of
the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one-thousandths of a
Preferred Share (or, following a Triggering Event, other securities, cash or
other assets as the case may be) as are to be purchased (in which case
certificates for the Preferred Shares (or, following a Triggering Event, other
securities, cash or other assets as the case may be) represented by such
receipts shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with such request,
(ii) when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof, (iii) after receipt of such certificates or depositary receipts, cause
the same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt thereof, deliver such cash
to or upon the order of the registered holder of such Rights Certificate. The
payment of the Exercise Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iii) hereof) and an amount equal to any applicable
transfer tax required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, may be made in cash or by certified bank
check, cashier's check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue securities of the Company other
than Preferred Shares, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights
-12-
<PAGE>
remaining unexercised shall be issued by the Rights Agent to the registered
holder of such Rights Certificate or to his or her duly authorized assigns,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such (a
"POST-EVENT TRANSFEREE"), (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the
Company's Board of Directors has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e) (a "PRE-EVENT TRANSFEREE") or (iv) any subsequent transferee
receiving transferred Rights from a Post-Event Transferee or a Pre-Event
Transferee, either directly or through one or more intermediate transferees,
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or to any other Person as a result of its failure to make
any determinations with respect to an Acquiring Person or any of such Acquiring
Person's Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall, in
addition to having complied with the requirements of Section 7(a) above, have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
-13-
<PAGE>
Section 9. RESERVATION AND AVAILABILITY OF PREFERRED SHARES.
(a) The Company covenants and agrees that it will use its best efforts
to cause to be reserved and kept available out of its authorized and unissued
Preferred Shares not reserved for another purpose (and, following the occurrence
of a Triggering Event, out of its authorized and unissued Common Shares and/or
other securities), the number of Preferred Shares (and, following the occurrence
of the Triggering Event, Common Shares and/or other securities) that will be
sufficient to permit the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred Shares on
a national securities exchange, then so long as the Preferred Shares (and,
following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent, that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement and notification to the Rights Agent
at such time as the suspension is no longer in effect. The Company will also
take such action as may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. Notwithstanding any provision of this Agreement
to the contrary, the Rights shall not be exercisable in any jurisdiction, unless
the requisite qualification in such jurisdiction shall have been obtained, or an
exemption therefrom shall be available, and until a registration statement has
been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to ensure that all Preferred Shares (or other securities of
the Company) delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such securities (subject to payment of the Exercise Price),
be duly and validly authorized and issued and fully paid and nonassessable
shares.
-14-
<PAGE>
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the original issuance or delivery of the Rights
Certificates or of any Preferred Shares (or other securities of the Company)
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares (or other
securities of the Company) in a name other than that of, the registered holder
of the Rights Certificate evidencing Rights surrendered for exercise or to issue
or to deliver any certificates or depositary receipts for Preferred Shares (or
other securities of the Company) upon the exercise of any Rights until any such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. RECORD DATE. Each Person in whose name any certificate for a
number of one-thousandths of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of Preferred Shares (or other securities of
the Company) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Total Exercise Price with respect to which the
Rights have been exercised (and any applicable transfer taxes) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon
which the transfer books of the Company are closed, such Person shall be deemed
to have become the record holder of such shares on, and such certificate shall
be dated, the next succeeding Business Day on which the transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a holder
of Preferred Shares (or other securities of the Company) for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "ADJUSTMENT FRACTION"), the numerator of which
-15-
<PAGE>
shall be the total number of Preferred Shares (or shares of capital stock issued
in such reclassification of the Preferred Shares) outstanding immediately
following such time and the denominator of which shall be the total number of
Preferred Shares outstanding immediately prior to such time; PROVIDED, HOWEVER,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of such Right; and (2) the number of one-
thousandths of a Preferred Share (or share of such other capital stock) issuable
upon the exercise of each Right shall equal the number of one-thousandths of a
Preferred Share (or share of such other capital stock) as was issuable upon
exercise of a Right immediately prior to the occurrence of the event described
in clauses (A)-(D) of this Section 11(a)(i), multiplied by the Adjustment
Fraction; provided, however, that, no such adjustment shall be made pursuant to
this Section 11(a)(i) to the extent that there shall have simultaneously
occurred an event described in clause (A), (B), (C) or (D) of Section 11(n) with
a proportionate adjustment being made thereunder. Each Common Share that shall
become outstanding after an adjustment has been made pursuant to this Section
11(a)(i) shall have associated with it the number of Rights, exercisable at the
Exercise Price and for the number of one-thousandths of a Preferred Share (or
shares of such other capital stock) as one Common Share has associated with it
immediately following the adjustment made pursuant to this Section 11(a)(i).
(ii) Subject to Section 24 of this Agreement, in the event a
Triggering Event shall have occurred, then promptly following such Triggering
Event each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive for each Right, upon exercise thereof in
accordance with the terms of this Agreement and payment of the Total Exercise
Price in effect immediately prior to the occurrence of the Triggering Event, in
lieu of a number of one-thousandths of a Preferred Share, such number of Common
Shares of the Company as shall equal the result obtained by multiplying the
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event by the number of one-thousandths of a Preferred Share for which a Right
was exercisable (or would have been exercisable if the Distribution Date had
occurred) immediately prior to the first occurrence of a Triggering Event, and
dividing that product by 50% of the Current Per Share Market Price for Common
Shares on the date of occurrence of the Triggering Event; provided, however,
that the Exercise Price and the number of Common Shares of the Company so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(e) hereof to reflect any events
occurring in respect of the Common Shares of the Company after the occurrence of
the Triggering Event.
(iii) In lieu of issuing Common Shares in accordance with Section
11(a)(ii) hereof, the Company may, if the Company's Board of Directors
determines that such action is necessary or appropriate and not contrary to the
interest of holders of Rights (and, in the event that the number of Common
Shares which are authorized by the Company's Articles of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights, or
if any necessary regulatory approval for such issuance has not been obtained by
the Company, the Company shall): (A) determine the excess of (1) the value of
the Common Shares issuable upon the exercise of a Right (the "CURRENT VALUE")
over (2) the Exercise Price (such excess, the "SPREAD") and (B) with respect to
each Right, make adequate provision to substitute for such Common Shares, upon
exercise of the Rights, (1) cash, (2) a reduction in the Exercise Price,
-16-
<PAGE>
(3) other equity securities of the Company (including, without limitation,
shares or units of shares of any series of preferred stock which the Company's
Board of Directors has deemed to have the same value as Common Shares (such
shares or units of shares of preferred stock are herein called "COMMON STOCK
EQUIVALENTS")), except to the extent that the Company has not obtained any
necessary stockholder or regulatory approval for such issuance, (4) debt
securities of the Company, except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, (5)
other assets or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value, where such aggregate value has been determined by
the Company's Board of Directors based upon the advice of a nationally
recognized investment banking firm selected by the Company's Board of Directors;
PROVIDED, HOWEVER, if the Company shall not have made adequate provision
to deliver value pursuant to clause (B) above within thirty (30) days following
the later of (x) the first occurrence of a Triggering Event and (y) the date on
which the Company's right of redemption pursuant to Section 23 expires (the
later of (x) and (y) being referred to herein as the "SECTION 11(a)(ii) TRIGGER
DATE"), then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Exercise Price, Common
Shares (to the extent available), except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, and
then, if necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If the Company's Board of Directors shall determine in good faith
that it is likely that sufficient additional Common Shares could be authorized
for issuance upon exercise in full of the Rights or that any necessary
regulatory approval for such issuance will be obtained, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek stockholder approval for the authorization of such
additional shares or take action to obtain such regulatory approval (such
period, as it may be extended, the "SUBSTITUTION PERIOD"). To the extent that
the Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(ii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply uniformly
to all outstanding Rights and (y) may suspend the exercisability of the Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares, to take any action to obtain any required
regulatory approval and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(ii), the value of the Common Shares
shall be the Current Per Share Market Price of the Common Shares on the Section
11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be
deemed to have the same value as the Common Shares on such date.
(b) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the issuance of rights, options or warrants to
all holders of Preferred Shares entitling such holders (for a period expiring
within forty-five (45) calendar days after such record date) to subscribe for or
purchase Preferred Shares or Equivalent Shares or securities convertible into
Preferred Shares or Equivalent Shares at a price per share (or having a
conversion price per share, if a security convertible into Preferred Shares or
Equivalent Shares) less than the then Current Per Share Market Price of the
Preferred Shares or Equivalent Shares on such record date, then, in each such
case, the Exercise Price
-17-
<PAGE>
to be in effect after such record date shall be determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Preferred Shares and Equivalent
Shares (if any) outstanding on such record date, plus the number of Preferred
Shares or Equivalent Shares, as the case may be, which the aggregate offering
price of the total number of Preferred Shares or Equivalent Shares, as the case
may be, to be offered or issued (and/or the aggregate initial conversion price
of the convertible securities to be offered or issued) would purchase at such
current market price, and the denominator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record date,
plus the number of additional Preferred Shares or Equivalent Shares, as the case
may be, to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); PROVIDED,
HOWEVER, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right. In case such subscription
price may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Company's Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Preferred Shares and Equivalent
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed, and in the event that
such rights, options or warrants are not so issued, the Exercise Price shall be
adjusted to be the Exercise Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall, at any time after the date of this
Agreement, fix a record date for the making of a distribution to all holders of
the Preferred Shares or of any class or series of Equivalent Shares (including
any such distribution made in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend, if any, or
a dividend payable in Preferred Shares) or subscription rights, options or
warrants (excluding those referred to in Section 11(b)), then, in each such
case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Per Share
Market Price of a Preferred Share or an Equivalent Share on such record date,
less the fair market value per Preferred Share or Equivalent Share (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Preferred
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; PROVIDED, HOWEVER, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever such
a record date is fixed, and in the event that such distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed.
-18-
<PAGE>
(d) Anything herein to the contrary notwithstanding, no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price; PROVIDED, HOWEVER,
that any adjustments which by reason of this Section 11(d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one-thousandth of a Common Share or other share or one
hundred-thousandth of a Preferred Share, as the case may be. Notwithstanding the
first sentence of this Section 11(d), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from the date of
the transaction which requires such adjustment or (ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to Section 11(a) or
13(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock other than Preferred Shares, thereafter
the number of such other shares so receivable upon exercise of any Right and, if
required, the Exercise Price thereof, shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Sections 11(a),
11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(l), and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as provided
in Section 11(h), upon each adjustment of the Exercise Price as a result of the
calculations made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of Preferred Shares
(calculated to the nearest one hundred-thousandth of a share) obtained by (i)
multiplying (x) the number of Preferred Shares covered by a Right immediately
prior to this adjustment, by (y) the Exercise Price in effect immediately prior
to such adjustment of the Exercise Price, and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment of
the Exercise Price.
(h) The Company may elect on or after the date of any adjustment of
the Exercise Price as a result of the calculations made in Section 11(b) or (c)
to adjust the number of Rights, in substitution for any adjustment in the number
of Preferred Shares purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be exercisable
for the number of one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one hundred-thousandth) obtained by dividing
the Exercise Price in effect immediately prior to adjustment of the Exercise
Price by the Exercise Price in effect immediately after adjustment of the
Exercise Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the
-19-
<PAGE>
adjustment, and, if known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Exercise Price is adjusted or any
day thereafter, but, if the Rights Certificates have been issued, shall be at
least ten (10) days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(h), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights Certificates on such
record date Rights Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Exercise Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise Price or
the number of Preferred Shares issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Exercise Price per one one-thousandth of a Preferred Share and the number of
one-thousandths of a Preferred Share which were expressed in the initial Rights
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Exercise Price below the par or stated value, if any, of the number of one-
thousandths of a Preferred Share issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; PROVIDED, HOWEVER, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, prior
to the Distribution Date, the Company shall be entitled to make such reductions
in the Exercise Price, in addition to those adjustments expressly required by
this Section 11, as and to the extent that it in its sole discretion shall
determine to be advisable in order that any (i) consolidation or subdivision of
the
-20-
<PAGE>
Preferred or Common Shares, (ii) issuance wholly for cash of any Preferred or
Common Shares at less than the current market price, (iii) issuance wholly for
cash of Preferred or Common Shares or securities which by their terms are
convertible into or exchangeable for Preferred or Common Shares, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred or Common
Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Sections 23, 24 or 27 hereof, take (or
permit to be taken) any action if at the time such action is taken it is
reasonably foreseeable that such action will diminish substantially or otherwise
eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Common Shares payable in Common Shares,
(B) subdivide the outstanding Common Shares, (C) combine the outstanding Common
Shares (by reverse stock split or otherwise) into a smaller number of Common
Shares, or (D) issue any shares of its capital stock in a reclassification of
the Common Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), then, in each such event, except as otherwise provided in this
Section 11(a) and Section 7(e) hereof: (1) each Common Share (or shares of
capital stock issued in such reclassification of the Common Shares) outstanding
immediately following such time shall have associated with it the number of
Rights as were associated with one Common Share immediately prior to the
occurrence of the event described in clauses (A)-(D) above; (2) the Exercise
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by multiplying the Exercise Price in effect immediately prior to such time by a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the event described in clauses (A)-(D) above,
and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of such Right; and (3) the number of one-thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one-thousandths of a Preferred Share (or shares of such other capital stock) as
were issuable with respect to one Right immediately prior to such event. Each
Common Share that shall become outstanding after an adjustment has been made
pursuant to this Section 11(n) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Preferred Share (or shares of such other capital stock) as one Common Share
has associated with it immediately following the adjustment made pursuant to
this Section 11(n). If an event occurs which would require an adjustment under
both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(n) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
Section 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare
-21-
<PAGE>
a certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) file with the Rights Agent and with each
transfer agent for the Preferred Shares a copy of such certificate and (c) mail
a brief summary thereof to each holder of a Rights Certificate in accordance
with Section 26 hereof. Notwithstanding the foregoing sentence, the failure of
the Company to make such certification or give such notice shall not affect the
validity of such adjustment or the force or effect of the requirement for such
adjustment. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment contained therein and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event that, following a Triggering Event, directly or
indirectly:
(i) the Company shall consolidate with, or merge with and into,
any other Person (other than a wholly-owned Subsidiary of the Company in a
transaction the principal purpose of which is to change the state of
incorporation of the Company and which complies with Section 11(m), 11(n)
hereof);
(ii) any Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged
for stock or other securities of any other person (or of the Company); or
(iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to
any other Person or Persons (other than the Company or one or more of its
wholly-owned Subsidiaries in one or more transactions, each of which
individually (and together) complies with Section 11(m) hereof),
then, concurrent with and in each such case,
(A) each holder of a Right (except as provided in Section
7(e) hereof) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the Total Exercise Price
applicable immediately prior to the occurrence of the Section 13 Event
in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable
Common Shares of the Principal Party (as hereinafter defined), free of
any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by dividing such
Total Exercise Price by 50% of the Current Per Share Market Price of
the Common Shares of such Principal Party on the date of consummation
of such Section 13 Event, PROVIDED, HOWEVER, that the Exercise Price
and the number of Common Shares of such
-22-
<PAGE>
Principal Party so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with
Section 11(e) hereof;
(B) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal
Party following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps (including,
but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such
transaction as may be necessary to ensure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in
relation to its Common Shares thereafter deliverable upon the exercise
of the Rights; and
(E) upon the subsequent occurrence of any consolidation,
merger, sale or transfer of assets or other extraordinary transaction
in respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and payment
of the Total Exercise Price as provided in this Section 13(a), such
cash, shares, rights, warrants and other property which such holder
would have been entitled to receive had such holder, at the time of
such transaction, owned the Common Shares of the Principal Party
receivable upon the exercise of such Right pursuant to this Section
13(a), and such Principal Party shall take such steps (including, but
not limited to, reservation of shares of stock) as may be necessary to
permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other
property.
(F) For purposes hereof, the "earning power" of the Company
and its Subsidiaries shall be determined in good faith by the
Company's Board of Directors on the basis of the operating earnings of
each business operated by the Company and its Subsidiaries during the
three fiscal years preceding the date of such determination (or, in
the case of any business not operated by the Company or any Subsidiary
during three full fiscal years preceding such date, during the period
such business was operated by the Company or any Subsidiary).
(b) For purposes of this Agreement, the term "PRINCIPAL PARTY" shall
mean:
(i) in the case of any transaction described in clause (i) or
(ii) of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer
-23-
<PAGE>
the Common Shares of which have the greatest aggregate market value of
shares outstanding, or (B) if no securities are so issued, (x) the Person
that is the other party to the merger, if such Person survives said merger,
or, if there is more than one such Person, the Person the Common Shares of
which have the greatest aggregate market value of shares outstanding or (y)
if the Person that is the other party to the merger does not survive the
merger, the Person that does survive the merger (including the Company if
it survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in clause (iii) of
Section 13(a) hereof, the Person that is the party receiving the greatest
portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if more than one Person that is a party to
such transaction or transactions receives the same portion of the assets or
earning power so transferred and each such portion would, were it not for
the other equal portions, constitute the greatest portion of the assets or
earning power so transferred, or if the Person receiving the greatest
portion of the assets or earning power cannot be determined, whichever of
such Persons is the issuer of Common Shares having the greatest aggregate
market value of shares outstanding;
PROVIDED, HOWEVER, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
rules set forth in clauses (1) and (2) above shall apply to each of the owners
having an interest in the venture as if the Person owned by the joint venture
was a Subsidiary of both or all of such joint venturers, and the Principal Party
in each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any Section 13 Event unless the
Principal Party shall have a sufficient number of authorized Common Shares that
have not been issued or reserved for issuance to permit the exercise in full of
the Rights in accordance with this Section 13 and unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement confirming that such Principal Party shall, upon
consummation of such Section 13 Event, assume this Agreement in accordance with
Sections 13(a) and 13(b) hereof, that all rights of first refusal or preemptive
rights in respect of the issuance of Common Shares of such Principal Party upon
exercise of outstanding Rights have been waived, that there are no rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights and that such transaction shall not result in a default by such Principal
Party
-24-
<PAGE>
under this Agreement, and further providing that, as soon as practicable after
the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date,
and similarly comply with applicable state securities laws;
(ii) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on Nasdaq and list (or continue the listing of) the Rights and
the securities purchasable upon exercise of the Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical financial
statements for such Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering Event
some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).
(d) In case the "Principal Party" for purposes of Section 13(b) hereof
has provision in any of its authorized securities or in its Articles of
Incorporation or by-laws or other instrument governing its corporate affairs,
which provision would have the effect of (i) causing such Principal Party to
issue (other than to holders of Rights pursuant to Section 13 hereof), in
connection with, or as a consequence of, the consummation of a Section 13 Event,
Common Shares or Equivalent Shares of such Principal Party at less than the then
Current Per Share Market Price thereof or securities exercisable for, or
convertible into, Common Shares or Equivalent Shares of such Principal Party at
less than such then Current Per Share Market Price, or (ii) providing for any
special payment, tax or similar provision in connection with the issuance of the
Common Shares of such Principal Party pursuant to the provisions of Section 13
hereof, then, in such event, the Company hereby agrees with each holder of
Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, effect or permit to occur any Section 13 Event, if
(i) at the time or immediately after such Section 13 Event there are any rights,
warrants or other instruments or securities outstanding or
-25-
<PAGE>
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable, as determined pursuant to the second sentence of
Section 1(j) hereof.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions that are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions that are
integral multiples of one one-thousandth of a Preferred Share). Interests in
fractions of Preferred Shares in integral multiples of one one-thousandth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; PROVIDED, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a Preferred
Share, the Company shall pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of a Preferred Share. For purposes
of this Section 14(b), the current market value of a Preferred Share shall be
one thousand times the closing price of a Common Share (as determined pursuant
to the second sentence of Section 1(j) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares
upon the exercise or exchange of Rights. In lieu of such fractional Common
Shares, the Company shall pay to the registered holders of Rights Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a Common Share. For
purposes of this Section 14(c), the current market value of a Common Share shall
be the closing price of a Common Share (as
-26-
<PAGE>
determined pursuant to the second sentence of Section 1(j) hereof) for the
Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his or her right to receive any fractional Rights or any fractional
shares (other than fractions that are integral multiples of one one-thousandth
of a Preferred Share) upon exercise of a Right.
Section 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name the Rights Certificate
(or, prior to the Distribution Date, the associated Common Shares certificate)
is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Shares certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable
-27-
<PAGE>
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions hereof.
Section 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Rights
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document reasonably believed by it to
be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; PROVIDED, HOWEVER, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver
-28-
<PAGE>
such Rights Certificates so countersigned; and in case at that time any of the
Rights Certificates shall not have been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of Current Per Share Market Price) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
-29-
<PAGE>
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any change in the exercisability of the Rights or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13, 23 or 24, or the ascertaining of
the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights evidenced by Rights Certificates after
receipt by the Rights Agent of a certificate furnished pursuant to Section 12
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Preferred Shares to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any Preferred Shares will, when issued,
be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Secretary or any Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Rights
Agreement and the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for any
action taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
-30-
<PAGE>
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his or
her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or stockholder services powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares and the Common Shares, and mail a notice thereof in writing
to the registered
-31-
<PAGE>
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at the
date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void AB INITIO if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. REDEMPTION.
(a) The Company may, at its option and with the approval of the Board
of Directors, at any time prior to the Close of Business on the earlier of (i)
the tenth day following the Shares Acquisition Date (or such later date as may
be determined by action of the Company's Board of Directors and publicly
announced by the Company) and (ii) the Final Expiration Date, redeem all but not
less than all the then outstanding Rights at a redemption price of $0.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
herein referred to as the "REDEMPTION PRICE") and the Company may, at its
option, pay the Redemption Price either in Common Shares (based on the Current
Per Share Market Price thereof at the time of redemption) or cash. Such
redemption of the Rights by the Company may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The date on which the Board of Directors elects to
make the redemption effective shall be referred to as the "REDEMPTION DATE."
(b) Notwithstanding the provision of Section 23(a), in the event that
the Board of Directors of the Company is elected by stockholder action by
written consent, then until the earlier to occur of (i) the 180th day following
the effectiveness of such election or (ii) the next regular annual meeting of
stockholders of the Company following the effectiveness of such election
(including any
-32-
<PAGE>
postponement or adjournment thereof), the Rights shall not be redeemed if such
redemption is reasonably likely to have the purpose or effect of facilitating a
Transaction with an Interested Person.
(c) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; PROVIDED,
HOWEVER, that the failure to give or any defect in, any such notice shall not
affect the validity of such redemption. Within ten (10) days after the action
of the Board of Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. EXCHANGE.
(a) Subject to applicable laws, rules and regulations, and subject to
subsection 24(c) below, the Company may, at its option, by action of the Board
of Directors, at any time after the occurrence of a Triggering Event, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become void pursuant to the provisions of Section 7(e)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Acquiring Person, together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the Common Shares
then outstanding.
(b) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to subsection 24(a) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The Company shall
give public notice of any such exchange; PROVIDED, HOWEVER, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
-33-
<PAGE>
Common Shares for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with Section 24(a), the Company shall
either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of the Board of Directors, with respect to each Right (i) pay cash in an amount
equal to the Current Value (as hereinafter defined), in lieu of issuing Common
Shares in exchange therefor, or (ii) issue debt or equity securities or a
combination thereof, having a value equal to the Current Value, in lieu of
issuing Common Shares in exchange for each such Right, where the value of such
securities shall be determined by a nationally recognized investment banking
firm selected by majority vote of the Board of Directors, or (iii) deliver any
combination of cash, property, Common Shares and/or other securities having a
value equal to the Current Value in exchange for each Right. For purposes of
this Section 24(e) only, the Current Value shall mean the product of the Current
Per Share Market Price of Common Shares on the date of the occurrence of the
event described above in subparagraph (a), multiplied by the number of Common
Shares for which the Right otherwise would be exchangeable if there were
sufficient shares available. To the extent that the Company determines that some
action need be taken pursuant to clauses (i), (ii) or (iii) of this Section
24(c), the Board of Directors may temporarily suspend the exercisability of the
Rights for a period of up to sixty (60) days following the date on which the
event described in Section 24(a) shall have occurred, in order to seek any
authorization of additional Common Shares and/or to decide the appropriate form
of distribution to be made pursuant to the above provision and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional Common
Shares would otherwise be issuable, an amount in cash equal to the same fraction
of the current market value of a whole Common Share (as determined pursuant to
the second sentence of Section 1(j) hereof).
(e) The Company may, at its option, by majority vote of the Board of
Directors, at any time before any Person has become an Acquiring Person,
exchange all or part of the then outstanding Rights for rights of substantially
equivalent value, as determined reasonably and with good faith by the Board of
Directors, based upon the advice of one or more nationally recognized investment
banking firms.
(f) Immediately upon the action of the Board of Directors ordering
the exchange of any Rights pursuant to subsection 24(e) of this Section 24 and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of
-34-
<PAGE>
such Rights shall be to receive that number of rights in exchange therefor as
has been determined by the Board of Directors in accordance with subsection
24(e) above. The Company shall give public notice of any such exchange;
PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common Shares
of the Company. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Rights will be
effected.
(g) Notwithstanding the provisions of this Section 24, in the event
that a majority of the Board of Directors of the Company is elected by
stockholder action by written consent, then until the earlier to occur of (i)
the 180th day following the effectiveness of such election or (ii) the next
regular annual meeting of stockholders of the Company following the
effectiveness of such election (including any postponement or adjournment
thereof), this Rights shall not be exchanged pursuant hereto if such exchange
would be reasonably likely to have the purpose or effect of facilitating a
Transaction with an Interested Person.
Section 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall propose to effect or permit to occur any
Triggering Event or Section 13 Event, the Company shall give notice thereof to
each holder of Rights in accordance with Section 26 hereof at least twenty (20)
days prior to occurrence of such Triggering Event or such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall occur,
then, in any such case, the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Sections 11(a)(ii) and 13
hereof.
Section 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, CA 94089
Attention: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
-35-
<PAGE>
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: David J. Segre, Esq.
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
BankBoston, N.A.
c/o Boston EquiServe, L.P.
150 Royal Street
Canton, MA 02021
Attention: Client Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS.
(a) Prior to the occurrence of a Distribution Date, the Company may
supplement or amend this Agreement in any respect without the approval of any
holders of Rights and the Rights Agent shall, if the Company so directs, execute
such supplement or amendment. From and after the occurrence of a Distribution
Date, the Company and the Rights Agent may from time to time supplement or amend
this Agreement without the approval of any holders of Rights in order to (i)
cure any ambiguity, (ii) correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
shorten or lengthen any time period hereunder, or (iv) to change or supplement
the provisions hereunder in any manner that the Company may deem necessary or
desirable and that shall not adversely affect the interests of the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of an
Acquiring Person); PROVIDED, this Agreement may not be supplemented or amended
to lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person). Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
-36-
<PAGE>
(b) Notwithstanding the provisions of Section 27(a), in the event that
the Board of Directors of the Company is elected by stockholder action by
written consent, then until the earlier to occur of (i) the 180th day following
the effectiveness of such election or (ii) the next regular annual meeting of
stockholders of the Company following the effectiveness of such election
(including any postponement or adjournment thereof), this Rights Agreement shall
not be supplemented or amended in any manner reasonably likely to have the
purpose or effect of facilitating a Transaction with an Interested Person.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other parties and
(y) not subject the Board to any liability to the holders of the Rights.
Section 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption
-37-
<PAGE>
set forth in Section 23 hereof shall be reinstated and shall not expire until
the Close of Business on the tenth day following the date of such determination
by the Board of Directors.
Section 32. GOVERNING LAW. This Agreement and each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" INFOSEEK CORPORATION
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
"RIGHTS AGENT" BANKBOSTON, N.A.
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
-38-
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF INFOSEEK CORPORATION
The undersigned, Harry M. Motro and Andrew E. Newton do hereby certify:
1. That they are the duly elected and acting President and Secretary of
Infoseek Corporation, a Delaware corporation (the "CORPORATION").
2. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors on October 2, 1998 adopted the following resolution creating a series
of 500,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock of the
Corporation, and does hereby fix and herein state and express the designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows (all terms used herein which are defined in the Certificate of
Incorporation shall be deemed to have the meanings provided herein):
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "SERIES A PARTICIPATING PREFERRED STOCK," par value $0.001 per
share, and the number of shares constituting such series shall be 500,000.
Section 2. PROPORTIONAL ADJUSTMENT. In the event the Corporation shall
at any time after the issuance of any share or shares of Series A Participating
Preferred Stock (i) declare any dividend on Common Stock of the Corporation
("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of March, June, September and December, in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of
<PAGE>
Series A Participating Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock.
(b) The Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of Series A
Participating Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
shares of Series A Participating Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 4. VOTING RIGHTS. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of the stockholders of the Corporation.
(c) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
-2-
<PAGE>
Section 5. CERTAIN RESTRICTIONS.
(a) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Participating Preferred Stock as
required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 3
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series A Participating Preferred
Stock, except dividends paid ratably on the Series A Participating Preferred
Stock and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any shares
of Series A Participating Preferred Stock, or any shares of stock ranking on a
parity with the Series A Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(c) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 5,
purchase or otherwise acquire such shares at such time and in such manner.
Section 6. REACQUIRED SHARES. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become
-3-
<PAGE>
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein and, in the Certificate of Incorporation, as then amended.
Section 7. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Participating Preferred Stock shall be entitled to receive an aggregate amount
per share equal to 1000 times the aggregate amount to be distributed per share
to holders of shares of Common Stock plus an amount equal to any accrued and
unpaid dividends on such shares of Series A Participating Preferred Stock.
Section 8. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged.
Section 9. NO REDEMPTION. The shares of Series A Participating Preferred
Stock shall not be redeemable.
Section 10. RANKING. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of the outstanding shares of Series A
Participating Preferred Stock, voting separately as a class.
Section 12. FRACTIONAL SHARES. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
-4-
<PAGE>
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of the Corporation be, and they hereby are,
authorized and directed to prepare and file a Certificate of Designations of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth in
the foregoing Certificate of Designations are true and correct of our own
knowledge.
Executed at Sunnyvale, California on October ___, 1998.
________________________________________
Harry M. Motro
President
________________________________________
Andrew E. Newton
Secretary
-5-
<PAGE>
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) OCTOBER 2, 2008, (ii) THE DATE
TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES THE
RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF
AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND
ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS
REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A
PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE
OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
RIGHTS AGREEMENT.]*
RIGHTS CERTIFICATE
INFOSEEK CORPORATION
This certifies that ______________________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of October 2, 1998 (the "RIGHTS AGREEMENT"),
between Infoseek Corporation, a Delaware corporation (the "COMPANY"), and
BankBoston, N.A. ( the "RIGHTS AGENT"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York time, on October 2, 2008 at the office of the
Rights Agent designated for such purpose, or at the office of its successor as
Rights Agent, one one-thousandth (1/1,000) of a fully paid non-assessable share
of
- --------------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Series A Participating Preferred Stock, par value $0.001 per share, (the
"PREFERRED SHARES"), of the Company, at an Exercise Price of One Hundred Fifty
Dollars ($150.00) per one-thousandth of a Preferred Share (the "EXERCISE
PRICE"), upon presentation and surrender of this Rights Certificate with the
Form of Election to Purchase and related Certificate duly executed. The number
of Rights evidenced by this Rights Certificate (and the number of one-
thousandths of a Preferred Share which may be purchased upon exercise hereof)
set forth above are the number and Exercise Price as of October 2, 1998, based
on the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Exercise Price and the number and kind of Preferred Shares or
other securities which may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment
upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.01 per Right or (ii) may be exchanged by the
Company in whole or in part for Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action,
-2-
<PAGE>
or to receive notice of meetings or other actions affecting stockholders (except
as provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of October ___, 1998.
ATTEST: INFOSEEK CORPORATION
_________________________________ By: ____________________________________
Andrew E. Newton Harry M. Motro
Secretary President
Countersigned:
BANKBOSTON, N.A.
as Rights Agent
By: ______________________________
Its: _____________________________
-3-
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _______________, _____
____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, ______
__________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate)
To: ___________________________
The undersigned hereby irrevocably elects to exercise
_________________________ Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of one-
thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________________ , ______
___________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of any such Person.
Dated: _______________, ______
___________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
<PAGE>
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT C
SHAREHOLDER RIGHTS PLAN
INFOSEEK CORPORATION
SUMMARY OF RIGHTS
DISTRIBUTION AND
TRANSFER OF RIGHTS;
RIGHTS CERTIFICATE: The Board of Directors has declared a dividend of one Right
for each share of Infoseek Common Stock outstanding. Prior
to the Distribution Date referred to below, the Rights will
be evidenced by and trade with the certificates for the
Common Stock. After the Distribution Date, Infoseek
Corporation (the "COMPANY") will mail Rights certificates
to the Company's stockholders and the Rights will become
transferable apart from the Common Stock.
DISTRIBUTION DATE: Rights will separate from the Common Stock and become
exercisable following (a) the tenth day (or such later date
as may be determined by the Board of Directors) after a
person or group (with certain exceptions) acquires
beneficial ownership of 15% or more of the Company's Common
Stock or (b) the tenth business day (or such later date as
may be determined by the Board of Directors) after a person
or group announces a tender or exchange offer, the
consummation of which would result in ownership by a person
or group of 15% or more of the Company's Common Stock.
PREFERRED STOCK
PURCHASABLE UPON
EXERCISE OF RIGHTS: After the Distribution Date, each Right will entitle the
holder to purchase for $_______, a fraction of a share of
the Company's Preferred Stock with economic terms similar
to that of one share of the Company's Common Stock.
FLIP-IN: If an "ACQUIRING PERSON" (as defined in the Rights
Agreement) obtains 15% or more of the Company's Common
Stock, then each Right (other than Rights owned by an
Acquiring Person or its affiliates) will entitle the holder
thereof to purchase, for the Exercise Price, a number of
shares of the Company's Common Stock having a then current
market value of twice the Exercise Price.
FLIP-OVER: If, after an Acquiring Person obtains 15% or more of the
Company's Common Stock, (a) the Company merges into another
entity, (b) an acquiring entity merges into the Company or
(c) the Company sells more than 50% of the Company's assets
or earning power, then each Right (other than Rights owned
by an Acquiring Person or its affiliates) will entitle the
holder thereof to purchase,
<PAGE>
for the Exercise Price, a number of shares of Common Stock
of the Person engaging in the transaction having a then
current market value of twice the Exercise Price.
EXCHANGE PROVISION: At any time after the date an Acquiring Person obtains 15%
or more of the Company's Common Stock and prior to the
acquisition by the Acquiring Person of 50% of the
outstanding Common Stock, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by
the Acquiring Person or its affiliates), in whole or in
part, for shares of Common Stock of the Company at an
exchange ratio of one share of Common Stock per Right
(subject to adjustment). However, if a majority of the
Company's Board of Directors is elected by stockholder
action by written consent, then for a period of 180 days
following such election the Rights cannot be exchanged if
such exchange is reasonably likely to have the purpose or
effect of facilitating an acquisition of the Company by a
person or entity who proposed, nominated or supported a
director of the Company so elected by written consent (an
"INTERESTED PERSON").
REDEMPTION OF
THE RIGHTS: Rights will be redeemable at the Company's option for
$0.001 per Right at any time on or prior to the tenth day
(or such later date as may be determined by the Board of
Directors) after public announcement that a Person has
acquired beneficial ownership of 15% or more of the
Company's Common Stock. However, if a majority of the
Company's Board of Directors is elected by stockholder
action by written consent, then for a period of 180 days
following such election the Rights cannot be redeemed if
such redemption is reasonably likely to have the purpose or
effect of facilitating an acquisition of the Company by an
Interested Person.
EXPIRATION OF
THE RIGHTS: The Rights expire on the earliest of (a) September 9,
2008, (b) exchange or redemption of the Rights as described
above.
AMENDMENT OF
TERMS OF RIGHTS: The terms of the Rights and the Rights Agreement may be
amended in any respect without the consent of the Rights
holders on or prior to the Distribution Date; thereafter,
the terms of the Rights and the Rights Agreement may be
amended without the consent of the Rights holders in order
to cure any ambiguities or to make changes which do not
adversely affect the interests of Rights holders (other
than the Acquiring Person). However, if a majority of the
Company's Board of Directors is elected by stockholder
action by written consent, then for a period of 180 days
following
-2-
<PAGE>
such election the Rights Agreement cannot be amended in any
manner reasonably likely to have the purpose or effect of
facilitating an acquisition of the Company by an Interested
Person.
VOTING RIGHTS: Rights will not have any voting rights.
ANTI-DILUTION
PROVISIONS: Rights will have the benefit of certain customary
anti-dilution provisions.
TAXES: The Rights distribution should not be taxable for federal
income tax purposes. However, following an event which
renders the Rights exercisable or upon redemption of the
Rights, stockholders may recognize taxable income.
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of September 9, 1998, between the Company and the
Rights Agent.
-3-
<PAGE>
EXHIBIT 16.1
September 14,1998
Securities and Exchange Commission
Washington, DC 20549
Ladies and Gentlemen:
We were previously principal accountants for Starwave Corporation and, under
the date of February 7,1997, we reported on the financial statements of
Starwave Corporation as of and for the years ended December 31, 1996 and 1995.
On April 24, 1997, our appointment as principal accountants was terminated. We
have read the statement describing our dismissal (copy attached) included
under the heading "Experts" of the registration statement on Form S-4 of
Infoseek Corporation, and we agree with such statement, except that we are
not in a position to agree or disagree with the statement that
PricewaterhouseCoopers LLP was not consulted by Starwave Corporation on items
regarding the application of accounting principles to a specified transaction
or the type of audit opinion that might be rendered on Starwave Corporation's
financial statements.
Very truly yours,
/s/ KPMG Peat Marwick LLP
<PAGE>
Attachment
Effective April 24, 1997, Starwave's Board of Directors dismissed KPMG Peat
Marwick LLP (the "Former Accountants") as its independent accountants and
engaged PricewaterhouseCoopers LLP. The reports of the Former Accountants on
the financial statements of Starwave for the fiscal years ended December 31,
1996 and 1995 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the period of the Former Accountants' engagement in
Starwave's two most recent fiscal years, there were no disagreements with the
Former Accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of the Former Accountants
would have caused them to make reference thereto in their report on Starwave's
financial statements. Prior to April 24, 1997, Starwave had not consulted with
PricewaterhouseCoopers LLP on items regarding the application of accounting
principles to a specific completed or contemplated transaction, the type of
audit opinion that might be rendered on Starwave's financial statements, or
any matter that was subject of a disagreement or reportable event.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant has no material subsidiaries.
1
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Infoseek
Corporation for the registration of 66,138,000 shares of its common stock and
to the incorporation by reference therein of our report dated January 16,
1998, except for Note 14, as to which the date is February 12, 1998 and Note
2, as to which the date is April 17, 1998, with respect to consolidated
financial statements and schedule of Infoseek Corporation included in its
current report (Form 8-K/A) for the year ended December 31, 1997 filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
San Jose, California
October 8, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of Infoseek
Corporation of our report dated January 30, 1998 relating to the financial
statements of Starwave Corporation, which appears in such Joint Proxy
Statement/Prospectus. We also consent to the references to us under the headings
"Experts" in such Joint Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
October 13, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of Infoseek
Corporation of our report dated January 30, 1998 relating to the financial
statements of ESPN/Starwave Partners, which appears in such Joint Proxy
Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
October 13, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of Infoseek
Corporation of our report dated January 30, 1998 relating to the financial
statements of ABC News/Starwave Partners, which appears in such Joint Proxy
Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
October 13, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Starwave Corporation:
We consent to the inclusion herein of our report and to the reference to our
firm under the heading "Experts" in the prospectus contained in the Registration
Statement on Form S-4 of Infoseek Corporation.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
October 13, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Quando, Inc.:
We consent to the use of our reports dated August 18, 1998 included in the Joint
Proxy Statement/Prospectus on Form S-4 filed on October 14, 1998 of Infoseek,
Inc. relating to the balance sheets of Quando, Inc. as of December 31, 1997 and
1996, and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997 and
to the reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
Our report dated August 18, 1998, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a net
capital deficiency, which raises substantial doubt about its ability to continue
as a going concern. The financial statements and financial statement schedules
do not include any adjustments that might result from the outcome of that
uncertainty.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
October 13, 1998
<PAGE>
EXHIBIT 23.9
[LETTERHEAD OF MERRILL LYNCH]
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Dear Sir:
We hereby consent to the use of our opinion letter dated June 18, 1998
to the Board of Directors of Infoseek Corporation included as Annex C to the
Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on S-4 relating to the proposed transaction among Infoseek
Corporation, Starwave Corporation and Disney Enterprises, Inc. and to the
references of such opinion in such Joint Proxy Statement/Prospectus under the
captions "SUMMARY - Recommendations; Fairness Opinion" and "THE MERGERS AND
RELATED TRANSACTIONS - Opinion of Infoseek's Financial Advisor". In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations issued by the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations issued
by the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ Merrill Lynch Pierce Fenner & Smith
October 9, 1998
<PAGE>
EXHIBIT 99.1
DETACH HERE
INFOSEEK CORPORATION (A CALIFORNIA CORPORATION)
SPECIAL MEETING OF SHAREHOLDERS--NOVEMBER 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF INFOSEEK CORPORATION ("INFOSEEK")
The undersigned hereby appoints Harry M. Motro, Leslie E. Wright and Andrew
E. Newton, and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Infoseek's common stock which the undersigned may be entitled to vote at the
Special Meeting of Shareholders of Infoseek to be held at Infoseek's offices
located at 1399 Moffett Park Drive, Sunnyvale, California 94089, on November
18, 1998 at 10:00 a.m. local time, and at any and all adjournments or
postponements thereof, with all of the powers the undersigned would possess if
personally present, upon and in respect of the following proposal and in
accordance with the following instructions. The proposal referred to herein is
described in detail in the accompanying joint proxy statement/prospectus.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
PROPOSALS SPECIFIED ON THE REVERSE SIDE. IF A SPECIFIC DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
[SEE REVERSE SIDE]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
DETACH HERE
PLEASE MARK VOTES AS IN THIS EXAMPLE.[X]
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE. THE BOARD OF DIRECTORS OF INFOSEEK CORPORATION
RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
(i) approval and adoption of an Agreement and Plan of Reorganization
(the "Reorganization Agreement"), dated as of June 18, 1998, among
Infoseek Corporation, a California corporation ("Infoseek California"),
Infoseek Corporation, a newly-formed Delaware corporation ("Infoseek
Delaware"), Starwave Corporation, a Washington corporation ("Starwave")
and Disney Enterprises, Inc., a Delaware corporation, and approval of a
reincorporation transaction, as contemplated by the Reorganization
Agreement, pursuant to an Agreement and Plan of Merger by and among
Infoseek California, Infoseek Delaware and ICO Acquisition Corporation,
a newly formed California corporation and wholly-owned subsidiary of
Infoseek Delaware ("Infoseek Merger Sub"), whereby Infoseek Merger Sub
will be merged with and into Infoseek California and each outstanding
share of Infoseek California common stock will be converted into the
right to receive one share of Infoseek Delaware common stock, with the
result that Infoseek California will become a wholly-owned subsidiary of
Infoseek Delaware; and (ii) the issuance of 28,138,000 shares of
Infoseek Delaware common stock to the shareholders of Starwave in
connection with the acquisition of Starwave, as contemplated by the
Reorganization Agreement, pursuant to an Agreement and Plan of Merger by
and among Infoseek Delaware, Starwave, and Starwave Acquisition
Corporation, a newly formed Washington corporation and wholly-owned
subsidiary of Infoseek Delaware ("Starwave Merger Sub"), whereby
Starwave Merger Sub will be merged with and into Starwave and each
outstanding share of Starwave common stock will be converted into the
right to receive approximately 0.26 shares of Infoseek Delaware common
stock, subject to adjustment, with the result that Starwave will become
a wholly-owned subsidiary of Infoseek Delaware, and the issuance to The
Walt Disney Company of 2,642,000 shares of Infoseek Delaware common
stock and the Warrant to purchase an additional 15,720,000 shares of
Infoseek Delaware common stock to The Walt Disney Company pursuant to
the Common Stock and Warrant Purchase Agreement dated as of June 18,
1998 between Infoseek and The Walt Disney Company (and the shares
underlying such Warrant).
FOR [_] AGAINST [_] ABSTAIN [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If the
signer is a corporation, please give
the full corporate name and have a
duly authorized officer sign,
stating such officer's title. If the
signer is a partnership, please sign
in the partnership's name by an
authorized person.
Signature: __________________________ Signature: __________________________
Date: _______________________________ Date: _______________________________
<PAGE>
EXHIBIT 99.2
DETACH HERE
STARWAVE CORPORATION (A WASHINGTON CORPORATION)
SPECIAL MEETING OF SHAREHOLDERS--NOVEMBER 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF STARWAVE CORPORATION ("STARWAVE")
The undersigned hereby appoints Thomas Staggs, Jake Winebaum and Laurence
Shapiro, and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Starwave's common stock which the undersigned may be entitled to vote at the
Special Meeting of Shareholders of Starwave to be held at the Bellevue Hilton,
located at 100-112th Avenue N.E., Bellevue, Washington 98004, on November 18,
1998 at 10:00 a.m. local time, and at any and all adjournments or
postponements thereof, with all of the powers the undersigned would possess if
personally present, upon and in respect of the following proposal and in
accordance with the following instructions. The proposal referred to herein is
described in detail in the accompanying Joint Proxy Statement/Prospectus.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL SPECIFIED ON THE REVERSE SIDE. IF A SPECIFIC DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
[SEE REVERSE SIDE]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
DETACH HERE
PLEASE MARK VOTES AS IN THIS EXAMPLE.[X]
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTPAID RETURN ENVELOPE. THE BOARD OF DIRECTORS OF STARWAVE CORPORATION
RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL.
Approval and adoption of an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of June 18, 1998, among Infoseek
Corporation, a California corporation ("Infoseek"), Infoseek
Corporation, a newly organized Delaware corporation ("Infoseek
Delaware"), Starwave and Disney Enterprises, Inc., a Delaware
corporation, and the acquisition of Starwave pursuant to an Agreement
and Plan of Merger contemplated by the Reorganization Agreement by and
among Infoseek Delaware, Starwave, and Starwave Acquisition Corporation,
a newly formed Washington corporation and wholly-owned subsidiary of
Infoseek Delaware ("Starwave Merger Sub"), whereby Starwave Merger Sub
will be merged with and into Starwave and each outstanding share of
Starwave common stock will be converted into the right to receive
approximately 0.26 shares of Infoseek Delaware common stock, subject to
adjustment as described in the Joint Proxy Statement/Prospectus, with
the result that Starwave will become a wholly-owned subsidiary of
Infoseek Delaware.
FOR [_] AGAINST [_] ABSTAIN [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If the
signer is a corporation, please give
the full corporate name and have a
duly authorized officer sign,
stating such officer's title. If the
signer is a partnership, please sign
in the partnership's name by an
authorized person.
Signature: __________________________ Signature: __________________________
Date: _______________________________ Date: _______________________________
<PAGE>
EXHIBIT 99.3
AMENDED AND RESTATED
ESPN/STARWAVE
PARTNERSHIP AGREEMENT
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT including the Exhibits
attached hereto (this "AGREEMENT") is entered into as of June 18, 1998 by and
between ESPN ONLINE INVESTMENTS, INC., a New York corporation ("ESPN PARTNER"),
a wholly-owned subsidiary of ESPN ENTERPRISES, INC., a Delaware corporation
("ESPN") and STARWAVE VENTURES, a Washington corporation ("STARWAVE PARTNER") a
wholly-owned subsidiary of STARWAVE CORPORATION, a Washington corporation
("STARWAVE"). This Agreement amends and restates in its entirety the Partnership
Agreement by and between the parties hereof entered into as of March 28, 1997
(the "Original Agreement"); provided that, this Agreement shall only become
effective upon the Effective Time, as defined in and pursuant to that certain
Agreement and Plan of Reorganization, of even date herewith, by and among
Infoseek Corporation, a California corporation, Infoseek Corporation, a Delaware
corporation, Starwave, and DEI and shall cease and be of no further force and
effect in the event that the Effective Time does not occur; and provided further
that, each of the parties hereto agrees not to terminate, amend or otherwise
alter this Agreement, or waive any of its rights hereunder, at any time prior to
immediately following the Effective Time. ESPN Partner and Starwave Partner are
each sometimes referred to herein as a "Partner" and, collectively, as
"Partners".
RECITALS
1. In connection with an investment in Starwave by DEI, ESPN Partner and
Starwave Partner entered into a partnership pursuant to the Original Agreement
to jointly develop, produce and exploit certain interactive media products, on
the terms and conditions contained herein and ESPN and Starwave entered into the
ESPN/Starwave Management and Services Agreement dated as of March 28, 1997 (the
"Original Service Agreement") to provide certain assets and services to the
Partnership in accordance with the terms and conditions set forth in the
Original Service Agreement.
2. Pursuant to an agreement and plan of reorganization and a stock and warrant
purchase agreement (collectively, the "Acquisition Agreements"), DEI has agreed
to acquire approximately a 43% interest in the voting equity of Infoseek
Corporation, a California corporation, subject to the terms and conditions set
forth in the Acquisition Agreements.
3. In connection with the transactions contemplated under the Acquisition
Agreements, the Partners desire to amend and restate the Original Agreement by
entering into this Agreement and Starwave agrees and ESPN agrees to cause ESPN,
its indirect wholly owned subsidiary, to amend and restate the Original
Agreement and Original Service Agreement in the form attached as Exhibit A.
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, ESPN Partner and Starwave Partner hereby agree as
follows:
-1-
<PAGE>
1. DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
1.1 "ACT" means the New York Uniform Partnership Law, as amended from time
to time.
1.2 "ACTUAL CUMULATIVE FUNDING PERCENTAGE" means each Partner's total
actual cumulative funding divided by the total actual cumulative funding of both
Partners, expressed as a percentage.
1.3 "ADJUSTED CAPITAL ACCOUNT" means, with respect to a Partner, an
account with a balance (which may be a deficit balance) equal to the balance in
such Partner's Capital Account as of the end of the relevant year, after giving
effect to the following adjustments: (i) credit to such Capital Account any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore to the Partnership
pursuant to Regulations (S)(S) 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit
to such Capital Account such Partner's share of items described in Regulations
(S)(S) 1.704-l(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of
Regulations (S) 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
1.4 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to a Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account.
1.5 "ADVISORY COMMITTEE" has the meaning set forth in Section 3.1.
1.6 "AFFILIATE" means, with respect to any person, any person directly or
indirectly through one or more intermediaries controlling, controlled by or
under common control with such person. Notwithstanding the foregoing, for
purposes of this Agreement, Starwave and Starwave Partner shall not be
considered as Affiliates of ESPN or DEI.
1.7 "ANNUAL BUSINESS PLAN" has the meaning specified in Section 3.6.
1.8 "ANNUAL FINANCIAL STATEMENTS" has the meaning specified in Section
3.7.
1.9 "ASSET VALUE" with respect to any Partnership asset means the
following:
(i) the fair market value as determined by an appraiser mutually
agreed to by the Partners of any asset contributed by a Partner to the
Partnership;
(ii) the fair market value as determined by an appraiser mutually
agreed to by the Partners on the date of distribution of any Partnership asset
distributed to any Partner; or
-2-
<PAGE>
(iii) the fair market value as determined by an appraiser mutually
agreed to by the Partners of all Partnership assets at the time of (a) the
admission of an additional Partner or (b) the liquidation of the Partnership
pursuant to Section 11.6.
1.10 "BROADBAND" means programming that requires transmission at data rates
which would enable real time, full screen, full motion video at equal to or
better than NTSC broadcast resolution.
1.11 "CAPITAL ACCOUNT" has the meaning set forth in Section 6.5.
1.12 "CASH EXPENDITURES" means, for any period, the actual amount of cash
expenditures and capital expenditures of the Partnership during such period.
1.13 "CLAIMS" has the meaning specified in Section 12.1.
1.14 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
1.15 "CONTENT" means audio and audio visual material, photographs, art
work, videos, graphics, text or sound recordings.
1.16 "COSTS" means all direct costs and allocated costs, whether incurred
by ESPN, DEI or Starwave in connection with the Service Agreement or by the
Partnership, that are associated with the development, production, hosting,
maintenance, operation, distribution and exploitation of the Sports Products.
1.17 "DISNEY MEMBER" has the meaning set forth in Section 3.3.
1.18 "ESPN CONTENT" means all Content that is 100% owned or controlled by
ESPN or its successors or assigns. For purposes of this Section 1.1, "control"
means the ability to grant the licenses set forth herein; provided however that
if such Content is subject to the payment of royalties or other consideration to
third parties, ESPN will notify Starwave in writing in advance and the
Partnership shall have the right, at its option, to include such Content in the
definition of ESPN Content.
1.19 "ESPN TRADEMARKS" means "ESPN", "ESPNET" the ESPN logo and the other
marks, trade names, trademarks, brands, names, personalities, logos and
representations thereof that are properties of ESPN or its Affiliates that
appear within the ESPN Content, Programming, Sports Products or any other
materials created in association with this Agreement and that ESPN or any of its
Affiliates owns or controls.
1.20 "FIXED MEDIA PRODUCTS" means multimedia content products developed for
distribution to end users on any platform (including, without limitation, MS-
DOS, Windows, Macintosh, Sega, Nintendo, CD-ROM, Sony Playstation and 3DO
systems) designed to be read on an electronic device but excluding such products
if they include a Narrowband-delivered
-3-
<PAGE>
component and such products would not be commercially competitive (as reasonably
determined in good faith by the Partners) without the inclusion of a Narrowband-
delivered component.
1.21 "FORCE MAJEURE EVENT" has the meaning specified in Section 13.5.
1.22 "FORECASTED CASH EXPENDITURES" means, for any period, the forecasted
cash expenses and capital expenditures of the Partnership during such period,
prepared in accordance with GAAP and consistent with the Restated Initial
Business Plan and Annual Business Plans.
1.23 "GAAP" means Generally Accepted Accounting Principles, according to
U.S. accounting practices.
1.24 "GAIN YEAR" has the meaning specified in Section 6.1(a)(ii).
1.25 "GENERAL MANAGER" means the general manager appointed in accordance
with Section 3.1 to manage the operations of the Sports Products.
1.26 "INFOSEEK MEMBER" has the meaning specified in Section 3.1.
1.27 "INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or
term known or designated) tangible and intangible and now known or hereafter
existing (a) rights associated with works of authorship throughout the universe,
including but not limited to copyrights, moral rights, and mask-works, (b)
trademark, service marks and trade name rights and similar rights, (c) trade
secret rights, (d) patents, designs, algorithms and other industrial property
rights, (e) all other intellectual and industrial property and proprietary
rights (of every kind and nature throughout the universe and however designated)
(including without limitation logos, character rights, "rental" rights and
rights to remuneration), whether arising by operation of law, contract, license
or otherwise, and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe (including without limitation rights in any of the
foregoing).
1.28 "INTEREST" OR "PARTNERSHIP INTEREST" means the entire ownership
interest of a Partner in the Partnership.
1.29 "LOSS YEAR" has the meaning specified in Section 6.1(a)(i).
1.30 "NARROWBAND" means programming that does not require transmission at
data rates which would enable real time, full screen, full motion video at equal
to or better than NTSC broadcast resolution.
1.31 "NET INCOME" AND "NET LOSS" means for each fiscal year or other
period, the Partnership's taxable income or loss for such year or period
determined in accordance with (S)703(a) of the Code, including therein all items
of income, gain, loss or deduction required to be stated separately pursuant to
(S)703(a)(1) of the Code, with the following adjustments:
-4-
<PAGE>
(i) Any tax-exempt income of the Partnership described in
(S)705(a)(1)(B) of the Code which is not otherwise taken into account in
determining Net Income or Net Loss shall be included as if it were taxable
income or loss;
(ii) Any expenditures of the Partnership described in
(S)705(a)(2)(B) or treated as such expenditures under Regulation (S)1.704-
1(b)(2)(iv)(i) not otherwise taken into account in computing Net Income and Net
Loss shall be treated as deductible items;
(iii) Upon the occurrence of an event described in Section 1.9(ii) or
(iii), the difference between the asset basis and Asset Value as determined in
such provision shall be taken into account as gain or loss;
(iv) Gain or loss resulting from the disposition of property from
which gain or loss is recognized for federal income tax purposes shall be
determined with reference to the Asset Value of the property disposed of;
(v) Cost recovery deductions shall be determined based on the Asset
Value of property in lieu of such deductions used in computing such taxable
income or loss;
(vi) Any items which are specially allocated pursuant to Section 6.6
shall not be taken into account.
1.32 "PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
(S) 1.704-2(b)(4).
1.33 "PARTNER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
liability (within the meaning of Regulations (S) 1.704-2(b)(3)), determined in
accordance with Regulations (S) 1.704-2(i)(3).
1.34 "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations (S)(S) 1.704-2(i)(1) and 1.704-2(i)(2).
1.35 "PARTNERSHIP" means the general partnership formed by this Agreement.
1.36 "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
(S)(S) 1.704-2(b)(2) and 1.704-2(d).
1.37 "PERSON" means any individual, partnership, corporation, trust or
other entity.
1.38 "PORTAL PRODUCTS" means the internet portal service to be named "Go
Networks," or another name mutually agreed to between the Partners, developed
and produced by Infoseek utilizing the subject matter licensed under that
certain License Agreement between
-5-
<PAGE>
DEI and Infoseek of even date herewith, including but not limited to all
channels, sub-channels, sections, sites, features, services, utilities and
applications relating thereto.
1.39 "PROFIT PARTICIPATION" means the Partner's proportionate share of Net
Income, expressed as a percentage, in a gain year adjusted pursuant to Section
6.2.
1.40 "PROGRAMMING" means the programming included in the Sports Products
including, without limitation, all HTML, Java, and/or other formatted text
files, all related graphics files, animation files, data files, multimedia
files, modules, routines and objects, and the computer software and all of the
script or program files required to exploit such materials and that collectively
control the display of and end user interaction with the programming.
1.41 "PROMOTIONAL SERVICE AGREEMENT" means the agreement between American
Broadcasting Company and Infoseek, dated as of the date hereof.
1.42 "REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time.
1.43 "RELATED PERSONS" has the meaning specified in Section 12.1.
1.44 "REMOTE ACCESS PRODUCTS" means Programming intended for distribution
by any Narrowband interactive transmission method. This definition excludes any
and all Programming that requires Broadband transmission and also excludes (a)
products developed for PDAs, pagers, screen phones and other future handheld
devices and (b) Fixed Media Products.
1.45 "REQUIRED CUMULATIVE FUNDING PERCENTAGE" means each Partner's total
cumulative funding if it were to have funded at its required cash contribution
amount in each year, divided by the total cumulative funding for both Partners
if each had funded at its required level in each year, expressed as a
percentage.
1.46 "RESTATED INITIAL BUSINESS PLAN" has the meaning specified in Section
3.6.
1.47 "REVENUES" means all revenues, as determined in accordance with GAAP,
including, without limitation, advertising, subscription, usage, merchandising,
licensing or other revenues derived from exploitation of the Sports Products,
the Technology owned by the Partnership or jointly by the Partners contained
therein or utilized in connection therewith or from any other Intellectual
Property Rights, Content or Programming owned by the Partnership or jointly by
the Partners but in all events excluding Portal Products revenues and Infoseek-
branded Search or Directory revenues. For the avoidance of doubt, any Revenues
derived from the first page seen by a viewer after a single click on a name,
logo, icon, link, headline or other content that is supplied by the Partnership
or one of the Partners, for use in the Sports Product. For example, if a user
clicks on the "Go Sports" channel within the Portal Products and the first page
to which the user is directed contains a Sports feature supplied by ESPN, after
the single
-6-
<PAGE>
click on the ESPN feature, the user is within the Sports Products and revenues
derived from such page shall be deemed Revenues hereunder.
1.48 "SEARCH OR DIRECTORY" means products, services, components or other
subject matter (a) for searching content such as searches of the World Wide Web,
directories, USENET News, or other databases, or (b) hierarchical listings of
sites or services, which listings are organized by categories.
1.49 "SERVICE AGREEMENT" means the Amended and Restated ESPN/Starwave
Management and Services Agreement attached hereto as Exhibit A.
1.50 "SPORTS PRODUCTS" means the Remote Access Products developed,
produced, marketed, distributed or otherwise exploited under this Agreement
containing professional or amateur sports Content, news or information.
1.51 "STANDARDS" means the written policy of standards and practices for
content and advertising that apply to the Sports Products under this Agreement,
attached as Exhibit B.
1.52 "STARWAVE TRADEMARKS" means "Starwave" and the other marks, trade
names, trademarks, brands, names, personalities, logos and representations
thereof that are properties of Starwave Partner or its Affiliates that appear
within the Sports Products or any other materials created in association with
this Agreement and that Starwave Partner owns or controls.
1.53 "TECHNOLOGY" means all software, hardware and middleware required or
appropriate to (i) transform the Content into the Programming, (ii) create,
modify or maintain the Programming, or (iii) deliver the Programming in an
online format.
1.54 "TERM" shall have the meaning set forth in Section 11.1.
1.55 "TERRITORY" means the United States and Canada.
1.56 "TRANSFER" means, as a noun, any voluntary or involuntary transfer,
sale, assignment, pledge, hypothecation, encumbrance or other disposition, and,
as a verb, voluntarily or involuntarily to transfer, sell, assign, pledge,
hypothecate, encumber or otherwise dispose of.
2. PARTNERSHIP
2.1 PARTNERSHIP NAME. The name of the Partnership shall be ESPN/Starwave
Partners, d/b/a EIV Venture or such other name as the Partners may from time to
time determine by mutual approval, and all business of the Partnership shall be
conducted under such name. Such name shall be the exclusive property of the
Partnership, and no Partner shall have any right to use, and each Partner agrees
that neither it nor its Affiliates shall use, such name or derivatives thereof
incorporating "ESPN" or "EIV"or "Starwave" other than as
-7-
<PAGE>
permitted by the mutual agreement of the Partners. The Partnership shall execute
and file and/or publish all assumed name statements and certificates required by
law to be filed and/or published in connection with the operation of the
Partnership.
2.2 PLACE OF BUSINESS. The principal place of business of the Partnership
shall be located at 605 Third Avenue, New York, New York 10158-0180, or at such
other place as the Partners may from time to time determine by mutual approval.
The Partnership may have such other or additional places of business or
headquarters as the Partners may from time to time designate.
2.3 PURPOSE. The purpose of the Partnership shall be to develop, produce,
market, distribute and otherwise exploit the Sports Products in the Territory.
Notwithstanding the foregoing, the Partners acknowledge that distribution of the
Sports Products on the Internet shall, by definition be on a worldwide basis;
provided, that it is the present intention of the Partners that the Partnership
shall not deploy the Programming on servers or other delivery systems that are
located outside the Territory. Notwithstanding the foregoing, if DEI determines
to develop, produce, market, distribute and otherwise exploit sports-related
Remote Access Products outside the Territory, the Disney Member will, when
possible, provide the Infoseek Member with a first offer to discuss in good
faith the possibility of delivering the Sports Products in additional countries
or regions or otherwise including the Partnership, Starwave Partner or Infoseek
as a partner or participant to any new sports-related Remote Access Products
that may be developed for any additional country or region; provided, that
Starwave Partner acknowledges that the worldwide business activities and
strategies of DEI and its Affiliates may preclude the participation of the
Partnership, Starwave Partner or Infoseek in any such sports-related Remote
Access Products.
2.4 AUTHORITY OF PARTNERS LIMITED. No Partner shall have any authority to
hold himself out as a general agent of another Partner or the Partnership in any
business activity other than that of the Partnership, and no Partner shall have
any authority to act for, or to assume any obligation or responsibility on
behalf of, any other Partner or the Partnership, except as expressly provided in
this Agreement or as authorized by the Partners. No Partner shall be liable to
third persons for Partnership losses, deficits, liabilities or obligations
except as expressly agreed to in writing by such Partner, unless the assets of
the Partnership shall first be exhausted. In any matter between the Partnership
on the one hand and either Partner on the other hand or in any matter between
the Partners, neither the Partnership nor any Partner shall be bound by the act
of a Partner unless such Partner is acting in accordance with the limitations
and provisions set forth in this Agreement. Except as otherwise expressly
provided herein, decisions of the Partnership shall be made by unanimous
approval of the Partners.
2.5 PARTITION. No Partner, nor any successor-in-interest to such Partner,
shall have the right, while this Agreement remains in effect, to have the
property of the Partnership partitioned or to file a complaint or institute any
proceeding at law or in equity to have the property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors,
representatives and assigns, hereby waives any such right.
-8-
<PAGE>
3. GOVERNANCE
3.1 APPOINTMENT OF GENERAL MANAGER. The day-to-day operations of the
Sports Products will be managed by a General Manager nominated by DEI and
mutually appointed by the Partners. The General Manager shall report to the
Advisory Committee. The General Manager shall be a Partnership employee and
subject to termination by either the Starwave Member or the Disney Member. The
General Manager shall be located in New York City, or elsewhere in the event of
mutual agreement by the Advisory Committee. In the event of the termination or
resignation of a General Manager, the Disney Member shall have the right to
nominate candidates for a new General Manager; provided, that if three
successive nominees are not approved by the Advisory Committee, the Disney
Member shall have the sole right of approval for the subsequent nominee. This
process will be repeated in the event of any replacement of a General Manager.
Notwithstanding the foregoing, in the event that a General Manager is terminated
by the Starwave Member unilaterally, the Disney Member shall have the unilateral
right to appoint a replacement General Manager, subject to Starwave Partner's
subsequent rights to terminate the replacement General Manager. DEI agrees to
cause the Disney Member to use its reasonable good faith efforts to nominate
well qualified, "best available" candidates as General Manager candidates.
3.2 DUTIES OF GENERAL MANAGER. The General Manager shall implement the
Restated Initial Business Plan and subsequent Annual Business Plans and shall
exercise control over the day-to-day operations of the Partnership, including
editorial tactics, editorial strategy and creative development (subject to
Section 3.5(a)), production (technical or otherwise), distribution,
merchandising, advertising sales, affiliate relations (subject to Section
3.5(b)), and marketing and promotion (subject to Section 3.5(c)) of the Sports
Products, subject to the oversight and ultimate approval of the Advisory
Committee.
3.3 ADVISORY COMMITTEE. As of the Effective Time, Infoseek and Disney
will respectively appoint the Infoseek CEO and the Chairman of Buena Vista
Internet Group as the sole members (the "Infoseek Member" and the "Disney
Member" respectively) of an advisory committee (the "Advisory Committee"). Each
of Infoseek and Disney will have the right to replace its designee on the
Advisory Committee; provided, that Infoseek and Disney agree to consult with
each other prior to any such replacement. Any such replacement will be with an
officer of Infoseek or Disney, or their respective Affiliates, of similar
responsibilities and experience, to the extent possible. The Advisory Committee
shall oversee the management and operations of the Partnership, shall make
significant business decisions of the Partnership and shall participate
regularly in the overall supervision, direction and control of the Partnership
as set forth on Exhibit C (as amended as of the date hereof). The Advisory
Committee will meet monthly or as otherwise appropriate to discuss and advise
the General Manager on overall Sports Products key issues, and performance
within the parameters established in the Annual Business Plans. Except as
otherwise expressly provided herein, decisions of the Advisory Committee shall
be made by unanimous approval of the Infoseek Member and Disney Member.
3.4 ORGANIZATIONAL STRUCTURE. The Partners intend to staff the operations
of the Partnership in accordance with the Restated Initial Business Plan, as may
be modified from
-9-
<PAGE>
time to time upon the agreement of the Partners. Thereafter, the General Manager
(and the relevant senior employees) shall hire/fire/promote Partnership
employees at their discretion (subject to compliance with the Restated Initial
Business Plan and Annual Plans). Notwithstanding the foregoing, it is the
intention of the parties that the employees providing technology-related
services to the Partnership shall be primarily employed by Starwave and the
employees providing editorial-related services to the Partnership shall be
primarily employed by ESPN.
(a) CONTENT DEVELOPMENT/TRANSFORMATION/INTEGRATION.
(i) ESPN CONTENT. ESPN shall be responsible for the development
of ESPN Content for the Sports Products and for the transformation of ESPN
Content into Programming and integration of the Programming into the Sports
Products as set forth in the Service Agreement. The senior employee in such
group, who shall be an ESPN employee and subject to hiring/firing by ESPN, shall
report on a day-to-day basis to the General Manager, with direct reporting as
well to an ESPN designated executive for oversight of editorial and creative
aspects of such Content.
(ii) NON-ESPN CONTENT. The Partnership shall include a group of
employees responsible for the development of Content (other than ESPN Content)
for the Sports Products and for the transformation of such Content into
Programming and integration of the Programming into the Sports Products. The
senior employee in such group, who shall be an ESPN employee and subject to
hiring/firing by ESPN and firing by Starwave, and shall report on a day-to-day
basis to the General Manager, with direct reporting as well to an ESPN
designated executive for oversight of editorial and creative aspects of such
Content.
(b) ESPN NETWORK AFFILIATE RELATIONS. The Partnership shall include a
group of Partnership employees responsible for managing the relationship with
ESPN's affiliated television and radio stations, subject to Section 3.5(b). The
senior employee in such group shall report directly to the General Manager.
ESPN shall have veto power over the hiring/firing of such employee. ESPN shall,
from time to time, review the policies and practices of such group and assist
the General Manager in conforming such policies and practices with those used by
ESPN.
(c) ADVERTISING SALES.
(i) The Partnership may engage Starwave or any qualified third
party (including Affiliates) to provide representation services for advertising
sales for the Sports Products. The senior employee of any non-Affiliated party
providing representation services shall be subject to hiring/firing by either
Starwave or ESPN, shall report to the General Manager, with (1) a report to the
Disney Member on matters concerning group advertising sales in association with
Disney products and (2) a report to the Infoseek Member on matters concerning
group advertising sales in association with Infoseek products.
-10-
<PAGE>
(ii) The Advisory Committee shall mutually agree in writing on
the characteristics of all advertising that will appear with or in the Sports
Products, including without limitation, matters of price, content, size,
placement, quantity, frequency of changes, and identity of advertisers. The
Advisory Committee further shall mutually agree in writing on the "rate card"
for the advertising to be sold in connection with the Sports Products.
(iii) The General Manager and the advertising sales group shall
at all times comply with the Standards.
(iv) The Advisory Committee shall coordinate group advertising
sales for the Sports Products in association with DEI (which shall provide the
group advertising sales services in association with Disney products) and with
Infoseek (which shall provide the group advertising sales services in
association with Infoseek products) as set forth in the Service Agreement.
During the Term, such group advertising services may become a responsibility of
the Partnership or the Partners collectively, upon the mutual agreement of the
Partners.
(d) MARKETING/PROMOTION. The Partnership shall include a group of
Partnership employees responsible for marketing and promotion for the Sports
Products on Narrowband platforms and in other media, subject to Section 3.5(c).
The senior employee in such group shall be subject to hiring/firing by ESPN and
firing by Starwave and shall report directly to the General Manager. In
addition, ESPN shall provide marketing and promotion services for the Sports
Products in other media, as set forth in the Service Agreement, and in
accordance with the Promotional Services Agreement.
(e) FINANCE AND BUSINESS DEVELOPMENT. The Partnership shall include a
group of Partnership employees responsible for finance and business development
activities (including, without limitation, general and administrative
activities). Such group (and the General Manager) shall perform their
administrative and finance responsibilities in accordance with DEI's standards
of financial controls.
(f) BILLING, COLLECTION, CUSTOMER SERVICE. Starwave shall be
responsible for billing, collection, customer service and other "back office"
functions for the Partnership in accordance with the Service Agreement. During
the Term, such functions (or portions thereof) may become a responsibility of
the Partnership or the Partners collectively, upon the mutual agreement of the
Partners.
(g) TECHNOLOGY DEVELOPMENT AND MAINTENANCE. Starwave shall be
responsible for the technology development and maintenance relating to the
Sports Products in accordance with the Service Agreement. It is the present
intention of the parties that the preponderance of the technology development
and maintenance relating to the Sports Products shall be performed by Starwave.
The General Manager, in accordance with the Restated Initial Business Plan or
Annual Business Plans, may acquire or license additional or substitute
Technology (i) on an incidental and nonmaterial basis, (ii) if Starwave is in
breach of its material obligations under its agreements with the Partnership,
(iii) if the costs to the Partnership of acquiring or licensing Technology from
a third party are significantly less than
-11-
<PAGE>
the costs to the Partnership of acquiring or licensing such or similar
Technology from Starwave and such third-party Technology is fully scaleable and
compatible with other Technology used for the Sports Product and otherwise
appropriate for its intended uses, or (iv) if Starwave otherwise agrees. In
addition, the General Manager, in accordance with the Restated Initial Business
Plan or Annual Business Plans may acquire or license additional or substitute
Technology if, in the General Manager's reasonable opinion, the inability to so
acquire or license such Technology would have a material impact on the overall
quality and competitive position of the Sports Products. In such event, Starwave
shall have a three (3) day period to meet with the General Manager to attempt to
resolve the issues. If the issues have not been resolved in the three (3) day
period, the General Manager shall be entitled to present the issues to the
Partners for resolution based upon the mutual agreement of the Partners. During
the Term, such technology development and maintenance (or portions thereof) may
become a responsibility of the Partnership or the Partners collectively, upon
the mutual agreement of the Partners.
(h) HOSTING. Starwave shall be responsible for the hosting of the
Sports Products in accordance with the Service Agreement. During the Term, the
Partners may mutually agree to have the Partnership perform hosting functions
for the Sports Products, as may be approved in an Annual Business Plan or
otherwise as determined by the Partners. In addition, the General Manager may
utilize unaffiliated third parties to provide hosting of the Sports Products (i)
if the costs of any such hosting to the Partnership are significantly less than
the costs to the Partnership of such hosting services as charged by Starwave and
such third-party hosting is fully scaleable and compatible with the Technology
and hosting services provided for the Sports Products and otherwise appropriate,
(ii) Starwave is in breach of its material hosting obligations hereunder, or
(iii) if Starwave otherwise agrees.
(i) OTHER. The Partners shall mutually agree on whether any
additional necessary support for the development, production and delivery of the
Sports Products in any category other than as listed in this Agreement shall be
included as a responsibility of the Partnership or one or both Partners.
3.5 ESPN'S CONTROL.
(a) EDITORIAL AND CREATIVE. ESPN shall exercise sole and final
control over all editorial and creative aspects of the Sports Products and all
portions thereof.
(b) ESPN NETWORK AFFILIATE RELATIONS. ESPN shall exercise sole and
final control over all ESPN Network affiliate relations matters associated with
the Sports Products.
(c) MARKETING AND PROMOTIONS. ESPN shall exercise sole and final
control over all uses or references to any ESPN Trademark contained in marketing
and promotions associated with the Sports Products. Any use of an ESPN
Trademark by the Partnership or Starwave shall require the prior approval of
ESPN, which may be withheld at ESPN's sole discretion. ESPN shall cooperate in
good faith with the Partnership to agree on a templated use of ESPN Trademarks
from time to time to avoid recurrent approvals.
-12-
<PAGE>
(d) ADVERTISING SALES. The General Manager and the Partnership's
advertising sales group shall frequently consult with ESPN's advertising sales
executives in order to coordinate, when possible, advertising opportunities
among the Sports Products and ESPN products.
3.6 BUSINESS PLAN AND BUDGET.
(a) Prior to the date hereof, DEI and Starwave have agreed on a
restated three year business plan for the Sports Products, attached hereto as
Exhibit D (the "Restated Initial Business Plan"). At least thirty (30) days
prior to the beginning of each fiscal year (ending September 30) during the
Term, the General Manager shall prepare for the Partners' approval an annual
business plan and budget for the subsequent fiscal year (which shall include,
without limitation, a statement of Forecasted Cash Expenditures for such fiscal
year), utilizing the categories and methods established in the Restated Initial
Business Plan (i.e., spending requirements and limits, Revenue and operating
income targets)(each, an "Annual Business Plan and Budget"). If during the first
three years after the date hereof, an Annual Business Plan and Budget is not
mutually approved by the Partners by the beginning of a fiscal year, the
Partners shall continue to perform their obligations under this Agreement based
on the standards set forth in the Restated Initial Business Plan for the
corresponding year. After the first three years after the date hereof, if an
Annual Business Plan and Budget for any fiscal year are not mutually approved by
the Partners by the beginning of a fiscal year, the Partners shall continue to
perform their obligations under this Agreement based on the standards set forth
in the Annual Business Plan and Budget for the prior fiscal year, increased in
an amount equal to 50% of the increase in the projected Revenue growth for the
Partnership between the current fiscal year and the subsequent fiscal year (as
agreed between the Partners), provided, that if such projected Revenue growth is
a negative number, such aggregate amount shall be increased in an amount equal
to the percentage increase or decrease in the Consumer Price Index for Urban
Wage Earners and Clerical Workers [All Urban Consumers], U.S. City Average (1982
84 = 100) Unadjusted, all items index, published by the Bureau of Labor
Statistics, United States Department of Labor (the "CPI Factor") for the
preceding twelve-month period. In the event that the Partners cannot agree on
projected Revenue growth for the Partnership for a particular fiscal year, the
Annual Business Plan and Budget for such fiscal year shall be increased in an
amount equal to the actual growth rate in Revenues between the two prior fiscal
years. If such growth rate is a negative number, such Annual Business Plan and
Budget shall be adjusted by the CPI Factor. In each year, the Annual Business
Plan and Budget as adjusted as provided above shall be the baseline for any
adjustments for the subsequent year.
(b) Within fifteen (15) days prior to the beginning of each fiscal
quarter during the Term, the General Manager shall prepare for the Partners'
approval a statement of Forecasted Cash Expenditures and forecasted Revenues (as
agreed between the Partners) for such fiscal quarter. If any such statement is
not mutually approved by the Partners by the beginning of a fiscal quarter, (i)
if the fiscal quarter in question falls within the period reflected in the
Restated Initial Business Plan, then the Forecasted Cash Expenditures and
forecasted Revenues set forth therein for the applicable fiscal quarter
calculated from the annual amounts
-13-
<PAGE>
in the Annual Business Plan and Budget shall be applicable or (ii) if the fiscal
quarter in question is after the period reflected in the Restated Initial
Business Plan, then the Forecasted Cash Expenditures for such fiscal period will
be as follows: that fiscal quarter's forecasted Revenues is compared with the
Revenues in the same quarter from the prior year and a Revenue growth percentage
is calculated. 50% of this growth percentage is then applied to the Actual Cash
Expenditures for the same fiscal quarter from the prior year to determine the
Forecasted Cash Expenditures for the fiscal quarter under consideration. If the
Partners cannot agree on the Revenue growth percentage increase, then the prior
period Revenue growth percentage will be utilized as follows: 50% of the actual
year-over-year Revenue growth percentage achieved in the same quarter in the
prior year is calculated. The growth percentage is then applied to the Actual
Cash Expenditures for the same quarter from the prior year to determine the
Forecasted Cash Expenditures for the current quarter, provided, that if such
projected Revenue growth is a negative number, such aggregate amount shall be
increased in an amount equal to the percentage increase or decrease in the
Consumer Price Index for Urban Wage Earners and Clerical Workers [All Urban
Consumers], U.S. City Average (1982-84 = 100) Unadjusted, all items index,
published by the Bureau of Labor Statistics, United States Department of Labor
for the preceding twelve-month period. In each year, the Annual Business Plan
and Budget as adjusted as provided above shall be the baseline for any
adjustments for the subsequent year.
3.7 OTHER REPORTS. Within fifteen (15) days after the end of each fiscal
year during the Term, the General Manager shall prepare and deliver, with the
assistance of the Partners, unaudited twelve month profit and loss statements,
including detailed breakdowns of sources of Revenues and items of Costs for each
fiscal quarter as well as a statement of Net Cash Flow for such fiscal year
(collectively, the "Annual Financial Statements"). Within five (5) days after
the end of each fiscal quarter during the Term, the General Manager shall also
prepare and deliver, with the assistance of the Partners, unaudited quarterly
profit and loss statements, including detailed breakdowns of sources of Revenues
and items of Costs in such fiscal quarter and quarterly cash flow statements. In
addition, within ten (10) days prior to the start of any fiscal quarter, the
General Manager shall prepare and deliver quarterly forecasts, utilizing the
categories and methods established in the Restated Initial Business Plan. The
Partners acknowledge the importance of meeting the financial reporting deadlines
to ensure necessary financial and accounting compliance; provided, however, that
immaterial and infrequent failures to meet such deadlines shall not be
considered as material breaches of this Agreement.
4. STARWAVE, ESPN AND DEI OBLIGATIONS
During the Term, Starwave, ESPN and DEI shall have the obligations to the
Partnership set forth in the Service Agreement.
5. MERCHANDISING
DEI agrees to provide (or cause its Affiliates to provide) and the
Partnership agrees to purchase (subject to agreement on terms), e-commerce
services to the Partnership, including, without limitation, store design,
transaction processing, web hosting, inventory management, fulfillment and
customer service. In exchange for such services, the Partnership shall pay DEI
-14-
<PAGE>
its Costs (with the allocated costs to be mutually agreed) in providing such
services, plus a to-be-agreed markup on such Costs or a to-be-agreed upon
revenue share. In addition, DEI shall have joint ownership of all customer
information for use for its business purposes.
6. FINANCIAL PARTICIPATION
6.1 CAPITAL CONTRIBUTIONS.
(a) In accordance with the limits set forth in each Annual Business
Plan, the Partners shall make capital contributions at the start of each fiscal
quarter or from time to time as the Partners otherwise agree in accordance with
Forecasted Cash Expenditures:
(i) Starwave Partner shall make capital contributions in
sufficient amounts to provide for sixty percent (60%) of the Forecasted Cash
Expenditures and ESPN Partner shall make capital contributions in sufficient
amounts to provide for forty percent (40%) of the Forecasted Cash Expenditures
in any fiscal quarter during the Term in which Net Losses are expected to occur
(a "Loss Year").
(ii) Starwave Partner shall make capital contributions in
sufficient amounts to provide for fifty percent (50%) of the Forecasted Cash
Expenditures and ESPN Partner shall make capital contributions in sufficient
amounts to provide for fifty percent (50%) of the Forecasted Cash Expenditures
in any fiscal quarter during the Term in which Net Income is expected to occur
(a "Gain Year").
(b) Promptly upon the delivery of the Annual Financial Statements of
the Partnership, the Partners shall reconcile the differences, if any, between
the Forecasted Cash Expenditures and the Cash Expenditures as reflected in the
Annual Financial Statements, such that the total amount contributed by each
Partner with respect to a fiscal year is in accordance with the percentages
provided in Section 6.1(a) based on the Cash Expenditures with respect to such
fiscal year.
(c) To the extent that a Technology is developed by either Partner in
connection with this Agreement specifically for use in the development or
delivery of the Sports Products, the other Partner can elect, in its discretion
(but only at the time initial funding for the Technology is requested, unless
agreed to by the Partner developing such Technology), to provide its
proportionate share of the funding associated with such Technology, in which
event such Technology shall become jointly owned.
(d) For purposes of this Agreement, with respect to any capital asset
owned by a Partner and utilized in association with the Sports Products, either
Partner may charge the Partnership a fee for the use of such capital asset, in
accordance with limits set forth in the Initial Business Plan and Annual
Business Plan.
6.2 FAILURE TO MAKE CONTRIBUTIONS.
-15-
<PAGE>
(a) If any Partner fails to make any required cash contribution when
due pursuant to Section 6.1 (a "Nonfunding Partner"), the other Partner may, in
its discretion, elect to make a cash contribution in the amount of all or a
portion of the unfunded portion of the required contribution, in which event the
funding Partner's ("Funding Partner") Capital Account shall be adjusted as
follows: for every $1.00 of the unfunded portion of such required contribution
funded by the Funding Partner, the Funding Partner shall receive an increase of
$1.00 in its Capital Account.
(b) In addition, at the end of each fiscal year, each Partner's
Actual Cumulative Funding Percentage will be compared with its Required
Cumulative Funding Percentage. In the event that such Partner's Actual
Cumulative Funding Percentage is less than its Required Cumulative Funding
Percentage, such Partner's Profit Participation shall be adjusted at the
beginning of the next fiscal year such that the Nonfunding Partner's Profit
Participation will be (i) decreased 1 percentage point for each 1 percentage
point shortfall in the event the Nonfunding Partner's total cumulative funding
exceeds that of Funding Partner and (ii) will be decreased 2 percentage points
for every 1 percentage point (the "dilution ratio") in the event that the
Nonfunding Partner's total cumulative funding is less than that of the Funding
Partner. The Funding Partner will receive a corresponding increase in its Profit
Participation. An example is attached as Exhibit E.
(c) In any fiscal year in which the Starwave Partner's Profit
Participation falls below 25%, their control rights under this Agreement and the
Services Agreement shall be suspended, such that, for example, the Starwave
Partner shall not have a vote in any of the matters that previously required the
unanimous approval of the Advisory Committee. This right would be reinstated in
the event that Starwave Partner's Profit Participation again rises above 25%,
subject to subsequent suspension if Starwave Partner's Profit Participation
again falls below 25%.
(d) Prior to the end of the first fiscal year in which the
Partnership derives Net Income (i.e., as opposed to a Net Loss year), a
Nonfunding Partner shall be entitled to make capital contributions up to its
Required Cumulative Funding Percentage as well as additional funding necessary
to equalize the results of the cumulative overfunding by the Funding Partner at
the same dilution ratio (as defined above) and adjust its Profit Participation
upward; provided, however, at the end of the first fiscal year in which the
Partnership derives Net Income, while a Nonfunding Partner may make capital
contributions to maintain its Actual Cumulative Funding Percentage, it shall not
be entitled to make capital contributions to equalize the results of the
cumulative overfunding by the Funding Partner.
(e) In the event that Starwave Partner's Profit Participation falls
below 25% and Starwave Partner desires to fund a subsequent required cash
contribution and is unable to access capital on reasonable terms as determined
by the independent audit committee of the Board of Directors of Starwave Partner
given the Company's financial condition, and said terms would cause an adverse
impact on Starwave Partner's financial condition, Disney Partner will loan
Starwave Partner the necessary funds at an interest rate equal to the then prime
rate
-16-
<PAGE>
plus 1% for a twelve month term. If the loan is not repaid with accrued
interest thereon at the end of the twelve month period, such amounts will be
credited to Disney Partner's Capital Account and the Disney Partner's Actual
Cumulative Percentage would be adjusted at the beginning of the next fiscal year
as if Disney Partner had actually funded the Partnership instead of making the
loan to Starwave Partner.
6.3 ALLOCATIONS. After receipt of the Annual Financial Statements in any
fiscal year and subject to the special allocations of Section 6.6:
(a) ESPN Partner shall be allocated 40% of the Net Loss in any fiscal
year and 50% of the Net Income in any fiscal year.
(b) Starwave Partner shall be allocated 60% of the Net Loss in any
fiscal year and 50% of the Net Income in any fiscal year.
6.4 DISTRIBUTIONS. The Partnership shall make cash and/or asset
distributions at the end of each fiscal year upon receipt of the Annual
Financial Statements or when otherwise deemed appropriate by the Partners in the
same proportions as the cash contributions for each Partner in each fiscal year
attributable to such fiscal year.
6.5 CAPITAL ACCOUNTS. The Partnership shall maintain for each Partner a
single capital account (a "Capital Account") with respect to the Partner's
Partnership Interest in accordance with the regulations issued pursuant to Code
Section 704. The Capital Account of each Partner shall be maintained for such
Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be credited (i) the
amount of cash or the Asset Value contributed to the capital of the Partnership
by such Partner pursuant to any provision of this Agreement, (ii) the amounts of
such Partner's distributive share of Net Income allocated pursuant to Section
6.3 and any items in the nature of income or gain that are specially allocated
pursuant to Section 6.6, and (iii) the amount of any Partnership liabilities
that are assumed by such Partner.
(b) To each Partner's Capital Account there shall be debited (i) the
amount of cash or the Asset Value distributed to such Partner pursuant to any
provision of this Agreement, (ii) the amounts of such Partner's distributive
share of Net Loss allocated pursuant to Section 6.3 and any items in the nature
of expenses or losses that are specially allocated pursuant to Section 6.6, and
(iii) the amount of any liabilities of such Partner that are assumed by the
Partnership.
(c) In the event that all or a portion of a Partnership Interest is
Transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent that it relates
to the Transferred interest.
(d) In determining the amount of any liability for purposes of
paragraphs (a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable
-17-
<PAGE>
provisions of the Code and Regulations. The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of Capital Accounts are
intended to comply with Regulations (S)(S) 1.704-1(b) and 1.704-2 in order that
the allocations of Revenues and Costs under this Agreement are deemed to have
substantial economic effect, and shall be interpreted and applied in a manner
consistent with such Regulations. In the event that the Partners mutually
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership or any Partner), are computed
in order to comply with such Regulations, the Partners may make such
modification, provided that it is not likely to have a significant effect on the
amounts distributable to any Partner hereunder upon the dissolution of the
Partnership.
6.6 SPECIAL ALLOCATIONS.
(a) PREFERRED RETURN. A Funding Partner shall be specially allocated
Net Income equal to 15% per annum on the funding provided on behalf of the
Nonfunding Partner (and not subsequently made up by the Nonfunding Partner)
until such time as the Nonfunding Partner contributes all of the remaining
unfunded amounts to the Partnership.
(b) RECONCILIATION OF CAPITAL ASSETS. At the end of the fifth fiscal
year of the Partnership (and each subsequent fifth fiscal year during the Term),
the Partners shall cause the Partnership to make a special allocation of Net
Income or Net Loss, if necessary, to ensure that cumulative deductions
attributable to capital assets are consistent with each Partner's financial
contribution with respect to such capital assets.
(c) REGULATORY ALLOCATIONS TO CAPITAL ACCOUNTS. The following special
allocations shall be made in the following order:
(i) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations (S) 1.704-2(f), notwithstanding any other provision of this Article
6, if there is a net decrease in Partnership Minimum Gain during any Partnership
year, each Partner shall be specially allocated items of Partnership income and
gain for such period (and, if necessary, subsequent periods) in an amount equal
to such Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations (S) 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner. The items to be so allocated shall be
determined in accordance with Regulations (S)(S) 1.704-2(f)(6) and 1.704-
2(j)(2). This Section 6.6(c)(i) is intended to comply with the minimum gain
chargeback requirement in Regulations (S) 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Regulations (S) 1.704-2(i)(4), notwithstanding any other provision
of this Article 6, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal
period, each Partner who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
-18-
<PAGE>
accordance with Regulations 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations (S) 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amount required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations (S)(S) 1.704-
2(i)(4) and 1.704-1(j)(2). This Section 6.6(c)(ii) is intended to comply with
the minimum gain chargeback requirement in Regulations (S) 1.704-2(i)(4) and
shall be interpreted consistently therewith.
(iii) CERTAIN SECTION 754 ADJUSTMENTS. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant to Code
Section 743(b), Code Section 732(d) or Code Section 734(b) is required to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, pursuant to Regulations (S) 1.704-1(b)(2)(iv)(m), the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership as determined
under Regulations 1.704-1(b)(3) in the event Regulations (S) 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Partner to whom such distribution was made
in the event Regulations (S) 1.704-1(b)(2)(iv)(m)(4) applies.
(iv) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any fiscal period shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations (S) 1.704-2(i)(1).
6.7 OTHER CAPITAL ACCOUNT ALLOCATION RULES.
(a) ALLOCATIONS WHEN PERCENTAGE INTERESTS CHANGE. For purposes of
determining the Net Income or Net Loss allocable with respect to any period, Net
Income or Net Loss shall be determined on a daily, monthly or other basis, as
determined by the Partners using any permissible method under Code Section 706
and the Regulations thereunder.
(b) TAX REPORTING. The Partners are aware of the income tax
consequences of the allocations made by this Article 6 and hereby agree to be
bound by the provisions of this Agreement in reporting their shares of
Partnership income, gain, loss, deduction and expenses for income tax purposes.
6.8 TAX ALLOCATIONS: CODE SECTION 704(C).
(a) GENERALLY. Except as otherwise provided in this Section 6.8, each
item of Partnership income, gain, loss, deduction and expense shall be allocated
to the Partners consistent with the allocations to Capital Accounts provided for
in this Agreement. Any item of income, gain, loss, deduction or credit,
including depreciation recapture, with respect to any
-19-
<PAGE>
property (other than money) that has been contributed by a Partner to the
capital of the Partnership and which is required to be allocated to the Partners
for income tax purposes pursuant to Code Section 704(c) so as to take into
account the variation between the adjusted basis of such property for federal
income tax purposes and its fair market value at the time of contribution shall
be allocated to the Partners in the manner so required by Code Section 704(c)
and the Regulations thereunder.
(b) ELECTIONS. Any elections or other decisions relating to
allocations pursuant to this Section 6.8 shall be made by the Partners in any
manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 6.8 are solely for purposes of federal,
state and local income taxes.
6.9 INTEREST ON CAPITAL ACCOUNTS. Except as specifically provided herein,
no Partner shall be entitled to any interest on its Capital Account or its
contributions to the capital of the Partnership, nor shall any Partner have the
right to demand or receive the return of all or any part of its Capital Account
or its contributions to the capital of the Partnership.
6.10 AUDITS. The Partnership shall employ Price Waterhouse to prepare and
deliver to the Partners an audit of the Annual Financial Statements. In
addition, promptly upon written notice and during normal business hours, either
Partner may (and may employ third-party accounting firms for assistance), no
more often than twice each fiscal year and at its expense, audit, inspect and
take extracts and copies from the other Partner's records with respect to the
Sports Products subject to reasonable confidentiality protections for the other
Partner's records and information. Either Partner may (and may employ third-
party accounting firms for assistance) audit, inspect and take extracts and
copies from the records of the Partnership at any time during normal business
hours.
7. EXCLUSIVITY
7.1 STARWAVE PARTNER EXCLUSIVITY. During the Term and in the Territory,
and except for activities associated with the development, expansion and
commercialization of the sports Component of the Portal Products and Search or
Directory, Starwave Partner and its Affiliates shall not develop, distribute,
produce, or exploit or market or promote on-air, or, provide services of any
nature or provide a license or permit a third party to utilize any of their
respective Intellectual Property Rights with respect to any Remote Access
Products containing professional or amateur sports Content, news or information.
7.2 ESPN PARTNER EXCLUSIVITY. During the Term and in the Territory, and
except for activities associated with the development, expansion and
commercialization of the news Component of the Portal Products, ESPN Partner and
its Affiliates shall not develop, distribute, produce, exploit or provide
services of any nature or market or promote on-air or provide a license or
permit a third party to utilize any of their respective Intellectual Property
Rights with respect to any Remote Access Products containing professional or
amateur sports Content, news or information.
-20-
<PAGE>
7.3 NO OTHER RESTRICTIONS. Except as expressly set forth in this Section
7, neither ESPN Partner and its Affiliates, on the one hand, nor Starwave
Partner and its Affiliates, on the other hand, shall be subject to any
restrictions on the licensing, use, distribution or other exploitation of their
respective properties (including all Intellectual Property Rights therein), that
either Partner or any of its Affiliates own, control, have a license to, or in
which they have any other form of right, title or interest.
7.4 BROADBAND APPLICATIONS. For clarification purposes, ESPN Partner and
its Affiliates, on the one hand, and Starwave Partner and its Affiliates, on the
other hand, in their respective sole discretion, may develop, produce, exploit
or provide services of any nature with respect to programming designed
specifically for Broadband delivery (i.e., content that requires Broadband
transmission to satisfactorily deliver services to consumers). ESPN Partner
agrees to investigate (without any obligation) cooperation with Starwave Partner
in the development of products designed for Broadband delivery.
8. PROPRIETARY RIGHTS
The Partnership shall jointly own all the Technology, Content (other than
ESPN Content, if any) and Programming developed and funded by the Partnership or
jointly funded by the Partners pursuant to Section 6.1(c) during the Term for
the Sports Products. Ownership of Technology, Content and Programming funded by
Starwave or ESPN shall be governed as provided in the Service Agreement.
9. CONFIDENTIAL INFORMATION
The definition and use of each Partner's "Confidential Information" by the
other Partner shall be governed by the terms of that certain Mutual Non-
Disclosure Agreement between the Partners dated March 28, 1997.
10. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
10.1 WARRANTIES OF STARWAVE PARTNER. Starwave Partner represents and
warrants that (a) it has the right, power and authority to enter into this
Agreement and fully to perform its obligations under this Agreement; (b) the
making of this Agreement by it does not violate any agreement existing between
it and any other person or entity; (c) it complies, and at all times shall
comply, with all applicable laws, rules and regulations in effect at the time
services are performed pursuant to this Agreement pertaining to the subject
matter hereof; and (d) it shall not exercise any of the rights granted to it
under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
10.2 INDEMNIFICATION OBLIGATIONS OF STARWAVE PARTNER. Starwave Partner
agrees to, and shall, indemnify, defend and hold harmless ESPN Partner and its
Affiliates and their respective directors, shareholders, officers, agents,
employees, successors and assigns from and against any and all claims, demands,
suits, judgments, damages, costs, losses, expenses (including reasonable
attorneys' fees and expenses) and other liabilities arising from actions
-21-
<PAGE>
brought by third parties in connection with or related to, directly or
indirectly, any breach or alleged breach of any of the representations or
warranties made by it under this Agreement. The foregoing obligations of
Starwave Partner shall be subject to (i) ESPN Partner giving Starwave Partner
sole control of the defense and/or settlement of any third party claims, and
(ii) ESPN Partner providing Starwave Partner with reasonable assistance and full
information at Starwave Partner's expense. ESPN Partner shall promptly notify
Starwave Partner of any such claim and Starwave Partner shall bear full
responsibility for the defense (including any settlements) of any such claims
(i) Starwave Partner shall keep ESPN Partner informed of, and consult with ESPN
Partner in connection with the progress of such litigation or settlement; and
(ii) Starwave Partner shall not have any right, without ESPN Partner's written
consent, to settle any such claim if such settlement arises from or is part of
any criminal action, suit or proceeding or contains a stipulation to or
admission or acknowledgment of, any liability or wrongdoing (whether in
contract, tort or otherwise) on the part of any ESPN Affiliate,
10.3 WARRANTIES OF ESPN PARTNER. ESPN Partner represents and warrants that
(a) it has the right, power and authority to enter into this Agreement, to grant
the licenses herein granted, and to fully perform its obligations under this
Agreement; (b) the making of this Agreement by it does not violate any agreement
existing between it and any other person or entity; (c) it complies, and at all
times shall comply, with all applicable laws, rules and regulations in effect at
the time services are performed pursuant to this Agreement pertaining to the
subject matter hereof; and (d) it shall not exercise any of the rights granted
to it under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
10.4 INDEMNIFICATION OBLIGATIONS OF ESPN PARTNER. ESPN Partner agrees to,
and shall, indemnify, defend and hold harmless Starwave Partner and its
Affiliates, and its directors, shareholders, officers, agents, employees,
successors and assigns from and against any and all claims, demands, suits,
judgments, damages, costs, losses, expenses (including reasonable attorneys'
fees and expenses) and other liabilities arising from actions brought by third
parties, in connection with or related to, directly or indirectly, any breach
or alleged breach of the representations and warranties made by it under this
Agreement. Starwave Partner shall promptly notify ESPN Partner of any such
claim, and ESPN shall bear full responsibility for the defense of such claim
(including any settlements) provided however, that (i) ESPN Partner shall keep
Starwave Partner informed of and consult with Starwave Partner in connection
with the progress of such litigation or settlement; and (ii) ESPN Partner shall
not have any right, without Starwave Partner's written consent, to settle any
such claim if such settlement arises from or is part of any criminal action,
suit or proceeding or contains a stipulation to or admission or acknowledgment
of, any liability or wrongdoing (whether in contract, tort or otherwise) on the
part of Starwave Partner.
10.5 CHOICE OF COUNSEL AND PROTECTION OF RIGHTS. Each Partner shall have
the right, in its absolute discretion, to employ attorneys of its own choice and
to institute or defend any matter, claim, action or proceeding and to take any
other appropriate steps to protect its Intellectual Property Rights and all
rights and interest in and title to its web sites, technology, content and every
element thereof and, in that connection, to settle, compromise in good faith, or
in any other manner dispose of any matter, claim, action, or proceeding and to
satisfy any
-22-
<PAGE>
judgment that may be rendered, in any manner as such Partner in its sole
discretion may determine.
10.6 NO OTHER REPRESENTATIONS. Except for the representations and
warranties specifically set forth in this Agreement, each party makes no other
representations and warranties of any nature whatsoever to the other parties.
10.7 NO SPECIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 10.2
AND 10.4, NO PARTY SHALL UNDER ANY CIRCUMSTANCES, BE LIABLE TO ANOTHER PARTY FOR
ANY CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING
WITHOUT LIMITATION, LOST PROFITS, LOSS OF ANTICIPATED BUSINESS, LOSS OF DATA OR
BUSINESS LOSSES) EVEN IF SUCH DAMAGES ARE FORESEEABLE AND EVEN IF THE BREACHING
PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
11. TERM AND TERMINATION
11.1 TERM. The term of this Agreement shall commence as of the Effective
Time and shall continue for a period of ten (10) years after the date of the
Effective Time, unless earlier terminated as set forth below (the "Term").
11.2 RENEWAL. Unless earlier terminated, the Partners shall begin renewal
negotiations in good faith beginning on the eight (8) year anniversary of the
Effective Time. If the Partners do not reach an agreement to extend this
Agreement on mutually acceptable terms within three hundred sixty (360) days
after negotiations begin, the exclusivity provisions contained in Sections 7.1
and 7.2 shall be deemed modified, with no action required of the Partners, to
permit either Partner to develop, produce, distribute, exploit or provide
services with respect to competitive Remote Access Products; provided, that
except for such modifications, this Agreement shall continue in full force and
effect until the expiration of the Term and, provided, further, neither Partner
may engage in such activities with respect to Sports Products then available to
consumers in any manner or available prior to the expiration of the Term. In
the event the exclusivity provisions contained in Sections 7.1 and 7.2 shall be
deemed modified, and either Partner develops, produces, distributes, exploits or
provides services with respect to Remote Access Products competitive with the
Sports Products, such Partner's Remote Access Products competitive with the
Sports Products shall be provided with a prominent position on the Sports
Products, via an above-the-fold link on the start page for the Sports Product,
until the end of the Term.
11.3 TERMINATION. Without prejudice to any other rights or remedies
available to the Partners, each Partner shall have the right, in its sole
discretion, to terminate this Agreement upon written notice to the other in the
event of the occurrence of one or more of the following:
-23-
<PAGE>
(a) The other Partner (or DEI or Infoseek) makes any assignment for
the benefit of creditors or files a petition in bankruptcy (provided, that with
respect to ESPN Partner's ability to terminate in the event that Starwave
Partner or Infoseek files a petition in bankruptcy, such petition shall have
been approved by a decision of the majority of Infoseek's Disinterested
Directors (as defined in that certain Governance Agreement by and between
Infoseek and DEI)) or is adjudged bankrupt or is placed in the hands of a
receiver;
(b) With respect to Starwave Partner's termination rights, if ESPN
Partner willfully misuses the Starwave Marks or with respect to ESPN Partner's
termination rights, Starwave Partner willfully misuses the ESPN Marks, and (i)
the willful misuse occurs repeatedly and in each case in material breach of this
Agreement, and (ii) the willful misuse occurs more than three (3) times in any
one year period ("Excepted Misuses"), and (iii) with respect to each such
willful misuse, the breaching Partner fails to Cure such misuse within sixty
(60) days after the nonbreaching Partner delivers written notice of the misuse
to the other Partner; provided however that (w) if the misuse consists of
displaying the ESPN Marks within the Sports Products in a manner such that the
appearance of the ESPN Marks does not conform to the requirements set forth
herein, and this misuse does not have a material adverse effect on ESPN Partner,
such misuse shall be excluded from the Excepted Misuses; and (x) if the Partner
misusing the Marks of the other Partner is using its best efforts to Cure the
misuse, the Cure period shall be extended for so long as such efforts are
exercised; and (y) if a willful misuse is Cured within forty eight (48) hours of
an officer of the breaching Partner being notified in writing of such misuse by
the nonbreaching Partner, such willful misuse shall not count toward the three
(3) Excepted Misuses set forth above; and (z) if a Partner has not willfully
misused the other Partner's Marks within any six (6) month period during the
term hereof, all misuses occurring prior to the commencement of such six (6)
month period shall not count toward the three (3) Excepted Misuses set forth
above. In the event that a Partner misuses the other Partner's Marks (whether
willfully or otherwise), the Partner that misused the Marks shall implement
commercially reasonable policies to address the prevention of the occurrence of
such misuse in the future.
For purposes of this Section 11.3(b), the following terms shall have the
following meanings:
(i) "Marks" shall mean ESPN Marks with respect to ESPN Partner or
Starwave Marks with respect to Starwave; and
(ii) "misuse" by Starwave of an ESPN Trademark shall mean a use of
the ESPN Marks in a manner which materially breaches the provisions set forth in
Section 6.1 or 6.2 of the Management and Services Agreement attached hereto as
Exhibit A, either directly by Starwave or by a third party licensed by Starwave
to use the Marks; and
(iii) "Cure" shall mean if the misuse is performed directly by a
Partner, correcting the display or misapplication of the other Partner's Marks,
or if the misuse is performed by a third party under license by a Partner,
terminating the license or purported rights granted by Partner to use such Marks
and using reasonable efforts to cause the third party to cease its misuse of the
other Partner's Marks.
-24-
<PAGE>
The Partners acknowledge and agree that the nature of Remote Access Products and
the Narrowband medium in general may result in a misuse of a Partner's Marks
being displayed in multiple locations and across multiple networks. For the
avoidance of doubt, if the same application of a Mark is displayed multiple
times or in multiple places as a direct or indirect result of the Narrowband
medium or the manner in which Remote Access Products are operated, transmitted
or otherwise made available electronically, such repeated displays shall
constitute no more than one misuse for purposes of counting Excepted Misuses
hereunder.
(c) If the other Partner's Profit Participation is equal to or less
than 25% of the total Profit Participation and the Partnership sustains either
eight consecutive Net Loss fiscal quarters or ten total Net Loss fiscal
quarters; provided, that if the other Partner is Starwave Partner, ESPN Partner
shall not be able to terminate unless either Starwave Partner has not qualified
pursuant to Section 6.2(e) for a loan from ESPN Partner or such loan has been
treated as a Partnership capital contribution in accordance with its terms after
the expiration of the twelve (12) month period set forth in Section 6.2(e).
11.4 ADDITIONAL TERMINATION RIGHTS. [INTENTIONALLY OMITTED]
11.5 EFFECT OF TERMINATION. In the event of the expiration or termination
of this Agreement for any reason (including a material breach hereof), the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets (subject to Section 11.6) and
satisfying the claims of its creditors and Partners. No Partner shall take any
action that is inconsistent with, or not necessary to or appropriate for,
winding up the Partnership's business and affairs. The Partners shall be
responsible for overseeing the winding up and liquidation of the Partnership and
shall take full account of the Partnership's liabilities and property, and the
property of the Partnership shall be liquidated, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed to the payment
and discharge of all of the Partnership's debts and liabilities to creditors of
the Partnership prior to distributions to the Partners pursuant to Section 11.6.
11.6 LIQUIDATING DISTRIBUTIONS. Upon the expiration or termination of this
Agreement, and after the payment and discharge of all of the Partnership's debts
and liabilities to third-party creditors, the Partnership shall liquidate and
distribute its assets in accordance with Capital Accounts; provided, that, the
Partners may elect to receive a distribution of the following assets (at their
respective Asset Values, without taking into consideration the values of the
associated ESPN Trademarks nor the values of any Technology, or other
development tools, software, hardware, middleware, or technical know-how
licensed to the Partnership by Starwave or its Affiliates) in lieu of a portion
of a cash distribution (except with respect to clauses (a) and (b) below, which
shall be distributed without giving effect to a reduction of any cash
distribution) and shall contribute cash to the Partnership as necessary to
provide that the assets of the Partnership are distributed in accordance with
Capital Accounts:
(a) ESPN Partner shall own the brand and name of the Sports Products
and all other descriptive names developed or used during the Term that contain
an ESPN
-25-
<PAGE>
Trademark and the Partnership and Starwave Partner shall assign to ESPN Partner
all of its right, title and interest in any registration or other indicator of
ownership and ESPN Partner shall own all URLs containing "ESPN" and any variant
thereof and the Partnership and Starwave Partner shall assign to ESPN Partner
all of its right, title and interest in any registration or other indicator of
ownership;
(b) As among Starwave Partner, DEI, and ESPN Partner and each of
their respective Affiliates, Starwave Partner shall own all Technology licensed
by Starwave Partner and its Affiliates to the Partnership in connection with the
operation of the Sports Products;
(c) With respect to in-kind distributions of assets of the
Partnership:
(i) ESPN Partner shall be entitled to receive as an in-kind
distribution, the assets (including personnel) of the affiliate relations group
(referenced in Section 3.4(b)) and all other editorial-related Content assets,
including personnel and content licenses;
(ii) Starwave Partner shall be entitled to receive as an in-
kind distribution, all remaining assets (other than customer lists) and
personnel of the Partnership including without limitation all Technology Assets
together with all technology licenses between Starwave or third parties and the
Partnership. For purposes of this Agreement, "Technology Assets" means all
technology-related assets of the Partnership or jointly owned by the Partnership
including without limitation all Programming, Technology, and other development
tools, software, hardware, middleware and technical know-how;
(iii) With respect to all such in-kind distributions, all assets
distributed shall be valued at their respective Asset Values (subject to the
parenthetical within the first sentence of Section 11.6 above) and the
Partnership and the assigning Partner shall assign to the other Partner all of
its respective right, title and interest in such assets, including employment
agreements;
(iv) The assigning Partner agrees to not solicit for hire or
hire any employee in any of the groups or performing functions associated with
the assets being distributed pursuant to this Section for a period of fifteen
(15) months starting from the date of the related in-kind distribution.
Upon the liquidation of the Partnership, if any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all fiscal periods, including the fiscal
period during which such liquidation occurs), such Partner shall be obligated to
contribute to the capital of the Partnership the amount necessary to restore the
Capital Account balance to zero as provided in Regulation 1.704-
1(b)(2)(ii)(b)(3).
11.7 PARTNERSHIP PROPERTY. Upon liquidation and after giving effect to
Section 11.6, the Partnership shall contribute all customer lists owned by the
Partnership to a California trust, with a mutually agreed trustee and both
Partners as equal beneficiaries. Such trust shall have a
-26-
<PAGE>
perpetual life (subject to termination for material breach or bankruptcy of a
Partner) and shall provide that each Partner shall have a perpetual royalty free
license to all customer lists owned by the Partnership (and transferred to the
trust). Neither Partner may provide the customer lists to third parties unless
mutually agreed. Notwithstanding the foregoing, the perpetual grant hereunder
shall be modified, if necessary, with respect to certain assets if such
perpetual grant would materially diminish the value of such assets as a matter
of law.
11.8 SURVIVAL. Unless otherwise specified, all obligations that accrue
prior to any expiration or termination of this Agreement shall survive such
expiration or termination. In addition, and without limiting the generality of
the preceding sentence, Sections 8, 9, 10, 11, 12, 13.1, 13.2, 13.4, 13.6, 13.7,
13.10, 13.11, 13.12, 13.13, 13.14 and 14 shall survive the expiration or
termination of this Agreement for any reason.
11.9 INJUNCTIVE RELIEF. Each Partner acknowledges and agrees that the
other Partner may be irreparably harmed by any material breach of this Agreement
by it. Therefore, each Partner agrees that in the event that it breaches any of
its obligations hereunder, the other Partner in addition to all other remedies
available to it under this Agreement, or at law or in equity, shall be entitled
to seek all forms of injunctive relief including decrees of specific
performance, without showing or proving that it sustained any actual damages and
without posting bond.
12. OTHER RIGHTS OF DUTIES AND RESTRICTIONS ON THE PARTNERS
12.1 INDEMNIFICATION. All costs, expenses, liabilities, obligations,
losses, damages, penalties, proceedings, actions, suits or claims of whatever
kind or nature which may be imposed on, incurred by, suffered by, or asserted
against the Partnership, any Partner or any Partner's respective Affiliates,
directors, officers and employees, in connection with the ownership or
management or operation of the business and affairs of the Partnership shall be
referred to as "Claims." The Partnership shall indemnify and hold harmless each
Partner and their respective Affiliates, directors, officers and employees
("Related Persons") for all Claims other than those caused by such Partner's or
such other Related Person's negligence, willful misconduct or breach of this
Agreement. Each Partner shall indemnify and hold harmless the Partnership and
each other Partner for all Claims sustained by any of them resulting from such
Partner's negligence, willful misconduct or breach of this Agreement.
12.2 CONTRIBUTION. In the event that any Partner shall pay in good faith
or become obligated to pay any proper obligation of the Partnership, such
Partner shall be entitled to contributions from the other Partners to the extent
necessary so that, after giving effect to such contributions, each Partner shall
bear no more than that part of such obligation which corresponds to its
respective Capital Contribution obligations at the time of the occurrence,
circumstances, events or conditions giving rise to the obligation.
13. GENERAL PROVISIONS
-27-
<PAGE>
13.1 NOTICES. All notices which either Partner or the Partnership is
required or may desire to serve upon the other Partner, DEI or the Partnership
shall be in writing and addressed as follows:
(a) if to ESPN Partner:
ESPN Online Investments, Inc.
605 Third Avenue
New York, NY 10158-0180
Attention: Richard Glover
Telephone: (212) 916-9247
Facsimile: (212) 916-9299
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
(b) if to DEI:
Disney Online
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
-28-
<PAGE>
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
(c) if to Starwave Partner:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
(d) if to the Partnership, c/o:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
ESPN Online Investments, Inc.
605 Third Avenue
New York, NY 10158-0180
Attention: Richard Glover
Telephone: (212) 916-9247
Facsimile: (212) 916-9299
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately obtained and a
hard copy is concurrently
-29-
<PAGE>
sent by internationally commercially recognized overnight delivery service),
internationally commercially recognized overnight delivery service (such as
Federal Express or D.H.L.) or courier. Notice shall be deemed served upon
personal delivery or upon actual receipt. Either Partner or the Partnership may
change the address to which notices are to be delivered by written notice to the
other Partner and the Partnership served as provided in this Section 13.1.
13.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits attached
hereto and hereby incorporated herein by reference, constitutes the complete,
final and exclusive understanding and agreement between the Partners with
respect to the transactions contemplated, and supersedes any and all prior or
contemporaneous oral or written representation, understanding, agreement or
communication between the Partners concerning the subject matter hereof.
13.3 AMENDMENTS. All amendments or modifications of this Agreement shall
be binding upon the Partners so long as the same shall be in writing and
executed by each of the Partners hereto.
13.4 WAIVER. No waiver of any provision of this Agreement or any rights or
obligations of either Partner hereunder shall be effective, except pursuant to a
written instrument signed by the Partner waiving compliance, and any such waiver
shall be effective only in the specific instance and for the specific purpose
stated in such writing.
13.5 FORCE MAJEURE. Neither Partner nor the Partnership shall be deemed in
default hereunder, nor shall it hold the other Partner or the Partnership
responsible for, any cessation, interruption or delay in the performance of its
obligations hereunder due to causes beyond its reasonable control including, but
not limited to: earthquake, flood, fire, storm or other natural disaster, act of
God, labor controversy or threat thereof, civil disturbance or commotion,
disruption of the public markets, war or armed conflict (whether or not
officially declared) or the inability to obtain sufficient material, supplies,
labor, transportation, telecommunications, power or other essential commodity or
service required in the conduct of its business, any change in or the adoption
of any law, ordinance, rule, regulation, order, judgment or decree (each a
"Force Majeure Event") provided that the Partner relying upon this Section 13.5:
(a) shall have given the other Partner and the Partnership written notice
thereof promptly and, in any event, within five (5) days of discovery thereof
and (b) shall take all steps reasonably necessary under the circumstances to
mitigate the effects of the force majeure upon which such notice is based.
13.6 NO THIRD PARTNER BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the Partners hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
13.7 RESTRICTION ON TRANSFER.
(a) Neither Partner shall, directly or indirectly, Transfer all or any
portion of its Partnership Interest or any rights therein (whether voluntarily
or by operation of law) without
-30-
<PAGE>
the consent of the other Partner, which consent may be withheld by such Partner
in its sole and absolute discretion; provided, that ESPN Partner shall be
entitled to assign its Partnership Interest or any rights therein to any
Affiliate, provided that such Affiliate satisfies the conditions of paragraph
(b) below and shall remain an Affiliate of the Partner, unless it obtains the
prior written consent of the other Partner, which consent may be withheld in the
other Partner's sole discretion. Any Transfer or attempted transfer by any
Partner in violation of the preceding sentence shall be null and void and of no
force or effect whatsoever. No transferee of a Partner's Interest shall be
admitted as a substitute Partner without (i) the prior unanimous written consent
of the other Partners, which may be withheld by any such Partner in its sole and
absolute discretion and (ii) the receipt of any applicable regulatory consents
or approvals.
(b) A Transfer to an Affiliate shall be conditioned upon the
following:
(i) The transferor and transferee shall execute and deliver to
the Partnership such documents and instruments of conveyance as may be necessary
to effect such Transfer including, without limitation, the execution by the
transferee of a counterpart to this Agreement by which the transferee agrees to
all of the terms, obligations and provisions of this Agreement.
(ii) The Transfer shall not cause the Partnership to terminate
for federal income tax purposes and shall not have a material adverse income tax
consequence to the Partnership or the other Partner.
(c) Upon a merger, consolidation, reorganization, liquidation or
similar event affecting a Partner, its successor-in-interest will assure all
obligations of such Partner hereunder.
13.8 INSURANCE. The Partnership will purchase and maintain sufficient
product liability insurance to protect the Partners and the Partnership against
liability as a result of product liability claims made in connection with the
Sports Products.
13.9 PARTNERSHIP BANK ACCOUNTS AND FUNDS. The Partnership shall establish
bank accounts at such banks as may from time to time be designated by the
Partners. The Partnership's funds shall be invested in such manner as the
Partners deem appropriate with interest accruing to the Partnership. All bank
and other accounts shall be maintained in the Partnership's name. None of the
Partnership's funds shall be commingled with the funds of any Partner unless
previously approved in writing by the Partners. The Partners shall designate
the General Manager, as a signatory on the bank accounts of the Partnership to
accomplish more effectively the purposes of this Section 13.9.
13.10 CONSTRUCTION. This Agreement shall be fairly interpreted and
construed in accordance with its terms and without strict interpretation or
construction in favor of or against either Partner. Each Partner has had the
opportunity to consult with counsel in the negotiation of this Agreement.
-31-
<PAGE>
13.11 CAPTIONS AND HEADINGS. The section and subsection headings and
captions appearing in this Agreement are inserted only as a matter of
convenience and shall not be given any legal effect.
13.12 SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be void as
going beyond what is reasonable in all the circumstances for the protection of
the interests of the Partner seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the event
that any provision of this Agreement should be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
13.13 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York. Any action arising out of or relating to this Agreement
shall be filed only in the courts of the State of California for the County of
Los Angeles, or the United States District Court for the Central District of
California. The parties hereby consent and submit to the personal jurisdiction
of such courts for the purposes of litigating any such action.
13.14 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
14. TAX MATTERS
14.1 PARTNERSHIP FOR TAX PURPOSES. The Partners intend to treat the
arrangement contemplated herein as a general partnership for tax purposes.
Accordingly, all transactions contemplated by this Agreement shall be
implemented in a manner that is consistent with such treatment.
14.2 PARTNERSHIP TAX YEAR. To the extent permitted by applicable tax law,
the Partnership's year end shall be September 30 for income tax purposes.
14.3 TAX MATTERS PARTNER. The Partners designate ESPN Partner as the tax
matters partner, pursuant to Section 6231 of the Code. To the extent permitted
by applicable tax law, actions taken by ESPN Partner in its capacity as the tax
matters partner shall require the prior joint approval of the Partners.
14.4 OVERSIGHT OF TAX MATTERS. The General Manager shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
losses, deductions, credits and other items necessary for federal, state and
local income tax purposes, shall provide copies of draft tax returns to each
Partner at least thirty days prior to filing the returns and shall use
reasonable good-faith efforts to furnish to the Partners within sixty days after
the close of each year of the Partnership the tax information reasonably
required for federal, state, and local income tax reporting purposes. The
General Manager shall use good-faith efforts to supply
-32-
<PAGE>
each Partner with the information necessary to determine estimated tax payments
or any other information related to taxes reasonably requested by each Partner.
The classification, realization and recognition of income, gains, losses,
deductions, credits and other items shall be on the accrual method of accounting
for federal income tax purposes.
14.5 PARTNER SECTION 482 ADJUSTMENT. If the Internal Revenue Service
reallocates an item of income, deduction, or loss to a Partner or an Affiliate
pursuant to Section 482 of the Code or any similar rule or principle of law (a
"Partner Section 482 Allocation"), and the Partnership has a corresponding
correlative item of deduction, loss or income (as determined under Section
1.482-1(g) of the Regulations (the "Partnership Correlative Item"), such
Partnership Correlative Item shall be specially allocated to and reflected in
the Capital Account of the Partner that received (or whose Affiliate received)
such Partner Section 482 Allocation, and a corresponding contribution or
distribution shall likewise be deemed to have been made by or to such Partner.
-33-
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of each Partner
have executed this Agreement as of the day and year first written above.
ESPN ONLINE INVESTMENTS, INC. STARWAVE VENTURES
By: /s/ Laurence J. Shapiro By: /s/ Laurence J. Shapiro
------------------------- -------------------------
Name: Laurence J. Shapiro Name: Laurence J. Shapiro
Title: Vice President Title: Vice President
The undersigned parent corporations of the Partners agree to cause their
respective subsidiaries that are Partners (or other Affiliates, as necessary) to
fully perform their obligations hereunder. In addition, Disney Enterprises,
Inc. agrees to cause its Affiliates to provide to the Partnership all news-
related Content that is 100% owned by Disney Enterprises, Inc. and its
Affiliates, whether or not owned by ESPN, that may be necessary or useful in the
development and operation of the Sports Products and such Content shall be
deemed ESPN Content for purposes of this Agreement and the Services Agreement..
DISNEY ENTERPRISES, INC. INFOSEEK CORPORATION
By: /s/ Kevin A. Mayer By: /s/ Harry M. Motro
------------------------- ------------------------
Name: Kevin A. Mayer Name: Harry M. Motro
Title: Sr. Vice President Title: President and CEO
-34-
<PAGE>
EXHIBIT 99.4
AMENDED AND RESTATED
ESPN/STARWAVE
MANAGEMENT AND SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AND SERVICES AGREEMENT including the
Exhibits attached hereto (this "AGREEMENT") is entered into as of June 18, 1998
by and between ESPN Enterprises, Inc., a Delaware corporation ("ESPN"), STARWAVE
CORPORATION, a Washington corporation ("STARWAVE") and ESPN/STARWAVE PARTNERS, a
New York General Partnership (THE "PARTNERSHIP"); provided that, this Agreement
shall only become effective upon the Effective Time, as defined in and pursuant
to that certain Agreement and Plan of Reorganization, of even date herewith, by
and among Infoseek, Infoseek Corporation, a Delaware corporation, Starwave
Corporation, a Washington corporation, and Disney Enterprises, Inc., a Delaware
corporation ("DEI") and shall cease and be of no further force and effect in the
event that the Effective Time does not occur; and provided further that, each of
the parties hereto agrees not to terminate, amend or otherwise alter this
Agreement, or waive any of its rights hereunder, at any time prior to
immediately following the Effective Time. This Agreement amends and restates in
its entirety the Management and Services Agreement by and between the parties
hereof entered into as of March 28, 1997 (the "Original Services Agreement").
DEI is a party to this Agreement solely with respect to the provisions of
Sections 3.3, 3.6, 5.2, 6.1, 6.2 and 10.7.
RECITALS
1. ESPN and Starwave entered into a Production Agreement, dated February 18,
1995 (the "Production Agreement") for the development and production of
certain interactive media products.
2. In connection with an investment in Starwave by DEI, ESPN and Starwave
desire to terminate the Production Agreement and to cause Affiliates of
each to form a partnership to develop, produce and exploit certain
interactive media products.
3. The Partnership desires to obtain from each of ESPN and Starwave and each
of ESPN and Starwave have agreed, subject to certain conditions, to license
or otherwise provide certain assets and certain services to the
Partnership.
4. Pursuant to an agreement and plan of reorganization and a stock and warrant
purchase agreement (collectively, the "Acquisition Agreements"), DEI has
agreed to acquire approximately a 43% interest in the voting equity of
Infoseek Corporation, a California corporation ("Infoseek"), subject to the
terms and conditions set forth in the Acquisition Agreements.
-1-
<PAGE>
5. In connection with the transaction contemplated under the Acquisition
Agreements, the Partners desire to amend and restate the Original Agreement
by entering into this Agreement.
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, ESPN, Starwave and the Partnership hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
1.1 "ADVISORY COMMITTEE" has the meaning specified in the Partnership
Agreement.
1.2 "AFFILIATE" means, with respect to any person, any person directly or
indirectly through one or more intermediaries controlling, controlled by or
under common control with such person. Notwithstanding the foregoing, for
purposes of this Agreement, Starwave shall not be considered as an Affiliate of
ESPN or DEI.
1.3 "ANNUAL BUSINESS PLAN" has the meaning specified in the Partnership
Agreement.
1.4 "BROADBAND" means programming that requires transmission at data rates
which would enable real time, full screen, full motion video at equal to or
better than NTSC broadcast resolution.
1.5 "CONTENT" means audio and audio visual material, photographs, art
work, videos, graphics, text, and sound recordings.
1.6 "COSTS" means all direct costs and allocated costs, whether incurred
by ESPN or DEI (including, without limitation, costs associated with Section 3)
or Starwave (including, without limitation, costs associated with Section 4) or
by the Partnership (as referenced in the Partnership Agreement), that are
associated with the development, production and exploitation of the Sports
Products.
1.7 "ESPN CONTENT" means all Content that is 100% owned or controlled by
ESPN or its successors or assigns. For purposes of this Section 1.1, "control"
means the ability to grant the licenses set forth herein; provided however that
if such Content is subject to the payment of royalties or other consideration to
third parties, ESPN will notify Starwave in writing in advance and the
Partnership shall have the right, at its option, to include such Content in the
definition of ESPN Content.
1.8 "ESPN TRADEMARKS" means "ESPN", ESPNET", ESPN logo and the other
marks, trade names, trademarks, brands, names, personalities, logos and
representations thereof that are properties of ESPN or its Affiliates that
appear within the ESPN Content, Programming,
-2-
<PAGE>
Sports Products or any other materials created in association with this
Agreement and that ESPN or any of its Affiliates owns or controls.
1.9 "FIXED MEDIA PRODUCTS" means multimedia content products developed for
distribution to end users on any platform (including, without limitation, MS-
DOS, Windows, Macintosh, Sega, Nintendo, CD-ROM, Sony Playstation and 3DO
systems) designed to be read on an electronic device but excluding such products
if they include a Narrowband-delivered component and such products would not be
commercially competitive (as reasonably determined in good faith by the
Partners) without the inclusion of a Narrow-band delivered component.
1.10 "FORCE MAJEURE EVENT" has the meaning specified in Section 10.5.
1.11 "INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or
term known or designated) tangible and intangible and now known or hereafter
existing (a) rights associated with works of authorship throughout the universe,
including but not limited to copyrights, moral rights, and mask-works, (b)
trademark, service mark and trade name rights and similar rights, (c) trade
secret rights, (d) patents, designs, algorithms and other industrial property
rights, (e) all other intellectual and industrial property and proprietary
rights (of every kind and nature throughout the universe and however designated)
(including without limitation logos, character rights, "rental" rights and
rights to remuneration), whether arising by operation of law, contract, license
or otherwise, and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe (including without limitation rights in any of the
foregoing).
1.12 "NARROWBAND" means Programming that does not require transmission at
data rates which would enable real time, full screen, full motion video at equal
to or better than NTSC broadcast resolution.
1.13 "PARTNERSHIP" means the general partnership formed by Affiliates of
Starwave and ESPN and "PARTNERSHIP AGREEMENT" means the amended and restated
partnership agreement between such Affiliates, dated as of the date hereof.
1.14 "PERSON" means any individual, partnership, corporation, trust or
other entity.
1.15 "PRODUCTION AGREEMENT" has the meaning specified in the Recitals.
1.16 "PROGRAMMING" means the programming included in the Sports Products
including, without limitation, all HTML, Java, and/or other formatted text
files, all related graphics files, animation files, data files, multimedia
files, modules, routines and objects, and the computer software and all of the
script or program files required to exploit such materials and that collectively
control the display of and end user interaction with the programming.
1.17 "REMOTE ACCESS PRODUCTS" means Programming intended for distribution
by any Narrowband interactive transmission method. This definition excludes any
and all Programming
-3-
<PAGE>
that requires Broadband transmission and also excludes (a) products developed
for PDAs, pagers, screen phones and other future handheld devices and (b) Fixed
Media Products.
1.18 "RESTATED INITIAL BUSINESS PLAN" has the meaning specified in the
Partnership Agreement.
1.19 "SPORTS PRODUCTS" means the Remote Access Products developed,
produced, marketed, distributed or otherwise exploited under the Partnership
Agreement containing professional or amateur sports Content, news or
information.
1.20 "STARWAVE TRADEMARKS" means "Starwave" and the other marks, trade
names, trademarks, brands, names, personalities, logos and representations
thereof that are properties of Starwave Partner or its Affiliates that appear
within the Sports Products or any other materials created in association with
this Agreement and that Starwave Partner owns or controls.
1.21 "TECHNOLOGY" means all software, hardware and middleware required or
appropriate to (i) transform the Content into the Programming, (ii) create,
modify or maintain the Programming, or (iii) deliver the Programming in an
online format.
1.22 "TERM" shall have the meaning set forth in Section 9.1.
1.23 "TERRITORY" means the United States and Canada.
2. STARWAVE OBLIGATIONS. During the Term, Starwave shall have the following
obligations to the Partnership:
2.1 HOSTING/NETWORK INFRASTRUCTURE. Starwave shall host all portions of
the Sports Products on Starwave servers, at the highest quality levels as
Starwave performs hosting services for any third party (i.e., having
substantially similar service requirements) and at a nominal mark-up to Costs on
a cost-effective basis and on most-favored-nations terms as those provided to
any similarly situated third party having substantially similar service
requirements. Starwave shall be solely responsible for all Starwave network
infrastructure (i.e., telecommunications and connections to the Internet) in
conformance with the level of service that Starwave provides to itself or its
most valued partners and customers.
2.2 BILLING, COLLECTION, CUSTOMER SERVICE FUNCTIONS. Starwave shall be
responsible for billing, collection, customer service and other "back office"
functions for the Partnership at a nominal mark-up to Costs and on most-favored-
nations terms as those provided to any third party (i.e., having substantially
similar service requirements). All such services shall be performed by Starwave
at the highest quality levels Starwave performs services for any third party
(i.e., having substantially similar service requirements) and at a nominal mark-
up to Costs on a cost-effective basis and on most-favored-nations terms as those
provided to any similarly situated third party (i.e., having substantially
similar service requirements).
-4-
<PAGE>
2.3 TECHNOLOGY DEVELOPMENT AND MAINTENANCE. Starwave shall be responsible
for the technology development and maintenance relating to the Sports Products,
at a nominal mark-up to actual costs and on most-favored-nations terms as those
provided to any third party (i.e., having substantially similar service
requirements), to the extent commercially reasonable. All such services shall
be performed by Starwave at the highest quality levels Starwave performs
services for any third party (i.e., having substantially similar service
requirements) and at a nominal mark-up to Costs on a cost-effective basis and on
most-favored nations terms as those provided to any similarly situated third
party (i.e., having substantially similar service requirements). It is the
intention of the parties that the preponderance of the technology development
and maintenance relating to the Sports Products shall be performed by Starwave.
The General Manager (as defined in the Partnership Agreement), in accordance
with the Restated Initial Business Plan or Annual Business Plans, may acquire or
license additional or substitute Technology (i) on an incidental and nonmaterial
basis, (ii) if the Costs of acquiring or licensing Technology from a third party
are significantly less than the Costs to the Partnership of acquiring or
licensing such or similar Technology from Starwave and such third party
Technology from Starwave is fully scaleable and compatible with other Technology
used for the Sports Product and otherwise appropriate for its intended uses,
(iii) or if otherwise agreed and otherwise appropriate for use in the Sports
Products. In addition, the General Manager, in accordance with the Restated
Initial Business Plan or Annual Business Plans may acquire or license additional
or substitute Technology if, in the General Manager's reasonable opinion, the
inability to so acquire or license such Technology would have a material impact
on the overall quality and competitive position of the Sports Products. In such
event, Starwave shall have a three (3) day period to meet with the General
Manager to attempt to resolve the issues. If the issues have not been resolved
in the three (3) day period, the General Manager shall be entitled to present
the issues to the Partners for resolution based upon the mutual agreement of the
Partners. During the Term, such technology development and maintenance (or a
portion thereof) may become a responsibility of the Partnership or the Partners
collectively, upon the mutual agreement of the parties.
2.4 USAGE TRACKING.
(a) Starwave will track traffic in the Sports Products and shall
provide ongoing access to reports on such traffic to ESPN.
(b) Starwave shall from time to time promptly deliver to ESPN upon
ESPN's request, the names, addresses and other identifying information of users
of the Sports Products who complete merchandise, advertising, promotional or
subscription transactions over the Sports Products.
(c) The parties shall have the right to use all data provided by
Starwave under subsections (a) or (b) above in any manner, subject to a mutually
agreed privacy policy and credit policy. All such data shall be owned by the
Partnership. Each party agrees that during the term it shall not provide such
data to any third party, except as may be mutually agreed.
(d) Starwave acknowledges and agrees that the Sports Products may
contain registration forms and/or questionnaires for users to complete in
connection with contests,
-5-
<PAGE>
promotions or other features of the Sports Products. Starwave acknowledges and
agrees that such information shall be solely owned by the Partnership and may be
used for either party's and its respective Affiliates' business purposes, but
may not be provided to any third party (except advertisers), except as may be
mutually agreed.
2.5 EXISTING TECHNOLOGY. Starwave shall provide, on a royalty free basis,
Technology existing as of the date of this Agreement, including, without
limitation, interactive software development tools, middleware and engines owned
or licensed by Starwave or its Affiliates (provided that Starwave has the right,
with no additional monies owed, to license any such technology to ESPN, subject
to Section 5.1) for use in the development and delivery of the Sports Products.
Such Technology shall be licensed by Starwave, on a royalty free.
2.6 OTHER TECHNOLOGY. Starwave shall provide such additional technology
owned or licensed by Starwave or its Affiliates (provided that Starwave has the
right, with no additional monies owed, to license any such technology to ESPN,
subject to Section 5.1) that may be useful or necessary in the development of
the Sports Products, under an agreement to be negotiated in good faith between
the parties within sixty (60) days of the date hereof. If an agreement is not
timely entered into, such Technology shall be provided by Starwave at fair
market rates.
2.7 INFRASTRUCTURE. Starwave shall provide appropriate staffing, support
and infrastructure to fulfill its obligations under this Agreement, including,
without limitation, sufficient dedicated personnel to meet its obligations set
forth under Sections 2.1, 2.2., 2.3 and 2.4, in accordance with the Restated
Initial Business Plan and any Annual Business Plan.
2.8 OTHER NAMES. Starwave shall assign to the Partnership all of its
right, title and interest to any descriptive names and URLs containing the word
"zone" when intended for use or associated with a sport or sports (e.g.,
GolfZone).
3. ESPN AND DEI OBLIGATIONS. During the Term, ESPN and DEI shall have
the following obligations to the Partnership.
3.1 CONTENT. Pursuant to Section 6.1, ESPN shall provide the Partnership
with a royalty-free license to all ESPN Content or Content of its successors-in-
interest which is appropriate for use in the Sports Products, including without
limitation both television and radio programming. For the avoidance of doubt,
Content provided shall include without limitation scores, headlines, regular
programs (e.g., Sports Center), special programs (e.g., NFL draft), columnists
(e.g., Peter Gammons), subject to cancellation of current programming and the
inclusion of all owned or controlled programming as set forth in Section 1.7.
3.2 CONTENT DEVELOPMENT/TRANSFORMATION/INTEGRATION. At Costs set forth in
the Restated Initial Business Plan or applicable Annual Business Plan, ESPN
shall be responsible for the development of ESPN Content for the Sports Products
and for the transformation of ESPN Content into Programming and integration of
the Programming into the Sports Products. The senior employee in such group
shall report on a day-to-day basis to the General Manager, with
-6-
<PAGE>
direct reporting as well to an ESPN designated executive for oversight of
editorial and creative aspects of the ESPN Content.
3.3 ON-AIR MARKETING/PROMOTION. At no charge, ESPN shall provide
reasonable marketing and promotion for the Sports Products on its television and
radio networks, in amounts, formats and frequencies determined by ESPN, in its
sole discretion, provided, that ESPN agrees to provide such marketing and
promotion in a manner consistent with current levels of marketing and promotion.
3.4 INFRASTRUCTURE. ESPN shall provide appropriate staffing, support and
infrastructure to fulfill its obligations under this Agreement.
3.5 ON-AIR TALENT. Subject to Section 3.7(a) and (c), and at no charge
(except for out-of-pocket costs), ESPN shall provide appropriate access (in its
sole discretion) to on-air talent for use in connection with the Sports
Products.
3.6 GROUP ADVERTISING SALES. At Costs set forth in the Restated Initial
Business Plan or applicable Annual Business Plan, DEI shall provide, with
ongoing participation by the Partnership, group advertising sales services
(i.e., combining advertising sales services for the Sports Products of the
Partnership with additional Sports Products that may be developed by the
Partnership or the parties, individually or in other arrangements such as
ABCNews.com and Disney Online).
3.7 ESPN'S CONTROL.
(a) EDITORIAL AND CREATIVE. ESPN shall exercise sole and final
control over all editorial and creative aspects of the Sports Products and all
portions thereof.
(b) MARKETING AND PROMOTIONS. ESPN shall exercise sole and final
control over all uses or references to any ESPN Trademark contained in marketing
and promotions associated with the Sports Products. Any use of an ESPN
Trademark by the Partnership or Starwave shall require the prior approval of
ESPN, which may be withheld at ESPN's sole discretion. ESPN shall use its
reasonable efforts to promptly respond to requests from the Partnership for use
of the ESPN Trademarks. ESPN shall cooperate in good faith with the Partnership
to agree on a templated use of ESPN Trademarks from time to time to avoid
recurrent approvals.
4. MERCHANDISING
DEI agrees to provide (or cause its Affiliates to provide) e-commerce
services to the Partnership, including, without limitation, store design,
transaction processing, web hosting, inventory management, fulfillment and
customer service. In exchange for such services, the Partnership shall pay DEI
its costs in providing such services, plus a to-be-agreed markup on
-7-
<PAGE>
such costs or a to-be-agreed upon revenue share. In addition, the Partnership
shall have joint ownership of all customer information for use for its business
purposes
5. EXCLUSIVITY
5.1 STARWAVE EXCLUSIVITY. During the Term and on a worldwide basis and
except for activities associated with the development and expansion of the
sports Component of the Portal Products and further excluding the Sports
Products within the Partnership, Starwave and its Affiliates shall not develop,
distribute, produce, exploit or provide services of any nature or provide a
license or permit a third party to utilize any of their respective Intellectual
Property Rights with respect to any Remote Access Products containing
professional or amateur sports news or information.
5.2 DEI EXCLUSIVITY. During the Term and on a worldwide basis, DEI and
its Affiliates shall not develop, distribute, produce, exploit or provide
services of any nature or provide a license or permit a third party to utilize
any of their respective Intellectual Property Rights with respect to any Remote
Access Products containing professional or amateur sports news or information.
5.3 ADDITIONAL REMOTE ACCESS PRODUCTS. If ESPN determines, in its sole
discretion, to develop Remote Access Products that are targeted for users on an
international or foreign (country or regional) basis, the Partnership shall
participate in such development on similar terms to those reflected in the
Partnership Agreement (while taking into consideration additional terms and
potential partners that may be applicable in any particular potential
transaction).
5.4 NO OTHER RESTRICTIONS. Except as expressly set forth in this Section
5, neither ESPN and its Affiliates, on the one hand, nor Starwave and its
Affiliates, on the other hand, shall be subject to any restrictions on the
licensing, use, distribution or other exploitation of their respective
properties (including all Intellectual Property Rights therein), that either of
their respective Affiliates own, control, have a license to, or in which they
have any other form of right, title or interest.
5.5 BROADBAND APPLICATIONS. For clarification purposes, ESPN and its
Affiliates, on the one hand, and Starwave and its Affiliates, on the other hand,
in their respective sole discretion, may develop, produce, exploit or provide
services of any nature with respect to programming designed specifically for
Broadband delivery (i.e., content that requires Broadband transmission to
satisfactorily deliver services to consumers). ESPN agrees to investigate
(without any obligation) cooperation with Starwave in the development of
products designed for Broadband delivery.
6. PROPRIETARY RIGHTS
6.1 GRANT OF RIGHTS. Subject to the Partnership's and Starwave's
compliance with the terms and conditions set forth herein, including without
limitation ESPN's rights set forth in Section 3.7, ESPN hereby grants the
Partnership (by Partnership or by a third party on behalf of
-8-
<PAGE>
Partnership) the following limited, royalty-free, non-exclusive (except as
exclusive with respect to Narrowband services in accordance with the provisions
hereof), non-transferable licenses, without right of sublicense, during the Term
hereof:
(a) to use, reproduce, modify and adapt the ESPN Content to create the
Programming;
(b) to reproduce, transmit, distribute, display and perform the
Programming worldwide as part of the Sports Products; and
(c) to reproduce and display the ESPN Trademarks (including the
descriptive names for the Sports Products).
6.2 USE OF DISNEY NAME. Neither the Partnership nor Starwave shall have
the right to use the name, likeness or voice of Walt Disney, the word "Disney,"
any likeness of any DEI animated character or any other trademark, tradename or
logo of DEI for any manner whatsoever; provided, that the Partnership may use
such items solely as necessary for editorial purposes.
6.3 PROPRIETARY NOTICES. As a condition to the grant of rights hereunder,
any matter containing ESPN Content, including without limitation the Programming
shall bear properly located copyright and trademark notices as prescribed by law
in ESPN's name. The Partnership and Starwave will comply with such instructions
as to form, location and content of the notice as ESPN may give from time to
time. If by inadvertence a proper copyright notice in ESPN's or the ESPN
Affiliate's name, as applicable, is omitted from the Programming or any material
containing ESPN Content, the Partnership and Starwave agree at their respective
expense (to the extent the omission is caused by the Partnership or Starwave) to
use all reasonable efforts to prospectively correct any such omission. The
Partnership and Starwave agree to promptly respond to ESPN's request to make any
such corrections.
6.4 OWNERSHIP OF MATERIALS DEVELOPED BY EACH PARTY. Subject to ESPN's
ownership at all times of the ESPN Content, and to Sections 6.5 and 6.6, each
party shall own all right, title and interest in (a) any and all materials it
developed prior to or during the Term and all Intellectual Property Rights
therein and (b) any and all Technology, Content (other than ESPN Content, if
any) and Programming it developed and funded (i.e., without Partnership or joint
funding) during the Term and all Intellectual Property Rights thereto.
6.5 PARTNERSHIP OWNED MATERIALS. The Partnership shall jointly own all
the Technology, Content (other than ESPN Content, if any) and Programming
developed and funded by the Partnership during the Term for the Sports Products.
6.6 OWNERSHIP BY ESPN.
(a) The Partnership and Starwave acknowledge and agree that, as
between the Partnership and Starwave, on the one hand, and ESPN, on the other
hand, the ESPN Content, and all portions and derivative works thereof (other
than the Programming), whether created by
-9-
<PAGE>
the Partnership, Starwave or ESPN, shall be owned by ESPN and to the extent that
the Partnership or Starwave owns any right, title and interest in the ESPN
Content, each hereby assigns all such right, title, and interest therein to
ESPN, including without limitation all Intellectual Property Rights therein,
provided that Starwave shall retain all right, title and interest, including all
Intellectual Property Rights in, all development tools, software or other
technology developed and funded by Starwave and embodied in or used by Starwave
in connection with Starwave's development of the Programming. Subject only to
Section 5 and Starwave's ownership rights hereunder and under this Partnership
Agreement, ESPN may utilize, distribute and otherwise exploit in any manner the
ESPN Content and derivative works thereof (other than the Programming) now
existing or hereafter developed without any obligation to the Partnership or
Starwave; it being understood that no license under Starwave Intellectual
Property Rights shall be implied from the foregoing.
(b) ESPN shall own all URLs containing "ESPN", and any and all other
URLs with any variant of any ESPN Trademark, including, without limitation, any
URLs that also include any other name or description in addition to an ESPN
Trademark.
(c) ESPN shall own the descriptive names for the Sports Products
(i.e., ESPNET SportsZone, ESPNET Arena and additional or substitute descriptive
names) that contain the ESPN Trademark.
(d) Starwave Partner shall own all Technology used in connection with
the operation of the Sports Products that was owned by Starwave Partner prior to
the Effective Time.
(e) The Partnership has the sole right to license the descriptive
names for the Sports Products; provided that the Partnership shall be required
to provide such a license to ESPN or its Affiliates for their own business
purposes for a fair market value royalty to be paid to the Partnership (as
determined in good faith by the Partners). If such license is to a third party
(other than Infoseek or an Infoseek Affiliate (but excluding DEI and its
Affiliates) in connection with Portal Products (as defined in the Partnership
Agreement)), the terms shall include a fair market value royalty to be paid to
the Partnership (as determined in good faith by the Partners).
6.7 NO ADDITIONAL PARTICIPATION. Nothing in this Agreement conveys to the
Partnership or Starwave and, other than as specifically set forth hereunder, the
Partnership and Starwave shall not have or acquire, any right to participate in
any other promotions or activities relating to the ESPN Content or any other
ESPN activity or product, which rights are retained exclusively by ESPN.
6.8 LITIGATION. Should one party become aware of any infringing use of
its property (including Intellectual Property Rights), such party shall notify
the other party and the other party may, within its sole discretion, undertake
to prosecute necessary actions to prevent such use or distribution. In the
event that both parties are joined in any such litigation, the decisions of the
counsel of the party with the affected properties with reference to matters of
procedure, conduct of such litigation and/or the handling thereof, shall prevail
and the other party shall cooperate
-10-
<PAGE>
with and assist counsel. Any recovery shall be the sole property of the party
with the affected properties.
7. CONFIDENTIAL INFORMATION
The definition and use of each party's "Confidential Information" by the other
parties shall be governed by the terms of that certain Mutual Non-Disclosure
Agreement between the parties dated March 28, 1997
8. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
8.1 WARRANTIES OF STARWAVE. Starwave represents and warrants that (a) it
has the right, power and authority to enter into this Agreement and fully to
perform its obligations under this Agreement; (b) the making of this Agreement
by it does not violate any agreement existing between it and any other person or
entity; (c) Starwave complies, and at all times shall comply, with all
applicable laws, rules and regulations in effect at the time services are
performed pursuant to this Agreement pertaining to the subject matter hereof;
and (d) Starwave shall not exercise any of the rights granted to it under or
pursuant to this Agreement in a manner that shall violate any applicable law,
rule or regulation.
8.2 INDEMNIFICATION OBLIGATIONS OF STARWAVE. Starwave agrees to, and
shall, indemnify, defend and hold harmless ESPN and its Affiliates and their
respective directors, shareholders, officers, agents, employees, successors and
assigns from and against any and all claims, demands, suits, judgments, damages,
costs, losses, expenses (including reasonable attorneys' fees and expenses) and
other liabilities arising from actions brought by third parties, for (a) any
breach or alleged breach of any of the representations or warranties made by it
under this Agreement; (b) any unauthorized use by it or any of its
subcontractors of any ESPN Content or any portion of the Programming; (c) any
infringement of such third party's copyrights contained in the portions of the
Programming that are owned or controlled by Starwave or in all technology,
software, data, and content therein that are supplied by Starwave; provided that
ESPN shall promptly notify Starwave of any such claim and Starwave shall be
given sole control and bear full responsibility for the defense (including any
settlements) of any such claim; and ESPN shall provide Starwave with prompt
notice and full information and reasonable assistance at ESPN's expense with
respect to claims covered under this Section 8.2. Starwave shall keep ESPN
informed of, and consult with ESPN in connection with the progress of such
litigation or settlement; and Starwave shall not have any right, without ESPN's
written consent, to settle any such claim if such settlement arises from or is
part of any criminal action, suit or proceeding or contains a stipulation to or
admission or acknowledgment of, any liability or wrongdoing (whether in
contract, tort or otherwise) on the part of any ESPN Affiliate.
8.3 WARRANTIES OF ESPN. ESPN represents and warrants that (a) it has the
right, power and authority to enter into this Agreement, to grant the licenses
herein granted, and to fully perform its obligations under this Agreement; (b)
the making of this Agreement by it does not violate any agreement existing
between it and any other person or entity; (c) it has all necessary rights in
and to the Programming and any ESPN Content provided by ESPN hereunder for use
-11-
<PAGE>
within the scope of this Agreement; (d) it complies, and at all times shall
comply, with all applicable laws, rules and regulations in effect at the time
services are performed pursuant to this Agreement pertaining to the subject
matter hereof; and (e) ESPN shall not exercise any of the rights granted to it
under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
8.4 INDEMNIFICATION OBLIGATIONS OF ESPN. ESPN agrees to, and shall,
indemnify, defend and hold harmless Starwave and its Affiliates, and its
directors, shareholders, officers, agents, employees, successors and assigns
from and against any and all claims, demands, suits, judgments, damages, costs,
losses, expenses (including reasonable attorneys' fees and expenses) and other
liabilities arising from actions brought by third parties, in connection with or
related to, directly or indirectly, (a) its performance of the Agreement; (b)
any breach or alleged breach of the representations, warranties and agreements
made by it under this Agreement; (c) its activities hereunder, including without
limitation, any unauthorized use by it or any of its subcontractors of any ESPN
Content or any portion of the Programming; (d) any act or omission of it, its
directors, officers, agents, employees or subcontractors; or (e) any violation
or infringement by ESPN of any right of privacy or publicity or any other
Intellectual Property Right within the Territory or any libelous defamatory,
obscene or unlawful material contained in the ESPN Content within the Territory.
Starwave shall promptly notify ESPN of any such claim, and ESPN shall bear full
responsibility for the defense of such claim (including any settlements)
provided however, that (i) ESPN shall keep Starwave informed of and consult with
Starwave in connection with the progress of such litigation or settlement; and
(ii) ESPN shall not have any right, without Starwave's written consent, to
settle any such claim if such settlement arises from or is part of any criminal
action, suit or proceeding or contains a stipulation to or admission or
acknowledgment of, any liability or wrongdoing (whether in contract, tort or
otherwise) on the part of Starwave.
8.5 CHOICE OF COUNSEL AND PROTECTION OF RIGHTS. Each party shall have the
right, in its absolute discretion, to employ attorneys of its own choice and to
institute or defend any matter, claim, action or proceeding and to take any
other appropriate steps to protect its Intellectual Property Rights and all
rights and interest in and title to its web sites, technology, content and every
element thereof and, in that connection, to settle, compromise in good faith, or
in any other manner dispose of any matter, claim, action, or proceeding and to
satisfy any judgment that may be rendered, in any manner as such party in its
sole discretion may determine.
8.6 NO OTHER REPRESENTATIONS. Except for the representations and
warranties specifically set forth in this Agreement, each party makes no other
representations and warranties of any nature whatsoever to the other parties.
8.7 NO SPECIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 8.2 AND
8.4, NO PARTY SHALL UNDER ANY CIRCUMSTANCES, BE LIABLE TO ANOTHER PARTY FOR ANY
CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING
WITHOUT LIMITATION, LOST PROFITS, LOSS OF ANTICIPATED BUSINESS, LOSS OF DATA OR
BUSINESS
-12-
<PAGE>
LOSSES) EVEN IF SUCH DAMAGES ARE FORESEEABLE AND EVEN IF THE BREACHING PARTY HAS
BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
9. TERM AND TERMINATION
9.1 TERM. The term of this Agreement shall commence as of the Effective
Time and shall continue for the same time period that each of ESPN and Starwave
are partners in the Partnership (the "Term").
9.2 RENEWAL. Unless earlier terminated pursuant to Section 9.3, the
parties shall begin renewal negotiations in good faith beginning on the eight
(8) year anniversary of the date hereof. If the parties do not reach an
agreement to extend this Agreement on mutually acceptable terms within three
hundred sixty (360) days after negotiations begin, the exclusivity provisions
contained in Sections 5.1 and 5.2 shall be deemed modified, with no action
required of the parties, to permit either party to develop, distribute, produce,
exploit or provide services with respect to competitive Remote Access Products;
provided, that except for such modifications, this Agreement shall continue in
full force and effect until the expiration of the Term and, provided, further,
that neither party may engage in such activities with respect to Sports
Products then available to consumers in any manner or available prior to the
expiration of the Term. In the event the exclusivity provisions contained in
Sections 5.1 and 5.2 shall be deemed modified, and either Partner develops,
distributes, produces, exploits or provides services with respect to Remote
Access Products competitive with the Sports Products, such Partner's Remote
Access Products competitive with the Sports Products shall be provided with a
prominent position on the Sports Products, via an above-the-fold link on the
start page for the Sports Product, until the end of the Term.
9.3 TERMINATION. Without prejudice to any other rights or remedies
available to the parties, ESPN and Starwave (but not the Partnership) shall each
have the right, in its sole discretion, to terminate this Agreement upon written
notice to the other in the event of the occurrence of one or more of the
following:
(a) The termination of the Partnership Agreement in accordance with
its terms; or
(b) The other party makes any assignment for the benefit of creditors
or files a petition in bankruptcy (provided, that with respect to ESPN's ability
to terminate in the event that Starwave Partner or Infoseek files a petition in
bankruptcy, such petition shall have been approved by a decision of the majority
of Infoseek's Disinterested Directors (as defined in that certain Governance
Agreement by and between Infoseek and DEI) or is adjudged bankrupt or is placed
in the hands of a receiver; or
(c) With respect to Starwave's termination rights, ESPN willfully
misuses the Starwave Marks or with respect to ESPN termination rights, Starwave
willfully misuses the ESPN Marks, and (i) the willful misuse occurs repeatedly
and in each case in material breach of
-13-
<PAGE>
this Agreement, and (ii) the willful misuse occurs more than three (3) times in
any one year period ("Excepted Misuses"), and (iii) with respect to each such
willful misuse, the breaching party fails to Cure such misuse within sixty (60)
days after the nonbreaching party delivers written notice of the misuse to the
other party; provided however that (w) if the misuse consists of displaying the
ESPN Marks within the Sports Products in a manner such that the appearance of
the ESPN Marks does not conform to the requirements set forth herein, and this
misuse does not have a material adverse effect on ESPN, such misuse shall be
excluded from the Excepted Misuses; and (x) if the party misusing the Marks of
the other party is using its best efforts to Cure the misuse, the Cure period
shall be extended for so long as such efforts are exercised; and (y) if a
willful misuse is Cured within forty eight (48) hours of an officer of the
breaching party being notified in writing of such misuse by the nonbreaching
party, such willful misuse shall not count toward the three (3) Excepted Misuses
set forth above; and (z) if a party has not willfully misused the other party's
Marks within any six (6) month period during the term hereof, all misuses
occurring prior to the commencement of such six (6) month period shall not count
toward the three (3) Excepted Misuses set forth above. In the event that a party
misuses the party's Marks, (whether willfully or otherwise), the party that
misused the Marks shall implement commercially reasonable policies to address
the prevention of the occurrence of such misuse in the future.
For purposes of this Section 9.3(c), the following terms shall have the
following meanings:
(i) "Marks" shall mean ESPN Marks with respect to ESPN or Starwave
Marks with respect to Starwave; and
(ii) "misuse" by Starwave of an ESPN Trademark shall mean a use of
the ESPN Marks in a manner which materially breaches the provisions set forth in
Section 6.1 or 6.2 of this Agreement, either directly by Starwave or by a third
party licensed by Starwave to use the Marks; and
(iii) "Cure" shall mean if the misuse is performed directly by a party
hereto, correcting the display or misapplication of the other party's Marks, or
if the misuse is performed by a third party under license by a party hereto,
terminating the license or purported rights granted by such party to use such
Marks and using reasonable efforts to cause the third party to cease its misuse
of the other party's Marks.
The Partners acknowledge and agree that the nature of Remote Access
Products and the Narrowband medium in general may result in a misuse of a
Partner's Marks being displayed in multiple locations and across multiple
networks. For the avoidance of doubt, if the same application of a Mark is
displayed multiple times or in multiple places as a direct or indirect result of
the Narrowband medium or the manner in which Remote Access Products are
operated, transmitted or otherwise made available electronically, such repeated
displays shall constitute no more than one misuse for purposes of counting
Excepted Misuses hereunder.
9.4 [INTENTIONALLY OMITTED.]
-14-
<PAGE>
9.5 SURVIVAL. Unless otherwise specified, all obligations that accrue
prior to any expiration or termination of this Agreement shall survive such
expiration or termination. In addition, and without limiting the generality of
the preceding sentence, Sections 6, 7, 8, 9, and 10 shall survive the expiration
or termination of this Agreement for any reason.
9.6 INJUNCTIVE RELIEF. Each party acknowledges and agrees that the other
parties may be irreparably harmed by any material breach of this Agreement by
it. Therefore, each party agrees that in the event that it breaches any of its
obligations hereunder, the other parties in addition to all other remedies
available to it under this Agreement, or at law or in equity, shall be entitled
to seek all forms of injunctive relief including decrees of specific
performance, without showing or proving that it sustained any actual damages and
without posting bond.
10. GENERAL PROVISIONS
10.1 NOTICES. All notices which either party is required or may desire to
serve upon another party shall be in writing and addressed as follows:
(a) if to ESPN:
ESPNET SportsZone
650 Third Avenue
New York, NY 10158
Attention: Dick Glover
Telephone: (212) 916-0247
Facsimile: (212) 916-9299
with a copy to:
Buena Vista Internet Group
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
(b) if to DEI:
Disney Online
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
-15-
<PAGE>
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
(c) if to Starwave:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
(d) if to the Partnership, c/o:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately obtained and a
hard copy is concurrently sent by internationally commercially recognized
overnight delivery service), internationally commercially recognized overnight
delivery service (such as Federal Express or D.H.L.) or courier. Notice shall
be deemed served upon personal delivery or upon actual receipt. Any party may
change the address to which notices are to be delivered by written notice to the
other parties served as provided in this Section 10.1.
-16-
<PAGE>
10.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits attached
hereto and hereby incorporated herein by reference, constitutes the complete,
final and exclusive understanding and agreement between the parties with respect
to the transactions contemplated, and supersedes any and all prior or
contemporaneous oral or written representation, understanding, agreement or
communication between the parties concerning the subject matter hereof.
10.3 AMENDMENTS. All amendments or modifications of this Agreement shall
be binding upon the parties so long as the same shall be in writing and executed
by each of the parties hereto.
10.4 WAIVER. No waiver of any provision of this Agreement or any rights or
obligations of any party hereunder shall be effective, except pursuant to a
written instrument signed by the party waiving compliance, and any such waiver
shall be effective only in the specific instance and for the specific purpose
stated in such writing.
10.5 FORCE MAJEURE. No party shall be deemed in default hereunder, nor
shall it hold the other parties responsible for, any cessation, interruption or
delay in the performance of its obligations hereunder due to causes beyond its
reasonable control including, but not limited to: earthquake, flood, fire, storm
or other natural disaster, act of God, labor controversy or threat thereof,
civil disturbance or commotion, disruption of the public markets, war or armed
conflict (whether or not officially declared) or the inability to obtain
sufficient material, supplies, labor, transportation, telecommunications, power
or other essential commodity or service required in the conduct of its business,
any change in or the adoption of any law, ordinance, rule, regulation, order,
judgment or decree (each a "Force Majeure Event") provided that the party
relying upon this Section 10.5: (a) shall have given the other parties written
notice thereof promptly and, in any event, within five (5) days of discovery
thereof and (b) shall take all steps reasonably necessary under the
circumstances to mitigate the effects of the force majeure upon which such
notice is based.
10.6 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the parties hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
10.7 ASSIGNMENT. Neither party shall directly or indirectly assign this
Agreement to a third party without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
10.8 CONSTRUCTION. This Agreement shall be fairly interpreted and
construed in accordance with its terms and without strict interpretation or
construction in favor of or against any party. Each party has had the
opportunity to consult with counsel in the negotiation of this Agreement.
-17-
<PAGE>
10.9 CAPTIONS AND HEADINGS. The section and subsection headings and
captions appearing in this Agreement are inserted only as a matter of
convenience and shall not be given any legal effect.
10.10 SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be void as
going beyond what is reasonable in all the circumstances for the protection of
the interests of the party seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the event
that any provision of this Agreement should be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
10.11 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York. Any action arising out of or relating to this Agreement
shall be filed only in the courts of the State of California for the County of
Los Angeles, or the United States District Court for the Central District of
California. The parties hereby consent and submit to the personal jurisdiction
of such courts for the purposes of litigating any such action.
10.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
-18-
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of each party have
executed this Agreement as of the day and year first written above.
ESPN ENTERPRISES, INC.. STARWAVE CORPORATION
By: /s/ Laurence J. Shapiro By: /s/ Kevin A. Mayer
------------------------- ---------------------
Name: Laurence J. Shapiro Name: Kevin A. Mayer
Title: Vice President Title: Sr. Vice President
ESPN/STARWAVE PARTNERS
By its General Partners
ESPN ONLINE INVESTMENTS, INC. STARWAVE VENTURES
By: /s/ Laurence J. Shapiro By: /s/ Laurence J. Shapiro
------------------------- -------------------------
Name: Laurence J. Shapiro Name: Laurence J. Shapiro
Title: Vice President Title: Vice President
EXECUTED SOLELY WITH RESPECT
TO THE PROVISIONS OF
SECTIONS 3.6, 5.2, 6.2 AND 10.7
DISNEY ENTERPRISES, INC.
By: /s/ Kevin A. Mayer
-------------------------
Name: Kevin A. Mayer
Title: Sr. Vice President
-19-
<PAGE>
EXHIBIT 99.5
AMENDED AND RESTATED
ABC NEWS/STARWAVE
PARTNERSHIP AGREEMENT
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT including the Exhibits attached
hereto (this "AGREEMENT") is entered into as of June 18, 1998 by and between DOL
ONLINE INVESTMENTS, INC., a California corporation ("ABC PARTNER"), a wholly-
owned subsidiary of DISNEY ENTERPRISES, INC., a Delaware corporation ("DEI") and
STARWAVE VENTURES, a Washington corporation ("STARWAVE PARTNER"), a wholly-owned
subsidiary of STARWAVE CORPORATION, a Washington corporation, ("STARWAVE").
This Agreement amends and restates in its entirety the Partnership Agreement by
and between the parties hereof entered into as of March 28, 1997 (the "ORIGINAL
AGREEMENT"); provided that, this Agreement shall only become effective upon the
Effective Time, as defined in and pursuant to that certain Agreement and Plan of
Reorganization, of even date herewith, by and among Infoseek Corporation, a
California corporation, Infoseek Holding Company, a Delaware corporation,
Starwave, and DEI and shall cease and be of no further force and effect in the
event that the Effective Time does not occur; and provided further that, each of
the parties hereto agrees not to terminate, amend or otherwise alter this
Agreement, or waive any of its rights hereunder, at any time prior to
immediately following the Effective Time. ABC Partner and Starwave Partner are
each sometimes referred to herein as a "Partner" and, collectively, as
"Partners".
RECITALS
1. In connection with an investment in Starwave by DEI, ABC Partner and
Starwave Partner entered into a partnership pursuant to the Original Agreement
to jointly develop, produce and exploit certain interactive media products, on
the terms and conditions contained herein and ABC, Inc., a Delaware corporation
("ABC") and Starwave entered into the ABC News/Starwave Management and Services
Agreement dated as of March 28, 1997 (the "Original Service Agreement") to
provide certain assets and services to the Partnership in accordance with the
terms and conditions set forth in the Original Service Agreement.
2. Pursuant to an agreement and plan of reorganization and a stock and warrant
purchase agreement (collectively, the "Acquisition Agreements"), DEI has agreed
to acquire approximately a 43% interest in the voting equity of Infoseek
Corporation, a California corporation, subject to the terms and conditions set
forth in the Acquisition Agreements.
3. In connection with the transactions contemplated under the Acquisition
Agreements, the Partners desire to amend and restate the Original Agreement by
entering into this Agreement and Starwave agrees and ABC agrees to cause ABC
News, Inc., its indirect wholly owned subsidiary, to amend and restate the
Original Agreement and Original Service Agreement in the form attached as
Exhibit A.
-1-
<PAGE>
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, ABC Partner and Starwave Partner hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
1.1 "ABC CONTENT" means all Content that is 100% owned or controlled by
ABC or its successors or assigns. For purposes of this Section 1.1, "control"
means the ability to grant the licenses set forth herein; provided however that
if such Content is subject to the payment of royalties or other consideration to
third parties, ABC will notify Starwave in writing in advance and the
Partnership shall have the right, at its option, to include such Content in the
definition of ABC Content.
1.2 "ABC TRADEMARKS" means "ABC News" and the other marks, trade names,
trademarks, brands, names, personalities, logos and representations thereof that
are properties of ABC or its Affiliates that appear within the ABC Content,
Programming, News Products or any other materials created in association with
this Agreement and that ABC or any of its Affiliates owns or controls.
1.3 "ACT" means the New York Uniform Partnership Law, as amended from time
to time.
1.4 "ACTUAL CUMULATIVE FUNDING PERCENTAGE" means each Partner's total
actual cumulative funding divided by the total actual cumulative funding of both
Partners, expressed as a percentage.
1.5 "ADJUSTED CAPITAL ACCOUNT" means, with respect to a Partner, an
account with a balance (which may be a deficit balance) equal to the balance in
such Partner's Capital Account as of the end of the relevant year, after giving
effect to the following adjustments: (i) credit to such Capital Account any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore to the Partnership
pursuant to Regulations (S)(S) 1.704-2(g)(1) and 1.704-2(i)(5); and (ii) debit
to such Capital Account such Partner's share of items described in Regulations
(S)(S) 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of
Regulations (S) 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
1.6 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to a Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account.
1.7 "ADVISORY COMMITTEE" has the meaning set forth in Section 3.1.
1.8 "AFFILIATE" means, with respect to any person, any person directly or
indirectly through one or more intermediaries controlling, controlled by or
under common control with
-2-
<PAGE>
such person. Notwithstanding the foregoing, for purposes of this Agreement,
Starwave and Starwave Partner shall not be considered as Affiliates of ABC or
DEI.
1.9 "ANNUAL BUSINESS PLAN" has the meaning specified in Section 3.6.
1.10 "ANNUAL FINANCIAL STATEMENTS" has the meaning specified in Section
3.7.
1.11 "ASSET VALUE" with respect to any Partnership asset means the
following:
(i) the fair market value as determined by an appraiser mutually
agreed to by the Partners of any asset contributed by a Partner to the
Partnership;
(ii) the fair market value as determined by an appraiser mutually
agreed to by the Partners on the date of distribution of any Partnership asset
distributed to any Partner; or
(iii) the fair market value as determined by an appraiser mutually
agreed to by the Partners of all Partnership assets at the time of (a) the
admission of an additional Partner or (b) the liquidation of the Partnership
pursuant to Section 11.6.
1.12 "BROADBAND" means programming that requires transmission at data rates
which would enable real time, full screen, full motion video at equal to or
better than NTSC broadcast resolution.
1.13 "CAPITAL ACCOUNT" has the meaning set forth in Section 6.5.
1.14 "CASH EXPENDITURES" means, for any period, the actual amount of cash
expenditures and capital expenditures of the Partnership during such period.
1.15 "CLAIMS" has the meaning specified in Section 12.1.
1.16 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
1.17 "CONTENT" means audio and audio visual material, photographs, art
work, videos, graphics, text or sound recordings.
1.18 "COSTS" means all direct costs and allocated costs, whether incurred
by ABC, DEI or Starwave in connection with the Service Agreement or by the
Partnership, that are associated with the development, production, hosting,
maintenance, operation, distribution and exploitation of the News Products.
1.19 "DISNEY MEMBER" has the meaning set forth in Section 3.3.
1.20 "FIXED MEDIA PRODUCTS" means multimedia content products developed for
distribution to end users on any platform (including, without limitation, MS-
DOS, Windows,
-3-
<PAGE>
Macintosh, Sega, Nintendo, CD-ROM, Sony Playstation and 3DO systems) designed to
be read on an electronic device but excluding such products if they include a
Narrowband-delivered component and such products would not be commercially
competitive (as reasonably determined in good faith by the Partners) without the
inclusion of a Narrowband-delivered component.
1.21 "FORCE MAJEURE EVENT" has the meaning specified in Section 13.5.
1.22 "FORECASTED CASH EXPENDITURES" means, for any period, the forecasted
cash expenses and capital expenditures of the Partnership during such period,
prepared in accordance with GAAP and consistent with the Restated Initial
Business Plan and Annual Business Plans.
1.23 "GAAP" means Generally Accepted Accounting Principles, according to
U.S. accounting practices.
1.24 "GAIN YEAR" has the meaning specified in Section 6.1(a)(ii).
1.25 "GENERAL MANAGER" means the general manager appointed in accordance
with Section 3.1 to manage the operations of the News Products.
1.26 "INFOSEEK MEMBER" has the meaning specified in Section 3.1.
1.27 "INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or
term known or designated) tangible and intangible and now known or hereafter
existing (a) rights associated with works of authorship throughout the universe,
including but not limited to copyrights, moral rights, and mask-works, (b)
trademark, service marks and trade name rights and similar rights, (c) trade
secret rights, (d) patents, designs, algorithms and other industrial property
rights, (e) all other intellectual and industrial property and proprietary
rights (of every kind and nature throughout the universe and however designated)
(including without limitation logos, character rights, "rental" rights and
rights to remuneration), whether arising by operation of law, contract, license
or otherwise, and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe (including without limitation rights in any of the
foregoing).
1.28 "INTEREST" OR "PARTNERSHIP INTEREST" means the entire ownership
interest of a Partner in the Partnership.
1.29 "LOSS YEAR" has the meaning specified in Section 6.1(a)(i).
1.30 "NARROWBAND" means programming that does not require transmission at
data rates which would enable real time, full screen, full motion video at equal
to or better than NTSC broadcast resolution.
1.31 "NET INCOME" AND "NET LOSS" means for each fiscal year or other
period, the Partnership's taxable income or loss for such year or period
determined in accordance with
-4-
<PAGE>
(S)703(a) of the Code, including therein all items of income, gain, loss or
deduction required to be stated separately pursuant to (S)703(a)(1) of the Code,
with the following adjustments:
(i) Any tax-exempt income of the Partnership described in
(S)705(a)(1)(B) of the Code which is not otherwise taken into account in
determining Net Income or Net Loss shall be included as if it were taxable
income or loss;
(ii) Any expenditures of the Partnership described in
(S)705(a)(2)(B) or treated as such expenditures under Regulation (S)1.704-
1(b)(2)(iv)(i) not otherwise taken into account in computing Net Income and Net
Loss shall be treated as deductible items;
(iii) Upon the occurrence of an event described in Section 1.9(ii) or
(iii), the difference between the asset basis and Asset Value as determined in
such provision shall be taken into account as gain or loss;
(iv) Gain or loss resulting from the disposition of property from
which gain or loss is recognized for federal income tax purposes shall be
determined with reference to the Asset Value of the property disposed of;
(v) Cost recovery deductions shall be determined based on the Asset
Value of property in lieu of such deductions used in computing such taxable
income or loss;
(vi) Any items which are specially allocated pursuant to Section 6.6
shall not be taken into account.
1.32 "NEWS PRODUCTS" means the Remote Access Products developed, produced,
marketed or otherwise exploited under this Agreement containing broad national,
international and local news Content, including, by way of example and without
limitation, stories and features regarding national, international and local
affairs and stories and features regarding business/finance, entertainment,
weather, environmental and other subjects, to the extent such subjects are of
national or international significance or are treated as such in traditional
news media.
1.33 "PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
(S) 1.704-2(b)(4).
1.34 "PARTNER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
liability (within the meaning of Regulations (S) 1.704-2(b)(3)), determined in
accordance with Regulations (S) 1.704-2(i)(3).
1.35 "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations (S)(S) 1.704-2(i)(1) and 1.704-2(i)(2).
1.36 "PARTNERSHIP" means the general partnership formed by this Agreement.
-5-
<PAGE>
1.37 "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
(S)(S) 1.704-2(b)(2) and 1.704-2(d).
1.38 "PERSON" means any individual, partnership, corporation, trust or
other entity.
1.39 "PORTAL PRODUCTS" means the internet portal service to be named "Go
Networks," or another name, developed and produced by Infoseek utilizing the
subject matter licensed under that certain License Agreement between DEI and
Infoseek of even date herewith, including but not limited to all channels, sub-
channels, sections, sites, features, services, utilities and applications
relating thereto.
1.40 "PROFIT PARTICIPATION" means the Partner's proportionate share of Net
Income, expressed as a percentage, in a gain year adjusted pursuant to Section
6.2.
1.41 "PROGRAMMING" means the programming included in the News Products
including, without limitation, all HTML, Java, and/or other formatted text
files, all related graphics files, animation files, data files, multimedia
files, modules, routines and objects, and the computer software and all of the
script or program files required to exploit such materials and that collectively
control the display of and end user interaction with the programming.
1.42 "PROMOTIONAL SERVICE AGREEMENT" means the agreement between American
Broadcasting Companies, Inc. and Infoseek, dated as of the date hereof.
1.43 "REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time.
1.44 "RELATED PERSONS" has the meaning specified in Section 12.1.
1.45 "REMOTE ACCESS PRODUCTS" means Programming intended for distribution
by any Narrowband interactive transmission method. This definition excludes any
and all Programming that requires Broadband transmission and also excludes (a)
products developed for PDAs, pagers, screen phones and other future handheld
devices and (b) Fixed Media Products.
1.46 "REQUIRED CUMULATIVE FUNDING PERCENTAGE" means each Partner's total
cumulative funding if it were to have funded at its required cash contribution
amount in each year, divided by the total cumulative funding for both Partners
if each had funded at its required level in each year, expressed as a
percentage.
1.47 "RESTATED INITIAL BUSINESS PLAN" has the meaning specified in Section
3.6.
1.48 "REVENUES" means all revenues, as determined in accordance with GAAP,
including, without limitation, advertising, subscription, usage, merchandising,
licensing or other revenues derived from exploitation of the News Products, the
Technology owned by the
-6-
<PAGE>
Partnership or jointly by the Partners contained therein or utilized in
connection therewith or from any other Intellectual Property Rights, Content or
Programming owned by the Partnership or jointly by the Partners but in all
events excluding Portal Products revenues and Infoseek-branded Search or
Directory revenues. For the avoidance of doubt, any Revenues derived from the
first page seen by a viewer after a single click on a name, logo, icon, link,
headline or other content that is supplied by the Partnership or one of the
Partners, for use in the News Product. For example, if a user clicks on the "Go
News" channel within the Portal Products and the first page to which the user is
directed contains a news story supplied by ABC, after the single click on the
ABC news story, the user is within the News Products and revenues derived from
such page shall be deemed Revenues hereunder.
1.49 "SEARCH OR DIRECTORY" means products, services, components or other
subject matter (i) for searching content such as searches of the World Wide Web,
directories, USENET News, or other databases, or (ii) hierarchical listings of
sites or services, which listings are organized by categories.
1.50 "SERVICE AGREEMENT" means the Amended and Restated ABC News/Starwave
Management and Services Agreement attached hereto as Exhibit A.
1.51 "STANDARDS" means the written policy of standards and practices for
content and advertising that apply to the News Products under this Agreement,
attached as Exhibit B.
1.52 "STARWAVE TRADEMARKS" means "Starwave" and the other marks, trade
names, trademarks, brands, names, personalities, logos and representations
thereof that are properties of Starwave Partner or its Affiliates that appear
within the News Products or any other materials created in association with this
Agreement and that Starwave Partner owns or controls.
1.53 "TECHNOLOGY" means all software, hardware and middleware required or
appropriate to (i) transform the Content into the Programming, (ii) create,
modify or maintain the Programming, or (iii) deliver the Programming in an
online format.
1.54 "TERM" shall have the meaning set forth in Section 11.1.
1.55 "TERRITORY" means the United States and Canada.
1.56 "TRANSFER" means, as a noun, any voluntary or involuntary transfer,
sale, assignment, pledge, hypothecation, encumbrance or other disposition, and,
as a verb, voluntarily or involuntarily to transfer, sell, assign, pledge,
hypothecate, encumber or otherwise dispose of.
2. PARTNERSHIP
2.1 PARTNERSHIP NAME. The name of the Partnership shall be ABC
News/Starwave Partners, d/b/a AIV Ventures or such other name as the Partners
may from time to time determine by mutual approval, and all business of the
Partnership shall be conducted under
-7-
<PAGE>
such name. Such name shall be the exclusive property of the Partnership, and no
Partner shall have any right to use, and each Partner agrees that neither it nor
its Affiliates shall use, such name or derivatives thereof incorporating "ABC"
or "AIV" or "Starwave" other than as permitted by the mutual agreement of the
Partners. The Partnership shall execute and file and/or publish all assumed name
statements and certificates required by law to be filed and/or published in
connection with the operation of the Partnership.
2.2 PLACE OF BUSINESS. The principal place of business of the Partnership
shall be located at 77 West 66/th/ Street, New York, New York, or at such other
place as the Partners may from time to time determine by mutual approval. The
Partnership may have such other or additional places of business or headquarters
as the Partners may from time to time designate.
2.3 PURPOSE. The purpose of the Partnership shall be to develop, produce,
market, distribute and otherwise exploit the News Products in the Territory.
Notwithstanding the foregoing, the Partners acknowledge that distribution of the
News Products on the Internet shall, by definition, be on a worldwide basis;
provided, that it is the present intention of the Partners that the Partnership
shall not deploy the Programming on servers or other delivery systems that are
located outside the Territory. Notwithstanding the foregoing, if DEI determines
to develop, produce, market, distribute and otherwise exploit news-related
Remote Access Products outside the Territory, the Disney Member will, when
possible, provide the Infoseek Member with a first offer to discuss in good
faith the possibility of delivering the News Products in additional countries or
regions or otherwise including the Partnership, Starwave Partner or Infoseek as
a partner or participant to any new news-related Remote Access Products that may
be developed for any additional country or region; provided, that Starwave
Partner acknowledges that the worldwide business activities and strategies of
DEI and its Affiliates may preclude the participation of the Partnership,
Starwave Partner or Infoseek in any such news-related Remote Access Products.
The News Products shall include, without limitation, an entertainment news
component that includes Programming from the "Mr. Showbiz" property contributed
by Starwave to the Partnership pursuant to the Original Service Agreement as
well as Remote Access Products containing personal finance and business news.
If within six (6) months after the Effective Date, Disney has not entered into
an agreement with a third party for local news Remote Access Products and during
such period Starwave Partner notifies Disney in writing that Starwave Partner
has the ability to include local news Remote Access Products as News Products
hereunder, such local news Remote Access Products shall become News Products
effective upon the date of such notice.
2.4 AUTHORITY OF PARTNERS LIMITED. No Partner shall have any authority to
hold himself out as a general agent of another Partner or the Partnership in any
business activity other than that of the Partnership, and no Partner shall have
any authority to act for, or to assume any obligation or responsibility on
behalf of, any other Partner or the Partnership, except as expressly provided in
this Agreement or as authorized by the Partners. No Partner shall be liable to
third persons for Partnership losses, deficits, liabilities or obligations
except as expressly agreed to in writing by such Partner, unless the assets of
the Partnership shall first be exhausted. In any matter between the Partnership
on the one hand and either Partner on the other hand or in any matter between
the Partners, neither the Partnership nor any Partner shall
-8-
<PAGE>
be bound by the act of a Partner unless such Partner is acting in accordance
with the limitations and provisions set forth in this Agreement. Except as
otherwise expressly provided herein, decisions of the Partnership shall be made
by unanimous approval of the Partners.
2.5 PARTITION. No Partner, nor any successor-in-interest to such Partner,
shall have the right, while this Agreement remains in effect, to have the
property of the Partnership partitioned or to file a complaint or institute any
proceeding at law or in equity to have the property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors,
representatives and assigns, hereby waives any such right.
3. GOVERNANCE
3.1 APPOINTMENT OF GENERAL MANAGER. The day-to-day operations of the News
Products will be managed by a General Manager nominated by DEI and mutually
appointed by the Partners. The General Manager shall report to the Advisory
Committee. The General Manager shall be a Partnership employee and subject to
termination by either the Starwave Member or the Disney Member. The General
Manager shall be located in New York City, or elsewhere in the event of mutual
agreement by the Advisory Committee. In the event of the termination or
resignation of a General Manager, the Disney Member shall have the right to
nominate candidates for a new General Manager; provided, that if three
successive nominees are not approved by the Advisory Committee, the Disney
Member shall have the sole right of approval for the subsequent nominee. This
process will be repeated in the event of any replacement of a General Manager.
Notwithstanding the foregoing, in the event that a General Manager is terminated
by the Starwave Member unilaterally, the Disney Member shall have the unilateral
right to appoint a replacement General Manager, subject to Starwave Partner's
subsequent rights to terminate the replacement General Manager. DEI agrees to
cause the Disney Member to use its reasonable good faith efforts to nominate
well qualified, "best available" candidates as General Manager candidates.
3.2 DUTIES OF GENERAL MANAGER. The General Manager shall implement the
Restated Initial Business Plan and subsequent Annual Business Plans and shall
exercise control over the day-to-day operations of the Partnership, including
editorial tactics, editorial strategy and creative development (subject to
Section 3.5(a)), production (technical or otherwise), distribution,
merchandising, advertising sales, affiliate relations (subject to Section
3.5(b)) and marketing and promotion (subject to Section 3.5(c)) of the News
Products, subject to the oversight and ultimate approval of the Advisory
Committee.
3.3 ADVISORY COMMITTEE. As of the Effective Time, Infoseek and Disney
will respectively appoint the Infoseek CEO and the Chairman of Buena Vista
Internet Group as the sole members (the "Infoseek Member" and the "Disney
Member" respectively) of an advisory committee (the "Advisory Committee"). Each
of Infoseek and Disney will have the right to replace its designee on the
Advisory Committee; provided, that Infoseek and Disney agree to consult with
each other prior to any such replacement. Any such replacement will be with an
officer of Infoseek or Disney, or their respective Affiliates, of similar
responsibilities and experience, to the extent possible. The Advisory Committee
shall oversee the management and
-9-
<PAGE>
operations of the Partnership, shall make significant business decisions of the
Partnership and shall participate regularly in the overall supervision,
direction and control of the Partnership as set forth on Exhibit C (as amended
as of the date hereof). The Advisory Committee will meet monthly or as otherwise
appropriate to discuss and advise the General Manager on overall News Products
key issues, and performance within the parameters established in the Annual
Business Plans. Except as otherwise expressly provided herein, decisions of the
Advisory Committee shall be made by unanimous approval of the Infoseek Member
and Disney Member.
3.4 ORGANIZATIONAL STRUCTURE. The Partners intend to staff the operations
of the Partnership in accordance with the Restated Initial Business Plan, as may
be modified from time to time upon the agreement of the Partners. Thereafter,
the General Manager (and the relevant senior employees) shall hire/fire/promote
Partnership employees at their discretion (subject to compliance with the
Restated Initial Business Plan and Annual Plans). Notwithstanding the
foregoing, it is the intention of the parties that the employees providing
technology-related services to the Partnership shall be primarily employed by
Starwave and the employees providing editorial-related services to the
Partnership shall be primarily employed by ABC.
(a) CONTENT DEVELOPMENT/TRANSFORMATION/INTEGRATION.
(i) ABC CONTENT. ABC shall be responsible for the development
of ABC Content for the News Products and for the transformation of ABC Content
into Programming and integration of the Programming into the News Products as
set forth in the Service Agreement. The senior employee in such group, who shall
be an ABC employee and subject to hiring/firing by ABC, shall report on a day-
to-day basis to the General Manager, with direct reporting as well to an ABC
designated executive for oversight of editorial and creative aspects of such
Content.
(ii) NON-ABC CONTENT. The Partnership shall include a group of
employees responsible for the development of Content (other than ABC Content)
for the News Products and for the transformation of such Content into
Programming and integration of the Programming into the News Products. The
senior employee in such group, who shall be an ABC employee and subject to
hiring/firing by ABC and firing by Starwave, and shall report on a day-to-day
basis to the General Manager, with direct reporting as well to an ABC designated
executive for oversight of editorial and creative aspects of such Content.
(b) ABC NETWORK AFFILIATE RELATIONS. The Partnership shall include a
group of Partnership employees responsible for managing the relationship with
ABC's affiliated television and radio stations, subject to Section 3.5(b). The
senior employee in such group shall report directly to the General Manager. ABC
shall have veto power over the hiring/firing of such employee. ABC shall, from
time to time, review the policies and practices of such group and assist the
General Manager in conforming such policies and practices with those used by
ABC.
-10-
<PAGE>
(c) ADVERTISING SALES.
(i) The Partnership may engage Starwave or any qualified third
party (including Affiliates) to provide representation services for advertising
sales for the News Products. The senior employee of any non-Affiliated party
providing representation services shall be subject to hiring/firing by either
Starwave or ABC, shall report to the General Manager, with (1) a report to the
Disney Member on matters concerning group advertising sales in association with
Disney products and (2) a report to the Infoseek Member on matters concerning
group advertising sales in association with Infoseek products.
(ii) The Advisory Committee shall mutually agree in writing on
the characteristics of all advertising that will appear with or in the News
Products, including without limitation, matters of price, content, size,
placement, quantity, frequency of changes, and identity of advertisers. The
Advisory Committee further shall mutually agree in writing on the "rate card"
for the advertising to be sold in connection with the News Products.
(iii) The General Manager and the advertising sales group shall
at all times comply with the Standards.
(iv) The Advisory Committee shall coordinate group advertising
sales for the News Products in association with DEI (which shall provide the
group advertising sales services in association with Disney products) and with
Infoseek (which shall provide the group advertising sales services in
association with Infoseek products), as set forth in the Service Agreement.
During the Term, such group advertising services may become a responsibility of
the Partnership or the Partners collectively, upon the mutual agreement of the
Partners.
(d) MARKETING/PROMOTION. The Partnership shall include a group of
Partnership employees responsible for marketing and promotion for the News
Products on Narrowband platforms and in other media, subject to Section 3.5(c).
The senior employee in such group shall be subject to hiring/firing by ABC and
firing by Starwave and shall report directly to the General Manager. In
addition, ABC shall provide marketing and promotion services for the News
Products in other media, as set forth in the Service Agreement, and in
accordance with the Promotional Services Agreement.
(e) FINANCE AND BUSINESS DEVELOPMENT. The Partnership shall include a
group of Partnership employees responsible for finance and business development
activities (including, without limitation, general and administrative
activities). Such group (and the General Manager) shall perform their
administrative and finance responsibilities in accordance with DEI's standards
of financial controls.
(f) BILLING, COLLECTION, CUSTOMER SERVICE. Starwave shall be
responsible for billing, collection, customer service and other "back office"
functions for the Partnership in accordance with the Service Agreement. During
the Term, such functions (or portions thereof) may become a responsibility of
the Partnership or the Partners collectively, upon the mutual agreement of the
Partners.
-11-
<PAGE>
(g) TECHNOLOGY DEVELOPMENT AND MAINTENANCE. Starwave shall be
responsible for the technology development and maintenance relating to the News
Products in accordance with the Service Agreement. It is the present intention
of the parties that the preponderance of the technology development and
maintenance relating to the News Products shall be performed by Starwave. The
General Manager, in accordance with the Restated Initial Business Plan or Annual
Business Plans, may acquire or license additional or substitute Technology (i)
on an incidental and nonmaterial basis, (ii) if Starwave is in breach of its
material obligations under its agreements with the Partnership, (iii) if the
costs to the Partnership of acquiring or licensing Technology from a third party
are significantly less than the costs to the Partnership of acquiring or
licensing such or similar Technology from Starwave and such third-party
Technology from Starwave and such third-party Technology is fully scaleable and
compatible with other Technology used for the News Product and otherwise
appropriate for its intended uses, or (iv) if Starwave otherwise agrees. In
addition, the General Manager, in accordance with the Restated Initial Business
Plan or Annual Business Plans may acquire or license additional or substitute
Technology if, in the General Manager's reasonable opinion, the inability to so
acquire or license such Technology would have a material impact on the overall
quality and competitive position of the News Products. In such event, Starwave
shall have a three (3) day period to meet with the General Manager to attempt to
resolve the issues. If the issues have not been resolved in the three (3) day
period, the General Manager shall be entitled to present the issues to the
Partners for resolution based upon the mutual agreement of the Partners. During
the Term, such technology development and maintenance (or portions thereof) may
become a responsibility of the Partnership or the Partners collectively, upon
the mutual agreement of the Partners.
(h) HOSTING. Starwave shall be responsible for the hosting of the
News Products in accordance with the Service Agreement. During the Term, the
Partners may mutually agree to have the Partnership perform hosting functions
for the News Products, as may be approved in an Annual Business Plan or
otherwise as determined by the Partners. In addition, the General Manager may
utilize unaffiliated third parties to provide hosting of the News Products (i)
if the costs of any such hosting to the Partnership are significantly less than
the costs to the Partnership of such hosting services as charged by Starwave and
such third-party hosting is fully scaleable and compatible with the Technology
and hosting services provided for the News Products and otherwise appropriate,
(ii) Starwave is in breach of its material hosting obligations hereunder, or
(iii) if Starwave otherwise agrees.
(i) OTHER. The Partners shall mutually agree on whether any
additional necessary support for the development, production and delivery of the
News Products in any category other than as listed in this Agreement shall be
included as a responsibility of the Partnership or one or both Partners.
3.5 ABC'S CONTROL.
(a) EDITORIAL AND CREATIVE. ABC shall exercise sole and final control
over all editorial and creative aspects of the News Products and all portions
thereof.
-12-
<PAGE>
(b) ABC NETWORK AFFILIATE RELATIONS. ABC shall exercise sole and
final control over all ABC Network affiliate relations matters associated with
the News Products.
(c) MARKETING AND PROMOTIONS. ABC shall exercise sole and final
control over all uses or references to any ABC Trademark contained in marketing
and promotions associated with the News Products. Any use of an ABC Trademark
by the Partnership or Starwave shall require the prior approval of ABC, which
may be withheld at ABC's sole discretion. ABC shall cooperate in good faith
with the Partnership to agree on a templated use of ABC Trademarks from time to
time to avoid recurrent approvals.
(d) ADVERTISING SALES. The General Manager and the Partnership's
advertising sales group shall frequently consult with the ABC News' advertising
sales executives in order to coordinate, when possible, advertising
opportunities among the News Products and ABC News' products.
3.6 BUSINESS PLAN AND BUDGET, FORECASTED CASH EXPENDITURES.
(a) Prior to the date hereof, DEI and Starwave have agreed on a
restated three year business plan for the News Products, attached hereto as
Exhibit D (the "Restated Initial Business Plan"). At least thirty (30) days
prior to the beginning of each fiscal year (ending September 30) during the
Term, the General Manager shall prepare for the Partners' approval an annual
business plan and budget for the subsequent fiscal year (which shall include,
without limitation, a statement of Forecasted Cash Expenditures for such fiscal
year), utilizing the categories and methods established in the Restated Initial
Business Plan (i.e., spending requirements and limits, Revenue and operating
income targets)(each, an "Annual Business Plan and Budget"). If during the
first three years after the date hereof, an Annual Business Plan and Budget is
not mutually approved by the Partners by the beginning of a fiscal year, the
Partners shall continue to perform their obligations under this Agreement based
on the standards set forth in the Restated Initial Business Plan for the
corresponding year. After the first three years after the date hereof, if an
Annual Business Plan and Budget for any fiscal year are not mutually approved by
the Partners by the beginning of a fiscal year, the Partners shall continue to
perform their obligations under this Agreement based on the standards set forth
in the Annual Business Plan and Budget for the prior fiscal year, increased in
an amount equal to 50% of the increase in the projected Revenue growth for the
Partnership between the current fiscal year and the subsequent fiscal year (as
agreed between the Partners), provided, that if such projected Revenue growth is
a negative number, such aggregate amount shall be increased in an amount equal
to the percentage increase or decrease in the Consumer Price Index for Urban
Wage Earners and Clerical Workers [All Urban Consumers], U.S. City Average
(1982-84 = 100) Unadjusted, all items index, published by the Bureau of Labor
Statistics, United States Department of Labor (the "CPI Factor") for the
preceding twelve-month period. In the event that the Partners cannot agree on
projected Revenue growth for the Partnership for a particular fiscal year, the
Annual Business Plan and Budget for such fiscal year shall be increased in an
amount equal to the actual growth rate in Revenues between the two prior fiscal
years. If such growth rate is a negative number, such Annual Business Plan and
Budget shall be
-13-
<PAGE>
adjusted by the CPI Factor. In each year, the Annual Business Plan and Budget as
adjusted as provided above shall be the baseline for any adjustments for the
subsequent year.
(b) Within fifteen (15) days prior to the beginning of each fiscal
quarter during the Term, the General Manager shall prepare for the Partners'
approval a statement of Forecasted Cash Expenditures and forecasted Revenues (as
agreed between the Partners) for such fiscal quarter. If any such statement is
not mutually approved by the Partners by the beginning of a fiscal quarter, (i)
if the fiscal quarter in question falls within the period reflected in the
Restated Initial Business Plan, then the Forecasted Cash Expenditures and
forecasted Revenues set forth therein for the applicable fiscal quarter
calculated from the annual amounts in the Annual Business Plan and Budget shall
be applicable or (ii) if the fiscal quarter in question is after the period
reflected in the Restated Initial Business Plan, then the Forecasted Cash
Expenditures for such fiscal period will be as follows: that fiscal quarter's
forecasted Revenues is compared with the Revenues in the same quarter from the
prior year and a Revenue growth percentage is calculated. 50% of this growth
percentage is then applied to the Actual Cash Expenditures for the same fiscal
quarter from the prior year to determine the Forecasted Cash Expenditures for
the fiscal quarter under consideration. If the Partners cannot agree on the
Revenue growth percentage increase, then the prior period Revenue growth
percentage will be utilized as follows: 50% of the actual year-over-year Revenue
growth percentage achieved in the same quarter in the prior year is calculated.
The growth percentage is then applied to the Actual Cash Expenditures for the
same quarter from the prior year to determine the Forecasted Cash Expenditures
for the current quarter, provided, that if such projected Revenue growth is a
negative number, such aggregate amount shall be increased in an amount equal to
the percentage increase or decrease in the Consumer Price Index for Urban Wage
Earners and Clerical Workers [All Urban Consumers], U.S. City Average (1982-84 =
100) Unadjusted, all items index, published by the Bureau of Labor Statistics,
United States Department of Labor for the preceding twelve-month period. In each
year, the Annual Business Plan and Budget as adjusted as provided above shall be
the baseline for any adjustments for the subsequent year.
3.7 OTHER REPORTS. Within fifteen (15) days after the end of each fiscal
year during the Term, the General Manager shall prepare and deliver, with the
assistance of the Partners, unaudited twelve month profit and loss statements,
including detailed breakdowns of sources of Revenues and items of Costs for each
fiscal quarter as well as a statement of Net Cash Flow for such fiscal year
(collectively, the "Annual Financial Statements"). Within five (5) days after
the end of each fiscal quarter during the Term, the General Manager shall also
prepare and deliver, with the assistance of the Partners, unaudited quarterly
profit and loss statements, including detailed breakdowns of sources of Revenues
and items of Costs in such fiscal quarter and quarterly cash flow statements.
In addition, within ten (10) days prior to the start of any fiscal quarter, the
General Manager shall prepare and deliver quarterly forecasts, utilizing the
categories and methods established in the Restated Initial Business Plan. The
Partners acknowledge the importance of meeting the financial reporting deadlines
to ensure necessary financial and accounting compliance; provided however, that
immaterial and infrequent failures to meet such deadlines shall not be
considered as material breaches of this Agreement.
-14-
<PAGE>
4. STARWAVE, ABC AND DEI OBLIGATIONS TO THE PARTNERSHIP
During the Term, Starwave, ABC and DEI shall have the obligations to the
Partnership set forth in the Service Agreement.
5. MERCHANDISING
DEI agrees to provide (or cause its Affiliates to provide) and the
Partnership agrees to purchase (subject to agreement on terms), e-commerce
services to the Partnership, including, without limitation, store design,
transaction processing, web hosting, inventory management, fulfillment and
customer service. In exchange for such services, the Partnership shall pay DEI
its Costs (with the allocated costs to be mutually agreed) in providing such
services, plus a to-be-agreed markup on such Costs or a to-be-agreed upon
revenue share. In addition, DEI shall have joint ownership of all customer
information for use for its business purposes.
6. FINANCIAL PARTICIPATION
6.1 CAPITAL CONTRIBUTIONS.
(a) In accordance with the limits set forth in each Annual Business
Plan, the Partners shall make capital contributions at the start of each fiscal
quarter or from time to time as the Partners otherwise agree in accordance with
Forecasted Cash Expenditures:
(i) Starwave Partner shall make capital contributions in
sufficient amounts to provide for sixty percent (60%) of the Forecasted Cash
Expenditures and ABC Partner shall make capital contributions in sufficient
amounts to provide for forty percent (40%) of the Forecasted Cash Expenditures
in any fiscal quarter during the Term in which Net Losses are expected to occur
(a "Loss Year").
(ii) Starwave Partner shall make capital contributions in
sufficient amounts to provide for fifty percent (50%) of the Forecasted Cash
Expenditures and ABC Partner shall make capital contributions in sufficient
amounts to provide for fifty percent (50%) of the Forecasted Cash Expenditures
in any fiscal quarter during the Term in which Net Income is expected to occur
(a "Gain Year").
(b) Promptly upon the delivery of the Annual Financial Statements of
the Partnership, the Partners shall reconcile the differences, if any, between
the Forecasted Cash Expenditures and the Cash Expenditures as reflected in the
Annual Financial Statements, such that the total amount contributed by each
Partner with respect to a fiscal year is in accordance with the percentages
provided in Section 6.1(a) based on the Cash Expenditures with respect to such
fiscal year.
(c) To the extent that a Technology is developed by either Partner in
connection with this Agreement specifically for use in the development or
delivery of the News Products, the other Partner can elect, in its discretion
(but only at the time initial funding for
-15-
<PAGE>
the Technology is requested, unless agreed to by the Partner developing such
Technology), to provide its proportionate share of the funding associated with
such Technology, in which event such Technology shall become jointly owned.
(d) For purposes of this Agreement, with respect to any capital asset
owned by a Partner and utilized in association with the News Products, either
Partner may charge the Partnership a fee for the use of such capital asset, in
accordance with limits set forth in the Restated Initial Business Plan and
Annual Business Plan.
6.2 FAILURE TO MAKE CONTRIBUTIONS.
(a) If any Partner fails to make any required cash contribution when
due pursuant to Section 6.1 (a "Nonfunding Partner"), the other Partner may, in
its discretion, elect to make a cash contribution in the amount of all or a
portion of the unfunded portion of the required contribution, in which event the
funding Partner's ("Funding Partner") Capital Account shall be adjusted as
follows: for every $1.00 of the unfunded portion of such required contribution
funded by the Funding Partner, the Funding Partner shall receive an increase of
$1.00 in its Capital Account.
(b) In addition, at the end of each fiscal year, each Partner's Actual
Cumulative Funding Percentage will be compared with its Required Cumulative
Funding Percentage. In the event that such Partner's Actual Cumulative Funding
Percentage is less than its Required Cumulative Funding Percentage, such
Partner's Profit Participation shall be adjusted at the beginning of the next
fiscal year such that the Nonfunding Partner's Profit Participation will be (i)
decreased 1 percentage point for each 1 percentage point shortfall in the event
the Nonfunding Partner's total cumulative funding exceeds that of Funding
Partner and (ii) will be decreased 2 percentage points for every 1 percentage
point (the "dilution ratio") in the event that the Nonfunding Partner's total
cumulative funding is less than that of the Funding Partner. The Funding
Partner will receive a corresponding increase in its Profit Participation. An
example is attached as Exhibit E.
(c) In any fiscal year in which the Starwave Partner's Profit
Participation falls below 25%, their control rights under this Agreement and the
Services Agreement shall be suspended, such that, for example, the Starwave
Partner shall not have a vote in any of the matters that previously required the
unanimous approval of the Advisory Committee. This right would be reinstated in
the event that Starwave Partner's Profit Participation again rises above 25%,
subject to subsequent suspension if Starwave Partner's Profit Participation
again falls below 25%.
(d) Prior to the end of the first fiscal year in which the Partnership
derives Net Income (i.e., as opposed to a Net Loss year), a Nonfunding Partner
shall be entitled to make capital contributions up to its Required Cumulative
Funding Percentage as well as additional funding necessary to equalize the
results of the cumulative overfunding by the Funding Partner at the same
dilution ratio (as defined above) and adjust its Profit Participation upward;
provided, however, at the end of the first fiscal year in which the Partnership
derives Net
-16-
<PAGE>
Income, while a Nonfunding Partner may make capital contributions to maintain
its Actual Cumulative Funding Percentage, it shall not be entitled to make
capital contributions to equalize the results of the cumulative overfunding by
the Funding Partner.
(e) In the event that Starwave Partner's Profit Participation falls
below 25% and Starwave Partner desires to fund a subsequent required cash
contribution and is unable to access capital on reasonable terms as determined
by the independent audit committee of the Board of Directors of Starwave Partner
given the Company's financial condition and said terms would cause an adverse
impact on Starwave Partner's financial condition, Disney Partner will loan
Starwave Partner the necessary funds at an interest rate equal to the then prime
rate plus 1% for a twelve month term. If the loan is not repaid with accrued
interest thereon at the end of the twelve month period, such amounts will be
credited to Disney Partner's Capital Account and the Disney Partner's Actual
Cumulative Percentage would be adjusted at the beginning of the next fiscal year
as if Disney Partner had actually funded the Partnership instead of making the
loan to Starwave Partner.
6.3 ALLOCATIONS. After receipt of the Annual Financial Statements in any
fiscal year and subject to the special allocations of Section 6.6:
(a) ABC Partner shall be allocated 40% of the Net Loss in any fiscal
year and 50% of the Net Income in any fiscal year;
(b) Starwave Partner shall be allocated 60% of the Net Loss in any
fiscal year and 50% of the Net Income in any fiscal year.
6.4 DISTRIBUTIONS. The Partnership shall make cash and/or asset
distributions at the end of each fiscal year upon receipt of the Annual
Financial Statements or when otherwise deemed appropriate by the Partners in the
same proportions as the cash contributions for each Partner in each fiscal year
attributable to such fiscal year.
6.5 CAPITAL ACCOUNTS. The Partnership shall maintain for each Partner a
single capital account (a "Capital Account") with respect to the Partner's
Partnership Interest in accordance with the regulations issued pursuant to Code
Section 704. The Capital Account of each Partner shall be maintained for such
Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be credited (i) the
amount of cash or the Asset Value contributed to the capital of the Partnership
by such Partner pursuant to any provision of this Agreement, (ii) the amounts of
such Partner's distributive share of Net Income allocated pursuant to Section
6.3 and any items in the nature of income or gain that are specially allocated
pursuant to Section 6.6, and (iii) the amount of any Partnership liabilities
that are assumed by such Partner.
(b) To each Partner's Capital Account there shall be debited (i) the
amount of cash or the Asset Value distributed to such Partner pursuant to any
provision of this Agreement, (ii) the amounts of such Partner's distributive
share of Net Loss allocated pursuant
-17-
<PAGE>
to Section 6.3 and any items in the nature of expenses or losses that are
specially allocated pursuant to Section 6.6, and (iii) the amount of any
liabilities of such Partner that are assumed by the Partnership.
(c) In the event that all or a portion of a Partnership Interest is
Transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent that it relates
to the Transferred interest.
(d) In determining the amount of any liability for purposes of
paragraphs (a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations. The
foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations (S)(S)
1.704-1(b) and 1.704-2 in order that the allocations of Revenues and Costs under
this Agreement are deemed to have substantial economic effect, and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event that the Partners mutually determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership or any Partner), are computed in order to comply with such
Regulations, the Partners may make such modification, provided that it is not
likely to have a significant effect on the amounts distributable to any Partner
hereunder upon the dissolution of the Partnership.
6.6 SPECIAL ALLOCATIONS.
(a) PREFERRED RETURN. A Funding Partner shall be specially allocated
Net Income equal to 15% per annum on the funding provided on behalf of the
Nonfunding Partner (and not subsequently made up by the Nonfunding Partner)
until such time as the Nonfunding Partner contributes all of the remaining
unfunded amounts to the Partnership.
(b) RECONCILIATION OF CAPITAL ASSETS. At the end of the fifth fiscal
year of the Partnership (and each subsequent fifth fiscal year during the Term),
the Partners shall cause the Partnership to make a special allocation of Net
Income or Net Loss, if necessary, to ensure that cumulative deductions
attributable to capital assets are consistent with each Partner's financial
contribution with respect to such capital assets.
(c) REGULATORY ALLOCATIONS TO CAPITAL ACCOUNTS. The following special
allocations shall be made in the following order:
(i) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations (S) 1.704-2(f), notwithstanding any other provision of this Article
6, if there is a net decrease in Partnership Minimum Gain during any Partnership
year, each Partner shall be specially allocated items of Partnership income and
gain for such period (and, if necessary, subsequent periods) in an amount equal
to such Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations (S) 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective
-18-
<PAGE>
amounts required to be allocated to each Partner. The items to be so allocated
shall be determined in accordance with Regulations (S)(S) 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.6(c)(i) is intended to comply with the minimum
gain chargeback requirement in Regulations (S) 1.704-2(f) and shall be
interpreted consistently therewith.
(ii) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Regulations (S) 1.704-2(i)(4), notwithstanding any other provision
of this Article 6, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal
period, each Partner who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations (S) 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amount required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations (S)(S) 1.704-
2(i)(4) and 1.704-1(j)(2). This Section 6.6(c)(ii) is intended to comply with
the minimum gain chargeback requirement in Regulations (S) 1.704-2(i)(4) and
shall be interpreted consistently therewith.
(iii) CERTAIN SECTION 754 ADJUSTMENTS. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant to Code
Section 743(b), Code Section 732(d) or Code Section 734(b) is required to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of its interest in the
Partnership, pursuant to Regulations (S) 1.704-1(b)(2)(iv)(m), the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership as determined
under Regulations 1.704-1(b)(3) in the event Regulations (S) 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Partner to whom such distribution was made
in the event Regulations (S) 1.704-1(b)(2)(iv)(m)(4) applies.
(iv) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any fiscal period shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations (S) 1.704-2(i)(1).
6.7 OTHER CAPITAL ACCOUNT ALLOCATION RULES.
(a) ALLOCATIONS WHEN PERCENTAGE INTERESTS CHANGE. For purposes of
determining the Net Income or Net Loss allocable with respect to any period, Net
Income or Net Loss shall be determined on a daily, monthly or other basis, as
determined by the Partners using any permissible method under Code Section 706
and the Regulations thereunder.
-19-
<PAGE>
(b) TAX REPORTING. The Partners are aware of the income tax
consequences of the allocations made by this Article 6 and hereby agree to be
bound by the provisions of this Agreement in reporting their shares of
Partnership income, gain, loss, deduction and expenses for income tax purposes.
6.8 TAX ALLOCATIONS: CODE SECTION 704(C).
(a) GENERALLY. Except as otherwise provided in this Section 6.8, each
item of Partnership income, gain, loss, deduction and expense shall be allocated
to the Partners consistent with the allocations to Capital Accounts provided for
in this Agreement. Any item of income, gain, loss, deduction or credit,
including depreciation recapture, with respect to any property (other than
money) that has been contributed by a Partner to the capital of the Partnership
and which is required to be allocated to the Partners for income tax purposes
pursuant to Code Section 704(c) so as to take into account the variation between
the adjusted basis of such property for federal income tax purposes and its fair
market value at the time of contribution shall be allocated to the Partners in
the manner so required by Code Section 704(c) and the Regulations thereunder.
(b) ELECTIONS. Any elections or other decisions relating to
allocations pursuant to this Section 6.8 shall be made by the Partners in any
manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 6.8 are solely for purposes of federal,
state and local income taxes.
6.9 INTEREST ON CAPITAL ACCOUNTS. Except as specifically provided herein,
no Partner shall be entitled to any interest on its Capital Account or its
contributions to the capital of the Partnership, nor shall any Partner have the
right to demand or receive the return of all or any part of its Capital Account
or its contributions to the capital of the Partnership.
6.10 AUDITS. The Partnership shall employ Price Waterhouse to prepare and
deliver to the Partners an audit of the Annual Financial Statements. In
addition, promptly upon written notice and during normal business hours, either
Partner may (and may employ third-party accounting firms for assistance), no
more often than twice each fiscal year and at its expense, audit, inspect and
take extracts and copies from the other Partner's records with respect to the
News Products subject to reasonable confidentiality protections for the other
Partner's records and information. Either Partner may (and may employ third-
party accounting firms for assistance) audit, inspect and take extracts and
copies from the records of the Partnership at any time during normal business
hours.
7. EXCLUSIVITY
7.1 STARWAVE PARTNER EXCLUSIVITY. During the Term and in the Territory,
and except for activities associated with the development, expansion and
commercialization of the news Component of the Portal Products and Search or
Directory, Starwave Partner and its Affiliates shall not develop, distribute,
produce, or exploit, or market or promote on-air, or, provide services of any
nature or provide a license or permit a third party to utilize any of their
-20-
<PAGE>
respective Intellectual Property Rights with respect to any Remote Access
Products that are dedicated primarily to national and international news,
including, by way of example and without limitation, stories and features
regarding national, international and local affairs and stories and features
regarding business/finance, entertainment, weather, environmental and other
subjects, to the extent such subjects are of national or international
significance or are treated as such in traditional news media. Notwithstanding
the foregoing, Starwave Partner and its Affiliates may engage in such activities
with respect to any Remote Access Products dedicated primarily to entertainment
news or personal finance news.
7.2 ABC PARTNER EXCLUSIVITY. During the Term and in the Territory, and
except for activities associated with the development, expansion and
commercialization of the news Component of the Portal Products, ABC Partner and
its Affiliates shall not develop, distribute, produce, exploit or provide
services of any nature or market or promote on-air (subject to the current
agreement between ABC and America Online, dated March 5, 1997, as amended) or
provide a license or permit a third party to utilize any of their respective
Intellectual Property Rights with respect to any Remote Access Products that are
dedicated primarily to national, international and local news, including, by way
of example and without limitation, stories and features regarding national and
international affairs and stories and features regarding business/finance,
entertainment, weather, environmental and other subjects, to the extent such
subjects are of national or international significance or are treated as such in
traditional news media. Notwithstanding the foregoing, ABC Partner and its
Affiliates may engage in such activities with respect to any Remote Access
Products dedicated primarily to entertainment news or personal finance news. If
during the Term, ABC Partner owns an entertainment news Remote Access Product
that competes with Mr. Showbiz (other than entertainment news coverage that
represents 25% or less of the Content of a larger service owned by DEI or its
Affiliates (e.g., ABC.com)), ABC Partner shall, at Starwave Partner's option,
either take all necessary action to have the Partnership (a) assign back to
Starwave all right, title and interest of the Partnership in Mr. Showbiz or (b)
continue to own Mr. Showbiz but permit Starwave to develop and market Mr.
Showbiz as an independent property without the restrictions set forth in Section
7.1; provided, that in each case, Starwave shall provide the Partnership with a
royalty-free license (subject to compliance with a promotion plan to be mutually
agreed upon by the Advisory Committee) to use Mr. Showbiz as part of the Remote
Access Products during the Term and, in the case of clause (b), ABC Partner
shall continue to promote Mr. Showbiz as provided in such promotion plan.
7.3 NO OTHER RESTRICTIONS. Except as expressly set forth in this Section
7, neither ABC Partner and its Affiliates, on the one hand, nor Starwave Partner
and its Affiliates, on the other hand, shall be subject to any restrictions on
the licensing, use, distribution or other exploitation of their respective
properties (including all Intellectual Property Rights therein) that either
Partner or any of its Affiliates own, control, have a license to, or in which
they have any other form of right, title or interest.
7.4 BROADBAND APPLICATIONS. For clarification purposes, ABC Partner and
its Affiliates, on the one hand, and Starwave Partner and its Affiliates, on the
other hand, in their respective sole discretion, may develop, produce, exploit
or provide services of any nature with
-21-
<PAGE>
respect to programming designed specifically for Broadband delivery (i.e.,
content that requires Broadband transmission to satisfactorily deliver services
to consumers). ABC Partner agrees to investigate (without any obligation)
cooperation with Starwave Partner in the development of products designed for
Broadband delivery.
8. PROPRIETARY RIGHTS.
The Partnership shall jointly own all the Technology, Content (other than
ABC Content, if any) and Programming developed and funded by the Partnership or
jointly funded by the Partners pursuant to Section 6.1(c) during the Term for
the News Products. Ownership of Technology, Content and Programming funded by
Starwave or ABC shall be governed as provided in the Service Agreement.
9. CONFIDENTIAL INFORMATION
The definition and use of each Partner's "Confidential Information" by the
other Partner shall be governed by the terms of that certain Mutual Non-
Disclosure Agreement between the Partners dated March 28, 1997.
10. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
10.1 WARRANTIES OF STARWAVE PARTNER. Starwave Partner represents and
warrants that (a) it has the right, power and authority to enter into this
Agreement and fully to perform its obligations under this Agreement; (b) the
making of this Agreement by it does not violate any agreement existing between
it and any other person or entity; (c) it complies, and at all times shall
comply, with all applicable laws, rules and regulations in effect at the time
services are performed pursuant to this Agreement pertaining to the subject
matter hereof; and (d) it shall not exercise any of the rights granted to it
under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
10.2 INDEMNIFICATION OBLIGATIONS OF STARWAVE PARTNER. Starwave Partner
agrees to, and shall, indemnify, defend and hold harmless ABC Partner and its
Affiliates and their respective directors, shareholders, officers, agents,
employees, successors and assigns from and against any and all claims, demands,
suits, judgments, damages, costs, losses, expenses (including reasonable
attorneys' fees and expenses) and other liabilities arising from actions brought
by third parties in connection with or related to, directly or indirectly, any
breach or alleged breach of any of the representations or warranties made by it
under this Agreement. The foregoing obligations of Starwave Partner shall be
subject to (i) ABC Partner giving Starwave Partner sole control of the defense
and/or settlement of any third party claims, and (ii) ABC Partner providing
Starwave Partner with reasonable assistance and full information at Starwave
Partner's expense. ABC Partner shall promptly notify Starwave Partner of any
such claim, and Starwave Partner shall bear full responsibility for the defense
(including any settlements) of any such claims (i) Starwave Partner shall keep
ABC Partner informed of, and consult with ABC Partner in connection with the
progress of such litigation or settlement; and (ii) Starwave Partner shall not
have any right, without ABC Partner's written consent, to settle
-22-
<PAGE>
any such claim if such settlement arises from or is part of any criminal action,
suit or proceeding or contains a stipulation to or admission or acknowledgment
of, any liability or wrongdoing (whether in contract, tort or otherwise) on the
part of any ABC Affiliate,
10.3 WARRANTIES OF ABC PARTNER. ABC Partner represents and warrants that
(a) it has the right, power and authority to enter into this Agreement, to grant
the licenses herein granted, and to fully perform its obligations under this
Agreement; (b) the making of this Agreement by it does not violate any agreement
existing between it and any other person or entity; (c) it complies, and at all
times shall comply, with all applicable laws, rules and regulations in effect at
the time services are performed pursuant to this Agreement pertaining to the
subject matter hereof; and (d) it shall not exercise any of the rights granted
to it under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
10.4 INDEMNIFICATION OBLIGATIONS OF ABC PARTNER. ABC Partner agrees to,
and shall, indemnify, defend and hold harmless Starwave Partner and its
Affiliates, and its directors, shareholders, officers, agents, employees,
successors and assigns from and against any and all claims, demands, suits,
judgments, damages, costs, losses, expenses (including reasonable attorneys'
fees and expenses) and other liabilities arising from actions brought by third
parties, in connection with or related to, directly or indirectly, any breach
or alleged breach of the representations and warranties made by it under this
Agreement. Starwave Partner shall promptly notify ABC of any such claim, and
ABC shall bear full responsibility for the defense of such claim (including any
settlements) provided however, that (i) ABC Partner shall keep Starwave Partner
informed of and consult with Starwave Partner in connection with the progress of
such litigation or settlement; and (ii) ABC Partner shall not have any right,
without Starwave Partner's written consent, to settle any such claim if such
settlement arises from or is part of any criminal action, suit or proceeding or
contains a stipulation to or admission or acknowledgment of, any liability or
wrongdoing (whether in contract, tort or otherwise) on the part of Starwave
Partner.
10.5 CHOICE OF COUNSEL AND PROTECTION OF RIGHTS. Each Partner shall have
the right, in its absolute discretion, to employ attorneys of its own choice and
to institute or defend any matter, claim, action or proceeding and to take any
other appropriate steps to protect its Intellectual Property Rights and all
rights and interest in and title to its web sites, technology, content and every
element thereof and, in that connection, to settle, compromise in good faith, or
in any other manner dispose of any matter, claim, action, or proceeding and to
satisfy any judgment that may be rendered, in any manner as such Partner in its
sole discretion may determine.
10.6 NO OTHER REPRESENTATIONS. Except for the representations and
warranties specifically set forth in this Agreement, each party makes no other
representations and warranties of any nature whatsoever to the other parties.
10.7 NO SPECIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
IN THIS AGREEMENT, EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 10.2 AND 10.4, NO
PARTY SHALL UNDER ANY
-23-
<PAGE>
CIRCUMSTANCES, BE LIABLE TO ANOTHER PARTY FOR ANY CONSEQUENTIAL, INDIRECT,
SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING WITHOUT LIMITATION, LOST
PROFITS, LOSS OF ANTICIPATED BUSINESS, LOSS OF DATA OR BUSINESS LOSSES) EVEN IF
SUCH DAMAGES ARE FORESEEABLE AND EVEN IF THE BREACHING PARTY HAS BEEN APPRISED
OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
11. TERM AND TERMINATION
11.1 TERM. The term of this Agreement shall commence as of the Effective
Time and shall continue for a period of ten (10) years after the date of the
Effective Time, unless earlier terminated as set forth below (the "Term").
11.2 RENEWAL. Unless earlier terminated, the Partners shall begin renewal
negotiations in good faith beginning on the eight (8) year anniversary of the
Effective Time. If the Partners do not reach an agreement to extend this
Agreement on mutually acceptable terms within three hundred sixty (360) days
after negotiations begin, the exclusivity provisions contained in Sections 7.1
and 7.2 shall be deemed modified, with no action required of the Partners, to
permit either Partner to develop, produce, distribute, exploit or provide
services with respect to competitive Remote Access Products; provided, that
except for such modifications, this Agreement shall continue in full force and
effect until the expiration of the Term and, provided, further, neither Partner
may engage in such activities with respect to News Products then available to
consumers in any manner or available prior to the expiration of the Term. In
the event the exclusivity provisions contained in Sections 7.1 and 7.2 shall be
deemed modified, and either Partner develops, produces, distributes, exploits or
provides services with respect to Remote Access Products competitive with the
News Products, such Partner's Remote Access Products competitive with the News
Products shall be provided with a prominent position on the News Products, via
an above-the-fold link on the start page for the News Product, until the end of
the Term.
11.3 TERMINATION. Without prejudice to any other rights or remedies
available to the Partners, each Partner shall have the right, in its sole
discretion, to terminate this Agreement upon written notice to the other in the
event of the occurrence of one or more of the following:
(a) The other Partner (or DEI or Infoseek) makes any assignment for
the benefit of creditors or files a petition in bankruptcy (provided, that with
respect to ABC Partner's ability to terminate in the event that Starwave Partner
or Infoseek files a petition in bankruptcy, such petition shall have been
approved by a decision of the majority of Infoseek's Disinterested Directors (as
defined in that certain Governance Agreement by and between Infoseek and DEI) or
is adjudged bankrupt or is placed in the hands of a receiver;
(b) With respect to Starwave Partner's termination rights, if ABC
Partner willfully misuses the Starwave Marks or with respect to ABC Partner's
termination rights, Starwave Partner willfully misuses the ABC Marks, and (i)
the willful misuse occurs repeatedly and in each case in material breach of this
Agreement, and (ii) the willful misuse occurs more
-24-
<PAGE>
than three (3) times in any one year period ("Excepted Misuses"), and (iii) with
respect to each such willful misuse, the breaching Partner fails to Cure such
misuse within sixty (60) days after the nonbreaching Partner delivers written
notice of the misuse to the other Partner; provided however that (w) if the
misuse consists of displaying the ABC Marks within the News Products in a manner
such that the appearance of the ABC Marks does not conform to the requirements
set forth herein, and this misuse does not have a material adverse effect on ABC
Partner, such misuse shall be excluded from the Excepted Misuses; and (x) if the
Partner misusing the Marks of the other Partner is using its best efforts to
Cure the misuse, the Cure period shall be extended for so long as such efforts
are exercised; and (y) if a willful misuse is Cured within forty eight (48)
hours of an officer of the breaching Partner being notified in writing of such
misuse by the nonbreaching Partner, such willful misuse shall not count toward
the three (3) Excepted Misuses set forth above; and (z) if a Partner has not
willfully misused the other Partner's Marks within any six (6) month period
during the term hereof, all misuses occurring prior to the commencement of such
six (6) month period shall not count toward the three (3) Excepted Misuses set
forth above. In the event that a Partner misuses the other Partner's Marks
(whether willfully or otherwise), the Partner that misused the Marks shall
implement commercially reasonable policies to address the prevention of the
occurrence of such misuse in the future.
For purposes of this Section 11.3(b), the following terms shall have the
following meanings:
(i) "Marks" shall mean ABC Marks with respect to ABC Partner or
Starwave Marks with respect to Starwave; and
(ii) "misuse" by Starwave of an ABC Trademark shall mean a use of the
ABC Marks in a manner which materially breaches the provisions set forth in
Section 6.1 or 6.2 of the Management and Services Agreement attached hereto as
Exhibit A, either directly by Starwave or by a third party licensed by Starwave
to use the Marks; and
(iii) "Cure" shall mean if the misuse is performed directly by a
Partner, correcting the display or misapplication of the other Partner's Marks,
or if the misuse is performed by a third party under license by a Partner,
terminating the license or purported rights granted by Partner to use such Marks
and using reasonable efforts to cause the third party to cease its misuse of the
other Partner's Marks.
The Partners acknowledge and agree that the nature of Remote
Access Products and the Narrowband medium in general may result in a misuse of a
Partner's Marks being displayed in multiple locations and across multiple
networks. For the avoidance of doubt, if the same application of a Mark is
displayed multiple times or in multiple places as a direct or indirect result of
the Narrowband medium or the manner in which Remote Access Products are
operated, transmitted or otherwise made available electronically, such repeated
displays shall constitute no more than one misuse for purposes of counting
Excepted Misuses hereunder.
-25-
<PAGE>
(c) If the other Partner's Profit Participation is equal to or less
than 25% of the total Profit Participation and the Partnership sustains either
eight consecutive Net Loss fiscal quarters or ten total Net Loss fiscal
quarters; provided, that if the other Partner is Starwave Partner, ABC Partner
shall not be able to terminate unless either Starwave Partner has not qualified
pursuant to Section 6.2(e) for a loan from ABC Partner or such loan has been
treated as a Partnership capital contribution in accordance with its terms after
the expiration of the twelve (12) month period set forth in Section 6.2(e).
11.4 ADDITIONAL TERMINATION RIGHTS. [INTENTIONALLY OMITTED]
11.5 EFFECT OF TERMINATION. In the event of the expiration or termination
of this Agreement for any reason (including a material breach hereof), the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets (subject to Section 11.6) and
satisfying the claims of its creditors and Partners. No Partner shall take any
action that is inconsistent with, or not necessary to or appropriate for,
winding up the Partnership's business and affairs. The Partners shall be
responsible for overseeing the winding up and liquidation of the Partnership and
shall take full account of the Partnership's liabilities and property, and the
property of the Partnership shall be liquidated, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed to the payment
and discharge of all of the Partnership's debts and liabilities to creditors of
the Partnership prior to distributions to the Partners pursuant to Section 11.6.
11.6 LIQUIDATING DISTRIBUTIONS. Upon the expiration or termination of this
Agreement, and after the payment and discharge of all of the Partnership's debts
and liabilities to third-party creditors, the Partnership shall liquidate and
distribute its assets in accordance with Capital Accounts; provided, that the
Partners may elect to receive a distribution of the following assets (at their
respective Asset Values, without taking into consideration the values of the
associated ABC Trademarks nor the values of any Technology, or other development
tools, software, hardware, middleware, or technical know-how licensed to the
Partnership by Starwave or its Affiliates) in lieu of a portion of a cash
distribution (except with respect to clauses (a) and (b) below, which shall be
distributed without giving effect to a reduction of any cash distribution) and
shall contribute cash to the Partnership as necessary to provide that the assets
of the Partnership are distributed in accordance with Capital Accounts:
(a) ABC Partner shall own the brand and name of the News Products and
all other descriptive names developed or used during the Term that contain an
ABC Trademark and the Partnership and Starwave Partner shall assign to ABC
Partner all of its right, title and interest in any registration or other
indicator of ownership and ABC Partner shall own all URLs containing "ABC" and
any variant thereof and the Partnership and Starwave Partner shall assign to ABC
Partner all of its right, title and interest in any registration or other
indicator of ownership;
(b) As among Starwave Partner, DEI, and ABC Partner and each of their
respective Affiliates, Starwave Partner shall own all Technology licensed by
Starwave Partner and its Affiliates to the Partnership in connection with the
operation of the News Products;
-26-
<PAGE>
(c) With respect to in-kind distributions of assets of the
Partnership:
(i) ABC Partner shall be entitled to receive as an in-kind
distribution, the assets (including personnel) of the affiliate relations group
(referenced in Section 3.4(b)) and all other editorial-related Content assets,
including personnel and content licenses;
(ii) Starwave Partner shall be entitled to receive as an in-kind
distribution, all remaining assets (other than customer lists) and personnel of
the Partnership including without limitation all Technology Assets together with
all technology licenses between Starwave or third parties and the Partnership.
For purposes of this Agreement, "Technology Assets" means all technology-related
assets of the Partnership or jointly owned by the Partnership including without
limitation all Programming, Technology, and other development tools, software,
hardware, middleware and technical know-how;
(iii) With respect to all such in-kind distributions, all assets
distributed shall be valued at their respective Asset Values (subject to the
parenthetical within the first sentence of Section 11.6 above) and the
Partnership and the assigning Partner shall assign to the other Partner all of
its respective right, title and interest in such assets, including employment
agreements;
(iv) The assigning Partner agrees to not solicit for hire or
hire any employee in any of the groups or performing functions associated with
the assets being distributed pursuant to this Section for a period of fifteen
(15) months starting from the date of the related in-kind distribution.
Upon the liquidation of the Partnership, if any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all fiscal periods, including the fiscal
period during which such liquidation occurs), such Partner shall be obligated to
contribute to the capital of the Partnership the amount necessary to restore the
Capital Account balance to zero as provided in Regulation 1.704-
1(b)(2)(ii)(b)(3).
11.7 PARTNERSHIP PROPERTY. Upon liquidation and after giving effect to
Section 11.6, the Partnership shall contribute all customer lists owned by the
Partnership to a California trust, with a mutually agreed trustee and both
Partners as equal beneficiaries. Such trust shall have a perpetual life (subject
to termination for material breach or bankruptcy of a Partner) and shall provide
that each Partner shall have a perpetual royalty free license to all customer
lists owned by the Partnership (and transferred to the trust). Neither Partner
may provide the customer lists to third parties unless mutually agreed.
Notwithstanding the foregoing, the perpetual grant hereunder shall be modified,
if necessary, with respect to certain assets if such perpetual grant would
materially diminish the value of such assets as a matter of law.
-27-
<PAGE>
11.8 SURVIVAL. Unless otherwise specified, all obligations that accrue
prior to any expiration or termination of this Agreement shall survive such
expiration or termination. In addition, and without limiting the generality of
the preceding sentence, Sections 8, 9, 10, 11, 12, 13.1, 13.2, 13.4, 13.6, 13.7,
13.10, 13.11, 13.12, 13.13, 13.14 and 14 shall survive the expiration or
termination of this Agreement for any reason.
11.9 INJUNCTIVE RELIEF. Each Partner acknowledges and agrees that the other
Partner may be irreparably harmed by any material breach of this Agreement by
it. Therefore, each Partner agrees that in the event that it breaches any of its
obligations hereunder, the other Partner in addition to all other remedies
available to it under this Agreement, or at law or in equity, shall be entitled
to seek all forms of injunctive relief including decrees of specific
performance, without showing or proving that it sustained any actual damages and
without posting bond.
12. OTHER RIGHTS OF DUTIES AND RESTRICTIONS ON THE PARTNERS
12.1 INDEMNIFICATION. All costs, expenses, liabilities, obligations,
losses, damages, penalties, proceedings, actions, suits or claims of whatever
kind or nature which may be imposed on, incurred by, suffered by, or asserted
against the Partnership, any Partner or any Partner's respective Affiliates,
directors, officers and employees, in connection with the ownership or
management or operation of the business and affairs of the Partnership shall be
referred to as "Claims." The Partnership shall indemnify and hold harmless each
Partner and their respective Affiliates, directors, officers and employees
("Related Persons") for all Claims other than those caused by such Partner's or
such other Related Person's negligence, willful misconduct or breach of this
Agreement. Each Partner shall indemnify and hold harmless the Partnership and
each other Partner for all Claims sustained by any of them resulting from such
Partner's negligence, willful misconduct or breach of this Agreement.
12.2 CONTRIBUTION. In the event that any Partner shall pay in good faith
or become obligated to pay any proper obligation of the Partnership, such
Partner shall be entitled to contributions from the other Partners to the extent
necessary so that, after giving effect to such contributions, each Partner shall
bear no more than that part of such obligation which corresponds to its
respective Capital Contribution obligations at the time of the occurrence,
circumstances, events or conditions giving rise to the obligation.
13. GENERAL PROVISIONS
13.1 NOTICES. All notices which either Partner or the Partnership is
required or may desire to serve upon the other Partner, DEI or the Partnership
shall be in writing and addressed as follows:
-28-
<PAGE>
(a) if to ABC Partner:
ABC News
47 W. 66/th/ Street
New York, NY 10023
Attention: Jeffrey C. Gralnick
Telephone: (212) 456-3300
Facsimile: (212) 456-3299
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
(d) if to the Partnership, c/o:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
with a copy to:
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
-29-
<PAGE>
(b) if to DEI:
Disney Online
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
(c) if to Starwave Partner:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately obtained and a
hard copy is concurrently sent by internationally commercially recognized
overnight delivery service), internationally commercially recognized overnight
delivery service (such as Federal Express or D.H.L.) or courier. Notice shall be
deemed served upon personal delivery or upon actual receipt. Either Partner or
the Partnership may change the address to which notices are to be delivered by
written notice to the other Partner and the Partnership served as provided in
this Section 13.1.
13.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits attached
hereto and hereby incorporated herein by reference, constitutes the complete,
final and exclusive understanding and agreement between the Partners with
respect to the transactions contemplated, and supersedes any and all prior or
contemporaneous oral or written representation, understanding, agreement or
communication between the Partners concerning the subject matter hereof.
-30-
<PAGE>
13.3 AMENDMENTS. All amendments or modifications of this Agreement shall
be binding upon the Partners so long as the same shall be in writing and
executed by each of the Partners hereto.
13.4 WAIVER. No waiver of any provision of this Agreement or any rights or
obligations of either Partner hereunder shall be effective, except pursuant to a
written instrument signed by the Partner waiving compliance, and any such waiver
shall be effective only in the specific instance and for the specific purpose
stated in such writing.
13.5 FORCE MAJEURE. Neither Partner nor the Partnership shall be deemed in
default hereunder, nor shall it hold the other Partner or the Partnership
responsible for, any cessation, interruption or delay in the performance of its
obligations hereunder due to causes beyond its reasonable control including, but
not limited to: earthquake, flood, fire, storm or other natural disaster, act of
God, labor controversy or threat thereof, civil disturbance or commotion,
disruption of the public markets, war or armed conflict (whether or not
officially declared) or the inability to obtain sufficient material, supplies,
labor, transportation, telecommunications, power or other essential commodity or
service required in the conduct of its business, any change in or the adoption
of any law, ordinance, rule, regulation, order, judgment or decree (each a
"Force Majeure Event") provided that the Partner relying upon this Section 13.5:
(a) shall have given the other Partner and the Partnership written notice
thereof promptly and, in any event, within five (5) days of discovery thereof
and (b) shall take all steps reasonably necessary under the circumstances to
mitigate the effects of the force majeure upon which such notice is based.
13.6 NO THIRD PARTNER BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the Partners hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
13.7 RESTRICTION ON TRANSFER.
(a) Neither Partner shall, directly or indirectly, Transfer all or any
portion of its Partnership Interest or any rights therein (whether voluntarily
or by operation of law) without the consent of the other Partner, which consent
may be withheld by such Partner in its sole and absolute discretion; provided,
that ABC Partner shall be entitled to assign its Partnership Interest or any
rights therein to any Affiliate, provided that such Affiliate satisfies the
conditions of paragraph (b) below and shall remain an Affiliate of the Partner,
unless it obtains the prior written consent of the other Partner, which consent
may be withheld in the other Partner's sole discretion. Any Transfer or
attempted transfer by any Partner in violation of the preceding sentence shall
be null and void and of no force or effect whatsoever. No transferee of a
Partner's Interest shall be admitted as a substitute Partner without (i) the
prior unanimous written consent of the other Partners, which may be withheld by
any such Partner in its sole and absolute discretion and (ii) the receipt of any
applicable regulatory consents or approvals.
(b) A Transfer to an Affiliate shall be conditioned upon the following:
-31-
<PAGE>
(i) The transferor and transferee shall execute and deliver to
the Partnership such documents and instruments of conveyance as may be necessary
to effect such Transfer including, without limitation, the execution by the
transferee of a counterpart to this Agreement by which the transferee agrees to
all of the terms, obligations and provisions of this Agreement.
(ii) The Transfer shall not cause the Partnership to terminate
for federal income tax purposes and shall not have a material adverse income tax
consequence to the Partnership or the other Partner.
(c) Upon a merger, consolidation, reorganization, liquidation or
similar event affecting a Partner, its successor-in-interest will assure all
obligations of such Partner hereunder.
13.8 INSURANCE. The Partnership will purchase and maintain sufficient
product liability insurance to protect the Partners and the Partnership against
liability as a result of product liability claims made in connection with the
News Products.
13.9 PARTNERSHIP BANK ACCOUNTS AND FUNDS. The Partnership shall establish
bank accounts at such banks as may from time to time be designated by the
Partners. The Partnership's funds shall be invested in such manner as the
Partners deem appropriate with interest accruing to the Partnership. All bank
and other accounts shall be maintained in the Partnership's name. None of the
Partnership's funds shall be commingled with the funds of any Partner unless
previously approved in writing by the Partners. The Partners shall designate
the General Manager, as a signatory on the bank accounts of the Partnership to
accomplish more effectively the purposes of this Section 13.9.
13.10 CONSTRUCTION. This Agreement shall be fairly interpreted and
construed in accordance with its terms and without strict interpretation or
construction in favor of or against either Partner. Each Partner has had the
opportunity to consult with counsel in the negotiation of this Agreement.
13.11 CAPTIONS AND HEADINGS. The section and subsection headings and
captions appearing in this Agreement are inserted only as a matter of
convenience and shall not be given any legal effect.
13.12 SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be void as
going beyond what is reasonable in all the circumstances for the protection of
the interests of the Partner seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the event
that any provision of this Agreement should be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
-32-
<PAGE>
13.13 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York. Any action arising out of or relating to this Agreement
shall be filed only in the courts of the State of California for the County of
Los Angeles, or the United States District Court for the Central District of
California. The parties hereby consent and submit to the personal jurisdiction
of such courts for the purposes of litigating any such action.
13.14 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
14. TAX MATTERS
14.1 PARTNERSHIP FOR TAX PURPOSES. The Partners intend to treat the
arrangement contemplated herein as a general partnership for tax purposes.
Accordingly, all transactions contemplated by this Agreement shall be
implemented in a manner that is consistent with such treatment.
14.2 PARTNERSHIP TAX YEAR. To the extent permitted by applicable tax law,
the Partnership's year end shall be September 30 for income tax purposes.
14.3 TAX MATTERS PARTNER. The Partners designate ABC Partner as the tax
matters partner, pursuant to Section 6231 of the Code. To the extent permitted
by applicable tax law, actions taken by ABC Partner in its capacity as the tax
matters partner shall require the prior joint approval of the Partners.
14.4 OVERSIGHT OF TAX MATTERS. The General Manager shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
losses, deductions, credits and other items necessary for federal, state and
local income tax purposes, shall provide copies of draft tax returns to each
Partner at least thirty days prior to filing the returns and shall use
reasonable good-faith efforts to furnish to the Partners within sixty days after
the close of each year of the Partnership the tax information reasonably
required for federal, state, and local income tax reporting purposes. The
General Manager shall use good-faith efforts to supply each Partner with the
information necessary to determine estimated tax payments or any other
information related to taxes reasonably requested by each Partner. The
classification, realization and recognition of income, gains, losses,
deductions, credits and other items shall be on the accrual method of accounting
for federal income tax purposes.
14.5 PARTNER SECTION 482 ADJUSTMENT. If the Internal Revenue Service
reallocates an item of income, deduction, or loss to a Partner or an Affiliate
pursuant to Section 482 of the Code or any similar rule or principle of law (a
"Partner Section 482 Allocation"), and the Partnership has a corresponding
correlative item of deduction, loss or income (as determined under Section
1.482-1(g) of the Regulations (the "Partnership Correlative Item"), such
Partnership Correlative Item shall be specially allocated to and reflected in
the Capital Account of the Partner that received (or whose Affiliate received)
such Partner Section 482 Allocation,
-33-
<PAGE>
and a corresponding contribution or distribution shall likewise be deemed to
have been made by or to such Partner.
IN WITNESS WHEREOF, the duly authorized representatives of each Partner
have executed this Agreement as of the day and year first written above.
DOL ONLINE INVESTMENTS, INC. STARWAVE VENTURES
By: /s/ Laurence J. Shapiro By: /s/ Laurence J. Shapiro
------------------------- -----------------------------
Name: Laurence J. Shapiro Name: /s/ Laurence J. Shapiro
Title: Vice President Title: Vice President
The undersigned parent corporations of the Partners agree to cause their
respective subsidiaries that are Partners (or other Affiliates, as necessary) to
fully perform their obligations hereunder. In addition, Disney Enterprises,
Inc. agrees to cause its Affiliates to provide to the Partnership all news-
related Content that is 100% owned by Disney Enterprises, Inc. and its
Affiliates, whether or not owned by ABC News, that may be necessary or useful in
the development and operation of the News Products and such Content shall be
deemed ABC Content for purposes of this Agreement and the Services Agreement.
DISNEY ENTERPRISES, INC. INFOSEEK CORPORATION
By: /s/ Kevin A. Mayer By: /s/ Harry M. Motro
------------------------- ------------------------
Name: Kevin A. Mayer Name: Harry M. Motro
Title: Sr. Vice President Title: President and CEO
-34-
<PAGE>
EXHIBIT 99.6
AMENDED AND RESTATED
ABC NEWS/STARWAVE
MANAGEMENT AND SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AND SERVICES AGREEMENT including the
Exhibits attached hereto (this "AGREEMENT") is entered into as of June 18, 1998
by and among ABC, INC., a Delaware corporation ("ABC"), STARWAVE CORPORATION, a
Washington corporation ("STARWAVE") and ABC NEWS/STARWAVE PARTNERS, a New York
General Partnership (THE "PARTNERSHIP"); provided that, this Agreement shall
only become effective upon the Effective Time, as defined in and pursuant to
that certain Agreement and Plan of Reorganization, of even date herewith, by and
among Infoseek, Infoseek Company, a Delaware corporation, Starwave Corporation,
a Washington corporation, and Disney Enterprises, Inc., a Delaware corporation
("DEI") and shall cease and be of no further force and effect in the event that
the Effective Time does not occur; and provided further that, each of the
parties hereto agrees not to terminate, amend or otherwise alter this Agreement,
or waive any of its rights hereunder, at any time prior to immediately following
the Effective Time. This Agreement amends and restates in its entirety the
Management and Services Agreement by and between the parties hereof entered into
as of March 28, 1997 (the "Original Services Agreement"). DEI is a party to
this Agreement solely with respect to the provisions of Sections 3.3, 3.6, 5.2,
6.1, 6.2 and 10.7.
RECITALS
1. In connection with an investment in Starwave by DEI, Affiliates of each of
ABC and Starwave entered into a Partnership pursuant to a Partnership Agreement
dated March 28, 1997 (the "Original Agreement").
2. Pursuant to an agreement and plan of reorganization and a stock and warrant
purchase agreement (collectively, the "Acquisition Agreements"), DEI has agreed
to acquire approximately a 43% interest in the voting equity of Infoseek
Corporation, a California corporation ("Infoseek"), subject to the terms and
conditions set forth in the Acquisition Agreements.
3. In connection with the transaction contemplated under the Acquisition
Agreements, the Partners desire to amend and restate the Original Agreement by
entering into this Agreement.
THEREFORE, for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, ABC, Starwave and the Partnership hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
-1-
<PAGE>
1.1 "ABC CONTENT" means all Content that is 100% owned or controlled by
ABC or its successors or assigns. For purposes of this Section 1.1, "control"
means the ability to grant the licenses set forth herein; provided however that
if such Content is subject to the payment of royalties or other consideration to
third parties, ABC will notify Starwave in writing in advance and the
Partnership shall have the right, at its option, to include such Content in the
definition of ABC Content.
1.2 "ABC TRADEMARKS" means "ABC News" and the other marks, trade names,
trademarks, brands, names, personalities, logos and representations thereof that
are properties of ABC or its Affiliates that appear within the ABC Content,
Programming, News Products or any other materials created in association with
this Agreement and that ABC or any of its Affiliates owns or controls.
1.3 "ADVISORY COMMITTEE" has the meaning specified in the Partnership
Agreement.
1.4 "AFFILIATE" means, with respect to any person, any person directly or
indirectly through one or more intermediaries controlling, controlled by or
under common control with such person. Notwithstanding the foregoing, for
purposes of this Agreement, Starwave shall not be considered as an Affiliate of
ABC or DEI.
1.5 "ANNUAL BUSINESS PLAN" has the meaning specified in the Partnership
Agreement.
1.6 "BROADBAND" means programming that requires transmission at data rates
which would enable real time, full screen, full motion video at equal to or
better than NTSC broadcast resolution.
1.7 "CONTENT" means audio and audio visual material, photographs, art
work, videos, graphics, text, and sound recordings.
1.8 "COSTS" means all direct costs and allocated costs, whether incurred
by ABC or DEI (including, without limitation, costs associated with Section 3)
or Starwave (including, without limitation, costs associated with Section 4) or
by the Partnership (as referenced in the Partnership Agreement), that are
associated with the development, production and exploitation of the News
Products.
1.9 "FIXED MEDIA PRODUCTS" means multimedia content products developed for
distribution to end users on any platform (including, without limitation, MS-
DOS, Windows, Macintosh, Sega, Nintendo, CD-ROM, Sony Playstation and 3DO
systems) designed to be read on an electronic device but excluding such products
if they include a Narrowband-delivered component and such products would not be
commercially competitive (as reasonably determined in good faith by the
Partners) without the inclusion of a Narrow-band delivered component.
-2-
<PAGE>
1.10 "FORCE MAJEURE EVENT" has the meaning specified in Section 10.5.
1.11 "INTELLECTUAL PROPERTY RIGHTS" means any and all (by whatever name or
term known or designated) tangible and intangible and now known or hereafter
existing (a) rights associated with works of authorship throughout the universe,
including but not limited to copyrights, moral rights, and mask-works, (b)
trademark, service mark and trade name rights and similar rights, (c) trade
secret rights, (d) patents, designs, algorithms and other industrial property
rights, (e) all other intellectual and industrial property and proprietary
rights (of every kind and nature throughout the universe and however designated)
(including without limitation logos, character rights, "rental" rights and
rights to remuneration), whether arising by operation of law, contract, license
or otherwise, and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe (including without limitation rights in any of the
foregoing).
1.12 "NARROWBAND" means programming that does not require transmission at
data rates which would enable real time, full screen, full motion video at equal
to or better than NTSC broadcast resolution.
1.13 "NEWS PRODUCTS" means the Remote Access Products developed, produced,
marketed, distributed or otherwise exploited under the Partnership Agreement
containing broad national, international and local news media, including, by way
of example and without limitation, stories and features regarding national,
international and local affairs and stories and features regarding
business/finance, entertainment, weather, environmental and other subjects, to
the extent such subjects are of national or international significance or are
treated as such in traditional news media.
1.14 "PARTNERSHIP" means the general partnership formed by Affiliates of
Starwave and ABC and "PARTNERSHIP AGREEMENT" means the amended and restated
partnership agreement between such Affiliates, dated as of the date hereof.
1.15 "PERSON" means any individual, partnership, corporation, trust or
other entity.
1.16 "PROGRAMMING" means the programming included in the News Products
including, without limitation, all HTML, Java, and/or other formatted text
files, all related graphics files, animation files, data files, multimedia
files, modules, routines and objects, and the computer software and all of the
script or program files required to exploit such materials and that collectively
control the display of and end user interaction with the programming.
1.17 "REMOTE ACCESS PRODUCTS" means Programming intended for distribution
by any Narrowband interactive transmission method. This definition excludes any
and all Programming that requires Broadband transmission and also excludes (a)
products developed for PDAs, pagers, screen phones and other future handheld
devices and (b) Fixed Media Products.
-3-
<PAGE>
1.18 "RESTATED INITIAL BUSINESS PLAN" has the meaning specified in the
Partnership Agreement.
1.19 "STARWAVE TRADEMARKS" means "Starwave" and the other marks, trade
names, trademarks, brands, names, personalities, logos and representations
thereof that are properties of Starwave Partner or its Affiliates that appear
within the News Products or any other materials created in association with this
Agreement and that Starwave Partner owns or controls.
1.20 "TECHNOLOGY" means all software, hardware and middleware required or
appropriate to (i) transform the Content into the Programming, (ii) create,
modify or maintain the Programming, or (iii) deliver the Programming in an
online format.
1.21 "TERM" shall have the meaning set forth in Section 9.1.
1.22 "TERRITORY" means the United States and Canada.
2. STARWAVE OBLIGATIONS. During the Term, Starwave shall have the following
obligations to the Partnership:
2.1 HOSTING/NETWORK INFRASTRUCTURE. Starwave shall host all portions of
the News Products on Starwave servers, at the highest quality levels as Starwave
performs hosting services for any third party (i.e., having substantially
similar service requirements) and at a nominal mark-up to Costs on a cost-
effective basis and on most-favored-nations terms as those provided to any
similarly situated third party (i.e., having substantially similar service
requirements). Starwave shall be solely responsible for all Starwave network
infrastructure (i.e., telecommunications and connections to the Internet) in
conformance with the level of service that Starwave provides to itself or its
most valued partners and customers.
2.2 BILLING, COLLECTION, CUSTOMER SERVICE FUNCTIONS. Starwave shall be
responsible for billing, collection, customer service and other "back office"
functions for the Partnership at a nominal mark-up to Costs and on most-favored-
nations terms as those provided to any third party (i.e., having substantially
similar service requirements). All such services shall be performed by Starwave
at the highest quality levels Starwave performs services for any third party
(i.e., having substantially similar service requirements) and at a nominal mark-
up to Costs on a cost-effective basis and on most-favored-nations terms as those
provided to any similarly situated third party (i.e., having substantially
similar service requirements).
2.3 TECHNOLOGY DEVELOPMENT AND MAINTENANCE. Starwave shall be responsible
for the technology development and maintenance relating to the News Products, at
a nominal mark-up to actual costs and on most-favored-nations terms as those
provided to any third party (i.e., having substantially similar service
requirements), to the extent commercially reasonable. All such services shall
be performed by Starwave at the highest quality levels Starwave performs
services for any third party (i.e., having substantially similar service
requirements) and at a nominal mark-up to Costs on a cost-effective basis and on
most-favored nations terms as those provided to any similarly situated third
party (i.e., having substantially similar service
-4-
<PAGE>
requirements). It is the intention of the parties that the preponderance of the
technology development and maintenance relating to the News Products shall be
performed by Starwave. The General Manager (as defined in the Partnership
Agreement), in accordance with the Restated Initial Business Plan or Annual
Business Plans, may acquire or license additional or substitute Technology (i)
on an incidental and nonmaterial basis, (ii) if the Costs of acquiring or
licensing Technology from a third party are significantly less than the Costs to
the Partnership of acquiring or licensing such or similar Technology from
Starwave and such third party Technology from Starwave is fully scaleable and
compatible with other Technology used for the News Product and otherwise
appropriate for its intended uses, (iii) or if otherwise agreed and otherwise
appropriate for use in the News Products. In addition, the General Manager, in
accordance with the Restated Initial Business Plan or Annual Business Plans may
acquire or license additional or substitute Technology if, in the General
Manager's reasonable opinion, the inability to so acquire or license such
Technology would have a material impact on the overall quality and competitive
position of the News Products. In such event, Starwave shall have a three (3)
day period to meet with the General Manager to attempt to resolve the issues. If
the issues have not been resolved in the three (3) day period, the General
Manager shall be entitled to present the issues to the Partners for resolution
based upon the mutual agreement of the Partners. During the Term, such
technology development and maintenance (or a portion thereof) may become a
responsibility of the Partnership or the Partners collectively, upon the mutual
agreement of the parties.
2.4 USAGE TRACKING.
(a) Starwave will track traffic in the News Products and shall provide
ongoing access to reports on such traffic to ABC.
(b) Starwave shall from time to time promptly deliver to ABC upon
ABC's request, the names, addresses and other identifying information of users
of the News Products who complete merchandise, advertising, promotional or
subscription transactions over the News Products.
(c) The parties shall have the right to use all data provided by
Starwave under subsections (a) or (b) above in any manner, subject to a mutually
agreed privacy policy and credit policy. All such data shall be owned by the
Partnership. Each party agrees that during the term it shall not provide such
data to any third party, except as may be mutually agreed.
(d) Starwave acknowledges and agrees that the News Products may
contain registration forms and/or questionnaires for users to complete in
connection with contests, promotions or other features of the News Products.
Starwave acknowledges and agrees that such information shall be solely owned by
the Partnership and may be used for either party's and its respective
Affiliates' business purposes, but may not be provided to any third party
(except advertisers), except as may be mutually agreed.
-5-
<PAGE>
2.5 EXISTING TECHNOLOGY. Starwave shall provide, on a royalty free basis,
Technology existing as of the date of this Agreement, including, without
limitation, interactive software development tools, middleware and engines owned
or licensed by Starwave or its Affiliates (provided that Starwave has the right,
with no additional monies owed, to license any such technology to ABC, subject
to Section 5.1) for use in the development and delivery of the News Products.
Such Technology shall be licensed by Starwave, on a royalty free basis.
2.6 OTHER TECHNOLOGY. Starwave shall provide such additional technology
owned or licensed by Starwave or its Affiliates (provided that Starwave has the
right, with no additional monies owed, to license any such technology to ABC,
subject to Section 5.1) that may be useful or necessary in the development of
the News Products, under an agreement to be negotiated in good faith between the
parties within sixty (60) days of the date hereof. If an agreement is not timely
entered into, such Technology shall be provided by Starwave at fair market
rates.
2.7 INFRASTRUCTURE. Starwave shall provide appropriate staffing, support
and infrastructure to fulfill its obligations under this Agreement, including,
without limitation, sufficient dedicated personnel to meet its obligations set
forth under Sections 2.1, 2.2., 2.3 and 2.4, in accordance with the Restated
Initial Business Plan and any Annual Business Plan.
2.8 [INTENTIONALLY OMITTED]
3. ABC AND DEI OBLIGATIONS. During the Term, ABC and DEI shall have the
following obligations to the Partnership.
3.1 CONTENT. Pursuant to Section 6.1, ABC shall provide the Partnership
with a royalty-free license to all ABC Content or Content of its successors-in-
interest which is appropriate for use in the News Products, including without
limitation both television and radio programming. For the avoidance of doubt,
Content provided shall include without limitation all news programs (e.g.,
Evening News), news magazines (e.g., 20/20) and morning shows (e.g., Good
Morning America), subject to cancellation of current programming and the
inclusion of all owned or controlled news programming as set forth in Section
1.1.
3.2 CONTENT DEVELOPMENT/TRANSFORMATION/INTEGRATION. At Costs set forth in
the Restated Initial Business Plan or applicable Annual Business Plan, ABC shall
be responsible for the development of ABC Content for the News Products and for
the transformation of ABC Content into Programming and integration of the
Programming into the News Products. The senior employee in such group shall
report on a day-to-day basis to the General Manager, with direct reporting as
well to an ABC designated executive for oversight of editorial and creative
aspects of the ABC Content.
3.3 ON-AIR MARKETING/PROMOTION. At no charge, ABC shall provide
reasonable marketing and promotion for the News Products on its television and
radio networks, in amounts, formats and frequencies determined by ABC, in its
sole discretion, provided, that ABC shall market and promote ABC News.com in a
manner generally consistent with ESPN's
-6-
<PAGE>
marketing and promotion of ESPNET SportsZone, taking into consideration (i) the
differences between news and sports programming, marketing and promotion, (ii)
the appropriateness of any particular marketing and promotional opportunity, and
(iii) the overall reach and ratings differences among the various on-air
programs on which ABC News.com is promoted as compared with the on-air programs
on which ESPNET SportsZone is promoted, in each case, as determined by DEI. For
the avoidance of doubt, it is understood and agreed that the provisions of this
Section 3.3 shall not limit the promotional services obligations of DEI and its
Affiliates under that certain Promotional Services Agreement of even date
herewith.
3.4 INFRASTRUCTURE. ABC shall provide appropriate staffing, support and
infrastructure, including reasonable access to the ABC News Broadcast Newsroom
infrastructure, to fulfill its obligations under this Agreement.
3.5 ON-AIR TALENT. Subject to Section 3.7(a) and (c), and at no charge,
ABC shall provide appropriate access (in its sole discretion) to on-air talent
for use in connection with the News Products.
3.6 GROUP ADVERTISING SALES. At Costs set forth in the Restated Initial
Business Plan or applicable Annual Business Plan, DEI shall provide, with
ongoing participation by the Partnership, group advertising sales services
(i.e., combining advertising sales services for the News Products of the
Partnership with additional News Products that may be developed by the
Partnership or the parties, individually or in other arrangements such as ESPNET
SportsZone and Disney Online).
3.7 ABC'S CONTROL.
(a) EDITORIAL AND CREATIVE. ABC shall exercise sole and final control
over all editorial and creative aspects of the News Products and all portions
thereof.
(b) ABC NETWORK AFFILIATE RELATIONS. ABC shall exercise sole and
final control over all ABC Network affiliate relations matters associated with
the News Products.
(c) MARKETING AND PROMOTIONS. ABC shall exercise sole and final
control over all uses or references to any ABC Trademark contained in marketing
and promotions associated with the News Products. Any use of an ABC Trademark
by the Partnership or Starwave shall require the prior approval of ABC, which
may be withheld at ABC's sole discretion. ABC shall use its reasonable efforts
to promptly respond to requests from the Partnership for use of the ABC
Trademarks. ABC shall cooperate in good faith with the Partnership to agree on
a templated use of ABC Trademarks from time to time to avoid recurrent
approvals.
4. MERCHANDISING
DEI agrees to provide (or cause its Affiliates to provide) and the
Partnership agrees to purchase (subject to agreement on terms) e-commerce
services to the Partnership, including,
-7-
<PAGE>
without limitation, store design, transaction processing, web hosting, inventory
management, fulfillment and customer service. In exchange for such services, the
Partnership shall pay DEI its costs in providing such services, plus a to-be-
agreed markup on such costs or a to-be-agreed upon revenue share. In addition,
the Partnership shall have joint ownership of all customer information for use
for its business purposes
5. EXCLUSIVITY
5.1 STARWAVE EXCLUSIVITY. During the Term and in the Territory and except
for activities associated with the development and expansion of the news
Component of the Portal Products and Search or Directory and further excluding
the News Products within the Partnership, Starwave and its Affiliates shall not
develop, distribute, produce, or market or promote on-air, or exploit or provide
services of any nature or provide a license or permit a third party to utilize
any of their respective Intellectual Property Rights with respect to any Remote
Access Products that are dedicated primarily to national and international news,
including, by way of example and without limitation, stories and features
regarding national, international and local affairs and stories and features
regarding business/finance, entertainment, weather, environmental and other
subjects, to the extent such subjects are of national or international
significance or are treated as such in traditional news media. Notwithstanding
the foregoing, Starwave Partner and its Affiliates may engage in such activities
with respect to any Remote Access Products dedicated primarily to entertainment
news or personal finance news.
5.2 DEI EXCLUSIVITY. During the Term and in the Territory, DEI and its
Affiliates shall not develop, distribute, produce, or market or promote on-air
(subject to the current agreement between ABC and America Online, Inc., dated
March 5, 1997, as amended which will not be renewed), or exploit or provide
services of any nature or provide a license or permit a third party to utilize
any of their respective Intellectual Property Rights with respect to any Remote
Access Products that are dedicated primarily to national, international and
local news, including, by way of example and without limitation, stories and
features regarding national and international affairs and stories and features
regarding business/finance, entertainment, weather, environmental and other
subjects, to the extent such subjects are of national or international
significance or are treated as such in traditional news media. Notwithstanding
the foregoing, ABC Partner and its Affiliates may engage in such activities with
respect to any Remote Access Products dedicated primarily to entertainment news.
If during the Term, DEI or its Affiliates develops or owns an entertainment news
Remote Access Product that competes with Mr. Showbiz, DEI and its Affiliates
shall, at Starwave's option, either take all necessary action to have the
Partnership (a) assign back to Starwave all right, title and interest of the
Partnership in Mr. Showbiz or (b) continue to own Mr. Showbiz but permit
Starwave to develop and market Mr. Showbiz as an independent property without
the restrictions set forth in Section 5.1; provided, that in each case, Starwave
shall provide the Partnership with a royalty-free license (subject to compliance
with a promotion plan to be mutually agreed upon by the Partners in writing) to
use Mr. Showbiz as part of the Remote Access Products during the Term and, in
the case of clause (b), DEI's appropriate Affiliates shall continue to promote
Mr. Showbiz as provided in such promotion plan.
-8-
<PAGE>
5.3 ADDITIONAL REMOTE ACCESS PRODUCTS. If ABC determines, in its sole
discretion, to develop general news Remote Access Products targeted for users on
an international or foreign (country or regional) basis, the Partnership shall
participate in such development on similar terms to those reflected in the
Partnership Agreement (while taking into consideration additional terms and
potential partners that may be applicable in any particular potential
transaction).
5.4 NO OTHER RESTRICTIONS. Except as expressly set forth in this Section
5, neither ABC and its Affiliates, on the one hand, nor Starwave and its
Affiliates, on the other hand, shall be subject to any restrictions on the
licensing, use, distribution or other exploitation of their respective
properties (including all Intellectual Property Rights therein), that either of
their respective Affiliates own, control, have a license to, or in which they
have any other form of right, title or interest.
5.5 BROADBAND APPLICATIONS. For clarification purposes, ABC and its
Affiliates, on the one hand, and Starwave and its Affiliates, on the other hand,
in their respective sole discretion, may develop, produce, exploit or provide
services of any nature with respect to programming designed specifically for
Broadband delivery (i.e., content that requires Broadband transmission to
satisfactorily deliver services to consumers). ABC agrees to investigate
(without any obligation) cooperation with Starwave in the development of
products designed for Broadband delivery.
6. PROPRIETARY RIGHTS
6.1 GRANT OF RIGHTS. Subject to the Partnership's and Starwave's
compliance with the terms and conditions set forth herein, including without
limitation ABC's rights set forth in Section 3.7, ABC hereby grants the
Partnership (by Partnership or by a third party on behalf of Partnership) the
following limited, royalty-free, non-exclusive (except as exclusive with respect
to Narrowband services in accordance with the provisions hereof), non-
transferable licenses, without right of sublicense, during the Term hereof:
(a) to use, reproduce, modify and adapt the ABC Content to create the
Programming;
(b) to reproduce, transmit, distribute, display and perform the
Programming worldwide as part of the News Products; and
(c) to reproduce and display the ABC Trademarks (including the
descriptive names for the News Products).
6.2 USE OF DISNEY NAME. Neither the Partnership nor Starwave shall have
the right to use the name, likeness or voice of Walt Disney, the word "Disney,"
any likeness of any DEI animated character or any other trademark, tradename or
logo of DEI for any manner
-9-
<PAGE>
whatsoever; provided, that the Partnership may use such items solely as
necessary for editorial purposes.
6.3 PROPRIETARY NOTICES. As a condition to the grant of rights hereunder,
any matter containing ABC Content, including without limitation the Programming
shall bear properly located copyright and trademark notices as prescribed by law
in ABC's name. The Partnership and Starwave will comply with such instructions
as to form, location and content of the notice as ABC may give from time to
time. If by inadvertence a proper copyright notice in ABC's or the ABC
Affiliate's name, as applicable, is omitted from the Programming or any material
containing ABC Content, the Partnership and Starwave agree at their respective
expense (to the extent the omission is caused by the Partnership or Starwave) to
use all reasonable efforts to prospectively correct any such omission. The
Partnership and Starwave agree to promptly respond to ABC's request to make any
such corrections.
6.4 OWNERSHIP OF MATERIALS DEVELOPED BY EACH PARTY. Subject to ABC's
ownership at all times of the ABC Content, and to Sections 6.5 and 6.6, each
party shall own all right, title and interest in (a) any and all materials it
developed prior to or during the Term and all Intellectual Property Rights
therein and (b) any and all Technology, Content (other than ABC Content, if any)
and Programming it developed and funded (i.e., without Partnership or joint
funding) during the Term and all Intellectual Property Rights thereto.
6.5 PARTNERSHIP OWNED MATERIALS. The Partnership shall jointly own all
the Technology, Content (other than ABC Content, if any) and Programming
developed and funded by the Partnership during the Term for the News Products.
6.6 OWNERSHIP BY ABC.
(a) The Partnership and Starwave acknowledge and agree that, as
between the Partnership and Starwave, on the one hand, and ABC, on the other
hand, the ABC Content, and all portions and derivative works thereof (other than
the Programming), whether created by the Partnership, Starwave or ABC, shall be
owned by ABC and to the extent that the Partnership or Starwave owns any right,
title and interest in the ABC Content, each hereby assigns all such right,
title, and interest therein to ABC, including without limitation all
Intellectual Property Rights therein, provided that Starwave shall retain all
right, title and interest, including all Intellectual Property Rights in, all
development tools, software or other technology developed and funded by Starwave
and embodied in or used by Starwave in connection with Starwave's development of
the Programming. Subject only to Section 5 and Starwave's ownership rights
hereunder and under the Partnership Agreement, ABC may utilize, distribute and
otherwise exploit in any manner the ABC Content and derivative works thereof
(other than the Programming) now existing or hereafter developed without any
obligation to the Partnership or Starwave; it being understood that no license
under Starwave Intellectual Property Rights shall be implied from the foregoing.
(b) ABC shall own all URLs containing "ABC", and any and all other
URLs with any variant of any ABC Trademark, including, without limitation, any
URLs that also
-10-
<PAGE>
include any other name or description in addition to an ABC Trademark and ABC
shall own the descriptive names for the News Products (i.e., ABC News Now and
additional or substitute descriptive names) that contain an ABC Trademark.
(c) Starwave Partner shall own all Technology used in connection with
the operation of the News Products that was owned by Starwave Partner prior to
the Effective Time.
(d) The Partnership has the sole right to license the descriptive
names for the News Products; provided that the Partnership shall be required to
provide such a license to ABC or its Affiliates for their own business purposes
for a fair market value royalty to be paid to the Partnership (as determined in
good faith by the Partners). If such license is to a third party (other than
Infoseek or an Infoseek Affiliate (but excluding DEI and its Affiliates) in
connection with Portal Products (as defined in the Partnership Agreement)), the
terms shall include a fair market value royalty to be paid to the Partnership
(as determined in good faith by the Partners).
6.7 NO ADDITIONAL PARTICIPATION. Nothing in this Agreement conveys to the
Partnership or Starwave and, other than as specifically set forth hereunder, the
Partnership and Starwave shall not have or acquire, any right to participate in
any other promotions or activities relating to the ABC Content or any other ABC
activity or product, which rights are retained exclusively by ABC.
6.8 LITIGATION. Should one party become aware of any infringing use of
its property (including Intellectual Property Rights), such party shall notify
the other party and the other party may, within its sole discretion, undertake
to prosecute necessary actions to prevent such use or distribution. In the
event that both parties are joined in any such litigation, the decisions of the
counsel of the party with the affected properties with reference to matters of
procedure, conduct of such litigation and/or the handling thereof, shall prevail
and the other party shall cooperate with and assist counsel. Any recovery shall
be the sole property of the party with the affected properties.
7. CONFIDENTIAL INFORMATION
The definition and use of each party's "Confidential Information" by the other
parties shall be governed by the terms of that certain Mutual Non-Disclosure
Agreement between the parties dated March 28, 1997
8. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
8.1 WARRANTIES OF STARWAVE. Starwave represents and warrants that (a) it
has the right, power and authority to enter into this Agreement and fully to
perform its obligations under this Agreement; (b) the making of this Agreement
by it does not violate any agreement existing between it and any other person or
entity; (c) it complies, and at all times shall comply, with all applicable
laws, rules and regulations in effect at the time services are performed
-11-
<PAGE>
pursuant to this Agreement pertaining to the subject matter hereof; and (d)
Starwave shall not exercise any of the rights granted to it under or pursuant to
this Agreement in a manner that shall violate any applicable law, rule or
regulation.
8.2 INDEMNIFICATION OBLIGATIONS OF STARWAVE. Starwave agrees to, and
shall, indemnify, defend and hold harmless ABC and its Affiliates and their
respective directors, shareholders, officers, agents, employees, successors and
assigns from and against any and all claims, demands, suits, judgments, damages,
costs, losses, expenses (including reasonable attorneys' fees and expenses) and
other liabilities arising from actions brought by third parties, for (a) any
breach or alleged breach of any of the representations or warranties made by it
under this Agreement; (b) any unauthorized use by it or any of its
subcontractors of any ABC Content or any portion of the Programming; (d) any
infringement of such third party's copyrights contained in the portions of the
Programming that are owned or controlled by Starwave or in all technology,
software, data, and content therein that are supplied by Starwave; provided that
ABC shall promptly notify Starwave of any such claim and Starwave shall be given
sole control and bear full responsibility for the defense (including any
settlements) of any such claim; and ABC shall provide Starwave with prompt
notice and full information and reasonable assistance at Starwave's expense with
respect to claims covered under this Section 8.2. Starwave shall keep ABC
informed of, and consult with ABC in connection with the progress of such
litigation or settlement; and Starwave shall not have any right, without ABC's
written consent, to settle any such claim if such settlement arises from or is
part of any criminal action, suit or proceeding or contains a stipulation to or
admission or acknowledgment of, any liability or wrongdoing (whether in
contract, tort or otherwise) on the part of any ABC Affiliate.
8.3 WARRANTIES OF ABC. ABC represents and warrants that (a) it has the
right, power and authority to enter into this Agreement, to grant the licenses
herein granted, and to fully perform its obligations under this Agreement; (b)
the making of this Agreement by it does not violate any agreement existing
between it and any other person or entity; (c) it has all necessary rights in
and to the Programming and any ABC Content provided by ABC hereunder for use
within the scope of this Agreement; (d) it complies, and at all times shall
comply, with all applicable laws, rules and regulations in effect at the time
services are performed pursuant to this Agreement pertaining to the subject
matter hereof; and (e) ABC shall not exercise any of the rights granted to it
under or pursuant to this Agreement in a manner that shall violate any
applicable law, rule or regulation.
8.4 INDEMNIFICATION OBLIGATIONS OF ABC. ABC agrees to, and shall,
indemnify, defend and hold harmless Starwave and its Affiliates, and its
directors, shareholders, officers, agents, employees, successors and assigns
from and against any and all claims, demands, suits, judgments, damages, costs,
losses, expenses (including reasonable attorneys' fees and expenses) and other
liabilities arising from actions brought by third parties, in connection with or
related to, directly or indirectly, (a) its performance of the Agreement; (b)
any breach or alleged breach of the representations, warranties and agreements
made by it under this Agreement; (c) its activities hereunder, including without
limitation, any unauthorized use by it or any of its subcontractors of any ABC
Content or any portion of the Programming; (d) any act or omission of it, its
directors, officers, agents, employees or subcontractors; or (e) any
-12-
<PAGE>
violation or infringement by ABC of any right of privacy or publicity or any
other Intellectual Property Right within the Territory or any libelous
defamatory, obscene or unlawful material contained in the ABC Content within the
Territory. Starwave shall promptly notify ABC of any such claim, and ABC shall
bear full responsibility for the defense of such claim (including any
settlements) provided however, that (i) ABC shall keep Starwave informed of and
consult with Starwave in connection with the progress of such litigation or
settlement; and (ii) ABC shall not have any right, without Starwave's written
consent, to settle any such claim if such settlement arises from or is part of
any criminal action, suit or proceeding or contains a stipulation to or
admission or acknowledgment of, any liability or wrongdoing (whether in
contract, tort or otherwise) on the part of Starwave.
8.5 CHOICE OF COUNSEL AND PROTECTION OF RIGHTS. Each party shall have the
right, in its absolute discretion, to employ attorneys of its own choice and to
institute or defend any matter, claim, action or proceeding and to take any
other appropriate steps to protect its Intellectual Property Rights and all
rights and interest in and title to its web sites, technology, content and every
element thereof and, in that connection, to settle, compromise in good faith, or
in any other manner dispose of any matter, claim, action, or proceeding and to
satisfy any judgment that may be rendered, in any manner as such party in its
sole discretion may determine.
8.6 NO OTHER REPRESENTATIONS. Except for the representations and
warranties specifically set forth in this Agreement, each party makes no other
representations and warranties of any nature whatsoever to the other parties.
8.7 NO SPECIAL DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN THIS AGREEMENT, EXCEPT FOR LIABILITY ARISING UNDER SECTIONS 8.2 AND
8.4, NO PARTY SHALL UNDER ANY CIRCUMSTANCES, BE LIABLE TO ANOTHER PARTY FOR ANY
CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR EXEMPLARY DAMAGES (INCLUDING
WITHOUT LIMITATION, LOST PROFITS, LOSS OF ANTICIPATED BUSINESS, LOSS OF DATA OR
BUSINESS LOSSES) EVEN IF SUCH DAMAGES ARE FORESEEABLE AND EVEN IF THE BREACHING
PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
9. TERM AND TERMINATION
9.1 TERM. The term of this Agreement shall commence as of the Effective
Time and shall continue for the same time period that each of ABC Partner and
Starwave Partner are partners in the Partnership (the "Term").
9.2 RENEWAL. Unless earlier terminated pursuant to Section 9.3, the
parties shall begin renewal negotiations in good faith beginning on the eight
(8) year anniversary of the date hereof. If the parties do not reach an
agreement to extend this Agreement on mutually acceptable terms within three
hundred sixty (360) days after negotiations begin, the exclusivity provisions
contained in Sections 5.1 and 5.2 shall be deemed modified, with no action
required
-13-
<PAGE>
of the parties, to permit either party to develop, distribute, produce, exploit
or provide services with respect to competitive Remote Access Products;
provided, that except for such modifications, this Agreement shall continue in
full force and effect until the expiration of the Term and, provided, further,
that neither party may engage in such activities with respect to News Products
then available to consumers in any manner or available prior to the expiration
of the Term. In the event the exclusivity provisions contained in Sections 5.1
and 5.2 shall be deemed modified, and either Partner develops, distributes,
produces, exploits or provides services with respect to Remote Access Products
competitive with the News Products, such Partner's Remote Access Products
competitive with the News Products shall be provided with a prominent position
on the News Products, via an above-the-fold link on the start page for the News
Product, until the end of the Term.
9.3 TERMINATION. Without prejudice to any other rights or remedies
available to the parties, ABC and Starwave (but not the Partnership) shall each
have the right, in its sole discretion, to terminate this Agreement upon written
notice to the other in the event of the occurrence of one or more of the
following:
(a) The termination of the Partnership Agreement in accordance with
its terms; or
(b) The other party makes any assignment for the benefit of creditors
or files a petition in bankruptcy (provided, that with respect to ABC Partner's
ability to terminate in the event that Starwave Partner or Infoseek files a
petition in bankruptcy, such petition shall have been approved by a decision of
the majority of Infoseek's Disinterested Directors (as defined in that certain
Governance Agreement by and between Infoseek and DEI) or is adjudged bankrupt or
is placed in the hands of a receiver; or
(c) With respect to Starwave's termination rights, ABC willfully
misuses the Starwave Marks or with respect to ABC termination rights, Starwave
willfully misuses the ABC Marks, and (i) the willful misuse occurs repeatedly
and in each case in material breach of this Agreement, and (ii) the willful
misuse occurs more than three (3) times in any one year period ("Excepted
Misuses"), and (iii) with respect to each such willful misuse, the breaching
party fails to Cure such misuse within sixty (60) days after the nonbreaching
party delivers written notice of the misuse to the other party; provided however
that (w) if the misuse consists of displaying the ABC Marks within the News
Products in a manner such that the appearance of the ABC Marks does not conform
to the requirements set forth herein, and this misuse does not have a material
adverse effect on ABC, such misuse shall be excluded from the Excepted Misuses;
and (x) if the party misusing the Marks of the other party is using its best
efforts to Cure the misuse, the Cure period shall be extended for so long as
such efforts are exercised; and (y) if a willful misuse is Cured within forty
eight (48) hours of an officer of the breaching party being notified in writing
of such misuse by the nonbreaching party, such willful misuse shall not count
toward the three (3) Excepted Misuses set forth above; and (z) if a party has
not willfully misused the other party's Marks within any six (6) month period
during the term hereof, all misuses occurring prior to the commencement of such
six (6) month period shall not count toward the three (3) Excepted Misuses set
forth above. In the event that a party misuses
-14-
<PAGE>
the party's Marks, (whether willfully or otherwise), the party that misused the
Marks shall implement commercially reasonable policies to address the prevention
of the occurrence of such misuse in the future.
For purposes of this Section 9.3(c), the following terms shall have the
following meanings:
(i) "Marks" shall mean ABC Marks with respect to ABC or Starwave Marks with
respect to Starwave; and
(ii) "misuse" by Starwave of an ABC Trademark shall mean a use of the ABC Marks
in a manner which materially breaches the provisions set forth in Section 6.1 or
6.2 of this Agreement, either directly by Starwave or by a third party licensed
by Starwave to use the Marks; and
(iii) "Cure" shall mean if the misuse is performed directly by a party hereto,
correcting the display or misapplication of the other party's Marks, or if the
misuse is performed by a third party under license by a party hereto,
terminating the license or purported rights granted by such party to use such
Marks and using reasonable efforts to cause the third party to cease its misuse
of the other party's Marks.
The Partners acknowledge and agree that the nature of Remote Access Products and
the Narrowband medium in general may result in a misuse of a Partner's Marks
being displayed in multiple locations and across multiple networks. For the
avoidance of doubt, if the same application of a Mark is displayed multiple
times or in multiple places as a direct or indirect result of the Narrowband
medium or the manner in which Remote Access Products are operated, transmitted
or otherwise made available electronically, such repeated displays shall
constitute no more than one misuse for purposes of counting Excepted Misuses
hereunder.
9.4 [INTENTIONALLY OMITTED.]
9.8 SURVIVAL. Unless otherwise specified, all obligations that accrue
prior to any expiration or termination of this Agreement shall survive such
expiration or termination. In addition, and without limiting the generality of
the preceding sentence, Sections 6, 7, 8, 9, and 10 shall survive the expiration
or termination of this Agreement for any reason.
9.9 INJUNCTIVE RELIEF. Each party acknowledges and agrees that the other
parties may be irreparably harmed by any material breach of this Agreement by
it. Therefore, each party agrees that in the event that it breaches any of its
obligations hereunder, the other parties in addition to all other remedies
available to it under this Agreement, or at law or in equity, shall be entitled
to seek all forms of injunctive relief including decrees of specific
performance, without showing or proving that it sustained any actual damages and
without posting bond.
-15-
<PAGE>
10. GENERAL PROVISIONS
10.1 NOTICES. All notices which either party is required or may desire to
serve upon another party shall be in writing and addressed as follows:
(a) if to ABC:
ABC News
47 W. 66th Street
New York, NY 10023
Attention: Jeffrey C. Gralnick
Telephone: (212) 456-3300
Facsimile: (212) 456-3299
with a copy to:
Disney Online
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
(b) if to DEI:
Disney Online
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
with a copy to:
Disney Enterprises, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: General Counsel
Telephone: (818) 560-4370
Facsimile: (818) 563-4160
-16-
<PAGE>
(c) if to Starwave:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
(d) if to the Partnership, c/o:
Starwave Corporation
13810 SE Eastgate Way
Bellevue, WA 98005
Attention: Michael Slade
Curt Blake
Telephone: (206) 957-2000
Facsimile: (206) 643-9381
DOL Online Investments, Inc.
500 S. Buena Vista Street
Burbank, CA 91521
Attention: Jake Winebaum
Telephone: (818) 623-3300
Facsimile: (818) 623-3304
ABC News
47 W. 66th Street
New York, NY 10023
Attention: Jeffrey C. Gralnick
Telephone: (212) 456-3300
Facsimile: (212) 456-3299
Any such notice may be served personally or by mail (postage prepaid),
facsimile (provided oral confirmation of receipt is immediately obtained and a
hard copy is concurrently sent by internationally commercially recognized
overnight delivery service), internationally commercially recognized overnight
delivery service (such as Federal Express or D.H.L.) or courier. Notice shall
be deemed served upon personal delivery or upon actual receipt. Any party may
change the address to which notices are to be delivered by written notice to the
other parties served as provided in this Section 10.1.
10.2 ENTIRE AGREEMENT. This Agreement, together with the Exhibits
attached hereto and hereby incorporated herein by reference, constitutes the
complete, final and exclusive
-17-
<PAGE>
understanding and agreement between the parties with respect to the transactions
contemplated, and supersedes any and all prior or contemporaneous oral or
written representation, understanding, agreement or communication between the
parties concerning the subject matter hereof.
10.3 AMENDMENTS. All amendments or modifications of this Agreement shall
be binding upon the parties so long as the same shall be in writing and executed
by each of the parties hereto.
10.4 WAIVER. No waiver of any provision of this Agreement or any rights
or obligations of any party hereunder shall be effective, except pursuant to a
written instrument signed by the party waiving compliance, and any such waiver
shall be effective only in the specific instance and for the specific purpose
stated in such writing.
10.5 FORCE MAJEURE. No party shall be deemed in default hereunder, nor
shall it hold the other parties responsible for, any cessation, interruption or
delay in the performance of its obligations hereunder due to causes beyond its
reasonable control including, but not limited to: earthquake, flood, fire, storm
or other natural disaster, act of God, labor controversy or threat thereof,
civil disturbance or commotion, disruption of the public markets, war or armed
conflict (whether or not officially declared) or the inability to obtain
sufficient material, supplies, labor, transportation, telecommunications, power
or other essential commodity or service required in the conduct of its business,
any change in or the adoption of any law, ordinance, rule, regulation, order,
judgment or decree (each a "Force Majeure Event") provided that the party
relying upon this Section 10.5: (a) shall have given the other parties written
notice thereof promptly and, in any event, within five (5) days of discovery
thereof and (b) shall take all steps reasonably necessary under the
circumstances to mitigate the effects of the force majeure upon which such
notice is based.
10.6 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is intended
or shall be construed to give any person, other than the parties hereto, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
10.7 ASSIGNMENT. Neither party shall directly or indirectly assign this
Agreement to a third party without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
10.8 CONSTRUCTION. This Agreement shall be fairly interpreted and
construed in accordance with its terms and without strict interpretation or
construction in favor of or against any party. Each party has had the
opportunity to consult with counsel in the negotiation of this Agreement.
10.9 CAPTIONS AND HEADINGS. The section and subsection headings and
captions appearing in this Agreement are inserted only as a matter of
convenience and shall not be given any legal effect.
-18-
<PAGE>
10.10 SEVERABILITY. If any restriction, covenant or provision of this
Agreement shall be adjudged by a court of competent jurisdiction to be void as
going beyond what is reasonable in all the circumstances for the protection of
the interests of the party seeking to enforce such restriction, covenant or
provision, such restriction, covenant or provision shall apply with such
modifications as may be necessary to make it valid and effective. In the event
that any provision of this Agreement should be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
shall not in any way be affected or impaired thereby.
10.11 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York. Any action arising out of or relating to this Agreement
shall be filed only in the courts of the State of California for the County of
Los Angeles, or the United States District Court for the Central District of
California. The parties hereby consent and submit to the personal jurisdiction
of such courts for the purposes of litigating any such action.
10.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
-19-
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of each party have
executed this Agreement as of the day and year first written above.
ABC, INC. STARWAVE CORPORATION
By: /s/ Laurence J. Shapiro By: /s/ Kevin A. Mayer
------------------------- -------------------------
Name: Laurence J. Shapiro Name: Kevin A. Mayer
Title: Vice President Title: Sr. Vice President
ABC NEWS/STARWAVE PARTNERS
By its General Partners
DOL ONLINE INVESTMENTS, INC. STARWAVE VENTURES
By: /s/ Laurence J. Shapiro By: /s/ Laurence J. Shapiro
------------------------- -------------------------
Name: Laurence J. Shapiro Name: Laurence J. Shapiro
Title: Vice President Title: Vice President
EXECUTED SOLELY WITH RESPECT
TO THE PROVISIONS OF
SECTIONS 3.1, 3.6, 4.6, 5.2, 6.1 AND 6.2
DISNEY ENTERPRISES, INC.
By: /s/ Kevin A. Mayer
-------------------------
Name: Kevin A. Mayer
Title: Sr. Vice President
-20-
<PAGE>
EXHIBIT 99.7
March 28, 1997
Michael B. Slade
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
Dear Mike:
This letter confirms the terms of your employment by Starwave Corporation
(the "Employer").
1. TERM
Subject to your signing and delivering this letter agreement (the
"Agreement") to Employer and completion of the Disney Enterprises, Inc.
("Disney") investment in the Employer, the term of your employment
hereunder commences April 1, 1997, and expires on March 31, 2000, unless
earlier terminated as hereinafter provided (the "Employment Period").
2. SALARY
In full consideration for all rights and services provided by you
hereunder, you shall receive an annual salary of $290,000, $320,000 and
$360,000 for each of the three successive twelve month periods in the
Employment Period. Salary payments shall be made in equal installments
in accordance with Employer's then prevailing payroll policy.
3. BONUS
Bonus compensation, if any, shall be at the discretion of Employer.
4. STOCK OPTIONS
You acknowledge and agree that all stock options granted by Employer
pursuant to the Revised 1992 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") shall continue to be governed in accordance
with the Plan, as amended or modified from time to time. You acknowledge
receipt of the Plan. Concurrently herewith you have been granted a non-
qualified option to acquire 250,000 shares of Employer's Class A Common
Stock, exercisable at $9.07 per share. Such shares shall vest in forty-
seven (47) equal monthly installments of 5,208 shares during each of the
forty-seven (47) calendar months commencing April 1997 with a final
monthly installment of 5,224 shares, subject to continued employment and
all of the terms of the Plan and the Stock Option Agreement reflecting
such grant. In the event that you are terminated without cause prior to
the expiration of the Employment Period, then all stock options which
would have otherwise vested through the end of the Employment Period
shall vest upon such termination.
<PAGE>
Michael B. Slade
March 28, 1997
Page 2
5. TITLE
You are being employed hereunder in the position of Chairman of the
Board of Directors and Chief Executive Officer of Employer. During the
term hereof you shall also serve as a member of Employer's Board of
Directors (the "Board").
6. DUTIES
You shall personally and diligently perform, on a full time and
exclusive basis, such services as Employer or any of its divisions may
reasonably require. You shall observe all reasonable rules and
regulations adopted by Employer in connection with the operation of its
business and carry out to the best of your ability all instructions of
Employer. Without limiting the foregoing, you shall have general
responsibility for the management of Employer. All officers of Employer
shall report to you directly or indirectly. Your principal place of
business shall be in the Bellevue/Greater Seattle area, but you shall
travel as reasonably required in connection with the performance of your
duties hereunder.
7. EXPENSES
To the extent you incur necessary and reasonable business expenses
(including, without limitation, travel and entertainment) in the course
of your employment, you shall be reimbursed for such expenses, subject
to Employer's then current policies regarding reimbursement of such
business expenses.
8. OTHER BENEFITS
You shall be entitled to those benefits that are standard for persons in
similar positions with Employer, consistent in the aggregate with
Employer's current practice subject to changes affecting all executives.
9. VACATIONS; SABBATICAL
You shall be entitled to four weeks paid vacation during each twelve
month period of this Agreement. Unused vacation time in any twelve
month period shall not be carried over to subsequent periods and you
shall not be entitled to payment in lieu of unused vacation time (except
on termination up to a maximum of four weeks of such unused time).
During the first twelve months of your employment hereunder you shall be
entitled to an additional four weeks of unpaid vacation time to be taken
at times mutually convenient to you and Employer.
10. LIQUIDITY PROVISIONS; REPURCHASE RIGHT
<PAGE>
Michael B. Slade
March 28, 1997
Page 3
In order to provide you with the opportunity to sell shares of
Employer's Class A Common Stock prior to the time (if at all) that
Employer makes an initial public offering of its Class A Common Stock
and to provide for the repurchase of your shares of Class A Common Stock
by and at the option of Employer or Disney or its affiliates under
certain circumstances, we have mutually agreed to the following:
(a) INITIAL SALE OPPORTUNITY
(i) Employer shall purchase up to an aggregate of $4 million of
the Class A Common Stock from employees of Employer who are
employees on the Election Date ("Eligible Employees"). The
Election Date shall be July 1, 1997. The Closing Date for the
sale shall be on or before August 1, 1997. You shall have the
right to sell up to 125,000 shares of Class A Common Stock and
Tom Phillips shall have the right to sell up to 60,975 shares
of Class A Common Stock, and two additional Key Executives
shall have the right to sell twenty-five percent (25%) or
thirty-five percent (35%) of the Class A Common Stock held by
them at a purchase price equal to $8.21 per share minus the
exercise price of any vested options which are purchased. To
the extent that any portion of the $4 million has not been so
utilized, then other Eligible Employees shall each have the
right to sell twenty percent (20%) of the Class A Common Stock
held by such Eligible Employee at a purchase price equal to
$8.21 per share which is purchased. It shall be at the sole
and absolute discretion of each Eligible Employee as to
whether or not to sell Class A Common Stock and in what
proportion. In the event that an Eligible Employee (including
you or other Key Executives) elects not to sell the full
amount of their Class A Common Stock as described above, then
Employer shall not be obligated to purchase Class A Common
Stock from such Eligible Employee, nor to reallocate the cash
allocable to such shares to additional shares from other
Eligible Employees in excess of the applicable percentage of
their holdings provided above.
(ii) Concurrently herewith you shall have entered into an agreement
with Disney respecting its purchase of certain Class A Common
Stock and Vested Options from you and an agreement with Paul
Allen ("Allen") with respect to matters arising out of this
Agreement.
(b) ANNUAL LIQUIDITY OPPORTUNITY
For the calendar years ending December 31, 1998 and December 31, 1999,
subject in each case to your continued employment through the
<PAGE>
Michael B. Slade
March 28, 1997
Page 4
end of each such calendar year (provided that if you are terminated
without cause, or you die or become permanently and totally
disabled, you will be entitled to a pro rata portion of such
liquidity opportunity based upon the number of calendar months in
the particular calendar year prior to such termination), the Board,
after consultation with you, shall establish both qualitative and
quantitative targets to measure Employer's performance during such
year. If the Employer meets EITHER the qualitative or quantitative
targets for such year, you may give written notice to Employer
within three months after the end of the calendar year asking that
Employer at its option purchase or seek to privately place up to
twenty-five per cent (25%) of the Eligible Securities held by you
as of the date hereof (as hereafter defined) at their Fair Market
Value (as defined). If the Employer fails to privately place such
securities within six months, then you may require Disney and Paul
Allen ("Allen") (in the following proportions: forty-five percent
(45%) Disney; fifty-five percent (55%) Allen) to purchase such
securities in the subsequent sixty (60) day period at a price equal
to eighty percent (80%) of Fair Market Value. Fair Market Value
shall be established by a nationally recognized investment banking
firm selected by Employer and reasonably acceptable to you.
Appraisal cost will be paid by Employer. For purposes of
determining the Eligible Securities you may sell hereunder, the
total number of shares deemed owned by you at any time shall be the
sum of the Eligible Securities owned by you at the date hereof
other than those sold by you under clause (a) above plus all
additional Class A Common Stock and options which become vested
between the date hereof and the end of the relevant period, without
deduction for shares previously sold by you under this clause (b).
(c) RESIDUAL PUT
If at the end of six years following the date hereof so long as you
have not been terminated pursuant to paragraph 13(a), Disney has
not exercised its call on your stock under clause (e) below or
Allen has not exercised his put to Disney (thereby triggering your
tagalong rights), you may require Employer for a sixty (60) day
period to purchase all or any portion of the Eligible Securities
then owned by you at a purchase price equal to eighty percent (80%)
of the Fair Market Value thereof.
(d) TERMINATION ON IPO
The rights granted in this Section 10 shall terminate concurrently
with the closing of an initial public offering of Employer's Class
A Common Stock registered under the Securities Act of 1933, as
amended.
<PAGE>
Michael B. Slade
March 28, 1997
Page 5
(e) REPURCHASE BY DISNEY
In the event that either Disney elects to purchase all shares of
Common Stock owned by Allen or his permitted transferees
(collectively, the "Allen Shares") or Allen elects to require
Disney to purchase the Allen Shares (either an "Allen Repurchase
Event"), Disney shall be required to purchase, and you shall be
required to sell, all Class A Common Stock owned by you at the same
per share price as the per share price offered to Allen (less any
applicable option exercise price). If Allen elects to receive
shares of Disney common stock (rather than cash) in an Allen
Repurchase Event, you shall be entitled to elect to receive Disney
common stock for your Class A Common Stock, at the same per share
price as the per share price offered to Allen. In the event an
Allen Repurchase Event does not occur or fails to close, Disney
shall be relieved of its obligation to purchase and you shall be
relieved of your obligation to sell the Class A Common Stock.
Disney shall deliver a notice to you promptly upon the occurrence
of an Allen Repurchase Event providing a ten (10) day period for
you to exercise previously vested Options. Upon the end of the ten
(10) day period, your rights to shares of Class A Common Stock
issued upon exercise of options shall terminate and be null and
void, such shares of Class A Common Stock shall be cancelled on the
books and records of the Company and your sole right with regard to
such shares shall be the compensation provided for below. Upon the
end of the ten (10) day period, all remaining vested and unvested
options held by you shall terminate and become null and void. Any
provision in any stock option or other agreement between you and
Employer to the contrary is modified and amended hereby. Disney
shall, as compensation for any unvested Options, at its sole option
either (i) make a cash payment to you for the fair market value of
the unvested options (which shall be the same per share price paid
to Allen or his transferees in connection with such a repurchase
event), or (ii) recommend to the Compensation Committee of Disney's
Board that you receive options to purchase Disney common stock (in
accordance with the terms and conditions of the then prevailing
Disney stock option plan) in amounts designed to provide the
Optionee with equivalent value, as determined by Disney in its
reasonable discretion and the compensation committee makes such
grants. Any such determinations provided for in this clause (d)
shall be final and binding. Payment for any stock purchased
hereunder shall be made by Disney promptly following the closing of
an Allen Repurchase Event. The Disney election provided above shall
be taken within sixty (60) .days of the closing of an Allen
Repurchase Event. If Disney elects to make a cash payment, such
payment shall occur promptly following the Disney election. If
Disney elects to provide options to purchase Disney common stock,
such option grants
<PAGE>
Michael B. Slade
March 28, 1997
Page 6
shall occur in the next regularly scheduled meeting of the
Compensation Committee, if possible, or the following regularly
scheduled meeting.
11. PROTECTION OF EMPLOYER'S INTERESTS
(a) During the term of your employment by Employer you shall not
compete in any manner, directly or indirectly, whether as a
principal, employee, agent or owner, with Employer, The Walt Disney
Company or any affiliate thereof, except that the foregoing will
not prevent you from holding at any time less than 5% of the
outstanding capital stock of any company whose stock is publicly
traded.
(b) To the extent permitted by law, all rights worldwide with respect
to any and all intellectual or other property of any nature
produced, created or suggested by you during the term of your
employment or resulting from your services shall be deemed to be a
work made for hire and shall be the sole and exclusive property of
Employer. You agree to execute, acknowledge and deliver to
employer at Employer's request, such further documents as Employer
finds appropriate to evidence Employer's rights in such property.
Any confidential and/or proprietary information of Employer or any
affiliate thereof shall not be used by you or disclosed or made
available by you to any person except as required in the course of
your employment, and upon expiration or earlier termination of the
term of your employment, you shall return to Employer all such
information that exists in written or other physical form (and all
copies thereof) under your control. Without limiting the
generality of the foregoing, you acknowledge signing and delivering
to Employer its standard confidentiality agreement for employees
and you agree that all terms and conditions contained therein, and
all of your obligations and commitments provided for therein, shall
be deemed, and hereby are, incorporated into this Agreement as if
set forth in full herein. The provisions of this paragraph shall
survive the expiration or earlier termination of this Agreement.
12. SERVICES UNIQUE
You recognize that your services hereunder are of a special, unique,
unusual, extraordinary and intellectual character giving them a peculiar
value, the loss of which cannot be reasonably or adequately compensated
for in damages, and in the event of a breach of this Agreement by you
(particularly, but without limitation, with respect to the provisions
hereof relating to the exclusivity of your services and the provisions
of paragraph 10 hereof), Employer shall, in addition to all other
remedies available to it, be entitled to equitable relief by way of
injunction and any other legal or equitable remedies.
<PAGE>
Michael B. Slade
March 28, 1997
Page 7
13. TERMINATION
(a) Employer may terminate your employment hereunder for gross
negligence, misconduct, nonfeasance or breach of this Agreement or
for other good cause, and in any such event all obligations of
Employer hereunder (except pursuant to paragraph 10(e)) shall
immediately terminate.
(b) In the event of your death during the term hereof, this Agreement
(other than paragraphs 10(b), (c), and (e) shall terminate and
Employer shall only be obligated to pay your estate or legal
representative the salary provided for herein to the extent earned
by you prior to such event and to have all unvested options vest as
provided in your stock option agreement. In the event you are
unable to perform the services required of you hereunder as a
result of any disability and such disability continues for a period
of 90 or more consecutive days or an aggregate of 120 or more days
during any 12-month period during the term hereof, then at any time
thereafter Employer shall have the right, at its option, to
terminate your employment hereunder. In such event, all unvested
options shall vest as provided in your stock option agreement.
Unless and until so terminated, during any period of disability
during which you are unable to perform the services required of you
hereunder, your salary hereunder shall be payable to the extent of,
and subject to, Employer's policies and practices then in effect
with regard to sick leave and disability benefits.
(c) You acknowledge that you have been provided by Employer with a copy
of Section 508 of the Federal Communications Act of 1934, as
amended, relating in part to receiving or paying consideration for
product identification in television programs, that you are
familiar with the provisions thereof and that you will fully comply
therewith during the term of this Agreement. Without limiting the
foregoing, however, and whether or not Section 508 is applicable to
your activities, you agree that you will not, without Employer's
prior written consent, accept any compensation or gift from any
person, firm or corporation (other than Employer) where such
compensation or gift is, or may appear to be, in consideration of
your acting in a particular manner in relation to the business of
such person, firm or corporation. Without limiting the generality
of paragraph 13(a) hereof, it is agreed that any violation of this
paragraph 13(c) shall constitute a violation of this Agreement upon
which Employer may forthwith terminate this Agreement pursuant to
paragraph 13(a) hereof.
14. USE OF EMPLOYEE'S NAME
<PAGE>
Michael B. Slade
March 28, 1997
Page 8
Employer shall have the right but not the obligation to use your name or
likeness for any publicity or advertising purpose. Employer is under no
obligation to accord you credit for any production.
15. ASSIGNMENT
Employer may assign this Agreement or all or any part of its rights
hereunder to any entity that succeeds to a substantial portion of
Employer's assets or business, and this Agreement shall inure to the
benefit of such assignee.
16. NO CONFLICT WITH PRIOR AGREEMENTS
You represent to Employer that neither your commencement of employment
hereunder nor the performance of your duties hereunder conflicts with
any contractual commitment on your part to any third party or violates
or interferes with any rights of any third party.
17. POST-TERMINATION OBLIGATIONS
After the termination of your employment hereunder for any reason
whatsoever, you shall not either alone or jointly, with or on behalf of
others, either directly or indirectly, whether as principal, partner,
agent, shareholder, director, employee, consultant or otherwise, at any
time during a period of two years following such termination, offer
employment to, or solicit the employment or engagement of, or otherwise
entice away from the employment of Employer or any affiliated entity,
either for your own account or for any other person, firm or company,
any person who is employed by Employer or any such affiliated entity,
whether or not such person would commit any breach of his contract of
employment by reason of his leaving the service of Employer or any
affiliated entity.For purposes of this paragraph 17, Disney and its
affiliates (other than Employer) shall not be considered to be
affiliated entities of Employer.
18. ENTIRE AGREEMENT; AMENDMENTS; WAIVER; ETC.
(a) This Agreement supersedes all prior or contemporaneous agreements
and statements, whether written or oral, concerning the terms of
your employment, and no amendment or modification of this Agreement
shall be binding against Employer unless set forth in a writing
signed by Employer and delivered to you. No waiver by either party
of any breach by the other party of any provision or condition of
this Agreement shall be deemed a waiver of any similar or
dissimilar provision or condition at the same or any prior or
subsequent time.
(b) You have given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the
effect that any fees or commissions of any nature are, or under any
circumstances
<PAGE>
Michael B. Slade
March 28, 1997
Page 9
might be, payable by Employer or any affiliate
thereof in connection with your employment hereunder.
(c) Nothing herein contained shall be construed so as to require the
commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any present or
future statue, law, ordinance or regulation, the latter shall
prevail, but in such event the provision of the Agreement affected
shall be curtailed and limited only to the extent necessary to
bring it within legal requirements.
(d) This Agreement does not constitute a commitment of Employer with
regard to your employment, express or implied, other than to the
extent expressly provided for herein. Upon termination of this
Agreement, it is the contemplation of both parties that your
employment with Employer shall cease, and that neither Employer nor
you shall have any obligation to the other with respect to
continued employment. In the event that your employment continues
for any period of time following the stated expiration dates of
this Agreement, unless and until agreed to in a new subscribed
written document, such employment or any continuation thereof is
"at will," and may be terminated without obligation at any time by
either party's giving notice to the other.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington. In accordance with the
Immigration Reform and Control Act of 1986, employment hereunder is
conditioned upon satisfactory proof of your identity and legal
ability to work in the United States.
(f) To the extent permitted by law, you will keep the terms of this
Agreement confidential, and you will not disclose any information
concerning this Agreement to anyone other than your immediate
family and professional representatives (provided they also agree
to keep the terms of this Agreement confidential).
(g) Disney and its affiliates are express beneficiaries of your
agreements and obligations hereunder and may enforce them to the
same extent that Employer may.
20. NOTICES
All notices that either party is required or may desire to give the
other shall be in writing and given either personally or by depositing
the same in the United States mail addressed to the party to be given
notice as follows:
<PAGE>
Michael B. Slade
March 28, 1997
Page 10
To Employer: Starwave Corporation
13810 S.E. Eastgate Way, Suite 400
Bellevue, Washington 98005
To Employee: At the address shown for you on the first page
hereof.
Either party may by written notice designate a different address for
giving of notices. The date of mailing of any such notices shall be
deemed to be the date on which such notice is given.
21. HEADINGS
The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the
meaning of the provisions of this Agreement.
<PAGE>
Michael B. Slade
March 28, 1997
Page 11
If the foregoing accurately reflects our mutual agreement, please sign
where indicated.
STARWAVE CORPORATION
By: /s/ Curt D. Blake
---------------------
Title: Sr. Vice President Business & Legal
EMPLOYEE
/s/ Michael B. Slade
-------------------------
MICHAEL B. SLADE
<PAGE>
EXHIBIT 99.8
March 28, 1997
Patrick Naughton
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
Dear Patrick:
This letter confirms the terms of your employment by STARWAVE CORPORATION
(the "Employer").
1. TERM
Subject to your signing and delivering this letter agreement (the
"Agreement") to Employer and completion of the Disney Enterprises, Inc.
("Disney") investment in Starwave Corporation, the term of your employment
hereunder commences April 1, 1997, and expires on March 31, 2001, unless
earlier terminated as hereinafter provided (the "Employment Period").
2. SALARY
In full consideration for all rights and services provided by you hereunder,
you shall receive an annual salary of $230,000, $260,000, $290,000 and
$330,000 for each of the successive twelve month periods in the Employment
Period. Salary payments shall be made in equal installments in accordance
with Employer's then prevailing payroll policy.
3. BONUS
Bonus compensation, if any, shall be at the discretion of Employer.
4. STOCK OPTIONS
You acknowledge and agree that all stock options granted by Employer
pursuant to the Revised 1992 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") shall continue to be governed in accordance with
the Plan, as amended or modified from time to time. You acknowledge receipt
of the Plan. Concurrently herewith you have been granted a non-qualified
option to acquire 250,000 shares of Employer's Class A Common Stock,
exercisable at $9.07 per share. Such shares shall vest in equal monthly
installments of 5,208 shares during each of the forty-seven calendar months
commencing April 1997, and a final installment of 5,224 shares, subject to
continued employment and all of the terms of the Plan and the Stock Option
Agreement reflecting such grant. In the event you are terminated without
cause prior to the expiration of the Employment Period, then all
<PAGE>
Patrick Naughton
March 28, 1997
Page 2
stock options which would otherwise have vested through the end of the
Employment Period shall vest upon such termination.
5. TITLE
You are being employed hereunder in the position of President and Chief
Technology Officer, as may be determined by the Board of Directors. You
shall report to the CEO of Employer. In the event that Employer requires
you to report to an executive other than the CEO, such event shall be deemed
a termination without cause hereunder; provided, that you shall give
Employer's Board of Directors thirty (30) days written notice of such event,
with an opportunity to cure.
6. DUTIES
You shall personally and diligently perform, on a full time and exclusive
basis, such services as Employer or any of its divisions may reasonably
require. You shall observe all reasonable rules and regulations adopted by
Employer in connection with the operation of its business and carry out to
the best of your ability all instructions of Employer. Your principal place
of business shall be in the greater Seattle, Washington, area, but you shall
travel as reasonably required in connection with the performance of your
duties hereunder.
7. EXPENSES
To the extent you incur necessary and reasonable business expenses
(including, without limitation, travel and entertainment) in the course of
your employment, you shall be reimbursed for such expenses, subject to
Employer's then current policies regarding reimbursement of such business
expenses.
8. OTHER BENEFITS
You shall be entitled to those benefits that are standard for persons in
similar positions with Employer, consistent in the aggregate with Employer's
current practice subject to changes affecting all executives.
9. VACATIONS
You shall be entitled to three weeks paid vacation during each twelve month
period of this Agreement. Unused vacation time in any twelve month period
shall not be carried over to subsequent periods and you shall not be
entitled to payment in lieu of unused vacation time (except on termination
up to a maximum of three weeks of such unused time).
10. LIQUIDITY PROVISIONS; REPURCHASE RIGHT
In order to provide you with the opportunity to sell shares of Employer's
Class A Common Stock prior to the time (if at all) that Employer makes an
initial public
<PAGE>
Patrick Naughton
March 28, 1997
Page 3
offering of its Class A Common Stock and to provide for the repurchase of
your shares of Class A Common Stock by and at the option of Employer or
Disney or its affiliates under certain circumstances, we have mutually
agreed to the following:
(a) INITIAL SALE OPPORTUNITY
Employer shall offer to purchase up to an aggregate of $4 million of
the Class A Common Stock from employees of Employer who are employees
on the Election Date ("Eligible Employees"). The Election Date shall
be July 1, 1997. The Closing Date for the sale shall be on or before
August 1, 1997. You shall have the right to sell up to 79,625 shares
of Class A Common Stock held by you at a purchase price equal to $8.21
per share which is purchased pursuant to such offer.
(b) ANNUAL LIQUIDITY OPPORTUNITY
For the calendar years ending December 31, 1998 and December 31, 1999,
subject in each case to your continued employment through the end of
each such calendar year (provided that if you are terminated without
cause, or you die or become permanently and totally disabled, you will
be entitled to a pro rata portion of such liquidity opportunity based
upon the number of calendar months in the particular calendar year
prior to such termination), the Board, after consultation with you,
shall establish both qualitative and quantitative targets to measure
Employer's performance during such year. If the Employer meets EITHER
the qualitative or quantitative targets for such year, you may give
written notice to Employer within three months after the end of the
calendar year asking that Employer at its option purchase or seek to
privately place up to ten per cent (10%) of the Eligible Securities
held by you as of the date hereof (as hereafter defined) at their Fair
Market Value (as defined). If the Employer fails to privately place
such securities within six months, then you may require Disney and
Paul Allen ("Allen") (in the following proportions: forty-five percent
(45%) Disney; fifty-five percent (55%) Allen) to purchase such
securities in the subsequent sixty (60) day period at a price equal to
eighty percent (80%) of Fair Market Value. Fair Market Value shall be
established by a nationally recognized investment banking firm
selected by Employer and reasonably acceptable to you. Appraisal cost
will be paid by Employer. For purposes of determining the Eligible
Securities you may sell hereunder, the total number of shares deemed
owned by you at any time shall be the sum of the Eligible Securities
owned by you at the date hereof other than those sold by you under
clause (a) above plus all additional Class A Common Stock and options
which become vested between the date hereof and the end of the
relevant period, without deduction for shares previously sold by you
under this clause (b).
<PAGE>
Patrick Naughton
March 28, 1997
Page 4
(c) RESIDUAL PUT
If at the end of six years following the date hereof so long as you
have not been terminated pursuant to paragraph 13(a), Disney has not
exercised its call on your stock under clause (e) below or Paul G.
Allen ("Allen") has not exercised his put to Disney (thereby
triggering your tagalong rights), you may require Employer for a sixty
(60) day period to purchase all or any portion of the Eligible
Securities then owned by you at a purchase price equal to eighty
percent (80%) of the Fair Market Value thereof.
(d) TERMINATION ON IPO
The rights granted in this Section 10 shall terminate concurrently
with the closing of an initial public offering of Employer's Class A
Common Stock registered under the Securities Act of 1933, as amended.
(e) REPURCHASE BY DISNEY
In the event that either Disney elects to purchase all shares of
Common Stock owned by Allen or his permitted transferees
(collectively, the "Allen Shares") or Allen elects to require Disney
to purchase the Allen Shares (either an "Allen Repurchase Event"),
Disney shall be required to purchase, and you shall be required to
sell, all Class A Common Stock owned by you at the same per share
price as the per share price offered to Allen (less any applicable
option exercise price). If Allen elects to receive shares of Disney
common stock (rather than cash) in an Allen Repurchase Event, you
shall be entitled to elect to receive Disney common stock for your
Class A Common Stock, at the same per share price as the per share
price offered to Allen. In the event an Allen Repurchase Event does
not occur or fails to close, Disney shall be relieved of its
obligation to purchase and you shall be relieved of your obligation to
sell the Class A Common Stock. Disney shall deliver a notice to you
promptly upon the occurrence of an Allen Repurchase Event providing a
ten (10) day period for you to exercise previously vested Options.
Upon the end of the ten (10) day period, your rights to shares of
Class A Common Stock issued upon exercise of options shall terminate
and be null and void, such shares of Class A Common Stock shall be
cancelled on the books and records of the Company and your sole right
with regard to such shares shall be the compensation provided for
below. Upon the end of the ten (10) day period, all remaining vested
and unvested options held by you shall terminate and become null and
void. Any provision in any stock option or other agreement between you
and Employer to the contrary is modified and amended hereby. Disney
shall, as compensation for any unvested Options, at its sole option
(i) make a cash payment to you for the fair market value of the
unvested options (which shall be the same per share price paid to
Allen or his transferees in connection with such a repurchase event),
or (ii) recommend to the
<PAGE>
Patrick Naughton
March 28, 1997
Page 5
Compensation Committee of Disney's Board that you receive options to
purchase Disney common stock (in accordance with the terms and
conditions of the then prevailing Disney stock option plan) in amounts
designed to provide the Optionee with equivalent value, as determined
by Disney in its reasonable discretion and the compensation committee
makes such grants. Any such determinations provided for in this clause
(e) shall be final and binding. Payment for any stock purchased
hereunder shall be made by Disney promptly following the closing of an
Allen Repurchase Event. The Disney election provided above shall be
taken within sixty (60) days of the closing of an Allen Repurchase
Event. If Disney elects to make a cash payment, such payment shall
occur promptly following the Disney election. If Disney elects to
provide options to purchase Disney common stock, such option grants
shall occur in the next regularly scheduled meeting of the
Compensation Committee, if possible, or the following regularly
scheduled meeting.
11. PROTECTION OF EMPLOYER'S INTERESTS
(a) During the term of your employment by Employer you shall not compete
in any manner, directly or indirectly, whether as a principal,
employee, agent or owner, with Employer, The Walt Disney Company or
any affiliate thereof, except that the foregoing will not prevent you
from holding at any time less than 5% of the outstanding capital stock
of any company whose stock is publicly traded.
(b) To the extent permitted by law, all rights worldwide with respect to
any and all intellectual or other property of any nature produced,
created or suggested by you during the term of your employment or
resulting from your services shall be deemed to be a work made for
hire and shall be the sole and exclusive property of Employer. You
agree to execute, acknowledge and deliver to employer at Employer's
request, such further documents as Employer finds appropriate to
evidence Employer's rights in such property. Any confidential and/or
proprietary information of Employer, or any affiliate thereof shall
not be used by you or disclosed or made available by you to any person
except as required in the course of your employment, and upon
expiration or earlier termination of the term of your employment, you
shall return to Employer all such information that exists in written
or other physical form (and all copies thereof) under your control.
Without limiting the generality of the foregoing, you acknowledge
signing and delivering to Employer, its standard confidentiality
agreements for employees and you agree that all terms and conditions
contained therein, and all of your obligations and commitments
provided for therein, shall be deemed, and hereby are, incorporated
into this Agreement as if set forth in full herein. The provisions of
this paragraph shall survive the expiration or earlier termination of
this Agreement.
<PAGE>
Patrick Naughton
March 28, 1997
Page 6
12. SERVICES UNIQUE
You recognize that your services hereunder are of a special, unique,
unusual, extraordinary and intellectual character giving them a peculiar
value, the loss of which cannot be reasonably or adequately compensated for
in damages, and in the event of a breach of this Agreement by you
(particularly, but without limitation, with respect to the provisions hereof
relating to the exclusivity of your services and the provisions of paragraph
10 hereof), Employer shall, in addition to all other remedies available to
it, be entitled to equitable relief by way of injunction and any other legal
or equitable remedies.
13. TERMINATION
(a) Employer may terminate your employment hereunder for gross negligence,
gross misconduct, or material breach of this Agreement; provided, that
any breach of paragraph 11 hereof shall be deemed to be a material
breach; provided, further, that you shall have a thirty (30) day cure
period for breaches of paragraph 11, to the extent any such breaches
are capable of being cured, in Employer's reasonable discretion. In
any such event all obligations of Employer hereunder (except pursuant
to paragraph 10(e)) shall immediately terminate.
(b) In the event of your death during the term hereof, this Agreement
(other than paragraph 10(b), (c) and (e)) shall terminate and Employer
shall only be obligated to pay your estate or legal representative the
salary provided for herein to the extent earned by you prior to such
event and to have all unvested options vest as provided in your stock
option agreement. In the event you are unable to perform the services
required of you hereunder as a result of any disability and such
disability continues for a period of 90 or more consecutive days or an
aggregate of 120 or more days during any 12-month period during the
term hereof, then at any time thereafter Employer shall have the right,
at its option, to terminate your employment hereunder. In such event
all unvested options shall vest as provided in your stock option
agreement. Unless and until so terminated, during any period of
disability during which you are unable to perform the services required
of you hereunder, your salary hereunder shall be payable to the extent
of, and subject to, Employer's policies and practices then in effect
with regard to sick leave and disability benefits.
(c) You acknowledge that you have been provided by Employer with a copy of
Section 508 of the Federal Communications Act of 1934, as amended,
relating in part to receiving or paying consideration for product
identification in television programs, that you are familiar with the
provisions thereof and that you will fully comply therewith during the
term of this Agreement. Without limiting the foregoing, however, and
whether or not Section 508 is applicable to your activities, you agree
that you will not, without Employer's prior written consent, accept any
compensation or gift from any person, firm
<PAGE>
Patrick Naughton
March 28, 1997
Page 7
or corporation (other than Employer) where such compensation or gift
is, or may appear to be, in consideration of your acting in a
particular manner in relation to the business of such person, firm or
corporation. Without limiting the generality of paragraph 13(a) hereof,
it is agreed that any violation of this paragraph 13(c) shall
constitute a violation of this Agreement upon which Employer may
forthwith terminate this Agreement pursuant to paragraph 13(a) hereof.
14. USE OF EMPLOYEE'S NAME
Employer shall have the right but not the obligation to use your name or
likeness for any publicity or advertising purpose. Employer is under no
obligation to accord you credit for any production.
15. ASSIGNMENT
Employer may assign this Agreement or all or any part of its rights
hereunder to any entity that succeeds to a substantial portion of Employer's
assets or business, and this Agreement shall inure to the benefit of such
assignee.
16. NO CONFLICT WITH PRIOR AGREEMENTS
You represent to Employer that neither your commencement of employment
hereunder nor the performance of your duties hereunder conflicts with any
contractual commitment on your part to any third party or violates or
interferes with any rights of any third party.
17. POST-TERMINATION OBLIGATIONS
In consideration of the interim liquidity provided to Employee pursuant to
Section 10:
After the termination of your employment hereunder for any reason
whatsoever, you shall not either alone or jointly, with or on behalf of
others, either directly or indirectly, whether as principal, partner, agent,
shareholder, director, employee, consultant or otherwise, at any time during
a period of two years following such termination, offer employment to, or
solicit the employment or engagement of, or otherwise entice away from the
employment of Employer or any affiliated entity, either for your own account
or for any other person, firm or company, any person who is employed by
Employer or any such affiliated entity, whether or not such person would
commit any breach of his contract of employment by reason of his leaving the
service of Employer or any affiliated entity.
After termination of your employment hereunder for any reason, whatsoever,
you shall not either alone or jointly, with or on behalf of others, either
directly or indirectly, whether as principal, partner, agent, shareholder,
director, employee, consultant or otherwise, at any time during a period of
one year following such
<PAGE>
Patrick Naughton
March 28, 1997
Page 8
termination, provide services of any nature with respect to any business
that competes with the business of Employer as of the date of termination in
the geographic area in which Employer does business. For purposes of this
paragraph 17, Disney and its affiliates (other than Employer) shall not be
considered to be affiliated entities of Employer.
18. ENTIRE AGREEMENT; AMENDMENTS; WAIVER; ETC.
(a) This Agreement supersedes all prior or contemporaneous agreements and
statements, whether written or oral, concerning the terms of your
employment, and no amendment or modification of this Agreement shall be
binding against Employer unless set forth in a writing signed by
Employer and delivered to you. No waiver by either party of any breach
by the other party of any provision or condition of this Agreement
shall be deemed a waiver of any similar or dissimilar provision or
condition at the same or any prior or subsequent time.
(b) You have given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the effect
that any fees or commissions of any nature are, or under any
circumstances might be, payable by Employer or any affiliate thereof in
connection with your employment hereunder.
(c) Nothing herein contained shall be construed so as to require the
commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any present or
future statue, law, ordinance or regulation, the latter shall prevail,
but in such event the provision of the Agreement affected shall be
curtailed and limited only to the extent necessary to bring it within
legal requirements.
(d) This Agreement does not constitute a commitment of Employer with regard
to your employment, express or implied, other than to the extent
expressly provided for herein. Upon termination of this Agreement, it
is the contemplation of both parties that your employment with Employer
shall cease, and that neither Employer nor you shall have any
obligation to the other with respect to continued employment. In the
event that your employment continues for any period of time following
the stated expiration dates of this Agreement, unless and until agreed
to in a new subscribed written document, such employment or any
continuation thereof is "at will," and may be terminated without
obligation at any time by either party's giving notice to the other.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of Washington. In accordance with the
Immigration Reform and Control Act of 1986, employment hereunder is
conditioned upon satisfactory proof of your identity and legal ability
to work in the United States.
<PAGE>
Patrick Naughton
March 28, 1997
Page 9
(f) To the extent permitted by law, you will keep the terms of this
Agreement confidential, and you will not disclose any information
concerning this Agreement to anyone other than your immediate family
and professional representatives (provided they also agree to keep the
terms of this Agreement confidential).
(g) Disney and its affiliates are express beneficiaries of your agreements
and obligations hereunder and may enforce them to the same extent that
Employer may.
20. NOTICES
All notices that either party is required or may desire to give the other
shall be in writing and given either personally or by depositing the same in
the United States mail addressed to the party to be given notice as follows:
To Employer: 13810 SE Eastgate Way
Bellevue, Washington 98005
To Employee: At the address shown for you on the signature page
hereof.
Either party may by written notice designate a different address for giving
of notices. The date of mailing of any such notices shall be deemed to be
the date on which such notice is given.
21. HEADINGS
The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the
meaning of the provisions of this Agreement.
<PAGE>
Patrick Naughton
March 28, 1997
Page 9
If the foregoing accurately reflects our mutual agreement, please sign
where indicated.
STARWAVE CORPORATION
By: /s/ Michael Slade
-----------------
Title: CEO
EMPLOYEE
/s/ Patrick Naughton
---------------------
PATRICK NAUGHTON
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
<PAGE>
EXHIBIT 99.9
March 28, 1997
Curt D. Blake
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
Dear Curt:
This letter confirms the terms of your employment by STARWAVE CORPORATION
(the "Employer").
1. TERM
Subject to your signing and delivering this letter agreement (the
"Agreement") to Employer and completion of the Disney Enterprises, Inc.
("Disney") investment in Starwave Corporation, the term of your employment
hereunder commences April 1, 1997, and expires on March 31, 2000, unless
earlier terminated as hereinafter provided (the "Employment Period").
2. SALARY
In full consideration for all rights and services provided by you hereunder,
you shall receive an annual salary of $200,000, $220,000 and $240,000 for
each of the successive twelve month periods in the Employment Period.
Salary payments shall be made in equal installments in accordance with
Employer's then prevailing payroll policy.
3. BONUS
Bonus compensation, if any, shall be at the discretion of Employer.
4. STOCK OPTIONS
You acknowledge and agree that all stock options granted by Employer
pursuant to the Revised 1992 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") shall continue to be governed in accordance with
the Plan, as amended or modified from time to time. You acknowledge receipt
of the Plan. Concurrently herewith you have been granted a non-qualified
option to acquire 100,000 shares of Employer's Class A Common Stock,
exercisable at $9.07 per share. Such shares shall vest in equal monthly
installments of 2,083 shares during each of the forty-seven calendar months
commencing April 1997, and a final installment of 2,099 shares, subject to
continued employment and all of the terms of the Plan and the Stock Option
Agreement reflecting such grant. In the event you are terminated without
cause prior to the expiration of the Employment Period, then all stock
options which would otherwise have vested through the end of the Employment
Period shall vest upon such termination.
<PAGE>
Curt D. Blake
March 28,1997
Page 2
5. TITLE
You are being employed hereunder in the position of Executive Vice
President. You shall report to the CEO of Employer (or the President, if
there is no longer a CEO during the Employment Term). In the event that
Employer requires you to report to an executive other than the CEO (or the
President, if there is no longer a CEO during the Employment Term), such
event shall be deemed a termination without cause hereunder; provided, that
you shall give Employer's Board of Directors thirty (30) days written notice
of such event, with an opportunity to cure.
6. DUTIES
You shall personally and diligently perform, on a full time and exclusive
basis, such services as Employer or any of its divisions may reasonably
require. You shall observe all reasonable rules and regulations adopted by
Employer in connection with the operation of its business and carry out to
the best of your ability all instructions of Employer. Your principal place
of business shall be in the greater Seattle, Washington, area, but you shall
travel as reasonably required in connection with the performance of your
duties hereunder.
7. EXPENSES
To the extent you incur necessary and reasonable business expenses
(including, without limitation, travel and entertainment) in the course of
your employment, you shall be reimbursed for such expenses, subject to
Employer's then current policies regarding reimbursement of such business
expenses.
8. OTHER BENEFITS
You shall be entitled to those benefits that are standard for persons in
similar positions with Employer, consistent in the aggregate with Employer's
current practice subject to changes affecting all executives.
9. VACATIONS
You shall be entitled to three weeks paid vacation during each twelve month
period of this Agreement. Unused vacation time in any twelve month period
shall not be carried over to subsequent periods and you shall not be
entitled to payment in lieu of unused vacation time (except on termination
up to a maximum of three weeks of such unused time).
10. LIQUIDITY PROVISIONS; REPURCHASE RIGHT
In order to provide you with the opportunity to sell shares of Employer's
Class A Common Stock prior to the time (if at all) that Employer makes an
initial public offering of its Class A Common Stock and to provide for the
repurchase of your
<PAGE>
Curt D. Blake
March 28,1997
Page 3
shares of Class A Common Stock by and at the option of
Employer or Disney or its affiliates under certain circumstances, we have
mutually agreed to the following:
(a) INITIAL SALE OPPORTUNITY
Employer shall offer to purchase up to an aggregate of $4 million of
the Class A Common Stock from employees of Employer who are employees
on the Election Date ("Eligible Employees"). The Election Date shall
be July 1, 1997. The Closing Date for the sale shall be on or before
August 1, 1997. You shall have the right to sell up to 44,531 shares
of Class A Common Stock held by you at a purchase price equal to $8.21
per share which is purchased pursuant to such offer.
(b) ANNUAL LIQUIDITY OPPORTUNITY
For the calendar years ending December 31, 1998 and December 31, 1999,
subject in each case to your continued employment through the end of
each such calendar year (provided that if you are terminated without
cause, or you die or become permanently and totally disabled, you will
be entitled to a pro rata portion of such liquidity opportunity based
upon the number of calendar months in the particular calendar year
prior to such termination), the Board, after consultation with you,
shall establish both qualitative and quantitative targets to measure
Employer's performance during such year. If the Employer meets EITHER
the qualitative or quantitative targets for such year, you may give
written notice to Employer within three months after the end of the
calendar year asking that Employer at its option purchase or seek to
privately place up to ten per cent (10%) of the Eligible Securities
held by you as of the date hereof (as hereafter defined) at their Fair
Market Value (as defined). If the Employer fails to privately place
such securities within six months, then you may require Disney and Paul
Allen ("Allen") (in the following proportions: forty-five percent (45%)
Disney; fifty-five percent (55%) Allen) to purchase such securities in
the subsequent sixty (60) day period at a price equal to eighty percent
(80%) of Fair Market Value. Fair Market Value shall be established by a
nationally recognized investment banking firm selected by Employer and
reasonably acceptable to you. Appraisal cost will be paid by Employer.
For purposes of determining the Eligible Securities you may sell
hereunder, the total number of shares deemed owned by you at any time
shall be the sum of the Eligible Securities owned by you at the date
hereof other than those sold by you under clause (a) above plus all
additional Class A Common Stock and options which become vested between
the date hereof and the end of the relevant period, without deduction
for shares previously sold by you under this clause (b).
(c) RESIDUAL PUT
<PAGE>
Curt D. Blake
March 28,1997
Page 4
If at the end of six years following the date hereof so long as you
have not been terminated pursuant to paragraph 13(a), Disney has not
exercised its call on your stock under clause (e) below or Paul G.
Allen ("Allen") has not exercised his put to Disney (thereby triggering
your tagalong rights), you may require Employer for a sixty (60) day
period to purchase all or any portion of the Eligible Securities then
owned by you at a purchase price equal to eighty percent (80%) of the
Fair Market Value thereof.
(d) TERMINATION ON IPO
The rights granted in this Section 10 shall terminate concurrently with
the closing of an initial public offering of Employer's Class A Common
Stock registered under the Securities Act of 1933, as amended.
(e) REPURCHASE BY DISNEY
In the event that either Disney elects to purchase all shares of Common
Stock owned by Allen or his permitted transferees (collectively, the
"Allen Shares") or Allen elects to require Disney to purchase the Allen
Shares (either an "Allen Repurchase Event"), Disney shall be required
to purchase, and you shall be required to sell, all Class A Common
Stock owned by you at the same per share price as the per share price
offered to Allen (less any applicable option exercise price). If Allen
elects to receive shares of Disney common stock (rather than cash) in
an Allen Repurchase Event, you shall be entitled to elect to receive
Disney common stock for your Class A Common Stock, at the same per
share price as the per share price offered to Allen. In the event an
Allen Repurchase Event does not occur or fails to close, Disney shall
be relieved of its obligation to purchase and you shall be relieved of
your obligation to sell the Class A Common Stock. Disney shall deliver
a notice to you promptly upon the occurrence of an Allen Repurchase
Event providing a ten (10) day period for you to exercise previously
vested Options. Upon the end of the ten (10) day period, your rights
to shares of Class A Common Stock issued upon exercise of options shall
terminate and be null and void, such shares of Class A Common Stock
shall be cancelled on the books and records of the Company and your
sole right with regard to such shares shall be the compensation
provided for below. Upon the end of the ten (10) day period, all
remaining vested and unvested options held by you shall terminate and
become null and void. Any provision in any stock option or other
agreement between you and Employer to the contrary is modified and
amended hereby. Disney shall, as compensation for any unvested
Options, at its sole option (i) make a cash payment to you for the fair
market value of the unvested options (which shall be the same per share
price paid to Allen or his transferees in connection with such a
repurchase event), or (ii) recommend to the Compensation Committee of
Disney's Board that you receive options to purchase Disney common stock
(in accordance with the terms and conditions of the then prevailing
Disney stock option plan) in amounts
<PAGE>
Curt D. Blake
March 28,1997
Page 5
designed to provide the Optionee with equivalent value, as determined
by Disney in its reasonable discretion and the compensation committee
makes such grants. Any such determinations provided for in this clause
(e) shall be final and binding. Payment for any stock purchased
hereunder shall be made by Disney promptly following the closing of an
Allen Repurchase Event. The Disney election provided above shall be
taken within sixty (60) days of the closing of an Allen Repurchase
Event. If Disney elects to make a cash payment, such payment shall
occur promptly following the Disney election. If Disney elects to
provide options to purchase Disney common stock, such option grants
shall occur in the next regularly scheduled meeting of the Compensation
Committee, if possible, or the following regularly scheduled meeting.
11. PROTECTION OF EMPLOYER'S INTERESTS
(a) During the term of your employment by Employer you shall not compete in
any manner, directly or indirectly, whether as a principal, employee,
agent or owner, with Employer, The Walt Disney Company or any affiliate
thereof, except that the foregoing will not prevent you from holding at
any time less than 5% of the outstanding capital stock of any company
whose stock is publicly traded.
(b) To the extent permitted by law, all rights worldwide with respect to
any and all intellectual or other property of any nature produced,
created or suggested by you during the term of your employment or
resulting from your services shall be deemed to be a work made for hire
and shall be the sole and exclusive property of Employer. You agree to
execute, acknowledge and deliver to employer at Employer's request,
such further documents as Employer finds appropriate to evidence
Employer's rights in such property. Any confidential and/or
proprietary information of Employer, or any affiliate thereof shall not
be used by you or disclosed or made available by you to any person
except as required in the course of your employment, and upon
expiration or earlier termination of the term of your employment, you
shall return to Employer all such information that exists in written or
other physical form (and all copies thereof) under your control.
Without limiting the generality of the foregoing, you acknowledge
signing and delivering to Employer, its standard confidentiality
agreements for employees and you agree that all terms and conditions
contained therein, and all of your obligations and commitments provided
for therein, shall be deemed, and hereby are, incorporated into this
Agreement as if set forth in full herein. The provisions of this
paragraph shall survive the expiration or earlier termination of this
Agreement.
12. SERVICES UNIQUE
You recognize that your services hereunder are of a special, unique,
unusual, extraordinary and intellectual character giving them a peculiar
value, the loss of
<PAGE>
Curt D. Blake
March 28,1997
Page 6
which cannot be reasonably or adequately compensated for in damages, and in
the event of a breach of this Agreement by you (particularly, but without
limitation, with respect to the provisions hereof relating to the
exclusivity of your services and the provisions of paragraph 10 hereof),
Employer shall, in addition to all other remedies available to it, be
entitled to equitable relief by way of injunction and any other legal or
equitable remedies.
13. TERMINATION
(a) Employer may terminate your employment hereunder for gross negligence,
gross misconduct or material breach of this Agreement; provided, that
any breach of paragraph 11 hereof shall be deemed to be a material
breach; provided, further, that you shall have a thirty (30) day cure
period for breaches of paragraph 11, to the extent any such breaches
are capable of being cured, in Employer's reasonable discretion. In
any such event, all obligations of Employer hereunder (except pursuant
to paragraph 10(e)) shall immediately terminate.
(b) In the event of your death during the term hereof, this Agreement
(other than paragraphs 10(b), (c), and (e) shall terminate and Employer
shall only be obligated to pay your estate or legal representative the
salary provided for herein to the extent earned by you prior to such
event and to have all unvested options vest as provided in your stock
option agreement. In the event you are unable to perform the services
required of you hereunder as a result of any disability and such
disability continues for a period of 90 or more consecutive days or an
aggregate of 120 or more days during any 12-month period during the
term hereof, then at any time thereafter Employer shall have the right,
at its option, to terminate your employment hereunder. In such event
all unvested options shall vest as provided in your stock option
agreement. Unless and until so terminated, during any period of
disability during which you are unable to perform the services required
of you hereunder, your salary hereunder shall be payable to the extent
of, and subject to, Employer's policies and practices then in effect
with regard to sick leave and disability benefits.
(c) You acknowledge that you have been provided by Employer with a copy of
Section 508 of the Federal Communications Act of 1934, as amended,
relating in part to receiving or paying consideration for product
identification in television programs, that you are familiar with the
provisions thereof and that you will fully comply therewith during the
term of this Agreement. Without limiting the foregoing, however, and
whether or not Section 508 is applicable to your activities, you agree
that you will not, without Employer's prior written consent, accept any
compensation or gift from any person, firm or corporation (other than
Employer) where such compensation or gift is, or may appear to be, in
consideration of your acting in a particular manner in relation to the
business of such person, firm or corporation. Without limiting the
generality of paragraph 13(a) hereof, it is agreed that any violation
of
<PAGE>
Curt D. Blake
March 28,1997
Page 7
this paragraph 13(c) shall constitute a violation of this Agreement
upon which Employer may forthwith terminate this Agreement pursuant to
paragraph 13(a) hereof.
14. USE OF EMPLOYEE'S NAME
Employer shall have the right but not the obligation to use your name or
likeness for any publicity or advertising purpose. Employer is under no
obligation to accord you credit for any production.
15. ASSIGNMENT
Employer may assign this Agreement or all or any part of its rights
hereunder to any entity that succeeds to a substantial portion of Employer's
assets or business, and this Agreement shall inure to the benefit of such
assignee.
16. NO CONFLICT WITH PRIOR AGREEMENTS
You represent to Employer that neither your commencement of employment
hereunder nor the performance of your duties hereunder conflicts with any
contractual commitment on your part to any third party or violates or
interferes with any rights of any third party.
17. POST-TERMINATION OBLIGATIONS
In consideration of the interim liquidity provided to Employee pursuant to
Section 10:
After the termination of your employment hereunder for any reason
whatsoever, you shall not either alone or jointly, with or on behalf of
others, either directly or indirectly, whether as principal, partner, agent,
shareholder, director, employee, consultant or otherwise, at any time during
a period of two years following such termination, offer employment to, or
solicit the employment or engagement of, or otherwise entice away from the
employment of Employer or any affiliated entity, either for your own account
or for any other person, firm or company, any person who is employed by
Employer or any such affiliated entity, whether or not such person would
commit any breach of his contract of employment by reason of his leaving the
service of Employer or any affiliated entity.
After termination of your employment hereunder for any reason, whatsoever,
you shall not either alone or jointly, with or on behalf of others, either
directly or indirectly, whether as principal, partner, agent, shareholder,
director, employee, consultant or otherwise, at any time during a period of
one year following such termination, provide services of any nature with
respect to any business that competes with the business of Employer as of
the date of termination in the geographic area in which Employer does
business. For purposes of this
<PAGE>
Curt D. Blake
March 28,1997
Page 8
paragraph 17, Disney and its affiliates (other than Employer) shall not be
considered to be affiliated entities of Employer.
18. ENTIRE AGREEMENT; AMENDMENTS; WAIVER; ETC.
(a) This Agreement supersedes all prior or contemporaneous agreements and
statements, whether written or oral, concerning the terms of your
employment, and no amendment or modification of this Agreement shall be
binding against Employer unless set forth in a writing signed by
Employer and delivered to you. No waiver by either party of any breach
by the other party of any provision or condition of this Agreement
shall be deemed a waiver of any similar or dissimilar provision or
condition at the same or any prior or subsequent time.
(b) You have given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the effect
that any fees or commissions of any nature are, or under any
circumstances might be, payable by Employer or any affiliate thereof in
connection with your employment hereunder.
(c) Nothing herein contained shall be construed so as to require the
commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any present or
future statue, law, ordinance or regulation, the latter shall prevail,
but in such event the provision of the Agreement affected shall be
curtailed and limited only to the extent necessary to bring it within
legal requirements.
(d) This Agreement does not constitute a commitment of Employer with regard
to your employment, express or implied, other than to the extent
expressly provided for herein. Upon termination of this Agreement, it
is the contemplation of both parties that your employment with Employer
shall cease, and that neither Employer nor you shall have any
obligation to the other with respect to continued employment. In the
event that your employment continues for any period of time following
the stated expiration dates of this Agreement, unless and until agreed
to in a new subscribed written document, such employment or any
continuation thereof is "at will," and may be terminated without
obligation at any time by either party's giving notice to the other.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of Washington. In accordance with the
Immigration Reform and Control Act of 1986, employment hereunder is
conditioned upon satisfactory proof of your identity and legal ability
to work in the United States.
(f) To the extent permitted by law, you will keep the terms of this
Agreement confidential, and you will not disclose any information
concerning this
<PAGE>
Curt D. Blake
March 28,1997
Page 9
Agreement to anyone other than your immediate family and professional
representatives (provided they also agree to keep the terms of this
Agreement confidential).
(g) Disney and its affiliates are express beneficiaries of your agreements
and obligations hereunder and may enforce them to the same extent that
Employer may.
20. NOTICES
All notices that either party is required or may desire to give the other
shall be in writing and given either personally or by depositing the same in
the United States mail addressed to the party to be given notice as follows:
To Employer: 13810 SE Eastgate Way
Bellevue, Washington 98005
To Employee: At the address shown for you on the
signature page hereof.
Either party may by written notice designate a different address for giving
of notices. The date of mailing of any such notices shall be deemed to be
the date on which such notice is given.
21. HEADINGS
The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the
meaning of the provisions of this Agreement.
<PAGE>
Curt D. Blake
March 28,1997
Page 10
If the foregoing accurately reflects our mutual agreement, please sign
where indicated.
STARWAVE CORPORATION
By: /s/ Michael Slade
-----------------
Title: CEO
EMPLOYEE
/s/ Curt Blake
----------------------
CURT D. BLAKE
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
<PAGE>
EXHIBIT 99.10
April 11, 1997
David Chamberlain
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
Dear Dave:
This letter confirms the terms of your employment by STARWAVE CORPORATION
(the "Employer").
1. TERM
Subject to your signing and delivering this letter agreement (the
"Agreement") to Employer and completion of the Disney Enterprises, Inc.
("Disney") investment in Starwave Corporation, the term of your employment
hereunder commences April 1, 1997, and expires on March 31, 1999 unless
earlier terminated as hereinafter provided (the "Employment Period").
2. SALARY
In full consideration for all rights and services provided by you
hereunder, you shall receive an annual salary of $125,000 for the first
twelve month period and $145,000 for the second twelve month period in the
Employment Period. Salary payments shall be made in equal installments in
accordance with Employer's then prevailing payroll policy.
3. BONUS
Bonus compensation, if any, shall be at the discretion of Employer.
4. STOCK OPTIONS
You acknowledge and agree that all stock options granted by Starwave
pursuant to the Revised 1992 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") shall continue to be governed in accordance with
the Plan, as amended or modified from time to time. You acknowledge
receipt of the Plan. Subject to Starwave Board of Director approval, you
shall be granted a non-qualified option to acquire 30,000 shares of
Employer's Class A Common Stock, exercisable at $9.07. Such shares shall
vest subject to the Plan and the Stock Option Agreement reflecting such
grant.
5. TITLE
You are being employed hereunder in the position of Vice-President,
Technical Operations.
<PAGE>
David Chamberlain
April 11, 1997
Page 2
6. DUTIES
You shall personally and diligently perform, on a full time and exclusive
basis, such services as Employer or any of its divisions may reasonably
require. You shall observe all reasonable rules and regulations adopted by
Employer in connection with the operation of its business and carry out to
the best of your ability all instructions of Employer. Your principal
place of business shall be in the greater Seattle, Washington area, but you
shall travel as reasonably required in connection with the performance of
your duties hereunder.
7. EXPENSES
To the extent you incur necessary and reasonable business expenses
(including, without limitation, travel and entertainment) in the course of
your employment, you shall be reimbursed for such expenses, subject to
Employer's then current policies regarding reimbursement of such business
expenses.
8. OTHER BENEFITS
You shall be entitled to those benefits that are standard for persons in
similar positions with Employer, consistent in the aggregate with
Employer's current practice subject to changes affecting all executives.
9. VACATIONS
You shall be entitled to three weeks paid vacation during each twelve month
period of this Agreement. Unused vacation time in any twelve month period
shall not be carried over to subsequent periods and you shall not be
entitled to payment in lieu of unused vacation time (except on termination
up to a maximum of three weeks of such unused time).
10. LIQUIDITY PROVISIONS; REPURCHASE RIGHT
In order to provide you with the opportunity to sell shares of Employer's
Class A Common Stock and/or Vested Options prior to the time (if at all)
that Employer makes an initial public offering of its Class A Common Stock
and to provide for the repurchase of your shares of Class A Common Stock
and/or Vested Options by and at the option of Employer or Disney or its
affiliates under certain circumstances, we have mutually agreed to the
following:
(a) INITIAL SALE OPPORTUNITY
Employer shall offer to purchase up to an aggregate of $4 million of
the Class A Common Stock and Vested Options (the "Eligible
Securities")
-2-
<PAGE>
David Chamberlain
April 11, 1997
Page 3
from employees of Employer who are employees on the Election Date
("Eligible Employees"). The Election Date shall be July 1, 1997. The
Closing Date for the sale shall be on or before August 1, 1997. You
shall have the right to sell up to twenty percent (20%) of the
Eligible Securities held by you (excluding any of the options granted
to you hereunder) at a purchase price equal to $8.21 per share minus
the exercise price of any vested option which is purchased pursuant to
such offer.
(b) TERMINATION ON IPO
The rights granted in this Section 10 shall terminate concurrently
with the closing of an initial public offering of Employer's Class A
Common Stock registered under the Securities Act of 1933, as amended.
(c) REPURCHASE BY DISNEY
In the event that either Disney elects to purchase all shares of
Common Stock owned by Allen or his permitted transferees
(collectively, the "Allen Shares") or Allen elects to require Disney
to purchase the Allen Shares (either an "Allen Repurchase Event"),
Disney shall be required to purchase, and you shall be required to
sell, all Class A Common Stock owned by you at the same per share
price as the per share price offered to Allen (less any applicable
option exercise price). If Allen elects to receive shares of Disney
common stock (rather than cash) in an Allen Repurchase Event, you
shall be entitled to elect to receive Disney common stock for your
Class A Common Stock, at the same per share price as the per share
price offered to Allen. In the event an Allen Repurchase Event does
not occur or fails to close, Disney shall be relieved of its
obligation to purchase and you shall be relieved of your obligation to
sell the Class A Common Stock. Disney shall deliver a notice to you
promptly upon the occurrence of an Allen Repurchase Event providing a
ten (10) day period for you to exercise previously vested Options.
Upon the end of the ten (10) day period, your rights to shares of
Class A Common Stock issued upon exercise of options shall terminate
and be null and void, such shares of Class A Common Stock shall be
cancelled on the books and records of the Company and your sole right
with regard to such shares shall be the compensation provided for
below. Upon the end of the ten (10) day period, all remaining vested
and unvested options held by you shall terminate and become null and
void. Any provision in any stock option or other agreement between you
and Employer to the contrary is modified and amended hereby. Disney
shall, as compensation for any unvested Options, at its sole option
(I) make a cash payment to you for the fair market value of the
unvested options (which shall be the same per share price paid to
Allen or his transferees in connection with such a repurchase event),
or (ii) recommend to the
-3-
<PAGE>
David Chamberlain
April 11, 1997
Page 4
Compensation Committee of Disney's Board that you receive options to
purchase Disney common stock (in accordance with the terms and
conditions of the then prevailing Disney stock option plan) in amounts
designed to provide the Optionee with equivalent value, as determined
by Disney in its reasonable discretion and the compensation committee
makes such grants. Any such determinations provided for in this clause
(e) shall be final and binding. Payment for any stock purchased
hereunder shall be made by Disney promptly following the closing of an
Allen Repurchase Event. The Disney election provided above shall be
taken within sixty (60) days of the closing of an Allen Repurchase
Event. If Disney elects to make a cash payment, such payment shall
occur promptly following the Disney election. If Disney elects to
provide options to purchase Disney common stock, such option grants
shall occur in the next regularly scheduled meeting of the
Compensation Committee, if possible, or the following regularly
scheduled meeting.
11. PROTECTION OF EMPLOYER'S INTERESTS
(a) During the term of your employment by Employer you shall not compete
in any manner, directly or indirectly, whether as a principal,
employee, agent or owner, with Employer, The Walt Disney Company or
any affiliate thereof, except that the foregoing will not prevent you
from holding at any time less than 5% of the outstanding capital stock
of any company whose stock is publicly traded.
(b) To the extent permitted by law, all rights worldwide with respect to
any and all intellectual or other property of any nature produced,
created or suggested by you during the term of your employment or
resulting from your services shall be deemed to be a work made for
hire and shall be the sole and exclusive property of Employer. You
agree to execute, acknowledge and deliver to employer at Employer's
request, such further documents as Employer finds appropriate to
evidence Employer's rights in such property. Any confidential and/or
proprietary information of Employer, or any affiliate thereof shall
not be used by you or disclosed or made available by you to any person
except as required in the course of your employment, and upon
expiration or earlier termination of the term of your employment, you
shall return to Employer all such information that exists in written
or other physical form (and all copies thereof) under your control.
Without limiting the generality of the foregoing, you acknowledge
signing and delivering to Employer, its standard confidentiality
agreements for employees and you agree that all terms and conditions
contained therein, and all of your obligations and commitments
provided for therein, shall be deemed, and hereby are, incorporated
into this Agreement as if set forth in full herein. The provisions of
this paragraph shall survive the expiration or earlier termination of
this Agreement.
-4-
<PAGE>
David Chamberlain
April 11, 1997
Page 5
12. SERVICES UNIQUE
As partial consideration for the agreement of Employee contained in Section
17, you recognize that your services hereunder are of a special, unique,
unusual, extraordinary and intellectual character giving them a peculiar
value, the loss of which cannot be reasonably or adequately compensated for
in damages, and in the event of a breach of this Agreement by you
(particularly, but without limitation, with respect to the provisions
hereof relating to the exclusivity of your services and the provisions of
paragraph 10 hereof), Employer shall, in addition to all other remedies
available to it, be entitled to equitable relief by way of injunction and
any other legal or equitable remedies.
13. TERMINATION
(a) Employer may terminate your employment hereunder for negligence,
misconduct or breach of this Agreement or for other good cause. In
any such event, all obligations of Employer hereunder (except pursuant
to paragraph 10(c)) shall immediately terminate.
(b) In the event of your death during the term hereof, this Agreement
shall terminate and Employer shall only be obligated to pay your
estate or legal representative the salary provided for herein to the
extent earned by you prior to such event and to have all unvested
options vest as provided in your stock option agreement. In the event
you are unable to perform the services required of you hereunder as a
result of any disability and such disability continues for a period of
90 or more consecutive days or an aggregate of 120 or more days during
any 12-month period during the term hereof, then at any time
thereafter Employer shall have the right, at its option, to terminate
your employment hereunder. Unless and until so terminated, during any
period of disability during which you are unable to perform the
services required of you hereunder, your salary hereunder shall be
payable to the extent of, and subject to, Employer's policies and
practices then in effect with regard to sick leave and disability
benefits.
(c) You acknowledge that you have been provided by Employer with a copy of
Section 508 of the Federal Communications Act of 1934, as amended,
relating in part to receiving or paying consideration for product
identification in television programs, that you are familiar with the
provisions thereof and that you will fully comply therewith during the
term of this Agreement. Without limiting the foregoing, however, and
whether or not Section 508 is applicable to your activities, you agree
that you will not, without Employer's prior written consent, accept
any compensation or gift from any person, firm or corporation (other
than Employer) where such compensation or gift is, or may appear to
be, in consideration of your
-5-
<PAGE>
David Chamberlain
April 11, 1997
Page 6
acting in a particular manner in relation to the business of such
person, firm or corporation. Without limiting the generality of
paragraph 13(a) hereof, it is agreed that any violation of this
paragraph 13(c) shall constitute a violation of this Agreement upon
which Employer may forthwith terminate this Agreement pursuant to
paragraph 13(a) hereof.
14. USE OF EMPLOYEE'S NAME
Employer shall have the right but not the obligation to use your name or
approved likeness for any publicity or advertising purpose. Employer is
under no obligation to accord you credit for any production.
15. ASSIGNMENT
Employer may assign this Agreement or all or any part of its rights
hereunder to any entity that succeeds to a substantially portion of
Employer's assets or business, and this Agreement shall inure to the
benefit of such assignee.
16. NO CONFLICT WITH PRIOR AGREEMENTS
You represent to Employer that neither your commencement of employment
hereunder nor the performance of your duties hereunder conflicts with any
contractual commitment on your part to any third party or violates or
interferes with any rights of any third party.
17. POST-TERMINATION OBLIGATIONS
In consideration of the interim liquidity provided to Employee pursuant to
Section 10:
After the termination of your employment hereunder for any reason
whatsoever, you shall not either alone or jointly, with or on behalf of
others, either directly or indirectly, whether as principal, partner,
agent, shareholder, director, employee, consultant or otherwise, at any
time during a period of two years following such termination, offer
employment to, or solicit the employment or engagement of, or otherwise
entice away from the employment of Employer or any affiliated entity,
either for your own account or for any other person, firm or company, any
person who is employed by Employer or any such affiliated entity, whether
or not such person would commit any breach of his contract of employment by
reason of his leaving the service of Employer or any affiliated entity.
After termination of your employment hereunder for any reason, whatsoever,
you shall not either alone or jointly, with or on behalf of others, either
directly or indirectly, whether as principal, partner, agent, shareholder,
director, employee, consultant or otherwise, at any time during a period of
one year following such
-6-
<PAGE>
David Chamberlain
April 11, 1997
Page 7
termination, provide services of any nature with respect to any business
that competes with the business of Employer as of the date of termination
in the geographic area in which Employer does business. For purposes of
this paragraph 17, Disney and its affiliates (other than Employer) shall
not be considered to be affiliated entities of Employer.
18. ENTIRE AGREEMENT; AMENDMENTS; WAIVER; ETC.
(a) This Agreement supersedes all prior or contemporaneous agreements and
statements, whether written or oral, concerning the terms of your
employment, and no amendment or modification of this Agreement shall
be binding against Employer unless set forth in a writing signed by
Employer and delivered to you. No waiver by either party of any
breach by the other party of any provision or condition of this
Agreement shall be deemed a waiver of any similar or dissimilar
provision or condition at the same or any prior or subsequent time.
(b) You have given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the effect
that any fees or commissions of any nature are, or under any
circumstances might be, payable by Employer or any affiliate thereof
in connection with your employment hereunder.
(c) Nothing herein contained shall be construed so as to require the
commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement and any present or
future statue, law, ordinance or regulation, the latter shall prevail,
but in such event the provision of the Agreement affected shall be
curtailed and limited only to the extent necessary to bring it within
legal requirements.
(d) This Agreement does not constitute a commitment of Employer with
regard to your employment, express or implied, other than to the
extent expressly provided for herein. Upon termination of this
Agreement, it is the contemplation of both parties that your
employment with Employer shall cease, and that neither Employer nor
you shall have any obligation to the other with respect to continued
employment. In the event that your employment continues for any period
of time following the stated expiration dates of this Agreement,
unless and until agreed to in a new subscribed written document, such
employment or any continuation thereof is "at will," and may be
terminated without obligation at any time by either party's giving
written notice to the other.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of Washington. In accordance with the
Immigration Reform and Control Act of 1986, employment hereunder is
conditioned
-7-
<PAGE>
David Chamberlain
April 11, 1997
Page 8
upon satisfactory proof of your identity and legal ability to work in
the United States.
(f) To the extent permitted by law, you will keep the terms of this
Agreement confidential, and you will not disclose any information
concerning this Agreement to anyone other than your immediate family
and professional representatives (provided they also agree to keep the
terms of this Agreement confidential).
(g) Disney and its affiliates are express beneficiaries of your agreements
and obligations hereunder and may enforce them to the same extent that
Employer may.
20. NOTICES
All notices that either party is required or may desire to give the other
shall be in writing and given either personally or by depositing the same
in the United States mail addressed to the party to be given notice as
follows:
To Employer: 13810 SE Eastgate Way
Bellevue, Wash
Either party may by written notice designate a different address for giving
of notices. The date of mailing of any such notices shall be deemed to be
the date on which such notice is given.
21. HEADINGS
The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the
meaning of the provisions of this Agreement.
-8-
<PAGE>
David Chamberlain
April 11, 1997
Page 9
If the foregoing accurately reflects our mutual agreement, please sign
where indicated.
STARWAVE CORPORATION
By: /s/ Michael Slade
---------------------------
Title: Chairman & CEO
EMPLOYEE
/s/ David Chamberlain
--------------------------------
c/o Starwave Corporation
13810 SE Eastgate Way
Bellevue, Washington 98005
-9-
<PAGE>
EXHIBIT 99.11
CONSENT OF NOMINATED DIRECTOR
This undersigned hereby consents to his nomination to serve on the Board of
Directors of Infoseek Corporation and to all reference to said nomination
included in or made a part of this Proxy Statement and Registration Statement.
New York, New York /s/ Steven M. Bornstain
October 8, 1998 -----------------------------
Steven M. Bornstain
<PAGE>
EXHIBIT 99.12
CONSENT OF NOMINATED DIRECTOR
The undersigned hereby consents to his nomination to serve on the board of
directors of Infoseek Corporation and to all reference to said nomination
included in or made a part of this Proxy Statement and Registration Statement.
Burbank, California
October 8, 1998 /s/ Robert A. Iger
----------------------------
Robert A. Iger
<PAGE>
EXHIBIT 99.13
CONSENT OF NOMINATED DIRECTORS
The undersigned hereby consents to his nomination to serve on the Board of
Directors of Infoseek Corporation and to all references to said nomination
included in or made a part of this Proxy Statement and Registration Statement.
Burbank, California /s/ Jake Winebaum
October 8, 1998 ----------------------------
Jake Winebaum
<PAGE>
EXHIBIT 99.14
[INFOSEEK CORPORATION LETTERHEAD]
CONSENT TO USE OF NAME
Infoseek Corporation, a corporation organized under the laws of the
State of California ("Infoseek California"), hereby consents to the use by
Infoseek Corporation, a corporation organized under the laws of the State of
Delaware, of the name "Infoseek Corporation" for the purpose of qualifying to do
business in any jurisdiction where it desires to be so qualified.
IN WITNESS WHEREOF, the said Infoseek California has caused this Consent
to be executed by Andrew E. Newton, its Vice President, General Counsel, and
Secretary, this 7th day of October, 1998.
INFOSEEK CORPORATION
By: /s/ Andrew E. Newton
--------------------------
Andrew E. Newton
Vice President, General Counsel, and
Secretary
<PAGE>
EXHIBIT 99.15
[Letterhead of The Walt Disney Company/Thomas O. Staggs]
July 14, 1998
Mr. Steven T. Kirsch
c/o Infoseek Corporation
1399 Moffet Park Drive, Suite 250
Sunnyvale, California 94089
Re: Right of First Offer
Dear Steven:
I refer to the Agreement and Plan of Reorganization of even date herewith
(the "Merger Agreement") among Infoseek Corporation, Disney Enterprises, Inc.,
and Starwave Corporation, together with the related transactions entered into
concurrently therewith. As used in this letter, "Infoseek" refers to Infoseek
Corporation, a Delaware corporation, and your "Shares" refer to all shares of
the common stock of Infoseek beneficially owned by you (or by any trust of which
you are the trustee) as of the Effective Time of the Merger (as defined in the
Merger Agreement) or acquired by you (or by any trust of which you are the
trustee) at any time thereafter.
The Walt Disney Company ("TWDC") and you have reached the following
agreement with respect to your Shares:
In the event that, at any time following the Effective Time and prior to
the fourth anniversary of the Effective Time, you elect to sell, in a single
transaction or a series of related transactions, Shares with an aggregate value
of $1,000,000 or more (based on the price offered to you for such Shares) (the
"Sale Shares"), then you will first offer to sell the Sale Shares to TWDC, and
TWDC will have the right to purchase all (but not less than all) of the Sale
Shares, subject to the following:
(i) Your offer will be made orally to the undersigned or, in his absence,
to TWDC's Chief of Corporate Operations, Sanford Litvack, or, in his
absence, to TWDC's Chief Strategic Officer, Peter Murphy, and will be
confirmed in writing by facsimile./1/ Your offer will include the
number of Sale Shares and the price offered to you for the Sale
Shares (the "Offer Price").
(ii) If the Offer Price is less than $10,000,000, TWDC will have two hours
from receipt of the facsimile confirmation to accept or reject the
offer. If the Offer Price is $10,000,000 or more, then you will make
the offer no
__________________________
/1/ The facsimile number for Mr. Staggs and Mr. Murphy is (818) 846-8726 and for
Mr. Litvack, (818) 563-1766.
<PAGE>
Mr. Steven T. Kirsch
July 14, 1998
Page 2
later than one hour prior to the closing of Nasdaq (or other
securities exchange on which the Company's Common Stock is traded),
and TWDC may accept or reject the offer at any time up to the
opening of Nasdaq (or such other securities market) on the next
trading day. TWDC will accept or reject your offer orally, with
written facsimile confirmation (to fax # 408-734-9350). TWDC's
failure to respond within the permitted time will be deemed a
rejection of your offer.
(iii) If TWDC accepts your offer, the closing of the sale will be held on
the third business day following TWDC's acceptance or, if later, on
the third business day following compliance with all requirements
of applicable antitrust or securities laws.
(iv) The purchase price for the Sale Shares will be the Offer Price and
will be paid in cash by wire transfer to an account designated by
you. To the extent the original offer includes non-cash
consideration, you and TWDC will either mutually agree on the fair
market value of the non-cash consideration or, if unable to agree,
will refer such determination to one or more investment banking
firms in the manner set forth in the definition of "Fair Market
Value" in the Governance Agreement of even date herewith (the
"Governance Agreement"), and TWDC and you will split the costs of
such investment banking firm(s). TWDC will pay cash equal to the
fair market value of any non-cash consideration.
(v) Upon TWDC's payment of the purchase price, you will deliver one or
more certificates representing the Sale Shares, duly endorsed for
transfer or accompanied by duly executed stock powers, free and
clear of any liens and encumbrances, other than those created by or
through TWDC.
TWDC agrees that the foregoing provisions will not apply to any transfer of
Shares by you to any immediate family member, to a trust established by you for
the benefit of your immediate family, as a charitable contribution, or pursuant
to a Purchaser Tender Offer (as defined in the Governance Agreement), provided
that the transferee of such Shares agrees in writing to be bound by the terms of
this letter agreement.
You represent that you have authority to enter into this letter agreement
and that it does not conflict with any other agreement, obligation, arrangement,
law, judgment or order applicable to you or to the Shares. You agree that this
letter agreement will be
<PAGE>
Mr. Steven T. Kirsch
July 14, 1998
Page 2
binding upon you and your successors and assigns and that it will be governed by
California law.
If the transactions contemplated by the Merger Agreement are not
consummated, this letter agreement will terminate upon termination of the Merger
Agreement.
If you agree with the foregoing, please so indicate by signing this letter
in the place provided below. Thank you.
Sincerely,
THE WALT DISNEY COMPANY
By:/s/ Thomas O. Staggs
--------------------
Thomas O. Staggs
Chief Financial Officer
Accepted and agreed as of the date first set forth above:
/s/ Steven T. Kirsch
- --------------------
Steven T. Kirsch
