<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1399 MOFFETT PARK DRIVE
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:
<TABLE>
<S> <C> <C>
AARON J. ALTER, ESQ. ANDREW E. NEWTON, ESQ. JORGE DEL CALVO, ESQ.
DAVID J. SEGRE, ESQ. VICE PRESIDENT, GENERAL COUNSEL ALLISON LEOPOLD TILLEY, ESQ.
WILSON SONSINI GOODRICH & ROSATI AND SECRETARY PILLSBURY MADISON & SUTRO LLP
PROFESSIONAL CORPORATION INFOSEEK CORPORATION 2550 HANOVER STREET
650 PAGE MILL ROAD 1399 MOFFETT PARK DRIVE PALO ALTO, CA 94304
PALO ALTO, CA 94304 SUNNYVALE, CALIFORNIA 94089 (650) 233-4500
(650) 493-9300 (408) 543-6000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger 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
MAXIMUM
TITLE OF EACH CLASS AMOUNT AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PRICE(2) FEE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock $0.001 par value (and
associated preferred stock purchase
rights)............................ 600,000 shares $327,296 $91
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(1) Represents the number of shares of the Common Stock (and associated
preferred stock purchase rights) of the Registrant which may be issued to
shareholders of Quando, Inc., an Oregon corporation ("Quando"), pursuant
to the Merger described herein.
(2) Pursuant to 457(f)(2) under the Securities Act of 1933, as amended, the
registration fee has been calculated based on one-third of the stated
value of the securities of Quando to be received by the Registrant.
---------------
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.
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- -------------------------------------------------------------------------------
<PAGE>
QUANDO, INC.
520 NW DAVIS STREET
PORTLAND, OREGON 97209
To the shareholders of Quando, Inc.:
The Board of Directors of Quando, Inc. has unanimously approved and is
recommending that the Quando shareholders approve the acquisition of Quando by
Infoseek Corporation. The Board believes that this Merger will be good for our
customers, for our employees and for you, our shareholders. The Merger
represents a unique opportunity for Quando.
The holders of Quando common stock, Quando Series A preferred stock and Quando
Series B preferred stock are being asked to approve and adopt the Agreement and
Plan of Reorganization, dated as of July 24, 1998, as amended, among Infoseek,
Steelhead Acquisition Corp., a wholly owned subsidiary of Infoseek, Quando,
David Billstrom, William Neuhauser, Stanton R. Koch and U.S. Bank Trust N.A.,
to approve the Merger of Steelhead with and into Quando, and to approve the
transactions contemplated thereby, by which Quando would become a wholly owned
subsidiary of Infoseek. All shareholders of record on November 20, 1998 will be
entitled to vote on these proposals.
The Merger cannot be completed without the approval of our shareholders. We
have scheduled a special meeting of the shareholders of Quando for this vote.
The date, time and place of the special meeting are:
Monday, December 21, 1998
11:30 A.M., local time
520 NW Davis Street
Portland, Oregon
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and returning the enclosed
proxy card by facsimile and by overnight courier. If you attend the special
meeting, you may vote in person if you wish, even though you have previously
returned your proxy card.
In addition, Quando has enclosed a written consent. If Quando receives approval
of the Merger and Merger Agreement by written consent from each shareholder
prior to December 18, 1998, Quando will complete the Merger as soon as
practicable thereafter and the special meeting will not be held. Please
complete and return the enclosed written consent in addition to your proxy
card. Proxy cards and written consents should be returned, first by facsimile
and then by overnight courier to the offices of Quando, Inc., Attention: Sue
Bizner, 520 NW Davis Street, Portland, Oregon 97209 (Facsimile: 503-225-1987)
(Telephone: 503-225-1988).
The accompanying Proxy Statement/Prospectus provides additional detailed
information about the proposed transaction, including information about the
businesses of Quando and Infoseek. You are urged to read it carefully.
At various meetings of the Board of Directors of Quando, the Board has
carefully considered the terms and conditions of the proposed Merger and Merger
Agreement and believes that the Merger and Merger Agreement is in the best
interests of Quando and its shareholders. ACCORDINGLY, THE BOARD OF DIRECTORS
OF QUANDO UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE MERGER
AND MERGER AGREEMENT.
Very truly yours,
/s/ David Billstrom
David Billstrom
Chairman, President and Chief Executive
Officer
Portland, Oregon
December 9, 1998
<PAGE>
QUANDO, INC.
520 NW DAVIS STREET
PORTLAND, OREGON 97209
(503) 225-1988
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the shareholders of Quando, Inc.:
A special meeting of the shareholders of Quando, Inc., an Oregon corporation,
will be held at the principal executive offices of Quando, 520 NW Davis Street,
Portland, Oregon, on Monday, December 21, 1998, at 11:30 A.M., local time.
The purpose of the special meeting, which is more fully described in the
accompanying Proxy Statement/Prospectus, is to approve and adopt the Agreement
and Plan of Reorganization, dated as of July 24, 1998, as amended, by and among
Infoseek Corporation, a Delaware corporation, Steelhead Acquisition Corp., an
Oregon corporation and a wholly owned subsidiary of Infoseek, Quando, Inc.,
David Billstrom, William Neuhauser, Stanton R. Koch and U.S. Bank Trust, N.A.,
and the transactions contemplated thereby (the "Merger Agreement"). The Merger
Agreement provides that Steelhead will be merged with and into Quando, and
Quando, as the surviving corporation in the Merger, will become a wholly owned
subsidiary of Infoseek. Upon the completion of the Merger, each share of Quando
common stock, Quando Series A preferred stock and Quando Series B preferred
stock will be converted into the right to receive 0.0613, 0.0777 and 0.0702
shares of Infoseek common stock, respectively (after giving effect to the
conversion of the Series A preferred stock and Series B preferred stock into
common stock at their applicable conversion ratios). The Merger Agreement also
provides that approximately ten percent (10%) of the shares of Infoseek common
stock issued in the Merger will be placed in an escrow fund until June 30, 1999
to reimburse Infoseek for any breaches of Quando's representations and
warranties and certain other obligations in the Merger Agreement. A copy of the
Merger Agreement, as amended, is attached as Annex A to the accompanying Proxy
Statement/Prospectus.
Holders of a majority of the shares of Quando common stock, of Quando Series A
preferred stock and of Quando Series B preferred stock, on an as-converted
basis, entitled to vote is necessary to constitute a quorum for the transaction
of business at the special meeting. The affirmative vote of holders of 90% of
the shares of Quando capital stock entitled to vote is required by the Merger
Agreement to approve the Merger and the Merger Agreement. In the event approval
is obtained by written consent in lieu of the special meeting, the unanimous
written consent of holders of the shares of Quando capital stock entitled to
vote is required by the Oregon Business Corporation Act to approve the Merger
and the Merger Agreement. In the event Quando obtains the unanimous written
consent of all shareholders prior to December 18, 1998, Quando will complete
the Merger as soon as practicable thereafter and the special meeting will not
be held. The Board of Directors of Quando has set November 20, 1998 as the
record date. Only shareholders of record of Quando capital stock at the close
of business on the record date are entitled to vote at the special meeting or
to provide their written consent.
<PAGE>
The Board, after careful consideration, has unanimously approved the Merger and
the Merger Agreement and has determined that the Merger is fair and in the best
interests of Quando and its shareholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF QUANDO CAPITAL
STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE
REQUESTED TO VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AND WRITTEN
CONSENT PROMPTLY, FIRST BY FACSIMILE AND THEN IN THE ENCLOSED, OVERNIGHT
COURIER ENVELOPE.
If you have any questions or require additional material, please contact David
Billstrom, Quando's Chairman of the Board, President and Chief Executive
Officer.
By order of the
Quando Board of Directors
/s/ David Billstrom
David Billstrom
Chairman, President and
Chief Executive Officer
Portland, Oregon
December 9, 1998
<PAGE>
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. INFOSEEK MAY NOT ISSUE ITS COMMON STOCK IN THE MERGER UNTIL
THE REGISTRATION STATEMENT CONTAINING THIS PROXY STATEMENT/PROSPECTUS IS
DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED DECEMBER 8, 1998
PROXY STATEMENT PROSPECTUS
OF OF
QUANDO, INC. INFOSEEK CORPORATION
The Infoseek Corporation and Quando, Inc. boards of directors have approved a
Merger Agreement that would merge Quando with a subsidiary of Infoseek. As a
result of the Merger, Quando will become a wholly-owned subsidiary of Infoseek.
In the Merger, Infoseek will issue to Quando shareholders 0.0613, 0.0777 and
0.0702 shares of Infoseek common stock for each outstanding share of Quando
common stock, Series A preferred stock and Series B preferred stock,
respectively, held by them (after giving effect to the conversion of the Series
A preferred stock and Series B preferred stock at their applicable conversion
ratios). A total of 527,050 shares of Infoseek common stock are expected to be
issued in the Merger, approximately ten percent (10%) of which, or 52,705
shares, will be placed into the escrow fund.
The Quando board of directors has called a special meeting of the Quando
shareholders to vote on the Merger and Merger Agreement on:
Monday, December 21, 1998 at 11:30 a.m.
at Quando corporate offices
520 NW Davis Street
Portland, Oregon 97209
Whether or not you plan to attend the special meeting, please complete, sign
and mail the attached proxy card to Quando. The Quando board of directors is
also soliciting the written consent of all of the Quando shareholders to the
Merger and Merger Agreement. Therefore, please also complete and sign the
attached written consent and return it to Quando. If all of the Quando
shareholders consent in writing to the Merger and Merger Agreement prior to
Friday, December 18, 1998, the Quando shareholders meeting will not be held.
Only shareholders who held their shares of Quando capital stock at the close of
business on November 20, 1998 will be entitled to vote on or give their written
consent to the Merger and the Merger Agreement. The Merger cannot be completed
unless holders of at least ninety percent (90%) of the outstanding shares of
Quando capital stock on the record date vote to approve the Merger and the
Merger Agreement at the Quando shareholders meeting, or all of such shares
consent in writing to the Merger and Merger Agreement.
<PAGE>
This document gives you detailed information about the proposed Merger. We
encourage you to read this entire document carefully. Please see "Where You Can
Find More Information" on page 6 for additional information about Infoseek on
file with the Securities and Exchange Commission.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. YOU ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION BEGINNING
ON PAGE 18. THE "RISK FACTORS" SECTION DESCRIBES CERTAIN RISKS THAT YOU SHOULD
CONSIDER IN DETERMINING WHETHER TO APPROVE THE MERGER AND THE MERGER AGREEMENT.
In accordance with Sections 60.551 through 60.594 of the Oregon Business
Corporation Act, holders of Quando capital stock may be entitled to exercise
dissenters' rights in connection with the Merger. See "The Merger--Dissenters'
Rights" on page 156.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE INFOSEEK COMMON STOCK TO BE ISSUED
IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE
OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated December 8, 1998 and is expected to be
first sent to Quando shareholders on December 9, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................. 1
WHERE YOU CAN FIND MORE INFORMATION...................................... 7
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 7
TRADEMARKS............................................................... 8
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION AND COMPARATIVE PER
SHARE DATA.............................................................. 9
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.... 13
COMPARATIVE PER SHARE DATA............................................... 15
MARKET PRICE INFORMATION................................................. 16
RISK FACTORS............................................................. 18
Risks Related to the Combined Companies and the Merger................. 18
Risks Related to Quando................................................ 21
Risks Related to Infoseek.............................................. 24
QUANDO'S SOLICITATION FOR SHAREHOLDER APPROVAL........................... 47
THE MERGER AND RELATED TRANSACTIONS...................................... 49
TERMS OF THE MERGER...................................................... 55
OTHER AGREEMENTS......................................................... 70
INFOSEEK UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS..... 72
INFOSEEK SELECTED CONSOLIDATED FINANCIAL DATA............................ 86
INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 87
INFOSEEK BUSINESS........................................................ 113
INFOSEEK RELATIONSHIP WITH DISNEY........................................ 127
INFOSEEK MANAGEMENT...................................................... 129
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF INFOSEEK.. 133
CERTAIN TRANSACTIONS..................................................... 138
QUANDO SELECTED FINANCIAL DATA........................................... 141
QUANDO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 142
QUANDO BUSINESS.......................................................... 149
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF QUANDO.... 153
QUANDO MANAGEMENT ....................................................... 154
DISSENTERS' RIGHTS....................................................... 156
COMPARISON OF CAPITAL STOCK.............................................. 159
LEGAL MATTERS............................................................ 171
EXPERTS.................................................................. 171
INFOSEEK INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................... F-1
STARWAVE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................... F-29
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS......................... F-48
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS..................... F-58
QUANDO INDEX TO FINANCIAL STATEMENTS..................................... F-68
ANNEX A--The Merger Agreement............................................ A-1
ANNEX B--Oregon Dissenters' Rights Statute............................... B-1
</TABLE>
i
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the proposed Merger fully and for a more
complete description of the terms of the proposed Merger, you should carefully
read the entire Proxy Statement/Prospectus and the documents we have referred
you to. See "Where You Can Find More Information" (page 6). The Merger
Agreement is attached as Annex A to this Proxy Statement/Prospectus. We
encourage you to read the Merger Agreement. It is the legal document that
governs the proposed Merger.
THE COMPANIES (PAGES 113 AND 149)
INFOSEEK CORPORATION
1399 Moffett Park Drive
Sunnyvale, California 94089
Telephone: 408-543-6000
Infoseek provides leading Internet search and navigation technology, products
and services that use the Web to connect its viewers' personal, work and
community lives. Infoseek is able to segment viewers by interest area and
provide advertisers with focused and targeted audiences. On November 18, 1998,
Infoseek acquired Starwave Corporation in conjunction with a strategic
investment by Disney and became the parent holding company of Infoseek, a
California corporation, and Starwave. Infoseek is, in conjunction with Disney,
developing GO Network. GO Network will combine certain content, promotion,
brands and technologies of Infoseek, Starwave and certain joint ventures of
Starwave relating to ESPN.com and ABCNEWS.com. GO Network is expected to
provide for universal navigation, registration, community and commerce services
across the Infoseek and Starwave websites, as well as ESPN.com, ABCNEWS.com and
certain Disney websites. Infoseek intends, through GO Network, to offer a broad
selection of popular branded content to audiences ranging from children, to
families, to business users. Infoseek plans a beta launch of GO Network in
December 1998, with a full launch in early 1999.
In this Proxy Statement/Prospectus, references to Infoseek on or after November
18, 1998 are references to Infoseek, a Delaware corporation and its
subsidiaries, and references to Infoseek prior to November 18, 1998 are
references to Infoseek, a California corporation. When necessary, we sometimes
refer to Infoseek, a California corporation, as "Infoseek California," and to
the wholly-owned subsidiary of Infoseek that is merging with Quando as "Sub."
We also refer to The Walt Disney Company, together with its affiliated
companies, as "Disney" and to the ESPN Joint Venture and ABCNews Joint Venture
as the "Joint Ventures."
QUANDO, INC.
520 NW Davis Street
Portland, Oregon 97209
Telephone: 503-225-1988
Quando provides search and navigational services for the Internet. To provide
these services, Quando creates constantly-updated directories of information
obtained from the Internet for use in searching the Web--including shopping
guides, event guides, contact directories, audio clip libraries, review guides
and website rating guides. Quando builds its directories with proprietary robot
technology and database processing techniques.
1
<PAGE>
Quando provides the use of these online directories and guides as a service to
its customers, such as Infoseek, IBM and America Online. Quando's customers
then provide these online directories and guides on their Internet websites for
use by their customers who desire to obtain specific consumer information from
the Internet in an easy-to-use format.
THE PROPOSED MERGER (PAGE 49)
Infoseek, Quando and certain other parties have entered into an Agreement and
Plan of Reorganization dated July 24, 1998, as amended on December 7, 1998.
This agreement, generally referred to as the "Merger Agreement," provides that
Quando will merge with a wholly-owned subsidiary of Infoseek and thereby become
a wholly-owned subsidiary of Infoseek. The Merger Agreement provides that the
Merger will take place only if Quando shareholders holding at least ninety
percent (90%) of the outstanding shares of Quando capital stock approve the
Merger and Merger Agreement at the shareholders meeting, or all of the Quando
shareholders consent to the Merger and Merger Agreement in writing. Quando's
capital stock includes its common stock, Series A preferred stock and Series B
preferred stock. The Merger Agreement is attached as Annex A at the back of
this Proxy Statement/Prospectus. We encourage you to read the Merger Agreement,
as it is the legal document that governs the proposed Merger.
SHAREHOLDERS MEETING; SOLICITATION OF WRITTEN CONSENTS (PAGE 47)
The Quando board of directors has called a special meeting of the Quando
shareholders to vote on the Merger and Merger Agreement. The meeting is
scheduled for Monday, December 21, 1998 at 11:30 a.m., local time, at Quando's
corporate offices. Quando is soliciting proxies from its shareholders prior to
the shareholders meeting. Quando also intends to begin seeking the written
consent of its shareholders to the Merger and the Merger Agreement on
Wednesday, December 9, 1998. Quando hopes to receive all of the consents by
Thursday, December 10, 1998. If all of the Quando shareholders consent in
writing to the Merger and Merger Agreement prior to Friday, December 18, 1998,
the shareholders meeting will not be held.
RECORD DATE FOR VOTING ON THE MERGER AGREEMENT (PAGE 47)
You are entitled to vote at the special meeting or sign a written consent if
you owned shares of Quando capital stock as of the close of business on
November 20, 1998, the record date. On the record date, there were 5,884,178
shares of Quando common stock outstanding (on an as-converted basis). Quando
shareholders will have one vote for each share of Quando common stock (on an
as-converted basis) they owned on the record date for purposes of voting on or
consenting to the Merger and Merger Agreement.
SHAREHOLDER VOTE OR CONSENT REQUIRED TO APPROVE THE MERGER AND MERGER AGREEMENT
(PAGE 48)
The vote of Quando shareholders holding at least ninety percent (90%) of the
outstanding shares of Quando capital stock at the special meeting or the
written consent of the holders of all of the outstanding shares of Quando
capital stock is required to approve the Merger and the Merger Agreement
(Oregon corporate law requires that a written consent to a Merger be
unanimous). Infoseek stockholders are not required to vote on the Merger or the
Merger Agreement.
2
<PAGE>
REVOCABILITY OF CONSENTS AND PROXIES (PAGE 47)
You may revoke your proxy at any time prior to the Quando shareholders meeting
by executing a new proxy prior to the shareholders meeting or by attending the
meeting in person and voting. Merely attending the meeting will not revoke your
proxy. You may revoke your consent by delivering written notice to Quando's
Secretary of such revocation at any time prior to the closing of the Merger.
Quando hopes to receive the written consent of all of its shareholders to the
Merger and Merger Agreement by Thursday, December 10, 1998 and to close the
Merger on or about Friday, December 11, 1998.
CONVERSION OF QUANDO PREFERRED STOCK INTO QUANDO COMMON STOCK (PAGE 56)
The consideration to be received by the holders of each of the Quando Series A
preferred stock and the Quando Series B preferred stock in the Merger is
limited to those amounts set forth in the Articles of Incorporation of Quando
as liquidation preferences for each such series of Quando preferred stock. Upon
the vote of a majority of the holders of each series of Quando preferred stock,
each series of Quando preferred stock has the right to convert its shares of
Quando preferred stock into Quando common stock. As a result of past dilutive
issuances of Quando capital stock, anti-dilution adjustments to the conversion
price for each series of Quando preferred stock as set forth in the Articles of
Incorporation of Quando will result in a conversion ratio of 1.2685 and 1.1462
for the conversion of each share of Series A preferred stock and Series B
preferred stock, respectively, into shares of Quando common stock.
In the event of a conversion, the holders of Quando Series A preferred stock
and Quando Series B preferred stock will share the total consideration to be
received in the Merger with all holders of Quando common stock. As a result,
the shares of Infoseek common stock to be received by each holder of Quando
Series A preferred stock and Quando Series B preferred stock will increase.
Without electing to convert all shares of Quando preferred stock into Quando
common stock, the holders of Quando Series A preferred stock and Quando Series
B preferred stock will receive 0.0307 and 0.0192 shares, respectively, of
Infoseek common stock, for each share of preferred stock held by them. By
electing to convert shares of Quando preferred stock into Quando common stock,
the holders of Quando Series A preferred stock and Quando Series B preferred
stock will receive 0.0777 and 0.0702 shares, respectively, of Infoseek common
stock for each share of preferred stock held by them.
COMPLETION OF MERGER (PAGE 63)
Infoseek and Quando expect to complete the Merger as soon as practicable after
the Quando shareholders approve the Merger and the other conditions to the
Merger have been met.
QUANDO REASONS FOR THE MERGER; RECOMMENDATION TO QUANDO SHAREHOLDERS (PAGES 48
AND 50)
The Quando board of directors has determined that the terms of the Merger and
the Merger Agreement are in the best interests of Quando and its shareholders.
In reaching its decision, the Quando board of directors identified several
potential benefits of the Merger. These benefits include:
. the total consideration paid by Infoseek to the shareholders of Quando
. the potential to greatly improve the services Quando offers to customers
3
<PAGE>
. the ability of Quando to gain market share
. the strategic alternatives likely to be available to Quando and
. the potential benefits to Quando's employees and existing customers
The Quando board of directors also considered that Quando shareholders would
have the opportunity to participate in the potential growth of Infoseek
following the Merger. However, the Quando board of directors also recognized
that the potential benefits of the Merger may not be realized and that there
are a number of other risks and uncertainties related to the Merger. WE
ENCOURAGE YOU TO READ THE RISK FACTORS SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS BEGINNING ON PAGE 18.
THE QUANDO BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
MERGER AND THE MERGER AGREEMENT.
RISKS OF THE MERGER (PAGE 18)
In considering whether to approve the Merger and Merger Agreement, you should
consider all of the risks of the Merger, including the risks that the potential
benefits of the Merger may not be realized, that Infoseek's business may not be
successful, and that the market price of Infoseek common stock will fluctuate
and could decline in the future. WE ENCOURAGE YOU TO READ THE RISK FACTORS SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS BEGINNING ON PAGE 18.
WHAT QUANDO SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE 56)
Upon completion of the Merger, Infoseek will issue to Quando shareholders
0.0613, 0.0777 and 0.0702 shares of Infoseek common stock for each share of
Quando common stock, Series A preferred stock and Series B preferred stock,
respectively, held by them (after giving effect to the conversion of the Series
A preferred stock and Series B preferred stock at their applicable conversion
ratios). Infoseek will place approximately ten percent (10%) of these shares of
Infoseek common stock into escrow. Infoseek will not issue fractional shares of
its common stock in the Merger--any fractional shares will be rounded up to the
nearest whole share.
INFOSEEK WILL SEND YOU WRITTEN INSTRUCTIONS FOR EXCHANGING YOUR QUANDO STOCK
CERTIFICATES FOR INFOSEEK STOCK CERTIFICATES IN THE MERGER.
THE ESCROW FUND (PAGE 66)
At the time of the Merger, Infoseek will place 0.0061, 0.0077 and 0.0070 shares
of Infoseek common stock into an escrow fund for each outstanding share of
Quando common stock, Series A preferred stock and Series B preferred stock,
respectively. As a result, a total of 52,705 shares of Infoseek common stock
will be placed in the escrow fund. The escrow fund will be held by U.S. Bank
Trust, N.A.
The escrow fund is similar to a security deposit. Quando has made various
representations and warranties to Infoseek in the Merger Agreement. If certain
of these representations or warranties turn out to be incorrect, Infoseek will
be entitled to be compensated from the escrow fund.
The Infoseek common stock remaining in the escrow fund is expected to be
distributed to Quando shareholders soon after June 30, 1999. If Infoseek has
filed a claim against the escrow fund prior to June 30, 1999, an amount of the
escrow fund equal to the claim will not be distributed unless and until the
claim is resolved in favor of Quando.
4
<PAGE>
RESALE OF THE INFOSEEK COMMON STOCK RECEIVED IN THE MERGER (PAGE 70)
All of Quando's shareholders, other than Quando's executive officers, directors
and major shareholders (those shareholders who own more than 10% of Quando's
outstanding capital stock), will generally be permitted to resell the Infoseek
common stock they receive in the Merger without restriction. Quando's executive
officers, directors and major shareholders will be able to resell their common
stock only if they comply with certain securities laws. Among other things,
these securities laws will generally prohibit these Quando executive officers,
directors and shareholders from selling the shares of Infoseek common stock
they receive in the Merger until on or after January 12, 1999.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 15)
Infoseek's common stock is quoted on the Nasdaq National Market. On July 23,
1998, the last trading day before the signing of the Merger Agreement, Infoseek
common stock closed at $30.375 per share. On August 10, 1998, the last trading
day prior to the announcement of the proposed Merger, Infoseek common stock
closed at $24.50 per share. On December 4, 1998, the last trading day prior to
the date of this Proxy Statement/Prospectus, Infoseek common stock closed at
$34.938 per share.
LISTING OF INFOSEEK COMMON STOCK (PAGE 54)
The shares of Infoseek common stock issued in connection with the Merger will
be listed on the Nasdaq National Market.
YOUR RIGHTS AS A HOLDER OF INFOSEEK COMMON STOCK (PAGE 159)
At the time of the Merger, you will become an Infoseek shareholder. There are
important differences between the rights of shareholders of Quando and
shareholders of Infoseek. Please carefully review the description of these
differences beginning on page 159.
THE INVESTOR REPRESENTATIVE (PAGE 67)
Quando has appointed Stanton R. Koch, a director of Quando, as the shareholder
representative for the Quando shareholders. As such, Mr. Koch will represent
your interests after the Merger and will be entitled to make certain decisions
regarding the escrow fund.
OTHER INTERESTS OF QUANDO OFFICERS AND DIRECTORS IN THE MERGER (PAGE 52)
In considering the Quando board of directors' recommendation that you approve
the Merger and the Merger Agreement, you should note that the officers and
directors of Quando have interests in the Merger that are different from, or in
addition to, your interests. Specifically, as a result of or in connection with
the Merger, (1) certain Quando directors who are also officers of Quando will
become employees of Infoseek, (2) Quando will grant bonuses, totalling $50,000,
to all of Quando's directors and executive officers and (3) the Quando
directors will receive continuing indemnification against certain liabilities.
As a result, Quando's directors and officers could be more likely to vote to
approve the Merger and the Merger Agreement than Quando shareholders generally.
CONDITIONS TO THE MERGER (PAGE 63)
The Merger will not be completed unless the closing conditions contained in the
Merger Agreement are met. One of these closing
5
<PAGE>
conditions requires that Quando shareholders holding at least ninety percent
(90%) of the outstanding shares of Quando capital stock vote to approve the
Merger and Merger Agreement at the special shareholders meeting or all of the
Quando shareholders consent to the Merger and Merger Agreement in writing.
Infoseek and Quando may each waive certain of the closing conditions of the
other. Please review a description of the closing conditions on page 63.
NO SOLICITATION (PAGE 62)
Quando has agreed, subject to some exceptions contained in the Merger
Agreement, not to initiate or engage in discussions regarding a business
combination with another party other than Infoseek until the earlier of
December 31, 1998 or the date the Merger closes.
TERMINATION OF THE MERGER AGREEMENT (PAGE 65)
Infoseek and Quando may together agree to terminate the Merger Agreement
without completing the Merger. This is the case whether or not Quando
shareholders have approved or consented to the Merger and the Merger Agreement.
In addition, either company may terminate the Merger Agreement if the Merger is
not completed before December 31, 1998 or if specified events occur before that
date.
DISSENTERS' RIGHTS (PAGE 156)
If you do not vote for or consent to the Merger and the Merger Agreement, you
will have the right under Oregon law to dissent to the Merger and request an
appraisal of the value of your Quando capital stock in connection with the
Merger.
ACCOUNTING TREATMENT (PAGE 54)
Infoseek and Quando intend the Merger to be accounted for as a purchase.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES (PAGE 52)
Infoseek and Quando intend the exchange of Quando capital stock for Infoseek
common stock to be tax-free to Quando shareholders for federal income tax
purposes.
Tax matters are very complicated and the tax consequences to you from the
Merger will depend on your own circumstances. You should consult your tax
advisors for a full understanding of all of the tax consequences to you from
the Merger.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 7)
Each of Infoseek and Quando has made forward-looking statements in this
document that are subject to risks and uncertainties. Forward-looking
statements include expectations concerning matters that are not historical
facts. Words such as "projects," "believes," "anticipates," "plans," "expects,"
"intends" or similar words or expressions are intended to identify forward-
looking statements. For more information regarding factors that could cause
actual results to differ from these expectations, you should read the "Risk
Factors" section beginning on page 18.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have questions about the Merger you should contact:
David Billstrom
Chairman, President and
Chief Executive Officer
Quando, Inc.
520 NW Davis Street
Portland, Oregon 97209
503-225-1988
6
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Infoseek files annual, quarterly and current reports, proxy solicitation
statements and other information with the Securities and Exchange Commission
(the "Commission"). You may read and copy any reports, statements or other
information filed by Infoseek at the Commission's public reference rooms in
Washington, D.C., New York City and Chicago. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms.
Infoseek's filings are also available to the public from commercial document
retrieval services and at the Internet website maintained by the Commission at
http://www.sec.gov.
Infoseek filed a Registration Statement on Form S-4 (the "Registration
Statement") to register with the Commission the Infoseek common stock to be
issued to Quando shareholders in the Merger. This Proxy Statement/Prospectus is
a part of that Registration Statement. As allowed by the Commission's rules,
this Proxy Statement/Prospectus does not contain all of the information you can
find in the Registration Statement or the exhibits to the Registration
Statement. This Proxy Statement/Prospectus summarizes some of the documents
that are exhibits to the Registration Statement, and you should refer to the
exhibits for a more complete description of the matters covered by those
documents.
Infoseek has supplied all information contained in this Proxy
Statement/Prospectus relating to Infoseek, and Quando has supplied all such
information relating to Quando.
Neither Infoseek nor Quando has authorized anyone to give any information
regarding the solicitation of consents or the offering of shares of Infoseek
common stock that is different from what is contained in this Proxy
Statement/Prospectus. This is not an offer to sell or a solicitation of anyone
to whom it would be unlawful to make an offer or solicitation. You should not
assume that the information contained in this Proxy Statement/Prospectus is
accurate as of any time after the date of this Proxy Statement/Prospectus, and
neither the delivery of this Proxy Statement/Prospectus to Quando shareholders
nor the issuance of Infoseek common stock in the Merger should create any
implication to the contrary.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Proxy Statement/Prospectus contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements relate to expectations concerning matters that are
not historical facts. Words such as "projects," "believes," "anticipates,"
"plans," "expects," "intends," and similar words and expressions are intended
to identify forward-looking statements. Although each of Infoseek and Quando
believes that such forward-looking statements are reasonable, neither can
assure you that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from such
expectations ("Cautionary Statements") are disclosed herein including, without
limitation, in the "Risk Factors" beginning on page 18. All forward-looking
statements attributable to Infoseek are expressly qualified in their entirety
by the Cautionary Statements described herein. All forward-looking statements
attributable to Quando are expressly qualified in their entirety by the
Cautionary Statements described herein. Neither Infoseek nor Quando undertakes
any obligation to update any forward-looking statements.
7
<PAGE>
TRADEMARKS
Infoseek, the Infoseek logo, Ultraseek, Ultramatch and Starwave are among the
registered trademarks of Infoseek. Quando is a registered trademark of Quando,
Inc., and QBot, EventBot, ShoppingBot, SchoolBot and WhoBot are trademarks of,
Quando, Inc. This Proxy Statement/Prospectus also refers to other trademarks of
Infoseek, Quando and other companies.
8
<PAGE>
SELECTED HISTORICAL CONDENSED FINANCIAL
INFORMATION AND COMPARATIVE PER SHARE DATA
The following tables present selected historical condensed financial
information and comparative per share data for Infoseek, Starwave and Quando.
This information has been derived from their respective consolidated financial
statements and notes, certain of which are included in this Proxy
Statement/Prospectus.
The financial information of Infoseek including the statement of operations
data set forth below with respect to the years ended December 31, 1997, 1996
and 1995 and the balance sheet data at December 31, 1997 and 1996 are derived
from, and are qualified by reference to, the audited consolidated financial
statements of Infoseek included elsewhere in this Proxy Statement/Prospectus.
The statement of operations data with respect to the nine months ended
September 30, 1998 and 1997 and the balance sheet data at September 30, 1998
are derived from the unaudited consolidated financial statements of Infoseek
included elsewhere in this Proxy Statement/Prospectus. The statement of
operations data with respect to the years ended December 31, 1994 and the
period from August 30,1993 (inception) to December 31, 1993 and the balance
sheet data at December 31, 1995, 1994 and 1993 are derived from, and are
qualified by reference to, the audited consolidated financial statements of
Infoseek, which are not included in this Proxy Statement/Prospectus.
The financial information of Starwave including the statement of operations
data set forth below with respect to the year ended October 4, 1998, the nine
months ended September 28, 1997 and the year ended December 31, 1996 and the
balance sheet data at October 4, 1998, September 28, 1997 and December 31, 1996
are derived from, and are qualified by reference to, the audited consolidated
financial statements of Starwave included elsewhere in this Proxy
Statement/Prospectus. The statement of operations data with respect to the year
ended December 31 1995, and the balance sheet data at December 31, 1995, are
derived from, and are qualified by reference to, the audited consolidated
financial statements of Starwave, which are not included in this Proxy
Statement/Prospectus. The statement of operations data and balance sheet data
for the year ended and as of December 31, 1994 are derived from the unaudited
consolidated financial statements of Starwave which are not included in this
Proxy Statement/Prospectus.
The financial information of Quando including the statement of operations data
set forth below with respect to the years ended December 31, 1997, 1996 and
1995 and the balance sheet data at December 31, 1997 and 1996 are derived from,
and are qualified by reference to, the audited financial statements of Quando
included elsewhere in this Proxy Statement/Prospectus. The statement of
operations data with respect to the nine months ended September 30, 1998 and
1997 and the balance sheet data at September 30, 1998 are derived from the
unaudited financial statements of Quando included in this Proxy
Statement/Prospectus elsewhere. The statement of operations data with respect
to the year ended December 31, 1994 and the period from December 14, 1993
(inception) to December 31, 1993 and the balance sheet data at December 31,
1995, 1994 and 1993 are derived from the unaudited financial statements of
Quando, which are not included in this Proxy Statement/Prospectus.
The selected historical financial information of Infoseek and Quando for the
nine months ended September 30, 1998 and 1997 and as of September 30, 1998, and
for Quando, as of December 31, 1995 and as of and for the year ended December
31, 1994 and the 16-day period from December 14, 1993 (inception) to December
31, 1993, and for Starwave, as of and for the year ended December 31, 1994 have
been derived from unaudited interim consolidated financial statements, and in
the opinion of Infoseek's, Quando's and Starwave's management reflects all
adjustments, which are of a normal recurring nature, necessary for the fair
presentation of such unaudited interim consolidated financial information.
Operating results for the nine months ended September 30, 1998 for Infoseek and
Quando are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998.
9
<PAGE>
INFOSEEK SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
AUGUST 30, 1993 ENDED
YEARS ENDED DECEMBER 31, (INCEPTION) TO SEPTEMBER 30,
------------------------------------ DECEMBER 31, -----------------
1997 1996 1995 1994 1993 1998 1997
-------- -------- ------- ------- --------------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA(3):
Total revenues.......... $ 35,082 $ 15,095 $ 1,032 -- -- $50,715 $ 22,407
Costs and expenses
Hosting, content and
website costs......... 6,319 3,194 614 -- -- 7,956 4,397
Research and
development........... 7,900 4,550 1,175 $ 1,063 $ 8 7,432 5,879
Sales and marketing.... 34,320 20,455 1,488 97 -- 35,144 22,520
General and
administrative........ 7,042 4,177 1,148 360 19 7,876 5,242
Restructuring and other
charges(1)............ 7,349 -- -- -- -- -- 7,349
-------- -------- ------- ------- ---- ------- --------
Total costs and
expenses.............. 62,930 32,376 4,425 1,520 27 58,408 45,387
-------- -------- ------- ------- ---- ------- --------
Operating loss.......... (27,848) (17,281) (3,393) (1,520) (27) (7,693) (22,980)
Interest income, net.... 1,286 1,343 97 10 -- 1,999 1,066
-------- -------- ------- ------- ---- ------- --------
Net loss................ $(26,562) $(15,938) $(3,296) $(1,510) $(27) $(5,694) $(21,914)
======== ======== ======= ======= ==== ======= ========
Basic and diluted net
loss per share (pro
forma in 1995)(2)...... $ (1.00) $ (0.72) $ (0.21) $ (0.19) $ (0.83)
======== ======== ======= ======= ========
Shares used in computing
basic and diluted net
loss per share......... 26,627 22,120 15,535 30,512 26,270
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
SEPTEMBER 30,
1997 1996 1995 1994 1993 1998
------- ------- ------ ---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(3):
Cash, cash equivalents and
short-term investments....... $31,439 $46,653 $1,626 $568 $177 $54,541
Working capital (deficit)..... 19,018 41,997 93 458 (99) 48,381
Total assets.................. 51,489 58,332 5,123 859 318 90,313
Long-term obligations......... 4,493 1,892 838 210 -- 2,981
Total shareholders' equity
(deficit).................... 27,006 48,985 2,142 520 (27) 66,717
</TABLE>
- --------
(1) During the second quarter of 1997, Infoseek recorded restructuring and
other charges of approximately $7.4 million 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 nine months ended
September 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 consolidated financial statements have been restated to reflect
the acquisition of WebChat Communications, Inc., which has been accounted
for as a pooling-of-interests.
10
<PAGE>
STARWAVE SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL NINE
YEAR MONTHS FISCAL YEARS ENDED
ENDED ENDED DECEMBER 31,
OCTOBER 4, SEPTEMBER 28, -------------------------------
1998 1997 1996 1995 1994
---------- ------------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Revenues................ $ 5,266 $ 4,892 $ 8,302 $ 1,111 $ --
Cost of online
services............... 3,143 7,185 18,170 6,577 --
Total operating
expenses............... 7,234 12,906 34,645 17,525 7,469
Loss from joint
ventures............... (14,159) (8,209) -- -- --
Net other income
(expense).............. 701 (1,350) (5,333) (3,015) (6,079)
Loss from continuing
operations............. (15,426) (17,573) (31,676) (19,429) (8,848)
Loss from discontinued
operations............. -- -- (4,289) (7,474) (4,700)
Net loss................ (15,426) (17,573) (35,965) (26,903) (13,548)
Basic and diluted net
loss per share from
continuing operations.. (0.16) (0.25) (0.99) (0.68) (0.50)
Basic and diluted net
loss per share from
discontinued
operations............. -- -- (0.14) (0.27) (0.27)
Basic and diluted net
loss per share......... (0.16) (0.25) (1.13) (0.95) (0.77)
Shares used in computing
basic and diluted net
loss per share......... 96,475 71,691 31,958 28,412 17,502
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $15,812 $ 29,461 $ 9,713 $ 6,354 $ 5,955
Loans from shareholder.. -- -- 84,888 51,025 22,950
Total shareholders'
equity (deficit)....... 8,885 23,614 (82,456) (46,653) (19,751)
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of website
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.
11
<PAGE>
QUANDO SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 14,
1993 (INCEPTION) NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, THROUGH SEPTEMBER 30,
-------------------------------------------- DECEMBER 31, --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- ----------- ---------------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues, net........... $ 255,723 $ 33,182 $ 71,186 $ 21,388 $ -- $ 513,713 $ 147,450
Cost of goods sold...... 654 19,373 32,212 8,881 -- 5,349 600
--------- --------- --------- --------- ----- --------- ---------
Gross margin........... 255,069 13,809 38,974 12,507 -- 508,364 146,850
--------- --------- --------- --------- ----- --------- ---------
Operating expenses:
Research and
development............ 161,339 115,782 127,273 8,473 -- 413,260 112,828
Sales and marketing..... 12,000 2,000 400 -- -- 699 2,901
General and
administrative......... 418,850 326,103 361,156 180,468 204 316,759 291,167
--------- --------- --------- --------- ----- --------- ---------
Total operating
expenses............. 592,189 443,885 488,829 188,941 204 730,718 406,896
Operating loss......... (337,120) (430,076) (449,855) (176,434) (204) (222,354) (260,046)
Other expenses, net.... (16,281) (12,671) (8,248) (151) -- (59,025) (18,424)
--------- --------- --------- --------- ----- --------- ---------
Net loss............... (353,401) (442,747) (458,103) (176,585) (204) (281,379) (278,470)
========= ========= ========= ========= ===== ========= =========
Basic and diluted net
loss per common
share(1)(2)........... $ (0.08) $ (0.08) $ (0.08) $ (0.06) $ (0.06)
Shares used in
computing net loss per
common share(1)(2).... 4,598,424 5,445,000 5,445,000 4,445,000 4,650,128
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993 1998
--------- --------- ----------- ----------- ----------- -------------
BALANCE SHEET DATA: (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash.................... $ 50,984 $ 2,935 $ 3,322 $50,270 $796 $ 75,779
Working capital
(deficit).............. (248,341) (266,461) (207,251) 24,497 796 (373,995)
Total assets............ 126,624 57,805 74,913 155,461 796 281,075
Shareholders' loans..... 67,658 66,991 51,364 -- -- 40,000
Convertible debt........ 247,000 -- -- -- -- 447,000
Total shareholders'
equity (deficit)....... (448,942) (211,591) (179,107) 103,995 796 (725,321)
</TABLE>
- --------
(1) The year ended December 31, 1995 was the first full year that Quando was
subject to federal and state corporate income taxes following the
termination of its Subchapter S election on October 21, 1994. Guidelines of
the Commission allow loss per share data to be presented only when a
company converts to a taxable status. Accordingly, loss per share data have
been presented only for the years ended December 31, 1997, 1996 and 1995
and the nine months ended September 30, 1998 and 1997.
(2) The earnings per share amounts prior to 1997 and for the nine months ended
September 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.
12
<PAGE>
SELECTED UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
The following selected unaudited pro forma combined condensed financial
information for Infoseek is derived from the Unaudited Pro Forma Combined
Condensed Statements of Operations for the nine months ended September 30, 1998
and for the year ended December 31, 1997 and the Unaudited Pro Forma Combined
Condensed Balance Sheet as of September 30, 1998 (collectively, the "Pro Forma
Statements") included elsewhere in this Proxy Statement/Prospectus. The Pro
Forma Statements give effect to Infoseek's acquisition of Starwave through a
merger and exchange of shares and the reincorporation of Infoseek California
into Delaware pursuant to which Infoseek California became a wholly-owned
subsidiary of Infoseek, both on November 18, 1998. Disney purchased an
additional 2,642,000 unregistered shares of Infoseek common stock and a warrant
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 a
$139.0 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 November 18,
1998 at an exercise price equal to 120% of the average of the closing sale
prices of Infoseek common stock on the Nasdaq National Market for the thirty
trading days prior to each such vesting date, subject to a maximum $50.00 per
share exercise price. Further, Disney affiliate ABC has agreed to provide, and
Infoseek has agreed to purchase over a five year period, $165.0 million in
promotional support from ABC for GO Network. The Unaudited Pro Forma Combined
Condensed Statements of Operations for the year ended December 31, 1997 and the
nine months ended September 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
September 30, 1998.
On July 24, 1998, Infoseek entered into the Merger Agreement to acquire Quando
in exchange for approximately $17 million, subject to adjustment, in shares of
Infoseek common stock. The Unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1997 and the nine months ended
September 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 September 30,
1998.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Infoseek's historical consolidated results of operations for the year ended
December 31, 1997 and the nine months ended September 30, 1998 with Starwave's
historical results of operations for the year ended December 31, 1997 and the
nine months ended October 4, 1998, and Quando's historical results of
operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. In addition, the Unaudited Pro Forma Combined
Condensed Statements of Operations include the impact of certain related
agreements which become effective with the mergers described above. These
agreements are described more fully in the notes to the Unaudited Pro Forma
Combined Condensed Financial Statements. 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 September 30, 1998 and do not
purport to indicate the results of future operations.
13
<PAGE>
The acquisition of Starwave has been, and the acquisition of Quando 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 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 Quando 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 Quando
acquisition.
In connection with the acquisitions of Starwave and Quando, Infoseek expects to
incur one-time expenses, including a write-off related to in-process research
and development, currently estimated at $72.6 million and $4.3 million,
respectively. In addition, Infoseek expects to incur costs of integration of up
to $7.0 million of which $1.4 million of costs were included in the results of
operations for the nine months ended September 30, 1998. The Pro Forma
Statements do not include the remaining costs of integration of up to $5.6
million as these costs will affect future operations and do not qualify as
liabilities in connection with a purchase business combination under EITF
(Emerging Issues Task Force) 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination."
The Pro Forma Statements should be read in conjunction with the audited
consolidated financial statements of Infoseek and the notes thereto, and the
audited financial statements of Starwave and Quando, including the notes
thereto, included elsewhere in this Proxy Statement/Prospectus.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 57,517 $ 77,203
Total costs and expenses................ 241,588 197,099
Operating loss.......................... (184,071) (119,896)
Net loss................................ (194,918) (129,214)
Basic and diluted net loss per share.... $ (3.36) $ (2.09)
Shares used in computing basic and
diluted net loss per share............. 57,934 61,819
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................ $1,073,269
Total stockholders' equity.............. 974,625
Book value per share.................... 15.52
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical net loss per share and book value per share data
of Infoseek, Starwave, and Quando, unaudited pro forma combined condensed per
share data of Infoseek and pro forma equivalent per share data of Quando. The
data set forth below should be read in conjunction with the Infoseek audited
consolidated financial statements and the unaudited interim consolidated
financial statements, the Starwave audited financial statements, the Quando
audited financial statements and the unaudited interim financial statements,
and the Unaudited Pro Forma Combined Condensed Financial Statements, including
the notes thereto, which are included in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Historical--Infoseek
Basic and diluted net loss per share... $(1.00) $(0.19)
Book value per share(1)................ $ 0.98 $ 2.12
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
OR AS OF OR AS OF
SEPTEMBER 28, 1997 OCTOBER 4, 1998
------------------ ------------------
<S> <C> <C>
Historical--Starwave
Basic and diluted net loss per share... $(0.25) $(0.16)
Book value per share(1)................ $ 0.25 $ 0.09
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Historical--Quando
Basic and diluted net loss per share... $(0.08) $(0.06)
Book value per share(1)................ $(0.08) $(0.13)
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Pro forma combined net loss per share(3)
Pro forma combined net loss per
Infoseek share........................ $(3.36) $(2.09)
Equivalent pro forma net loss per
Quando share(2)....................... $(0.21) $(0.13)
Pro forma combined book value per
share(4)
Pro forma book value per Infoseek
share................................. $15.52
Equivalent pro forma book value per
Quando share(2)....................... $ 0.95
</TABLE>
- --------
(1) The historical book value per share is computed by dividing total
shareholders' equity (deficit) by the number of shares of common and
preferred stock outstanding at the end of the period.
(2) The equivalent Quando pro forma share amounts are calculated by multiplying
the combined pro forma per share amounts by the estimated exchange ratio of
0.0613 shares of Infoseek common stock for each share of Quando common
stock, on an as-converted basis as of December 4, 1998.
(3) Pro forma combined net loss per share reflects Infoseek's, Starwave's, and
Quando's net loss for the year ended December 31, 1997 and the nine months
ended September 30, 1998 and is based upon (i) Infoseek's weighted average
common shares outstanding for the periods presented, (ii) 28,137,997 shares
of Infoseek common stock assumed to be issued for all of the outstanding
shares and options of Starwave, (iii) 2,642,000 shares of Infoseek common
stock purchased by Disney and (iv) approximately 527,050 shares of Infoseek
common stock assumed to be issued for all of the outstanding shares and
options to purchase shares of Quando.
(4) The pro forma combined book value per Infoseek shares is computed by
dividing total pro forma stockholders' equity by the number of shares of
common and preferred stock outstanding at the end of the period.
15
<PAGE>
MARKET PRICE INFORMATION
Infoseek's common stock has been traded on the Nasdaq National Market under the
symbol "SEEK" since June 11, 1996. The following table sets forth, for the
periods indicated, the high and low closing prices for Infoseek common stock as
reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
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 December 4, 1998)................... 38 5/8 18 1/2
</TABLE>
There is no established trading market for Quando capital stock.
As of December 3, 1998, Infoseek estimates that there were approximately 637
holders of record of Infoseek common stock and a substantially greater number
of beneficial owners. As of December 3, 1998, there were 16 holders of record
of Quando capital stock.
To date, Infoseek has not declared or paid dividends on its 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, Quando has not declared or paid dividends on its common
stock. The Board of Directors of Quando presently intends to retain all
earnings for use in Quando'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
common stock on the Nasdaq National Market on July 23, 1998, the last full
trading day prior to the signing of the Merger Agreement, August 10, 1998, the
last full trading date prior to the public announcement of the signing of the
Merger Agreement, and on December 4, 1998. Also set forth is the implied
equivalent value of one share of Quando common stock on each such date assuming
an exchange ratio of 0.0613 share of Infoseek common stock for each share of
Quando common stock (on an as converted basis).
<TABLE>
<CAPTION>
APPROXIMATE QUANDO
INFOSEEK COMMON STOCK EQUIVALENT(1)
-------------------------- -------------------
HIGH LOW HIGH LOW
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
July 23, 1998................ $33 $31 1/16 $2.02 $1.90
August 10, 1998.............. $25 1/2 $24 7/16 $1.56 $1.50
December 4, 1998............. $34 15/16 $33 1/2 $2.14 $2.05
</TABLE>
- --------
(1) Based upon an exchange ratio of approximately 0.0613 shares of Infoseek
common stock per share of Quando common stock (on an as-converted basis).
16
<PAGE>
Because the number of shares of Infoseek to be issued to the holders of Quando
common stock is fixed, changes in the market price of Infoseek common stock
will affect the dollar value of Infoseek common stock to be received by
shareholders of Quando in the Merger. Shareholders are urged to obtain current
market quotations for Infoseek common stock prior to considering whether to
approve the Merger and the Merger Agreement.
17
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making your
decision to consent to the Merger and the Merger Agreement. The risks and
uncertainties described below are not the only ones facing Infoseek and Quando.
Additional risks and uncertainties not presently known to us or that we do not
currently believe are important to an investor may also harm our business
operations.
If any of the events, contingencies, circumstances or conditions described in
the following risks actually occur, our business, financial condition or our
results of operations could be seriously harmed. If that occurs, the trading
price of Infoseek common stock could decline, and you may lose part or all of
your investment.
This Proxy Statement/Prospectus contains "forward-looking statements" (within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended) that involve
risks and uncertainties. See "Forward-Looking Statements May Prove Inaccurate."
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain known and unknown factors,
including the risks faced by us described below and elsewhere in this Proxy
Statement/Prospectus.
RISKS RELATED TO THE COMBINED COMPANIES AND THE MERGER
CONDITIONS TO CLOSING
The Merger Agreement contains several conditions which must be satisfied or
waived before Infoseek and Quando are required to complete the Merger. The most
important of these conditions are set forth below.
Both Infoseek and Quando are not required to complete the Merger unless:
. There are no government orders prohibiting the Merger
. There is no litigation pending or threatened against Infoseek, Sub,
Quando or certain Quando shareholders concerning the Merger
Quando is not required to complete the Merger unless:
. The representations and warranties made by Infoseek and Sub in the Merger
Agreement are materially true and correct as of the closing date
. Infoseek has delivered offers of employment to certain Quando employees
. Infoseek has complied with certain covenants in the Merger Agreement
Infoseek is not required to complete the Merger unless:
. The Merger Agreement has been approved by the shareholders of Quando
either at a meeting or by written consent
. The representations and warranties made by Quando in the Merger Agreement
are materially true and correct as of the closing date
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<PAGE>
. Quando has complied with certain covenants in the Merger Agreement
We cannot assure you that each of these conditions will be satisfied. If a
condition is not satisfied or waived by the appropriate party, the Merger will
not occur or may be delayed. See "Terms of the Merger--Conditions to the
Merger."
RISKS OF FIXED EXCHANGE RATIOS
As a result of the Merger, each Quando shareholder will receive (after giving
effect to the conversion of the Series A preferred stock and Series B preferred
stock at their applicable conversion ratios):
. 0.0613 shares of Infoseek common stock for each share of Quando common
stock held by such shareholder
. 0.0777 shares of Infoseek common stock for each share of Quando Series A
preferred stock held by such shareholder
. 0.0702 shares of Infoseek common stock for each share of Quando Series B
preferred stock held by such shareholder
Each of these exchange ratios is fixed by a formula which is based on the
amount of outstanding capital stock, options and other rights to acquire Quando
capital stock and the trading price of Infoseek common stock during a certain
period. The exchange ratios will not change if the price of Infoseek stock
changes after the date of this Proxy Statement/Prospectus. We do not expect
Quando's capitalization and the exchange ratios to change after the date of
this Proxy Statement/Prospectus. We cannot assure you that the market price of
Infoseek common stock will not decrease significantly. As a result, the dollar
value of the consideration received by Quando shareholders may be lower than
the market value of Infoseek stock price as of the date of this Proxy
Statement/Prospectus. The market price of Infoseek common stock as of a recent
date is set forth under "Market Price Information." Quando shareholders are
strongly encouraged to obtain the current market price of Infoseek common stock
before delivering their proxy and consent.
The market price of Infoseek common stock has in the past been very volatile.
See "--Risks Related to Infoseek--Volatile Stock Price." In addition, neither
Quando nor Infoseek has received an opinion of an outside financial advisor on
the fairness of the transaction from a financial point of view.
Infoseek stockholders' percentage ownership will also be diluted as a result of
the issuance of Infoseek common stock to the Quando shareholders in the Merger.
UNCERTAINTIES REGARDING INTEGRATION OF QUANDO OPERATIONS, EMPLOYEES AND
CUSTOMERS
In order to achieve benefits from the Merger, Infoseek must integrate Quando's
operations into its business quickly and smoothly. Integration will require
Infoseek to combine Quando's technology and operations into Infoseek's business
and retain Quando's key employees and key customers.
Technology and Operations. Infoseek cannot assure you that it will be able
to incorporate Quando's operations and technology into its operations,
business, products and services quickly. Infoseek cannot assure you that it
can quickly incorporate Quando's operations, which are currently located in
Portland, Oregon but which Infoseek expects to move to Seattle, Washington,
into its operations. Infoseek may also be required to expend additional
resources to
19
<PAGE>
make Quando's technology and services operate together with Infoseek's
technology, products and services, including replacing or converting
Quando's computer systems (including systems for inventory, accounting, and
order entry).
Employees. Competition for qualified management, engineering and technical
employees in the Internet industry is intense. Infoseek and Quando have
different corporate cultures, and, in connection with the Merger, Quando is
moving its operations and employees to Seattle, Washington from Portland,
Oregon. Quando employees may be unwilling to move to Seattle or may not
enjoy working for a larger, publicly-traded company instead of a smaller,
start-up company. In addition, competitors may attempt to recruit employees
prior to the Merger and during integration, as is common in high technology
mergers. As a result, employees of Quando or the combined companies could
leave with little or no prior notice. We cannot assure you that the
combined companies will be able to attract, retain and integrate employees
to develop and use the Quando technology following the Merger.
As a condition to the Merger, certain key employees of Quando are required
to sign employment and non-competition agreements which will restrict their
ability to compete with Infoseek if they leave Infoseek voluntarily. We
cannot assure you of the enforceability of these non-competition agreements
or that these employees will continue to work under their employment
agreements at Infoseek after the Merger.
Customers. Quando is dependent on certain key customers besides Infoseek.
As a result of the Merger, however, some customers, particular those
customers that compete with Infoseek, may not continuing doing business
with Quando. In addition, Infoseek may also elect to terminate certain
customer relationships Quando has with certain of Infoseek's key
competitors. In either case, Quando may lose significant revenue it would
otherwise have received had the Merger not occurred. Infoseek and Quando
must also effectively integrate their sales and marketing efforts and
personnel.
Infoseek management may be required to spend time on integration which would
otherwise be spent on development of Infoseek's business or other matters. If
Infoseek is unable to integrate Quando's operations, it could harm Infoseek's
business, results of operations or prospects.
AMORTIZATION OF GOODWILL AND INCREASED OPERATING EXPENSES
The Quando acquisition is being accounted for by Infoseek under the "purchase"
method of accounting. Under the purchase method, the purchase price of Quando
will be allocated to the assets and liabilities acquired from Quando.
Intangible assets related to goodwill, developed technology and assembled
workforce are preliminarily estimated at approximately $16.9 million and will
be amortized over two years. Infoseek also expects to take a charge for in-
process research and development of Quando of approximately $4.3 million in the
quarter ending December 31, 1998. These charges will affect Infoseek's
profitability. See "--Risks Related to Infoseek--Amortization of Goodwill and
Increased Operating Expenses Will Delay Profits."
MERGER EXPENSES
Infoseek expects to incur costs of $1.0 million in connection with the Merger,
which are expected to be accounted for as part of the purchase price of Quando.
Infoseek expects to incur additional costs
20
<PAGE>
of $0.5 million in connection with the integration of Quando. The integration
costs will affect future operations and do not qualify as liabilities in
connection with a purchase business combination under accounting rules.
Infoseek may also incur additional charges in future quarters to reflect
additional costs associated with the Merger.
RIGHTS OF HOLDERS OF QUANDO COMMON STOCK FOLLOWING THE MERGER
At the completion of the Merger, Quando shareholders (other than those who
exercise dissenters' rights) will become Infoseek stockholders. There are
important difference between the rights of Infoseek stockholders and Quando
shareholders. For a description of these differences, see "Comparison of
Capital Stock."
RISKS RELATED TO QUANDO
LIMITED OPERATING HISTORY; HISTORICAL LOSSES; ANTICIPATION OF CONTINUED LOSSES;
NEED FOR ADDITIONAL FINANCING
Quando has limited operating history. This limited operating history makes it
difficult to budget or predict future results. Quando has incurred significant
net losses since it began business. Quando expects it will continue to have net
losses (both each quarter and annually) in 1998 and may have losses in later
periods. As of September 30, 1998, Quando had an accumulated deficit of
approximately $1.7 million. Quando and its prospects must be considered in
lights 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. Quando cannot assure you that it will be able
to address any of these challenges. Although Quando has achieved revenue growth
from 1997 through 1998, Quando cannot assure you that this growth will continue
or that Quando will become profitable. Quando has increased its operating
expenses in connection with its growth in revenues. Unless Quando is able to
increase revenues while controlling expenses, it will not become profitable.
In addition, Quando has very little cash or other liquid assets. Quando's
current cash and other sources of funds, such as accounts receivable, will not
last through the end of the current fiscal quarter. Quando's independent
auditors have included in their audit report an explanatory paragraph which
states that Quando's recurring losses from operations raise substantial doubt
about its ability to continue as a going concern. Additional financing may not
be available on good terms, or at all.
If Quando cannot raise enough funds, Quando's business, results of operations,
financial condition and prospects could be seriously harmed and Quando may be
unable to continue as a going concern. See "Quando Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INTELLECTUAL PROPERTY RIGHTS
Quando's success depends in part on its ability to protect the exclusive
technology in its services. To protect its software, service features, and
technology, Quando relies on a combination of:
. patent, copyright, trademark and service mark laws
. trade secret laws
. confidentiality procedures, and
. contractual provisions
21
<PAGE>
These methods of protection may not be adequate to protect against others using
Quando's technology. Accordingly, Quando cannot assure you it will be able to
protect the features of its technology from use by competitors.
Quando has not yet filed any patent applications for its technologies, but may
in the future. Quando has a federally registered trademark for the name Quando
and claims trademark rights in the marks QBot, ShoppingBot, SchoolBot, WhoBot,
and EventBot. Quando will also evaluate registering for additional servicemarks
and trademarks as appropriate. Despite these measures, Quando may not be able
to protect its intellectual property. Quando may not be able to protect its
technology because:
. Patent applications and trademark registrations may not be allowed
. Even if issued, new patents and trademarks may be challenged, invalidated
or designed around
. Quando's new products and technologies may not be patentable
. Time-consuming and costly litigation may be necessary to protect Quando's
proprietary technologies
. Policing unauthorized use of Quando's intellectual property is difficult
and expensive
The application of copyright and trademark laws to the Internet and other
digital media is very uncertain. There has been a substantial amount of
litigation in the technology industry regarding intellectual property rights.
Further, Quando may not be able to use its intellectual property to further
develop its business because of third parties. Third parties:
. may bring claims of patent, copyright or trademark infringement against
Quando
. may obtain patents or other intellectual property rights which may limit
Quando's ability to do business or require a license or cross-license
. may claim Quando has misappropriated their creative ideas or formats or
otherwise infringed upon their proprietary rights in connection with
Quando's services
. may bring costly, time consuming lawsuits which divert management
attention, require Quando to enter into costly royalty or licensing
arrangements or prevent Quando from using important technologies
Quando cannot assure you that it can adequately protect its intellectual
property. If Quando fails to protect its intellectual property, it could suffer
serious harm to its business, results of operations, or prospects. Quando
cannot assure you that third parties will not claim infringement by Quando with
respect to Quando's current or future products. Any such claims or
counterclaims could (i) be time-consuming; (ii) result in costly litigation;
(iii) cause product release delays; (iv) require Quando to redesign its
products; or (v) require Quando to enter into royalty or licensing agreements.
These claims of infringement, whether successful or not, could seriously harm
Quando's business, results of operations or prospects.
DEPENDENCE ON KEY EMPLOYEES
Quando's ability to generate revenues and profits depends heavily on its key
employees, in particular David Billstrom, its Chief Executive Officer, William
Neuhauser, its Chief Technical Officer and
22
<PAGE>
Vice President of Development, Hilary Lombard, its Vice President of Content,
and Scott Maxson, its Vice President of Data Technology, for research and
development of Quando's services. Quando also depends on other employees for
engineering and marketing ability. Competition for these employees,
particularly in the Internet area, is intense. Although Quando offers salary,
benefits and option grants (which typically vest over four years) to hire and
retain qualified employees, Quando may lose the services of one or more of its
officers or other key employees. Loss of any of these employees, would
seriously harm Quando's business, results of operations, financial condition
and prospects.
DEPENDENCE ON KEY CUSTOMERS; SALES FORCE
Quando's revenues depend highly on contracts with key customers such as
Infoseek, IBM, and America Online. Such contracts usually range from three to
twelve months, and are typically paid in advance. Because these contract are
usually for a short term, Quando cannot assure you that any of the users of its
services will continue to renew or begin additional contracts when the term of
existing contracts terminate. In addition, Quando sells its services through
its direct sales force. Quando cannot assure you that its sales force will be
successful in obtaining new contracts, particularly given the increased
competition among services like Quando's. See "--Risks Related to Quando--
Uncertainties Regarding Integration of Quando Operations, Employees and
Customers" and "--Intense Competition."
INTENSE COMPETITION
The market for Internet products and services, including robot and data
management services, is highly competitive. Quando believes the competition for
robot services specifically and in the Internet market generally is increasing
and will continue to intensify. Furthermore, Quando's customers are themselves
subject to intense competition, which may strongly affect Quando and other
robot service companies. Quando competes with consolidated robot companies,
such as Junglee, which has been acquired by Amazon.com, and Jango, which has
been acquired by Excite. These consolidated robot service companies may have
increased resources and the ability to integrate robot technology into their
other services. Other competitors, like Inktomi, may begin to offer robot
services. In addition, the market for outsourced Internet services, and in
particular robot services, has only recently begun to develop. The market is
rapidly evolving and has an increasing number of new entrants. Many of Quando's
customers have only limited experience with the products they offer through
Quando and have not devoted a large portion of their budgets to outsourced
robot sources. Quando cannot assure you that it will be able to compete
successfully or that these competitive pressures will not cause serious harm to
Quando's business, financial condition, results of operations or prospects. See
"Quando Business."
TECHNOLOGICAL CHANGE; NEED FOR CONTINUED TECHNOLOGICAL INNOVATION
The market for robot services is new and rapidly changing. Many companies have
recently introduced robot services and other companies are expected to
introduce robot services in the future. To be successful, Quando must continue
to develop its robot services and add new features and functions to improve its
service offerings. This development could prove expensive and time-consuming.
Quando cannot assure you that its existing products will be accepted by the
market, it will continue to be able to improve its services, or it will
successfully bring its services to market in
23
<PAGE>
advance of competitors. If Quando does not continue to offer services that are
satisfactory to its customers and end users, it could suffer serious harm to
its business, financial results or prospects.
In order to succeed, Quando must complete technology, which is in process,
quickly, design and use new technologies, keep pace with changes in external
technology and standards (such as Internet standards) on which Quando depends,
and develop and install enough technologies to serve its customers. If Quando
fails to do any of these, Quando may suffer serious harm to its business,
financial condition or prospects.
YEAR 2000 COMPLIANCE
Quando 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. In
general, Quando has evaluated its products and has determined that they are
currently Year 2000 compliant. Although management does not expect Year 2000
issues to have a material impact on its business or future results of
operations, there can be no assurance that there will not be interruptions of
operations or other limitations of system functionality or that the Company
will not incur significant costs to avoid such interruptions or limitations. In
addition, Quando does not currently have information covering the Year 2000
compliance status of its suppliers and customers. In the event that any of
Quando's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, Quando's business or operations could be
adversely affected.
RISKS RELATED TO INFOSEEK
RISKS REGARDING DEVELOPMENT, LAUNCH AND ACCEPTANCE OF GO NETWORK
Infoseek believes that developing, launching and promoting GO Network is
critical to attracting and expanding its Internet audience and to differentiate
itself from its competitors. Infoseek believes that this is especially true
given that it is relatively easy to enter the market of providing Internet
services and content and that there is a growing number of new Internet sites.
GO Network will combine certain content, promotion, brands and technologies of
Infoseek, Starwave, the ABCNews Joint Venture, the ESPN Joint Venture, Disney
and others. Infoseek also has an agreement with ABC, a Disney affiliate, for
Infoseek to purchase promotion for GO Network. The success of GO Network
therefore depends greatly on Disney and its affiliates, including ABC and ESPN.
See "--Relationship with and Dependence on Disney; Possibility of Control by
Disney" and "Infoseek Business--GO Network."
Infoseek plans to launch a beta version of GO Network in December 1998. However
Infoseek cannot assure you that GO Network will be successfully developed and
launched by that time, or at all. The beta version of GO Network will not have
all of the functions and services currently planned for GO Network. Infoseek
expects to launch the premier version of GO Network in early 1999 and add more
functions and services to GO Network in the future. Statements regarding the
December beta launch
24
<PAGE>
date for GO Network and plans for additional functions and services are
forward-looking statements that involve risks and uncertainties. Actual results
may differ from those described in the forward-looking statements as a result
of a number of factors. These factors are described in this section and under
"--Uncertainties Regarding Integration of Starwave Operations" and "--
Dependence on Third Party Relationships, Advertising Relationships and Joint
Ventures" as well as elsewhere in this Proxy Statement/Prospectus. If Infoseek
does not successfully develop, launch and promote GO Network quickly,
Infoseek's business, financial condition and operating results could be
seriously harmed.
If consumers do not find the GO Network content and experience to be of high
quality, or if Infoseek introduces new Internet sites or enters into new
business ventures that are not appreciated by consumers, Infoseek will not be
able to expand its Internet audience. An expanding audience is necessary to
increase advertising and related sales and other sources of revenue. Infoseek,
therefore, cannot assure you that GO Network will be successful or result in
greater revenues, cash flows or profits (if any) to Infoseek. In addition,
current Infoseek advertisers and content providers may not continue to
advertise or provide content to Infoseek's present Internet service or GO
Network. If there is a significant delay or reduction in advertising sales or
orders, Infoseek could suffer harm to its business and results of operations.
In addition, the launch and promotion of GO Network may result in potential
confusion or a decline in loyalty among users or customers of the current
Infoseek service or the ABCNEWS.com and ESPN.com services.
In order to attract users and build strong brand recognition and loyalty, the
launch of GO Network will require a significant increase in spending for
promotional activities, including the purchase of promotion from ABC discussed
above. Infoseek may also be required to spend additional money to purchase and
produce new content. Infoseek cannot assure you that it will be able to recover
the costs of these promotional and other activities through increased cash
flows from operations. If Infoseek incurs excessive expenses to develop,
launch, promote and improve GO Network, Infoseek's business, financial
condition and operating results could be seriously harmed.
UNCERTAINTIES REGARDING INTEGRATION OF STARWAVE OPERATIONS
Infoseek recently acquired Starwave. To achieve benefits from the acquisition,
Infoseek must quickly and smoothly integrate its operations with the operations
of Starwave, the ESPN Joint Venture and ABCNews Joint Venture. Infoseek will be
required to coordinate Infoseek's and Starwave's respective product and service
offerings. Infoseek will also be required to combine Infoseek's and Starwave's
sales, marketing and research and development efforts. Infoseek cannot assure
you that it will be able to take full advantage of the combined companies sales
force, marketing and research and development efforts.
Since Infoseek's principal office (Sunnyvale, California), Starwave's
headquarters (Seattle, Washington), the ABCNews Joint Venture (principally
located in New York City) and the ESPN Joint Venture (principally located in
Bristol, Connecticut and New York City), are geographically dispersed,
integrating these organizations and operating these businesses will be more
difficult. In addition, Infoseek has substantially more employees now than
prior to the combination. On September 30, 1998, Infoseek had approximately 319
employees. On November 30, 1998, together with Starwave, Infoseek had
approximately 650 employees. In addition, given the planned expanded
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operations of Infoseek, Infoseek must recruit and retain highly qualified
management, engineering, and sales and marketing personnel. Infoseek management
will be required to spend a significant amount of time on integration issues,
which may distract their attention from the day-to-day operations of Infoseek.
Infoseek cannot assure you that the integration will occur quickly and
successfully. The integration may consume too much of management's time, or
Infoseek may not be able to continue to recruit and retain qualified employees.
If Infoseek does not successfully integrate its operations or does not
effectively recruit and retain qualified personnel, Infoseek's business,
results of operations, financial condition and prospects could be seriously
harmed.
AMORTIZATION OF GOODWILL AND INCREASED OPERATING EXPENSES WILL DELAY PROFITS
Infoseek's acquisition of Starwave was accounted for under the purchase method
of accounting. Under the purchase method, the purchase price of Starwave was
allocated to the assets and liabilities acquired from Starwave. Infoseek will
incur a charge for in-process research and development of Starwave of
$72.6 million in the quarter ended December 31, 1998.
In addition, intangible assets related to developed technology and assembled
workforce of Starwave are estimated at $45.2 million and will be amortized over
two years. Intangible assets related to goodwill and joint ventures are
estimated at $656.3 and $178.5 million, respectively, and will be amortized
over ten years. In addition, Infoseek expects to have increased operating
expenses associated with the expanded operations of its business and the
development, launch and promotion of GO Network. To the extent that such
expenses are not timely followed by increased revenues, Infoseek's business,
results of operations, financial condition and prospects would be further
materially adversely affected.
In connection with the proposed Quando acquisition, intangible assets related
to goodwill, developed technology and assembled workforce are preliminarily
estimated at approximately $16.9 million and will be amortized over two years.
Infoseek also expects to take a charge for in-process research and development
of Quando of approximately $4.3 million in the quarter ending December 31,
1998.
As a result of these acquisitions, management currently estimates that Infoseek
will not have profits until at least 2002. Without these acquisitions, the
amortization of goodwill and other intangibles from the acquisition of
Starwave, Infoseek would not have profits until at least 2000. The estimates of
when Infoseek will achieve profits 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 Regarding Integration of Starwave Operations," "--Risks
Regarding Development, Launch and Acceptance of GO Network," "--Dependence on
Third Party Relationships, Advertising Relationships and Joint Ventures," 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 and other available sources of
funds will last through at least December 31, 1999. The other available sources
include Infoseek's equipment term loan facility, payments under a note in
principal amount of $139 million from Disney and cash generated from
advertising revenues. After that time, Infoseek may need to raise additional
funds.
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Infoseek may decide to increase expenditures for any number of activities,
including:
. expanding more quickly
. developing new or enhancing existing services or products
. promoting GO Network or other services, or
. acquiring complementary products, businesses or technologies
If Infoseek does any of these activities, Infoseek may be required to raise
additional funds sooner than currently anticipated. If any additional funds are
raised through the sale of stock or convertible debt, the percentage ownership
of Infoseek's current stockholders will be reduced. Such stock or convertible
debt also may have rights, preferences or privileges greater than Infoseek's
common stock.
Additional financing may not be available on good terms, or at all. If Infoseek
cannot raise enough additional funds, Infoseek may not be able to continue
expanding, developing new or enhancing existing services or products, or
promoting GO Network or other services or acquiring other businesses, products
or technologies. Infoseek's business, results of operations, financial
condition and prospects could be seriously harmed. See "Infoseek Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Infoseek Liquidity and Capital Resources."
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS
Infoseek and its subsidiaries have limited operating histories. The Internet
and intranet markets addressed by Infoseek are new. Infoseek therefore does not
have internal or industry-based historical financial data for any significant
period of time upon which to base projections for revenues or to help budget
operating expenses.
Infoseek expects that its results may also vary significantly in the future due
to a number of reasons, including:
. the amounts of growth, usage and acceptance of the Internet, intranets
and online services
. the rate of acceptance of the Internet as an advertising medium and a
channel of commerce, and the demand for advertising
. demand for Infoseek's products and services
. the advertising budgeting cycles of individual advertisers
. costs related to expansion and capital investments
. results of acquisitions and strategic agreements
. the introduction, marketing and acceptance of new, enhanced or
alternative products or services by Infoseek including GO Network, or by
its competitors
. Infoseek's ability to anticipate and effectively adapt to and expand in a
developing market
. Infoseek's ability to adapt to rapidly changing technologies and develop
new technologies
. technical difficulties or system outages
. Infoseek's ability to integrate operations and manage expansion
. Infoseek's ability to attract, retain and motivate qualified personnel
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. initiation, implementation, amendment, renewal or expiration of
significant contracts with partners, such as Disney, ABC, ESPN,
Microsoft, Borders Online, the National Basketball Association (NBA),
NASCAR, the National Football League (NFL), Netscape and others
. performance of its partners such as Disney, ABC and ESPN in developing
their own brands
. short and long term pricing changes by Infoseek or its competitors
. specific economic conditions in the Internet, intranet and digital media
markets
. strikes or other work disruptions involving the content of Infoseek's
services or Infoseek's creative personnel
. seasonal fluctuations in Internet use and the markets for news and sports
events
. general economic conditions
. other factors
Also, almost all of Infoseek's revenues currently come from advertising sales.
Infoseek expects this reliance on advertising will continue in the future. Most
of Infoseek's contracts with advertisers are for three months or less.
Advertising prices are closely related to the number of viewers on Infoseek's
services. Infoseek cannot accurately predict the number of viewers that will
visit its site in a given time frame. Future sales and operating results are
therefore difficult to forecast. However, because Infoseek expects future
revenues to increase and Infoseek's expense levels increase with revenues,
Infoseek does not expect expense levels to decrease in the short term and
possibly the long term.
Infoseek cannot assure you that it will be able to adjust spending quickly to
compensate for any reduction in future revenues. Accordingly, if revenues do
not meet Infoseek's expectations, there would be an immediate and serious
impact on Infoseek's business, results of operations, financial condition and
prospects.
RELATIONSHIP WITH AND DEPENDENCE ON DISNEY; POSSIBILITY OF CONTROL BY DISNEY
Disney is the principal stockholder of Infoseek, owning approximately 43% of
Infoseek's outstanding stock. Disney also owns warrants, which generally become
exercisable over three years from November 1998. These warrants will allow
Disney to obtain control (50.1% or more) of Infoseek at the end of the three
years. Although Disney has agreed for a three-year period to not increase its
percentage ownership to more than 49.9%, this "standstill" obligation may be
terminated earlier in certain limited circumstances. Infoseek also has several
commercial agreements with Disney relating to GO Network.
Infoseek and its stockholders face several risks relating to its relationship
with Disney, including the following:
. Control Over Governance. Through its substantial ownership of and its
agreements with Infoseek, Disney may exercise significant control over
Infoseek. Specifically:
1. As a result of Disney's current and future share ownership, Disney
may be able to exercise effective control over certain matters
requiring stockholder approval.
2. Under a governance agreement between Infoseek and Disney, Disney
also has the right, so long as it owns 10% of Infoseek stock, to have
its nominees for director submitted to a
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vote of stockholders of Infoseek. Disney currently is entitled to a
number of nominees sufficient to require the approval of the Disney
nominees for those transactions requiring supermajority Board approval,
described below. Currently, that number is three of eight directors on
the Infoseek Board.
3. Supermajority Board approval is required for certain Infoseek
transactions, including:
. amendment of Infoseek's certificate of incorporation or bylaws
. a transaction in which the ownership control of Infoseek changes
. sales of 15% or more of Infoseek's assets
. issuance of securities representing 15% or more of Infoseek's
outstanding shares or for $200 million or more
. certain debt or cash transactions by Infoseek of $200 million or
more
. any appointment of a new Chief Executive Officer of Infoseek
4. Disney's standstill obligation described above will terminate if
certain events occur. These events include a tender offer by a third
party for Infoseek shares or a tender offer by Disney for all of
Infoseek's shares that is approved by a majority of the non-Disney
members of Infoseek's Board of Directors and that requires the tender
of a majority of shares held by persons other than Disney. If the
standstill obligation terminates, Disney could quickly obtain majority
control over Infoseek.
. Disney Right to Purchase Additional Shares in Future Infoseek
Offerings. Disney has a right to purchase additional shares and (under
some cases) warrants of Infoseek in order to maintain its ownership level
if Infoseek issues additional shares. In the event the Merger is
consummated, Disney will have a right to purchase shares of Infoseek
common stock and a warrant to purchase Infoseek common stock sufficient
to maintain its current ownership interest in Infoseek. Disney's right to
purchase additional shares will dilute other Infoseek stockholders'
ownership and could reduce Infoseek's earnings per share, if any.
. Promotion of GO Network. GO Network will be promoted in part by Disney
through an agreement in which Infoseek will purchase $165 million of
promotion from ABC. The quality and type of the purchased promotion will
be in part Disney's decision.
. Trademarks and other Intellectual Property. The GO Network name is a
trademark of Disney. Infoseek has the right to use the GO Network
trademark and certain other trademarks and other intellectual property
related to GO Network through a license agreement between Disney and
Infoseek. Infoseek depends on Disney to enforce Disney's rights in this
intellectual property against third party infringement and cannot assure
you that Disney will take adequate steps to enforce its intellectual
property rights, or be successful in doing so. See "--Intellectual
Property." Further, the license agreement between Infoseek and Disney
terminates if certain events occur, such as if another party acquires 25%
or more of Infoseek's stock, Infoseek fails to spend a certain amount of
money to promote GO Network, or Infoseek files for bankruptcy.
. Limited Non-Competition Agreements. Under the terms of Infoseek's
agreements with Disney, Disney has agreed to not compete in certain areas
with Infoseek for a period of fifteen years after November 18, 1998
(unless the intellectual property license agreement
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described above terminates earlier). However, this agreement not to
compete only applies to the United States and only applies to a broad
based Internet portal service for delivery at data transmission rates that
do not allow for real time, full motion video with television broadcast
resolution. Disney, ESPN and ABC also have agreed not to develop or
commercialize Internet quality sports- or general news-related products or
services in the United States or Canada. None of Infoseek's agreements
with Disney legally prohibits Disney from entering into transactions with
any of Infoseek's competitors or from providing Disney content to
Infoseek's competitors. Disney currently provides some of its content to
competitors of Infoseek and maintains a number of websites which are not
expected to be linked to GO Network. Infoseek cannot assure you that
Disney will not compete with GO Network.
. Reduced Opportunity for Acquisition by Third Party. Infoseek's trademark
license terminates if another party acquires 25% of Infoseek. This
license provision, as well as Disney's substantial ownership position in
Infoseek, may prevent or discourage tender offers for Infoseek's common
stock or other changes in the control of Infoseek unless the terms are
approved by Disney. Therefore, it is more difficult for a person other
than Disney to acquire all or a large portion of Infoseek stock.
DEPENDENCE ON THIRD PARTY RELATIONSHIPS, ADVERTISING RELATIONSHIPS AND JOINT
VENTURES
Infoseek's success depends in great part on strategic relationships with third
parties, including Disney. Infoseek depends on third parties as sources of
traffic and as providers of content to its Web site.
Infoseek's traffic agreements generally have terms of one year or less. For
the year ended December 31, 1997 and the nine months ended September 30, 1998,
approximately 46% and 35% of the aggregate page views on Infoseek's service
were generated by traffic derived from third party sources. Among the most
important of these traffic relationships are the following:
. Microsoft. Infoseek has an agreement with Microsoft pursuant to which it
is one of five premier providers of search and navigational services on
Microsoft's network of Internet products and services. Under the
Microsoft agreement, which expires in September 1999, Infoseek is
obligated to pay an aggregate of $10.7 million 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 $18.0
million.
. WebTV. Infoseek has an agreement with WebTV Networks, Inc. under which
Infoseek is the exclusive provider of search and directory services to
WebTV. Infoseek has also agreed to manage advertising sales for all of
WebTV's search traffic and the substantial majority of WebTV's current
non-search traffic through September 2001. Under this agreement, Infoseek
will pay WebTV $26.0 million in cash, $15.0 million of which was paid in
advance for the first five quarters during which the agreement is in
effect. The remaining $11.0 million is payable ratably over the last
three quarters of the term of the agreement. A portion of these payments
by Infoseek will be reimbursed if WebTV is unable to deliver a minimum of
4.5 billion impressions on WebTV over the life of the agreement. Infoseek
receives all of the revenue generated from such advertising sales up to a
pre-determined amount that is larger
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than Infoseek's total payment obligations to WebTV under the agreement.
Beyond that pre-determined amount, additional advertising sales revenue is
allocated between Infoseek and WebTV.
. Netscape. Since March 1995, Infoseek's search service has been a featured
provider of navigational services on the website of Netscape. In 1996 and
1997 and during the first nine months of 1998, approximately 65%, 33% and
16%, respectively, of all page views of the Infoseek search service came
from traffic attributable to the Netscape website. On June 1, 1998,
Infoseek entered into a one-year agreement with Netscape with terms that
provided for Infoseek to pay, based upon the level of impressions
delivered, up to an aggregate of $12.5 million in cash to be one of the
six non-exclusive premier providers of navigational services (along with
Excite, Netscape, Lycos, Alta Vista, and LookSmart). On November 25,
1998, Infoseek and Netscape renegotiated the terms of the agreement to
provide that starting in January 1999 Infoseek will receive 5% of
Netscape's premier provider rotations--the pages served to visitors who
have not selected a preferred provider--until May 31, 1999 and will pay
an average of 20 percent more than before for the Netscape traffic it
receives.
When these traffic agreements terminate, Infoseek may not be able to renew them
or find other agreements on good terms or at all. If Infoseek does not renew
these agreements or enter into similar agreements on good terms and does not
develop significant traffic to make up for the loss of these agreements,
Infoseek's advertising revenues will be reduced. Reduced advertising revenues
would likely seriously harm Infoseek's business, results of operations,
financial condition and prospects.
In addition, the products or services of those companies that provide access or
links to Infoseek's products or services, such as other website operators, may
not achieve market acceptance or commercial success, which would likely
seriously harm Infoseek's business, results of operations, financial condition
and prospects.
Infoseek's success will also depend in great part on the continuation and
integration of Starwave's joint ventures and third party relationships,
especially the Joint Ventures. On a pro forma basis for the twelve months ended
December 31, 1997 and the nine months ended September 30, 1998 (assuming that
the current agreements with ABC and ESPN had been entered into during these
periods), revenues of these joint ventures would have represented 29% and 28%
of the total revenues of Infoseek for those respective periods. Infoseek's
future success will depend to a large extent on its ability to maintain these
relationships with ESPN and ABC, and to establish relationships with new
partners to develop co-branded websites. If Infoseek fails to keep good
relationships with ESPN and ABC or fails to find new partners, Infoseek may not
be able to keep or create interactive services and products that are attractive
to users and advertisers. This in turn could seriously harm Infoseek business,
financial results and financial condition.
LIMITED OPERATING HISTORY; HISTORICAL LOSSES; ANTICIPATION OF CONTINUED LOSSES
Both Infoseek and Starwave have limited operating histories. These limited
operating histories make it difficult to budget or predict future results.
Infoseek and Starwave have incurred significant net losses since they began
operations. Infoseek expects it will continue to have consolidated net losses
for a number of years. As of September 30, 1998, Infoseek had an accumulated
deficit of $53,724,000. On a pro forma basis as of September 30, 1998,
including Infoseek, Starwave and
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Quando, Infoseek would have had an accumulated deficit of $130.7 million
(including in-process research and development charges of $76.9 million in
connection with the Starwave merger and Quando merger). 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.
Infoseek cannot assure you that it will be able to address any of these
challenges. Although Infoseek has experienced significant revenue growth in
1997 and 1998, Infoseek cannot assure you that this growth rate will be
sustained, that revenues will continue to grow or that Infoseek will achieve
profitability.
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, in future periods, Infoseek's operating results may be below
the expectations of public market analysts and investors. In such event, the
market price of Infoseek's common stock would likely be significantly reduced.
VOLATILE STOCK PRICE
The market price of Infoseek's common stock has fluctuated and may continue to
fluctuate widely. Such changes are in response to a number of events and
factors such as:
. quarterly changes 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
. news relating to trends in Infoseek's markets or the economy generally
In addition, the stock market and specifically the stock of Internet companies
have been very volatile. This volatility is often not related to the operating
performance of the companies. This broad market volatility and industry
volatility may reduce the price of Infoseek's common stock, without regard to
Infoseek's operating performance.
RISKS ASSOCIATED WITH BRAND DEVELOPMENT
Infoseek believes that establishing and maintaining the GO Network brand is a
critical aspect of its business. Infoseek believes brand recognition is
important in its efforts to attract and expand its
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audience. Infoseek also believes that brand recognition will be even more
important as the number of Internet sites grows, due to the relative ease of
entering the Internet market. Promotion and enhancement of Infoseek brands
largely depends on Infoseek's success in providing high-quality products and
services and in designing and implementing effective media promotions. Infoseek
cannot assure you that it will continue to offer high-quality products and
services.
In order to attract and retain Internet users and to promote and maintain the
GO Network brand in response to competitive pressures, Infoseek believes it is
necessary to spend a large amount of resources in creating and maintaining a
distinct brand loyalty among consumers. If Infoseek is unable to provide high-
quality products and services or design and implement effective media
promotions, or otherwise fails to promote and maintain its brands, or if
Infoseek incurs excessive expenses in an attempt to improve its products and
services or promote and maintain its brands, its business, results of
operations, financial condition and prospects would be seriously harmed.
INTENSE COMPETITION
The market for Internet and intranet products and services is very competitive.
Infoseek expects the market to become more competitive. Because the market for
search and portal services is new and developing, Infoseek cannot predict how
competition will affect Infoseek, its competitors or its customers. Infoseek
believes that the Internet market increasingly will require portal services to
deliver a large variety of multimedia content and services. Infoseek believes
that its future success partly depends on its ability to deliver a broad
variety of multimedia content and services. Infoseek believes this includes the
following:
. Electronic commerce
. Enhanced search and directory functions
. Development of online communities, including chat, e-mail and games
. Timely, relevant and diverse high-quality multimedia content
. Access to live video and audio events
With respect to attracting advertisers, in order to be competitive Infoseek
believes it must offer:
. a large number of viewers
. viewers with attractive demographic profiles
. cost-effectiveness
Infoseek believes that the number of companies selling advertising on the Web
and the amount of advertising space on the Internet have greatly increased
recently. Infoseek may therefore face a market which demands lower prices for
the purchase of advertisements and this could result in a decline in Infoseek's
revenues.
Infoseek may not be able to compete successfully. If Infoseek fails to respond
to competitive pressures, including those listed below, Infoseek's business,
results of operations, financial condition and prospects will be seriously
harmed.
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Infoseek believes it faces competition in numerous areas, including the
following:
. Consolidated Internet Products. Companies like Yahoo!, America Online,
Netscape, Microsoft, Excite, CNET (Snap) and Lycos offer integrated
products which include a variety of features. Such products often offer
search and directory services on the Internet, white and yellow pages, e-
mail listings, news and sports, financial and stock information, weather,
internet commerce, auctions and classifieds, chat, bulletin boards, e-
mail and other community and information features. These companies have
often developed integrated products through internal development, through
acquisitions of competitors of Infoseek or strategic and licensing
arrangements with competitors of Infoseek. Because these sites are often
an initial point of entry for Internet viewers or have a large number of
users, it is likely they will continue developing, acquiring or licensing
Internet search and navigation functions competitive with those offered
by Infoseek. These competitors will also likely attempt to control
Internet content, such as news, sports and entertainment. These
competitors may also merge or enter into cooperative agreements which may
increase their market dominance. These competitors may take actions that
make it more difficult for viewers to find and use Infoseek's products
and services or that make Infoseek's products and services including GO
Network less attractive. If these integrated services continue to expand,
Infoseek's business, results of operations, financial condition and
prospects could be seriously harmed.
. Search and Navigation Products. Many companies currently offer Web search
and navigation products which compete with Infoseek's search service.
These include DEC/AltaVista, Excite, HotBot, Inktomi, Lycos, Snap and
Yahoo! The two most widely used Web browsers are produced by Netscape and
Microsoft. Each of these browsers contain easy to locate search buttons
and feature "push" technologies, both of which can direct search traffic
to services which compete with Infoseek.
. Search Software. Infoseek's Ultraseek Server product competes directly
with intranet products and services offered by companies such as
DEC/AltaVista, Lycos, Open Text and Verity.
. Internet Media Sources. Through the production of ESPN.com and
ABCNEWS.com, Infoseek competes with other Internet sites that provide
news and sports information. For example, many Internet sites such as CBS
Sportsline, CNNsi, Yahoo! Sports and Fox Sports Online provide
information on sports. Internet sites such as CNN, The New York Times,
The Washington Post, CBS News and MSNBC provide news and analysis. Sites
such as Microsoft Investor, Quicken Financial Network, Reuters, DowJones,
Bloomberg and CNNfn provide financial news. Other sites, like E! Online
and Entertainment Weekly/PathFinder offer entertainment news.
. Competition from Internet and other advertising media. Infoseek competes
with online services, other Web site operators and advertising networks
for advertisers. Infoseek also competes with other media sources such as
broadcast television, cable television, radio, newspapers and magazines.
Typical competitors in these media sources are print publications such as
Sports Illustrated, USA Today, The New York Times and The Washington
Post, as well broadcast and cable sources such as ABC, NBC, CBS, CNN and
Fox. Infoseek competes with these other media sources for a portion of
advertisers' total advertising budgets. Infoseek also competes with these
other media sources for viewers. To compete successfully against
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these other sources, Infoseek must provide interesting and popular
interactive content. In addition, Infoseek's partners in its joint venture
relationships, ESPN and ABC, have certain rights to compete with Infoseek.
For example, ESPN and ABC sell advertising on their broadcast programs in
competition with Infoseek.
. Competition from Electronic Retailers. If and when Infoseek begins to
offer substantial electronic commerce capabilities, it will face
competition from many Internet sites which offer products and services
for sale over the Internet. Websites such as Yahoo!, AOL/Netcenter,
Excite, MSN, Lycos and Amazon.com and others already offer items for sale
over the Internet, and have established brand names and infrastructure
for electronic commerce.
. Other Internet sites. Infoseek also competes for users with many other
commercial and non-profit websites.
In order for Infoseek to compete successfully, Infoseek must overcome many
risks, including:
. Low barriers to entry to the Internet. Infoseek believes that it is
relatively inexpensive to develop new internet technologies, products and
services. It is likely that other companies may offer similar products
and services that compete with Infoseek for advertisers.
. Quickly Changing Market. Because the Internet market is new and changing
quickly, Infoseek cannot predict which companies are likely to offer
competitive services in the future.
. Reliance on Advertising Revenues. Infoseek depends on advertising sales
for revenue. Because the Internet is still a new advertising medium,
there is a risk that the number of advertisers purchasing advertisements
on the Internet could decrease. Such a decrease could result in lower
advertising revenues for Infoseek.
If Infoseek does not compete effectively, it will suffer immediate harm to its
services, results of operations and prospects.
RISK OF INABILITY TO ACHIEVE REVENUE MINIMUMS UNDER REPRESENTATION AGREEMENTS
Under certain representation agreements with ESPN and ABC, Infoseek (through
Starwave) has agreed to act as the representative of the ESPN and ABCNews Joint
Ventures. As such representative, Infoseek will sell advertising and related
services for these joint ventures, and has agreed to make quarterly payments to
the joint ventures. These payments will be the greater of (A) a predetermined
minimum amount or (B) revenues actually billed to third parties (even if not
collected) in the performance of such advertising and related services, less
the costs of providing the services and a predetermined profit margin.
Infoseek may not be able to sell the guaranteed minimum amount in any quarterly
period or be able to collect the money due from these sales and services.
Failure to sell the predetermined minimum amount or collect enough money from
these sales services could seriously harm Infoseek's business, results of
operations and financial condition.
COSTS OF INTEGRATION AND TRANSACTION EXPENSES
Infoseek will incur costs of approximately $22.0 million associated with the
acquisition of Starwave, which will be accounted for as part of the purchase
price of Starwave. The $22.0 million includes: (A) $5.0 million for liabilities
related to involuntary employee termination benefits (relocations) of
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Starwave employees and (B) $5.0 million for costs to exit other Starwave
activities, primarily operating leases of Starwave. Infoseek expects to incur
additional integration costs of up to $7.0 million for Starwave and Quando of
which $1.4 million were included in the results for the quarter ended September
30, 1998. The remaining integration costs of up to $5.6 million will affect
future operations and all of these additional integration costs do not qualify
as liabilities in connection with a purchase business combination under
accounting rules. Infoseek may also incur additional significant charges in
future quarters to reflect additional costs associated with the acquisition of
Starwave.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET, ELECTRONIC COMMERCE AND
INTERNET ADVERTISING
To grow revenues, Infoseek depends on increased acceptance and use of the
Internet, intranets and other interactive online platforms as sources of
information, entertainment and sales of goods and services. Infoseek depends
heavily on advertisements as a source of revenue. Therefore, Infoseek also
depends on the acceptance and success of advertising on the Internet.
The Internet has grown very rapidly in recent years. Infoseek cannot assure you
that the Internet will continue to be accepted and widely used. In particular,
Infoseek cannot assure you that consumers will continue to use the Internet for
purchasing or selling goods and services or that advertisers will continue to
use it for advertising goods and services. Infoseek also cannot assure you that
a large base of users will support Infoseek's business. Significant structural
problems remain in using the Internet and conducting electronic commerce,
including:
. security
. reliability
. cost
. ease of use and access
. quality of service
. lack of network infrastructure to support increased use
. speed (including slow deployment of high speed communications technology)
. limitations on access by corporations and schools
. privacy
These problems may slow the growth of Internet use or the attractiveness of the
Internet for advertising and online transactions. In addition, the use of the
Internet could be reduced 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.
In addition, the Internet market is changing quickly. The number of new
competitors in the online market is increasing. Many of the advertisers on
Infoseek's services are relatively new to Internet advertising. Many of the
advertisers have not devoted significant amounts of their advertising budgets
to Internet advertising. Advertisers may determine that traditional sources of
advertising, like television, radio and newspapers, may be less costly or
better at reaching customers than the Internet. There are no widely accepted
standards to measure Internet advertising.
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Infoseek believes that advertising sales generally, such as television, are
generally lower in the winter and summer of each year as compared with the fall
and spring. Infoseek also believes that advertising usage changes with the
economy. Seasonal and economic changes could be more serious on the Internet,
depending on the acceptance of the Internet for advertising. Any seasonal or
economic-based advertising, on the Internet or not, could seriously harm
Infoseek's business, financial condition and operating results.
If the Internet grows more slowly than expected, or does not grow at all,
Infoseek's business, financial condition and operating results would be
seriously harmed. If access to the Internet or Infoseek's services is
restricted, Infoseek's business, financial condition and operating results
would also be seriously harmed.
The Internet industry is young. The business model of Infoseek and its
competitors changes frequently and very few products and services have become
established in the market. The Internet market might not continue developing or
develop more slowly than expected. Infoseek may be unable to modify its
business model rapidly enough to remain competitive. The Internet market might
become filled with competitors. Infoseek's products may not become accepted by
Internet users or advertisers. If any of these events occurs, Infoseek's
business, results of operations, financial condition and prospects would be
seriously harmed.
RISKS OF ACQUISITION STRATEGY
Infoseek believes that it may be necessary to enter into joint ventures or
other strategic relationships to grow its business. Infoseek also believes it
may be necessary to acquire complementary products, technologies or businesses
to remain competitive. If this strategy is not successful, Infoseek may
experience decreased market share, viewer traffic or brand loyalty.
There are several risks of acquisitions or other strategic transactions,
including the Quando and Starwave acquisitions, such as:
. the difficulty of integrating the operations and personnel of acquired
companies, assets or operations
. potential disruption of Infoseek's ongoing businesses
. inability to successfully incorporate acquired technology or content into
existing products, services and media properties
. expenses and other charges associated with transactions
. the necessity of establishing and implementing uniform standards,
controls, procedures and policies for acquired companies
. impairment of relationships with employees, vendors and customers as a
result of any integration of new management personnel, technologies,
products and services
. potential unknown liabilities associated with acquired businesses
In addition, because of the Starwave acquisition and transactions with Disney,
Infoseek may not be able to account for future acquisitions as pooling-of-
interests transactions under accounting rules for a period of time. Also, if
Disney chooses to obtain control when its warrant vests, Infoseek will not be
able to use pooling-of-interests accounting. As a result, Infoseek may be
required to add large
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amounts of goodwill to its balance sheet as a result of acquisition
transactions in the future. The amortization of this goodwill will reduce
Infoseek's profits in the periods over which it is amortized. Infoseek may also
take charges for acquired in-process research and technology when acquisitions
occur. Such charges for acquired in-process research and technology would
reduce Infoseek's profits in such period.
There can be no assurance that Infoseek will be successful in overcoming these
risks. Infoseek may also encounter other problems in connection with
acquisition transactions. Infoseek cannot assure you that the Quando
acquisition or any other transactions will or will not occur. If transactions
do occur, they could harm Infoseek's business or may fail to enhance Infoseek's
business.
Infoseek may use significant amounts of its available cash to conduct these
transactions. Infoseek may also use significant amounts of its stock to conduct
these transactions. Use of stock would dilute the interests of existing
stockholders in Infoseek.
TECHNOLOGICAL CHANGE; NEED FOR CONTINUED TECHNOLOGICAL INNOVATION
The market for Internet products and services is one of rapid technological
change, changing customer needs, frequent new product introductions and
evolving industry standards. Moreover, the Internet market is emerging and many
companies are expected to introduce new Internet products and services in the
near future. To be successful, Infoseek must respond to these changing demands
of the market and competition by introducing new products, services and
technologies. Infoseek must also continue to improve the performance, features
and reliability of its products and services. If it does not continue to timely
and continually improve its products and services and introduce new ones,
Infoseek could suffer serious harm to its business, results of operations and
prospects.
In the fourth quarter of 1997, Infoseek released a new version of its search
service which currently features 18 "channels." The channels are designed to
bring together topical information, services, products and communities on the
Web. Most of Infoseek's additional channel sponsorship and partnership
arrangements are dependent on increases in viewer traffic. If it does not
attract a significant amount of viewers, Infoseek may not be able to retain its
channel sponsors and partners. Infoseek cannot assure you that its sponsorship
and partnership strategies will continue to be accepted by advertisers.
A key element of Infoseek's strategy is to continue to develop new
technological innovations in order to enhance the user's experience and
strengthen relationships with advertisers. The success of GO Network and its
component sites, including ABCNEWS.com and ESPN.com, will depend in part on how
easy-to-use, functional and feature-filled such services are.
Because Infoseek needs to continue to provide technological improvements to its
services, Infoseek faces many risks. Infoseek cannot assure you:
. Any of its new or proposed product or services will be accepted by the
market or will continue to meet the market's changing needs
. It will successfully design, develop, test, market and introduce new and
enhanced technologies and services
. It will successfully improve its existing and planned products and
services
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. It will not experience difficulties that delay or prevent the successful
development, introduction or marketing of new or enhanced technologies,
products and services
. It will bring its technological innovations to the market quickly and in
advance of its competitors
. It will not have large expenses in order to develop, improve or acquire
new technologies
. Its new or enhanced products and services will be free of errors and will
not require significant design changes once introduced
If any of these risks occurs customers may become dissatisfied with Infoseek's
products and services. In turn, Infoseek could lose viewers and could
experience delayed or lost advertising revenues. If Infoseek cannot create,
develop or acquire successful new or improved technologies for its services
ahead of its competitors, it could suffer serious harm to its business,
financial results or prospects. If Infoseek does not test, market and support
such new or improved technologies, it could also suffer serious harm to its
business, financial results or prospects. If the market does not accept
Infoseek's new or improved technologies, Infoseek could also suffer serious
harm to its business, financial results or prospects.
INTERNET SECURITY AND ELECTRONIC COMMERCE RISKS
The security of online transactions and the privacy of users on the Internet
may prevent the growth of the Internet and electronic commerce. If an intruder
is able to circumvent Infoseek's security measures, the intruder could steal
confidential or proprietary information. The intruder could also interrupt
Infoseek's online operations. Infoseek expects to spend significant amounts of
cash and resources to protect against the threat of such an intruder or to fix
problems caused by potential intruders.
Infoseek cannot assure you, however, that these efforts to protect Infoseek
from security intrusions will be successful. Infoseek and its contractors store
and transmit confidential information, such as computer software or credit card
numbers. Infoseek could be held liable for lost or stolen data. If data is lost
or stolen, Infoseek may be sued by the owners of the lost or stolen data or by
other entities who rely on the data.
Although Infoseek has agreements which are designed to limit Infoseek's
liability for losses, these agreements may not be enforceable. Even if they
are, the agreements may not be successful in limiting Infoseek's liability.
Also, Infoseek may not be able to negotiate these agreements with all parties.
Infoseek does not have insurance against these security risks, although it does
have standard business interruption and crime insurance which might cover
certain losses. If Infoseek's revenue from electronic commerce increases
substantially, Infoseek will consider buying additional insurance. However, if
Infoseek does not or cannot obtain adequate insurance at that time, large or
repeated security breaches into Infoseek's systems could seriously harm
Infoseek's business, results of operations and financial condition.
Infoseek has agreements and expects to enter into other agreements with third
parties where Infoseek is entitled to receive part of the revenues received by
these third parties from the purchase of goods
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and services by users referred from Infoseek's products and services. Infoseek
may also directly sell goods and services on the Internet. These arrangements
may expose Infoseek to additional risks and uncertainties, including potential
liabilities to consumers of such products and services.
YEAR 2000 COMPLIANCE
Infoseek is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. Virtually every computer
operation will be affected by the "year 2000 problem." Many computer systems
only provide for a two digit date and therefore will not properly recognize
dates when the year changes from 1999 ("99" in most systems) to 2000, since the
system may recognize the year as 1900 instead of 2000. Computer systems that do
not properly recognize the year 2000 could generate incorrect data or cause a
system to fail.
Infoseek management has conducted a review of Infoseek's exposure to the year
2000 problem. Infoseek is working with its major computer system vendors, data
feed and software vendors to determine if they are prepared for the year 2000.
Based on Infoseek's internal review and discussions with these vendors,
Infoseek currently believes that its internal systems are year 2000 compliant
(with the exception of three systems, which are scheduled to be replaced as
part of a regular upgrade program prior to the end of 1999 and are not material
to Infoseek's operations). Infoseek does not expect to incur significant
expenses or to have to purchase additional computer systems to avoid the year
2000 problem, for either Infoseek's internal information technology systems or
Infoseek's products and services.
Despite Infoseek's review, the effects of the year 2000 problem are still very
uncertain. Infoseek cannot assure you that its vendors' representations are
accurate. Infoseek has also not investigated year 2000 compliance by third
parties who are not vendors of Infoseek. Infoseek has no control over these
third parties' compliance. For example, if a link on GO Network or the Infoseek
search service points to a website which is not year 2000 compliant, that link
may not be available to users and therefore the Infoseek services will offer
fewer features. If many linked sites do not work, the value of user traffic and
advertising on Infoseek's websites could materially decrease.
If Infoseek or any of its viewers, customers, linked sites, advertisers,
vendors or other third parties are not year 2000 compliant, Infoseek's
business, results of operations, financial condition and prospects could be
seriously harmed.
MANAGEMENT OF GROWTH
Infoseek has experienced, and may continue to experience, rapid growth. In
order to take advantage of market opportunities, Infoseek may be required to
expand further. This growth 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. Infoseek
cannot assure you that it will be successful in attracting and retaining such
personnel. Infoseek may not be able to manage such growth effectively.
In order to succeed, Infoseek must continue to:
. Invest in and improve operational, financial and management information
systems. These systems are necessary to support increased accounting and
management. The upgrade and
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installation of these systems, which is expected to be completed by the
middle of 1999, will affect almost all parts of Infoseek's operations such
as planning, advertising sales, management, finance and accounting.
. Enhance its advertising inventory management analysis system. This system
will provide enhanced internal reporting and customer feedback on
advertising, and is discussed further under "--Limited Computer Systems
Capacity and Risks of System Failure; Reliance on Advertising Management
System" and "Infoseek Business--Technology."
. Hire, train, motivate and manage its employees. So far, Infoseek has
experienced difficulty in hiring and retaining enough personnel to
support the growth of Infoseek's business.
. Maintain relationships with various partners, advertising customers,
advertising agencies, Internet sites and services, Internet service
providers and other third parties. Infoseek must manage and strengthen
its strategic relationships with various third parties, including
Microsoft, WebTV, Disney, ESPN and ABC. See "--Dependence on Third Party
Relationships, Advertising Relationships and Joint Ventures," "--Risks
Regarding Development, Launch and Acceptance of GO Network" and "--
Uncertainties Regarding Integration of Starwave Operations."
. Retain control by management over the operations and strategic direction
of Infoseek in a rapidly changing environment. Management must continue
to locate new business activities and direct Infoseek's resources to
these activities. See "--Dependence on Key Personnel."
. Develop Expanded Electronic Commerce Capabilities. Infoseek must
significantly expand its ability to provide electronic commerce,
including creating an infrastructure for electronic transactions,
security, delivery and financial reporting for electronic commerce.
If Infoseek does not successfully improve its systems or is not able to
attract and keep personnel, Infoseek's business, results of operations,
financial condition and prospects could be seriously harmed. Furthermore, if
Infoseek does not maintain its many business relationships or management or
does not maintain control over growth, Infoseek's business, results of
operations, financial condition and prospects could be seriously harmed.
Infoseek may experience problems, delays or unanticipated additional costs in
addressing these concerns or in the use of existing systems. If any of these
problems occur, Infoseek could suffer serious harm to its business, results of
operations, financial condition and prospects, particularly in the period or
periods in which these changes occur.
LIMITED COMPUTER SYSTEMS CAPACITY AND RISKS OF SYSTEM FAILURE; RELIANCE ON
ADVERTISING MANAGEMENT SYSTEM
A large part of Infoseek's strategy is to attract a large number of users to
its products and services. In order for Infoseek to be successful at this
strategy, Infoseek's products and services must perform well. If not, Infoseek
will not establish a strong reputation or attract advertisers and users.
Infoseek relies on computer, network and telecommunications systems to provide
its products and services. Such systems:
. May fail to operate correctly
. May be strained by too many users or demands
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. May be damaged by earthquakes, fires, floods, wind storms, power loss,
lightning, electrical and telecommunication failures or similar events
. May be damaged through physical or electronic break-ins or computer
viruses
If Infoseek's systems, the majority of which are located in Sunnyvale,
California, and Bellevue and Seattle, Washington, fail or function poorly for
any of these reasons or other reasons, these interruptions would result in less
traffic to Infoseek's services. If the interruptions continue, they could
reduce the number of users of and advertisers on Infoseek's products and
services. Infoseek does not maintain a comprehensive disaster recovery plan and
does not have redundant systems for each of its services.
Although Infoseek has insurance for fires, floods, earthquakes (and, for the
systems in Washington, wind storms) and general business interruptions, the
amount of coverage may not be adequate to cover all losses which could occur.
If losses occur from failures of Infoseek systems and insurance does not fully
cover such losses, they could seriously harm Infoseek's business, results of
operations, financial condition and prospects.
Infoseek also depends on Web browser makers and Internet and online service
providers. Infoseek's viewers have experienced and may in the future experience
difficulties due to incompatibilities or other problems. Infoseek cannot
control these Web browser makers and online services providers and cannot
predict when these incompatibilities or problems will occur. Infoseek also
depends on computer hardware suppliers to promptly deliver, install and service
its servers and other equipment and services used to provide Infoseek's
products and services. If Infoseek's access to the Internet or computer systems
fail, it could result in serious harm to Infoseek's business, results of
operations, financial condition and prospects.
In order to generate revenues, Infoseek must manage the advertising on its
large, high traffic websites. Infoseek relies on internal advertising inventory
management and analysis systems to provide internal reporting and customer
feedback on advertising. Infoseek is currently evaluating Starwave's system. If
Infoseek has serious difficulties in utilizing Starwave's system, Infoseek will
need to devote more resources to enhance the system currently in use.
If Infoseek fails to properly display advertising because of problems with its
advertising management system or other technical problems, Infoseek would be
required to deliver additional advertising displays which otherwise could have
been sold to other advertisers. Significant amounts of these "make good"
obligations could result in serious harm to 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 expand its products and
services into international markets and is exploring further opportunities to
expand internationally. Infoseek believes that international expansion is
important to Infoseek's growth. In marketing its products and services
internationally, however, Infoseek faces new competitors. In addition, in order
to be successful in international markets, Infoseek must create localized
versions of its products and services.
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Infoseek may not be successful in creating localized versions of its products
and services or marketing or distributing its products abroad. Even if Infoseek
is successful, its international revenues may not 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. Further, in addition to the uncertainty of Infoseek's
ability to establish an international presence, there are difficulties and
risks inherent in doing business internationally, such as:
. compliance with regulatory requirements and changes in these requirements
. export restrictions
. export controls relating to technology
. tariffs and other trade barriers
. difficulty in 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
. potentially adverse tax consequences
Any one or more of these factors could prevent Infoseek from being successful
in international markets. If Infoseek fails to be successful in international
markets, it could seriously harm Infoseek's business, results of operations,
financial condition and prospects.
If in the future Infoseek derives a large portion of its revenues from
international operations, changes in currency exchange rates will expose
Infoseek to more risk. If and when Infoseek derives a large portion of its
revenues from international expansion, it will determine whether to engage in a
hedging strategy to minimize the risks of currency fluctuations.
DEPENDENCE ON KEY PERSONNEL
Infoseek's ability to generate revenues and profits depends upon its senior
management team. Infoseek depends upon its Chairman of the Board, Steven
Kirsch, who is very involved in Infoseek's research and development efforts,
Harry Motro, its Chief Executive Officer, Les Wright, its Chief Operating
Officer and Chief Financial Officer, and Patrick Naughton, its Chief Technical
Officer. Infoseek also depends on many other employees, such as employees with
writing, editing, sales, management, marketing or technical ability. Employees
with these skills are difficult to find, and competition for these employees is
intense. If Infoseek were unable to attract and retain these key and other
skilled employees, its business, results of operations, financial condition and
prospects would be seriously harmed.
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INTELLECTUAL PROPERTY
Infoseek's success depends heavily upon its exclusive technology, brand names
and Internet locations ("domain names"). To protect its rights to its software,
systems, documentation and product features, Infoseek currently relies on a
combination of:
. patent, copyright and trademark and service mark laws
. trade secret laws
. confidentiality procedures, and
. contractual provisions
These methods of protection may not be adequate to protect against others using
Infoseek's technology, brand names and content. Accordingly, Infoseek cannot
assure you that it will be able to maintain the goodwill associated with its
products and services or competitive features.
Infoseek and its subsidiaries hold three United States patents and currently
have 15 U.S. patent applications pending and six foreign patent applications
pending. 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.
Despite these measures, Infoseek may not be able to protect its intellectual
property. Infoseek may not be able to protect its technology because:
. Pending and new patent applications and trademark registrations may not
be approved
. Even if issued, new patents and trademark registration may be challenged,
invalidated or designed around
. Infoseek's new products or technologies may not be patentable
. Time-consuming and costly litigation may be necessary to protect
Infoseek's proprietary technologies
. Policing unauthorized use of Infoseek's intellectual property is
difficult and expensive, particularly given the global nature of the
Internet and the ease of digital copying
. 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, duplicate Infoseek's
products or design around patents issued to Infoseek or other
intellectual property rights of Infoseek
The application of copyright and trademark laws to the Internet and other
digital media is very uncertain. There has been a substantial amount of
litigation in the technology industry regarding intellectual property rights.
Further, Infoseek may not be able to use its intellectual property or further
develop its business because of third parties. Third parties:
. may bring claims of patent, copyright or trademark infringement against
Infoseek
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. may obtain patents or other intellectual property rights which may limit
Infoseek's ability to do business or require Infoseek to license or
cross-license technology
. may claim Infoseek has misappropriated their creative ideas or formats or
otherwise infringed upon their proprietary rights
. may bring costly, time consuming lawsuits which divert management
attention, require Infoseek to enter into costly royalty or licensing
arrangements or prevent Infoseek from using important technologies or
methods
Infoseek is aware of a number of issued patents which cover interactive
programming, Internet programming and techniques, and electronic commerce. For
example, Infoseek is aware of a U.S. patent recently issued to Carnegie Mellon
related to Web spider technology. This patent has been licensed to Lycos and is
currently used 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 its products and services do not infringe the Carnegie
Mellon patent, Infoseek cannot assure you it would prevail if Lycos or Carnegie
Mellon claimed Infoseek infringed such patent. Infoseek expects patent
infringement regarding Internet technologies to increase as the number of
products and competitors in this market grows and as new patents are issued.
Infoseek expects that patents, particularly in the areas of real-time or
"streaming" audio and video, online commerce and "digital cash," and other
technologies may issue in the future. Some of these technologies may be
considered to be critical to long-term success in the Internet marketplace.
Infoseek has also from time to time received informal notices from copyright
and trademark holders regarding use of music, images and websites in their
services.
Infoseek cannot assure you that it can adequately protect its intellectual
property. If Infoseek fails to protect its intellectual property, it could
suffer serious harm to its business, results of operations or prospects.
Infoseek also cannot assure you that third parties will not in the future claim
infringement by Infoseek with respect to Infoseek's current or future products.
Any such claims or counterclaims could (i) be time-consuming, (ii) result in
costly litigation, (iii) cause product release delays, (iv) require Infoseek to
redesign its products or (v) require Infoseek to enter into royalty or
licensing agreements. These claims of infringement, whether successful or not,
could seriously harm Infoseek's business, results of operations or prospects.
RISKS OF GOVERNMENT REGULATION AND CHANGING LAWS
No government entity directly regulates Infoseek. Infoseek is, however, subject
to those general laws and regulations that apply to all businesses. At present,
there are few laws or regulations that apply to access to or commerce on the
Internet. However, proposals for regulation are presented to federal, state,
and foreign governments frequently. Laws or regulations may be passed regarding
the Internet on such issues as:
. user privacy (including sending of unsolicited e-mail, or "spamming")
. consumer protection for products and services
. media regulation, such as libel and obscenity
. intellectual property
. liability of Internet service providers
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In addition, courts are still determining how existing laws regarding property,
copyrights, trade secrets, libel and defamation, and privacy apply to the
Internet.
If these new laws or regulations are adopted or if courts apply or expand
existing laws in Internet cases, Internet use may decrease. This could in turn
decrease the demand for Infoseek's products and services or increase Infoseek's
cost of doing business. These effects or other effects of new laws and
regulations could seriously harm Infoseek's business, results of operations,
financial condition and prospects.
Infoseek may also face claims because materials may be downloaded through its
online or Internet services and then distributed to others. Some of Infoseek's
products and services, such as chat rooms, messaging, and hosted Web pages,
contain content provided by users. Infoseek has little control over these
users' content. Claims might be made against Infoseek under a variety of media
and intellectual property laws for the nature, content, publication and
distribution of its materials or its user materials. For example, Infoseek
might be subject to claims of copyright or trademark infringement, obscenity,
or libel brought against it for content that appears on its site. These types
of claims have been brought against online service providers in the past, some
of which have been successful.
Infoseek provides a variety of third-party information through its services.
For example, Infoseek's service provides news, stock quotes, analyst estimates
or other stock trading information. If this information contains errors,
Infoseek could be sued for losses suffered by users who relied on the
information. Infoseek expects to offer Web-based e-mail services in the near
future. E-mail may further expose Infoseek to potential risks. For example,
Infoseek may be subject to claims or liabilities from spamming, lost or
incorrectly delivered messages, use of e-mail for illegal purposes or fraud,
harassment or interruptions or delays in e-mail service.
Although Infoseek carries general liability insurance, such insurance may not
cover all claims or may not be sufficient to reimburse Infoseek for all
liabilities that may occur.
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QUANDO'S SOLICITATION FOR SHAREHOLDER APPROVAL
DATE, TIME AND PLACE OF SPECIAL MEETING
A special meeting of the shareholders of Quando will be held at the principal
executive offices of Quando, 520 NW Davis Street, Portland, Oregon 97209 on
Monday, December 21, 1998, at 11:30 A.M., local time.
PURPOSE OF THE SOLICITATION
Holders of shares of Quando common stock and preferred stock as of November 20,
1998, the record date, are being asked to consider and vote upon the approval
and adoption of the Merger Agreement, providing for among other things, the
merger of Sub with and into Quando, whereby Quando will become a wholly owned
subsidiary of Infoseek. See "The Merger and Related Transactions" and "Terms of
the Merger."
VOTING BY WRITTEN CONSENT AND BY PROXY
The written consent and proxy card accompanying this Proxy Statement/Prospectus
are solicited on behalf of the Board of Directors of Quando in an attempt to
consummate the Merger as soon as possible. Please complete, date and sign the
accompanying written consent and proxy card and promptly return both of them to
Quando, first by facsimile and then in the enclosed, overnight courier package.
All proxies that are properly executed and returned, and that are not revoked,
will be voted at the special meeting of the shareholders in accordance with the
instructions indicated on the proxies. IF NO DIRECTION IS INDICATED ON THE
PROXY CARD, THE SHARES REPRESENTED THEREBY WILL BE VOTED FOR ADOPTION OF THE
MERGER AND MERGER AGREEMENT. In the event Quando receives written consents from
all shareholders of record as of the record date prior to December 18, 1998,
Quando will consummate the Merger as soon as practicable thereafter and the
special meeting of the shareholders will not be held.
For voting purposes at the special meeting, only shares affirmatively voted in
favor of adoption of the Merger Agreement will be counted as favorable votes
for such adoption. THE FAILURE TO VOTE IN PERSON, BY PROXY, OR BY WRITTEN
CONSENT OR THE ABSTENTION FROM VOTING WITH RESPECT TO ADOPTION OF THE MERGER
AND MERGER AGREEMENT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST SUCH ADOPTION.
The management of Quando is not aware of any matters to be voted on at the
special meeting other than the adoption of the Merger Agreement. If other
matters should properly come before the special meeting, the proxyholders will
vote on such matters in accordance with their judgment.
RECORD DATE; QUORUM
Only holders of record of shares of Quando common stock or Quando preferred
stock at the close of business on the record date, are entitled to notice of
the special meeting and will be entitled to vote at the special meeting or
alternatively consent in writing. As of the record date, there were 5,884,178
shares of Quando common stock (on an as-converted basis) issued and outstanding
and entitled to vote at the special meeting. As of the record date, such shares
were held by 14 holders of record.
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The required quorum for the transaction of business at the special meeting is a
majority of the outstanding shares of common and preferred stock issued and
outstanding as of the record date, which shares may be present in person or
represented by proxy.
VOTE REQUIRED
The approval of the Merger and Merger Agreement at the special meeting will
require the affirmative vote of the holders of record of 90% of the outstanding
shares of common and preferred stock as of the record date. Approval of the
Merger and Merger Agreement by written consent will require the consent of the
holders of record of 100% of the outstanding shares of common and preferred
stock as of the record date.
Holders of record of common and preferred stock as of the record date are each
entitled to one vote per share of common stock (assuming full conversion of
preferred stock) on each matter to be voted on either at the special meeting or
by written consent.
As of the record date, directors and executive officers of Quando beneficially
owned and were entitled to vote 5,315,143 shares of Quando common stock (on an
as-converted basis), representing approximately 90.33% of the outstanding
voting shares on the record date. Each director has indicated his present
intention to vote the common and preferred stock so owned by him for the
approval of the Merger and Merger Agreement.
REVOCABILITY OF CONSENTS AND PROXIES
You may revoke your proxy at any time prior to the Quando shareholders meeting
by executing a new proxy prior to the shareholders meeting or by attending the
meeting in person and voting. Merely attending the meeting will not revoke your
proxy. You may revoke your consent by delivering written notice to Quando's
Secretary of such revocation at any time prior to the closing of the Merger.
Quando hopes to receive the written consent of all of its shareholders to the
Merger and Merger Agreement by Thursday, December 10, 1998 and to close the
Merger on or about Friday, December 11, 1998.
SOLICITATION OF SHAREHOLDER APPROVAL
All expenses of Quando's solicitation of shareholder approval, including the
cost of mailing this Proxy Statement/Prospectus to Quando shareholders, will be
borne by Quando. In addition to solicitation by use of the mails, written
consents and proxies may be solicited from Quando shareholders by directors,
officers and employees of Quando or Infoseek in person or by telephone,
facsimile or other means of communication. Such directors, officers and
employees will not receive additional compensation for such solicitation, but
may be reimbursed for reasonable out-of-pocket expenses in connection
therewith.
RECOMMENDATION OF QUANDO BOARD OF DIRECTORS
The Quando Board has unanimously approved the Merger and Merger Agreement and
has determined that the Merger and Merger Agreement are fair to, and in the
best interests of, Quando and its shareholders. THE QUANDO BOARD UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER. See "The Merger and Related Transactions--Background of
the Merger and Related Transactions" and "--Recommendation of Quando's Board of
Directors and Reasons for the Merger."
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THE MERGER 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 Merger,
with respect to GO Network and with respect to future financial performance,
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 Proxy Statement/Prospectus.
BACKGROUND OF THE MERGER AND RELATED TRANSACTIONS
In March 1998, Quando's Board of Directors instructed its management to
investigate the possibility of a merger of Quando with an Internet portal, such
as Infoseek. Both the Quando Board and Quando management believed that it was
in the best interests of Quando and its shareholders to combine the technical
capabilities of Quando with the marketing capabilities and relative financial
strength of an Internet portal.
Over the next three months and with the assistance of Lisa Gansky and Richard
Miller, consultants to Quando, several candidate companies were identified and
contacted.
On May 1, 1998, David Billstrom, President, Chief Executive Officer and
Chairman of the Board of Directors of Quando, spoke with Harry Motro, President
and Chief Executive Officer of Infoseek, to discuss the possibility of a
strategic transaction or business combination between the two companies.
On May 6, 1998, Steven Kirsch, Chairman of the Board of Directors of Infoseek,
met at Infoseek's Sunnyvale offices with Mr. Billstrom and Ms. Gansky to
further discuss a possible business combination involving the two companies.
On May 13, 1998, Mr. Kirsch, Mr. Billstrom, Ms. Gansky, William Neuhauser,
Chief Technology Officer of Quando, and other representatives of Infoseek and
Quando met at Infoseek's Sunnyvale offices to further discuss the possibility
of a business combination. Immediately prior to this meeting, both companies
executed non-disclosure agreements with each other.
On May 29, 1998, Ms. Gansky and Mr. Miller met with Eric Bochner, Infoseek's
Vice President of Corporate Business Development, at Infoseek's Sunnyvale
offices, to discuss the overall strategy of combining the technologies of the
two companies.
On May 30, 1998, Mr. Billstrom, Mr. Neuhauser, Ms. Gansky, Mr. Bochner, Mr.
Motro and Mr. Kirsch met in Sunnyvale to discuss specific strategies for a
business combination of the two companies.
On June 7, 1998, following negotiations regarding price, Infoseek made a
proposed offer of Infoseek common stock at a value of $17.0 million for all
issued and outstanding capital stock of Quando, along with the assumption of
certain liabilities and fees connected with the transaction.
On June 10, 1998, the Quando Board of Directors met informally and agreed to
continue negotiations with Infoseek.
At various times from May 14, 1998 through July 22, 1998, Infoseek conducted
due diligence of Quando, which included examination of financial reports,
personnel records, existing customer
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contracts and portions of source code. Representatives of Infoseek visited
Quando on June 2, July 6, and July 21, 1998, to conduct on-site due diligence.
On June 25, 1998, Infoseek provided to Quando a proposed non-binding term sheet
relating to the proposed merger. The Quando Board of Directors met informally
by telephone and agreed that Quando's management should continue to negotiate
with Infoseek on the basis of the non-binding term sheet.
On July 10, 1998, Infoseek and Quando executed a non-binding term sheet
relating to the proposed merger, which contemplated executing a definitive
agreement by July 24, 1998.
On July 22, 1998, the Infoseek Board of Directors met and discussed the
proposed terms of the merger and unanimously authorized and approved the Merger
and Merger Agreement.
On July 24, 1998, the Quando Board of Directors met and concluded that the
Merger was fair to and in the best interests of Quando and its shareholders,
and unanimously approved and adopted the Merger Agreement. Later that day,
Infoseek and Quando executed the Merger Agreement.
On August 11, 1998, Infoseek and Quando publicly announced their intent to
merge.
On October 20, 1998, Mr. Bochner and Mr. Billstrom began discussions by
telephone concerning certain amendments to the Merger Agreement. On October 27,
in a meeting in Palo Alto at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation. Mr. Bochner, Mr. Billstrom and Ms. Gansky, as well as
counsel for both companies, continued to discuss several possible amendments to
the Merger Agreement. During the next four weeks, negotiations continued by
telephone on various aspects of the proposed amendment to the Merger Agreement.
On December 7, 1998, Quando's Board of Directors agreed to accept the proposed
amendment to the Merger Agreement, and further, to recommend that Quando's
shareholders approve the Merger and Merger Agreement.
On December 7, 1998, Infoseek and Quando executed an amendment to the Merger
Agreement.
INFOSEEK REASONS FOR THE MERGER
The Infoseek Board has approved the Merger and has identified several potential
benefits of the Merger that it believes will contribute to the success of the
combined entity following the Merger. The Infoseek Board believes that Quando
possesses technology that will be valuable to Infoseek's products and services.
In the process of approving the Merger, the Infoseek Board considered a number
of factors, including, but not limited to, (1) the proposed terms of the
Merger, (2) the likelihood of realizing superior benefits through alternative
strategies, (3) information concerning Quando's business, historical
performance and operations, and competitive position, (4) an analysis of the
value of Quando separately and as a part of Infoseek's operations, and (5) an
analysis of the compatibility of the businesses and operations of Infoseek and
Quando.
RECOMMENDATION OF QUANDO'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
On July 24, 1998 and December 7, 1998, Quando's Board of Directors held
telephonic Board meetings with all directors of Quando participating. At each
meeting, the Board of Directors of
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Quando weighed the relative merits of the proposed merger with Infoseek and
concluded that the acquisition of Quando by Infoseek was in the best interests
of Quando shareholders. By unanimous vote, the Quando Board approved the Merger
Agreement and the Merger Agreement as amended on December 7, 1998, and
authorized Quando's officers to recommend to Quando shareholders that they
approve and adopt the Merger Agreement. The Board then scheduled a special
meeting of the shareholders to be held on December 21, 1998 in the event
Quando's shareholders do not unanimously approve the Merger Agreement by
written consent.
In approving the Merger Agreement and the Merger, Quando's Board of Directors
considered a number of significant factors, including:
. The total consideration to be paid to Quando shareholders represents a
premium of approximately 223% over the price paid by investors between
July 1996 and February 1997 for the purchase of Quando Series B preferred
stock.
. The exchange of Quando capital stock for Infoseek common stock will give
current holders of Quando capital stock publicly listed shares that trade
on the Nasdaq National Market, providing them with liquidity as well as
the opportunity to participate in the potential growth of Infoseek.
. The financial resources of Infoseek are significantly greater than the
financial resources of Quando.
. Information available to them concerning Infoseek, its business, size,
market characteristics of Infoseek common stock and other matters based,
in part, on information provided by management of Quando as a result of
meetings with Infoseek's management.
. The opportunity to access Infoseek's sales channels for the distribution
of Quando's services.
. The terms of the Merger Agreement, including the proposed structure of
the Merger as a tax-free reorganization under the Internal Revenue Code
of 1986, as amended.
. The business, results of operations, properties and financial condition
of Quando and the competitive nature of the industry in which it
operates, based, in part, upon presentations by management of Quando,
including management's view of the business and financial prospects for
Quando if it were to remain independent, taking into account Quando's
continued losses from operations, its current position in the market and
its size and resources as compared to its competitors.
. The effect of the Merger on Quando's employees and existing customers.
The Quando Board of Directors identified and considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to: (i) the risk that the potential benefits sought in the Merger might
not be fully realized, if at all; (ii) the possibility that the Merger would
not be consummated; (iii) the risk that despite the efforts of Infoseek, key
technical, marketing and management personnel of Quando might not choose to
remain employed by Infoseek; and (iv) the other risks described above under
"Risk Factors." The Quando Board of Directors believed that these risks were
outweighed by the potential benefits of the Merger.
In reaching its decision to approve the Merger Agreement, the Board did not
assign any relative or specific weights to the various factors considered, and
individual directors may have given differing
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weights to different factors. Rather, the Board of Directors viewed its
position and recommendations as being based upon the totality of the
information presented to and considered by them.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Quando Board of Directors with respect
to the Merger and Merger Agreement, the Quando shareholders should be aware
that certain directors and officers of Quando have entered into employment
agreements with Infoseek with respect to employment following the Merger.
Further, in connection with the Merger, the Quando Board of Directors intends
to grant bonuses to all of Quando's directors and executive officers totalling
$50,000. In addition, pursuant to the Merger Agreement, the directors of Quando
will receive continuing indemnification against certain liabilities. These
arrangements present the Quando directors and officers with potential conflicts
of interest. See "Terms of the Merger--Indemnification of Officers and
Directors" and "Other Agreements--Employment and Non-Competition Agreements."
In addition, as of the record date, the directors and officers of Quando and
their affiliates owned 4,445,000 shares, of Quando common stock, 86,000 shares
of Quando Series A preferred stock and 664,000 shares of the Quando Series B
preferred stock. On an as-converted basis, the directors and officers of Quando
and their affiliates owed 5,315,143 shares or 90.3% of the outstanding Quando
common stock. See "Security Ownership of Management and Principal Shareholders
of Quando."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Quando
capital stock exchanging their Quando capital stock for Infoseek common stock.
Shareholders of Quando should be aware that the following discussion does not
deal with all federal income tax considerations that may be relevant to
particular Quando shareholders in light of their particular circumstances, such
as shareholders who are dealers in securities, who are foreign persons or who
acquired their Quando capital stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws or tax consequences of transactions effectuated prior
to or after the Merger (whether or not such transactions are in connection with
the Merger) including, without limitation, the exercise of options or rights to
purchase Quando capital stock in anticipation of the Merger. ACCORDINGLY,
QUANDO SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice, all as of the date hereof. The IRS is not
precluded from adopting a contrary position. In addition, there can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Infoseek, Sub, Quando and/or their respective stockholders.
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The Merger is intended to qualify as a reorganization under Section 368(a) of
the Code (a "Reorganization"). In the event the Merger so qualifies, subject to
the limitations and qualifications referred to herein:
(a) No gain or loss will be recognized by the holders of Quando capital stock
upon the receipt of Infoseek common stock solely in exchange for such Quando
capital stock in the Merger;
(b) The aggregate tax basis of the Infoseek common stock so received by the
shareholders of Quando in the Merger will be the same as the aggregate tax
basis of the Quando capital stock surrendered in exchange therefor;
(c) The holding period of the Infoseek common stock received by each
shareholder of Quando in the Merger will include the period for which the
Quando capital stock surrendered in exchange therefor was considered to be
held, provided that the Quando capital stock so surrendered is held as a
capital asset at the Effective Time;
(d) None of Infoseek, Sub or Quando will recognize gain or loss solely as a
result of the Merger.
For federal income tax purposes, holders of Quando capital stock will be
treated as having received the Escrow Shares (as defined below under "Terms of
the Merger--Escrow Fund and Indemnification") upon the consummation of the
Merger. Accordingly, until the Escrow Shares are released, the interim basis of
the Infoseek common stock received by holders of Quando capital stock will be
determined as though the maximum number of shares of Infoseek common stock were
received by such shareholders. Because the number of Escrow Shares to be
released to Infoseek or any other beneficiary is based upon the value of the
Infoseek common stock at the time of the Merger, former Quando shareholders
will not recognize gain or loss upon the release of Escrow Shares to Infoseek
or any other beneficiary and the basis of such released shares will be added to
the adjusted basis of the remaining shares of Infoseek common stock received in
the Merger by the Quando shareholders. No gain or loss will be recognized and
no amount will be included in the income of the Quando shareholders by reason
of any release of Escrow Shares to the Quando shareholders.
Neither Infoseek nor Quando has requested a ruling from the IRS in connection
with the Merger. It is a condition to the consummation of the Merger that
Infoseek and Quando each receive opinions from their respective counsel, Wilson
Sonsini Goodrich & Rosati, Professional Corporation, and Pillsbury Madison &
Sutro LLP (the "Tax Opinions"), to the effect that, for federal income tax
purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. The Tax Opinions neither bind the IRS nor preclude
the IRS from adopting a contrary position. The Tax Opinions are subject to
certain assumptions and qualifications and are based in part on the truth and
accuracy of certain representations of Infoseek, Quando and Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in a Quando shareholder recognizing gain or loss with respect to each
share of Quando capital stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the
Effective Time, of the Infoseek common stock received in exchange therefor. In
such event, a Quando shareholder's aggregate basis in the Infoseek common stock
so received would equal its fair market value, and the shareholder's holding
period for such stock would begin the day after the
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Merger. However, even in that event, neither Infoseek, Sub nor Quando would
recognize gain or loss solely as a result of the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Infoseek common stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Quando capital stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that a
Quando shareholder was treated as receiving (directly or indirectly)
consideration other than Infoseek common stock in exchange for Quando capital
stock.
ACCOUNTING TREATMENT
The 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, is allocated to the acquired assets
and liabilities (in this instance, of the business of Quando) based on the fair
market values at the effective time with any excess being treated as goodwill.
Results of operations of Quando, including the related amortization of
intangible assets and write-off of in-process research and development
associated with the Merger, will be included in the results of operations of
Infoseek subsequent to the effective time of the Merger.
STOCK EXCHANGE LISTING
The shares of Infoseek common stock to be issued in the Merger will be approved
for listing on the Nasdaq National Market.
RIGHTS OF DISSENTING QUANDO SHAREHOLDERS
If the Merger is consummated upon approval by the shareholders, holders of
Quando capital stock who have properly exercised dissenters' rights under
Sections 60.551 through 60.594 of the Oregon Business Corporation Act are
entitled to dissenters' rights. A shareholder that is a shareholder as of the
record date and entitled to vote on the Merger may dissent from the Merger and
obtain payment for the fair value of such shareholder's shares in the event of
consummation of a Merger. A shareholder who wishes to assert dissenters' rights
must deliver to Quando, before a vote of the shareholders is taken, written
notice of such shareholder's intent to demand payment for the shareholder's
shares if the proposed Merger is consummated. A Quando shareholder that
approves the Merger will not have a right to dissent from the Merger. See
"Dissenters' Rights."
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TERMS OF THE MERGER
The following is a summary of the material provisions of the Merger Agreement
(as amended by Amendment No. 1 to the Merger Agreement), a copy of which is
attached as Annex A to this Proxy Statement/Prospectus and is incorporated
herein by reference. Unless defined elsewhere in this Proxy
Statement/Prospectus, the capitalized terms in this section have the
definitions as provided in the Merger Agreement. The following is not a
complete statement of all provisions of the Merger Agreement. Statements made
in this Proxy Statement/Prospectus are qualified by reference to the more
detailed information set forth in the Merger Agreement. You are encouraged to
read the entire Merger Agreement.
THE MERGER
At the Effective Time (as defined below), and subject to and upon the terms and
conditions of the Merger Agreement and the applicable provisions of the Oregon
Business Corporation Act ("Oregon Law"), Sub will be merged with and into
Quando, and Quando will continue as the Surviving Corporation and wholly-owned
subsidiary of Infoseek.
EFFECTIVE TIME
Subject to the provisions of the Merger Agreement, the parties shall cause the
Merger to be consummated by filing an Agreement of Merger with the Secretary of
State of Oregon, as soon as practicable on or after the Closing Date (the time
of acceptance by the Secretary of State of the State of Oregon being the
"Effective Time" of the Merger). The closing of the Merger (the "Closing")
shall take place at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Infoseek, as promptly as practicable, but
no later than five (5) business days following the approval of the Merger by
Quando's Shareholders and the satisfaction or waiver of the conditions set
forth in the Merger Agreement or at such other date, time and location as the
parties may agree. The Closing is currently anticipated to occur on or about
December 11, 1998.
MERGER CONSIDERATION
The aggregate number of shares of Infoseek Common Stock to be issued at the
Effective Time upon conversion of Quando Capital Stock and issuable upon
exercise of Quando Stock Options assumed by Infoseek at the Effective Time
(collectively, "Merger Consideration") will equal the quotient obtained by
dividing (i) $17,310,000 (less the sum of (a) the amount by which certain
estimated third party expenses related to the Merger ("Estimated Third Party
Expenses"), less legal and accounting expenses of Quando related to the
amendment to the Merger Agreement and the Registration Statement on Form S-4
filed pursuant to the Merger (not to exceed $100,000) ("Quando Registration
Expenses") exceed $50,000 and (b) the amount by which the Estimated Net
Liabilities (that is, the amount by which total liabilities (excluding certain
debt) exceeds total current assets, as reported on the estimated unaudited
balance sheet of Quando as of the Closing Date), excluding Estimated Third
Party Expenses, exceed $405,739) by (ii) the Trading Price (as defined below).
Based on the estimates of the Estimated Third Party Expenses and Estimated Net
Liabilities as of December 11, 1998, the Merger Consideration will be
approximately 527,050 shares of Infoseek Common Stock.
DIRECTORS AND OFFICERS
At the Effective Time, the current directors and officers of Sub, who are all
current directors or officers of Infoseek, will become the directors and
officers of Quando, in each case until their
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successors are duly qualified and elected in accordance with applicable law and
the Articles of Incorporation and Bylaws of Quando.
ARTICLES OF INCORPORATION AND BYLAWS
Unless otherwise determined by Infoseek prior to the Effective Time, the
Articles of Incorporation and Bylaws of Sub as in effect immediately prior to
the Effective Time will become the Articles of Incorporation and Bylaws of
Quando at the Effective Time until thereafter amended as provided by law and
the Articles of Incorporation.
QUANDO STOCK OPTIONS
At the Effective Time, each outstanding option or right to purchase shares of
Quando Common Stock (each, a "Quando Option") shall be assumed by Infoseek and
be converted into an option to purchase that number of shares of Infoseek
Common Stock equal to the number of shares of Quando Common Stock subject to
such Quando Option immediately prior to the Effective Time multiplied by the
Common Exchange Ratio (as defined below), rounded down to the nearest whole
share, and the per share exercise price for the shares of Infoseek Common Stock
issuable upon exercise of such assumed Quando Option shall be equal to the
quotient obtained by dividing the exercise price per share of Quando Common
Stock at which such Quando Option was exercisable immediately prior to the
Effective Time by the Common Exchange Ratio, rounded up to the nearest whole
cent. Such option to purchase Infoseek Common Stock will otherwise continue to
have, and be subject to, the same terms and conditions (including vesting
restrictions) set forth in the Quando option plan and/or option agreement by
which it is evidenced.
CONVERSION OF QUANDO CAPITAL STOCK
Under the terms of the Merger Agreement and as of the Effective Time, by virtue
of the Merger and without any action on the part of Sub, Quando, or the holder
of any shares of Quando Capital Stock, shares of Infoseek Common Stock will be
exchanged for the outstanding shares of Quando Capital Stock. Each share of
Quando Capital Stock issued and outstanding immediately prior to the Effective
Time (other than any shares held by a holder who has demanded and perfected
dissenters' rights for such shares in accordance with the applicable provisions
of Oregon Law and who has not withdrawn or lost such rights) will be cancelled
and extinguished and be converted automatically into the right to receive a
number of shares of Infoseek Common Stock. No fractional shares of Infoseek
Common Stock will be issued in the Merger. Instead, any fractional share shall
be rounded up to the nearest whole share of Infoseek Common Stock. The
conversion of Quando Capital Stock will occur as follows:
Conversion of Quando Series A Preferred Stock
Holders of Quando Series A Preferred Stock will be entitled to receive that
number of shares of Infoseek Common Stock equal to the quotient obtained by
dividing (i) the product of (a) the amount per share of Quando Series A
Preferred Stock that would have been payable had each such share been converted
to Quando Common Stock immediately prior to the Effective Time, plus an amount
equal to all accrued and unpaid dividends thereon, if any, multiplied by (b)
the total number of shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time by
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(ii) the Trading Price (as defined below). As of the date of this Proxy
Statement/Prospectus, holders of Quando Series A Preferred Stock would be
entitled to receive approximately 0.0777 shares of Infoseek Common Stock for
each share of Quando Series A Preferred Stock they hold (the "Series A Exchange
Ratio").
Conversion of Quando Series B Preferred Stock
Holders of Quando Series B Preferred Stock will be entitled to receive in
aggregate prior and in preference to any delivery of Infoseek Common Stock to
the holders of Quando Common Stock that number of shares of Infoseek Common
Stock equal to the quotient obtained by dividing (i) the product of (a) the
amount per share of Quando Series B Preferred Stock that would have been
payable had each such share been converted to Quando Common Stock immediately
prior to the Effective Date, plus an amount equal to all accrued and unpaid
dividends thereon, if any, multiplied by (b) the total number of shares of
Series B Preferred Stock issued and outstanding immediately prior to the
Effective Time by (ii) the Trading Price (as defined below). As of the date of
this Proxy Statement/Prospectus, holders of Quando Series B Preferred Stock
would be entitled to receive approximately 0.0702 shares of Infoseek Common
Stock for each share of Quando Series B Preferred Stock they hold (the "Series
B Exchange Ratio").
Conversion of Quando Common Stock
Each holder of shares of Quando Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares held by a holder who has
demanded and perfected appraisal rights for such shares in accordance with the
applicable provisions of the Oregon Law and who has not withdrawn or lost such
rights) will be cancelled and extinguished and will be converted automatically
into the right to receive a number of shares of Infoseek Common Stock equal to
the number of shares of Infoseek Common Stock available for distribution
pursuant to the Merger Agreement (see "--Merger Consideration"), minus the
number of shares of Infoseek Common Stock distributed to holders of Quando
Preferred Stock pursuant to applicable preferences multiplied by a fraction,
(a) the numerator of which is the number of shares of Quando Common Stock held
by such holder immediately prior to the Effective Time, and (b) the denominator
of which is the sum of (i) the aggregate number of shares of Quando Common
Stock that are issued and outstanding immediately prior to the Effective Time,
and (ii) the total number of shares of Quando Common Stock issuable upon
conversion or exercise in full of all options, warrants and other rights to
acquire or receive Quando Common Stock that are outstanding immediately prior
to the Effective Time (other than Quando Preferred Stock). As of the date of
this Proxy Statement/Prospectus, holders of Quando Common Stock would be
entitled to receive approximately 0.0613 shares of Infoseek Common Stock for
each share of Quando Common Stock they hold (the "Common Exchange Ratio").
TRADING PRICE
The Merger Agreement provides that the Trading Price is initially equal to the
average closing price of Infoseek Common Stock, as reported on the Nasdaq
National Market, for a period of ten trading days ending on the third business
day prior to the date of the Merger Agreement. The Trading Price, however, is
subject to adjustment. If the Meeting Price (as defined below) is higher or
lower than the
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Trading Price by 20% or more, then the Trading Price will be adjusted to be
equal to the Meeting Price, but in no event to be more or less than 25% of the
Trading Price. The "Meeting Price" means the average closing price of Infoseek
Common Stock, as reported on the Nasdaq National Market, for the prior of ten
trading days ending on the third trading day prior to the filing date of the
Registration Statement on Form S-4 filed in connection with the Merger
("Registration Statement on Form S-4"), of which this Proxy
Statement/Prospectus is a part. If the effectiveness of the Registration
Statement on Form S-4 is delayed, the Meeting Price will be equal to the
average closing price of Infoseek Common Stock, as reported on the Nasdaq
National Market for the ten trading days ending on the third business day prior
to the date of effectiveness of the Registration Statement on Form S-4. Based
on the foregoing, the Trading Price has been calculated to be equal to $32.625.
PROCEDURE FOR CONVERTING QUANDO CAPITAL STOCK
Conversion of Quando Capital Stock will occur in the manner provided in a
letter of transmittal to be sent to each record holder of Quando Capital Stock
at least one (1) business day prior to the Closing Date. On or about the
Closing Date the Quando Shareholders will surrender such certificates
representing Quando Capital Stock, along with other customary documents
described in the letter of transmittal, and within five (5) business days after
the Effective Time, Infoseek will cause to be issued to such shareholders
certificates of Infoseek Common Stock representing their portion of the Merger
Consideration, subject to the escrow provisions of the Merger Agreement
described under the section entitled "--Escrow Fund and Indemnification" below.
See "--Exchange Agent" and "--Exchange Procedures."
Exchange Agent
The Merger Agreement requires Infoseek, within three (3) business days after
the Effective Time, to deposit with Boston Equiserve or such other institution
as it may select (the "Exchange Agent"), for the benefit of the holders of
shares of Quando Capital Stock, certificates representing the shares of
Infoseek Common Stock issuable in exchange therefor; provided, however, that a
portion of such shares will be subject to the escrow provisions of the Merger
Agreement. See "--Escrow Fund and Indemnification."
Exchange Procedures
At least one (1) business day prior to the Closing Date, Infoseek shall cause
to be mailed to each holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Quando Capital Stock (the "Certificates"), a Letter of Transmittal in such form
and have such other provisions as Infoseek may reasonably specify. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with an executed letter of transmittal and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
will be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Infoseek Common Stock, minus ten percent (10%)
of such shares which will be placed in the Escrow Fund (as defined below),
which such holder has the right to receive after taking account all the shares
of Quando Capital Stock then held by such holder under all such Certificates
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so surrendered and any dividends or other distributions to which such holder is
entitled, and the Certificate so surrendered will be cancelled. See "--Escrow
Fund and Indemnification."
No dividends or other distributions declared or made after the Effective Time
with respect to Infoseek Common Stock with a record date after the Effective
Time will be paid to any holder of any unsurrendered Certificate with respect
to the shares of Infoseek Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Infoseek Common Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time thereafter paid with respect to such whole
shares of Infoseek Common Stock.
If any certificate for shares of Infoseek Common Stock is to be issued in a
name other than that in which the certificate surrendered in exchange therefor
is registered, it will be a condition to the issuance thereof that the
certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid
to Infoseek or any agent designated by it any transfer or other taxes required
by reason of issuance of a certificate for shares of Infoseek Common Stock in
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Infoseek or any agent
designated by it that such tax has been paid or is not payable.
In the event that any Certificates representing shares of Quando Capital Stock
have been lost, stolen or destroyed, the Exchange Agent will issue shares of
Infoseek 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, upon delivery of a bond in such a
sums as Infoseek may reasonably direct as indemnity against any claim that may
be made against Infoseek or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
QUANDO SHAREHOLDERS SHOULD NOT FORWARD QUANDO STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. QUANDO SHAREHOLDERS
SHOULD NOT RETURN QUANDO STOCK CERTIFICATES WITH THEIR PROXY OR CONSENT.
FORM S-8 FILING
Infoseek has agreed to file with the Commission, within 30 days after the
Closing Date, a registration statement on Form S-8 to register shares of
Infoseek Common Stock issuable as a result of the exercise of options assumed
in the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties made by
Quando and the Principal Shareholders, in favor of Infoseek and Sub, relating,
among other things, to the following matters: (i) due organization and good
standing; (ii) ownership of subsidiaries; (iii) capital structure; (iv)
authorization, execution, delivery and enforceability of the Merger Agreement
and related agreements; (v) absence of conflict with, default under or
violation of agreements and laws, and the
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holding of permits necessary for the conduct of business and compliance of the
Merger with the Articles, Bylaws and the law; (vi) absence of need for waivers
or consents from any governmental entity or third party; (vii) accuracy of
financial statements; (viii) absence of undisclosed liabilities; (ix) absence
of certain changes in the business; (x) tax matters; (xi) absence of
restrictions on business activities; (xii) title to property; (xiii) ownership
of intellectual property; (xiv) absence of certain types of agreements,
contracts and commitments; (xv) litigation matters; (xvi) compliance with
environmental matters and (xvii) employee benefit plans. The representations
and warranties of Quando and the Principal Shareholders terminate as of June
30, 1999, and Quando and the Principal Shareholders have an indemnification
obligation with respect thereto, subject to certain limitations. See "--Escrow
Fund and Indemnification."
The Merger Agreement also contains customary representations and warranties
made by Infoseek and Sub, in favor of Quando, relating, among other things, to
the following matters: (i) due organization and good standing; (ii) capital
structure; (iii) authorization, execution, delivery and enforceability of the
Merger Agreement and related agreements; (iv) authorization and issuance of the
shares of Infoseek Common Stock to be issued pursuant to the Merger and (v)
absence of conflict with, default under or violation of agreements and laws.
The representations and warranties of Infoseek and Sub terminate one year after
the Closing Date.
CONDUCT OF BUSINESS OF QUANDO PENDING THE MERGER
Pursuant to the Merger Agreement, Quando has agreed that, during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement or the Effective Time, subject to certain
exceptions, and except to the extent that Infoseek consents in writing, Quando
will carry on its business in the usual, regular and ordinary course, in
substantially the same manner conducted prior to the date of the Merger
Agreement, pay its debts and taxes when due, pay or perform other obligations
when due and to the extent consistent with the past practices of Quando, and,
to the extent consistent with its business, use its reasonable best efforts
consistent with past practices and policies (i) to preserve intact the present
business organization of Quando, (ii) to keep available the services of their
present officers and key employees and (iii) to preserve their relationship
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 Quando at the Effective Time. Quando will promptly
notify Infoseek of any event or occurrence not in the ordinary course of
business and any material event involving Quando.
Except as expressly contemplated in the Merger Agreement, Quando shall not,
without the prior written consent of Infoseek:
(a) other than in the ordinary course of business and consistent with past
practice, sell or enter into any license agreement with respect to the Quando's
intellectual property or buy or enter into any license agreement with respect
to the intellectual property of any person or entity;
(b) transfer to any person or entity any rights to Quando's intellectual
property;
(c) enter into or amend: (i) any contract with a customer, (ii) any single
contract (or series of related contracts) with a potential obligation of
$25,000 or more or (iii) multiple contracts in any calendar month with
aggregate potential obligation of $100,000 or more;
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(d) amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the terms of, any of the contracts set forth in
the Merger Agreement;
(e) commence any litigation or settle: (i) any litigation for $25,000 or more
or (ii) any litigation relating to Quando's intellectual property rights;
(f) 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
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Quando Capital Stock, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of Quando Capital Stock or options, warrants
or other rights exercisable therefor (except for Quando's repurchase of Quando
Capital Stock from its employees at the purchase price paid by such employees
for such stock);
(g) issue, grant, deliver or sell, contract to 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 Quando Capital Stock (other than upon
the exercise of currently outstanding stock options) or securities convertible
into or exchangeable for, 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 other convertible securities (except for
certain issuances of Quando Common Stock to its financial advisors);
(h) cause or permit any amendments to its Articles of Incorporation or Bylaws
or other organizational documents;
(i) propose or discuss acquiring or 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 other than Infoseek, Sub or any
other Infoseek subsidiary, or otherwise acquire or agree to acquire any assets
which are material, individually or in the aggregate, to Quando's business;
(j) 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;
(k) 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;
(l) incur liabilities in excess of $390,000 (other than amounts permitted to be
borrowed as specified in the Merger Agreement);
(m) grant any loans to others or purchase debt securities of others or amend
the terms of any outstanding loan agreement;
(n) grant any severance or termination pay: (i) to any director or officer or
(ii) to any other employee except payments made pursuant to standard written
agreements outstanding on the date of and disclosed in the Merger Agreement;
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(o) adopt any employee benefit plan, or enter into any employment contract
(other than a contract expressly providing for at-will employment), or pay or
agree to pay any special bonus or special remuneration to any director;
(p) revalue any of its assets, including without limitation writing down the
value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
(q) pay, discharge or satisfy, in an amount in excess of $10,000 (in any one
case) or $25,000 (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 reflected or reserved against in Quando's current balance sheet
(except for certain issuances of Quando Common Stock to its financial
advisors);
(r) make or change any material election in respect of taxes, adopt or change
any accounting method in respect of taxes, enter into any closing agreement,
settle any claim or assessment in respect of taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of taxes;
(s) enter into any strategic alliance or joint marketing arrangement or
agreement;
(t) accelerate the vesting schedule of any of the outstanding Quando stock
options or Quando Capital Stock;
(u) (i) terminate any Key Employee, (ii) encourage any employee to resign,
(iii) hire an employee with an annual salary and bonus in excess of $60,000 or
(iv) hire an officer;
(v) take any other action inconsistent with past practice or outside the
ordinary course of business;
(w) agree in writing or otherwise to take, any of the actions described above;
or
(x) take, or agree in writing or otherwise to take, or any other action that
would prevent Quando from performing or cause Quando not to perform its
covenants as set forth in the Merger Agreement.
NO SOLICITATION
From and after the date of the Merger Agreement, Quando has agreed that it
shall not, and shall not authorize or permit any of its subsidiaries and other
affiliates (and the respective directors, officers, employees, agents,
representatives, consultants, accountants, attorneys and advisors of such party
and its affiliates) to do the following:
(a) solicit, initiate, encourage or induce the making, submission or
announcement of any offer or proposal (other than an offer or proposal by
Infoseek) (an "Acquisition Proposal") relating to any Acquisition Transaction
(as defined below);
(b) furnish any information regarding Quando or any subsidiary of Quando to any
person, group or entity in connection with or in respect to any Acquisition
Proposal;
(c) continue to engage in discussions with any person, group or entity with
respect to any Acquisition Proposal;
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(d) approve, endorse, or recommend any Acquisition Proposal; or
(e) enter into any letter of intent, term sheet or similar document or any
contract, commitment or other obligation of any kind contemplating or otherwise
relating to any Acquisition Transaction (other than with Infoseek and Sub).
An "Acquisition Transaction" is defined in the Merger Agreement as:
(a) any sale, lease, exchange, transfer or other disposition of the assets of
Quando or any subsidiary of Quando constituting more than 50% of the
consolidated assets of Quando or accounting for more than 50% of the
consolidated revenues of Quando in any transaction or series of related
transactions;
(b) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any person, group or
entity involving more than 50% of the outstanding shares of Quando Capital
Stock; or
(c) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction or series of related transactions
involving Quando other than any transaction which results in the shareholders
of Quando before the transaction continuing to hold at least 50% of the
outstanding voting securities of Quando after such transaction.
Under the terms of the Merger Agreement, Quando has agreed to suspend any
negotiations with respect to any of the above activities (except those with
Infoseek and Sub) in progress as of the date of the Merger Agreement through
the date of the termination of the Merger Agreement. If Quando receives any
Acquisition Proposal, Quando has agreed to immediately notify Infoseek the
identity of the offeror and the terms of such Acquisition Proposal.
CONDITIONS TO THE MERGER
The obligations of each party to the Merger Agreement to effect the Merger and
otherwise consummate the transactions contemplated by the Merger 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 Merger
shall be in effect, nor shall any proceeding brought by an administration,
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 Merger, which makes the
consummation of the Merger illegal; (ii) all appropriate or necessary
governmental approvals (if any) shall have been timely obtained; (iii) there
shall be no bona fide action, suit, claim or proceeding of any nature pending,
or overtly threatened, against Infoseek, Sub, Quando or the Principal
Shareholders, their respective properties or any of their officers or
directors, arising out of or in any way connected with, the Merger or any
related transactions; (iv) no Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger, and all waiting
periods under the HSR Act relating to the Merger and the transactions
contemplated thereby (if any) will have
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expired or terminated early; and (v) Infoseek and Quando shall each have
received written opinions from their respective tax counsel to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and such opinions have not been withdrawn, or if either
Infoseek or Quando does not receive such an opinion, then the other party's
counsel renders its opinion to such party.
In addition to the foregoing conditions, the obligation of Infoseek and Sub to
consummate and effect the Merger and related transactions, 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, by Infoseek: (i) the
representations and warranties of Quando and the Principal Shareholders in the
Merger 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, and Quando and the Principal Shareholders shall have
performed and complied in all material respects with all covenants and
obligations of the Merger Agreement required to be performed by them as of the
Effective Time; (ii) there shall not have occurred any claims which may
materially and adversely affect the consummation of the transactions
contemplated by the Merger Agreement or may have a material adverse effect on
Quando; (iii) any and all consents, waivers, assignments and approvals required
to consummate the Merger shall have been obtained; (iv) Infoseek shall have
received a legal opinion from Pillsbury Madison & Sutro LLP, counsel to Quando,
in form and substance reasonably satisfactory to Infoseek; (v) each of the Key
Employees (as defined below) shall have executed and delivered to Infoseek
their respective Employment Agreement (as defined below), which shall be in
full force and effect, and each Key Employee shall be an employee of Quando on
the Closing Date (see "Other Agreements--Employment and Non-Competition
Agreements"); (vi) except as set forth in the schedules to the Merger
Agreement, there shall not have occurred any material adverse change in the
business, assets (including intangible assets), results of operations,
liabilities (contingent or accrued) or financial condition of Quando since the
date of the Merger Agreement; (vii) if Quando shareholders act by written
consent, such shareholders have unanimously approved the Merger and Merger
Agreement, and if Quando shareholders act pursuant to a meeting, shareholders
holding at least 90% of the Quando Capital Stock have approved the Merger and
Merger Agreement; (viii) each of certain affiliates listed in the Merger
Agreement shall have executed an affiliate agreement; (ix) certain contracts
listed in the Merger Agreement shall be in full force and effect and Quando
shall not have received notice of termination of any such contract; (x) Quando
shall have terminated all registration rights relating to its Capital Stock,
all covenants of Quando contained in the Series A Preferred Stock Purchase
Agreement and the Series B Preferred Stock Purchase Agreement shall have been
terminated, all warrants exercised or otherwise terminated, and all convertible
debt converted, and Infoseek shall have received evidence of such termination,
exercise or conversion as of the Effective Time; (xi) all employment agreements
with Quando shall have been terminated; (xii) Infoseek shall have received from
Quando at least three (3) business days prior to the Closing Date the estimated
balance sheet of Quando, prepared in accordance with United States generally
accepted accounting principles, certified as to correctness by Quando; (xiii)
Infoseek shall have received from Quando at least three (3) business days prior
to the Closing Date a detailed schedule of the Estimated Third Party Expenses,
certified as to its correctness by Quando and the Principal Shareholders; (xiv)
Infoseek shall have received from Quando at least three (3) business days prior
to the Closing Date a detailed schedule of the estimated third party expenses
paid or payable by Quando
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certified as to correctness by Quando and the Principal Shareholders in a form
reasonably satisfactory to Infoseek; and (xv) Infoseek shall have been provided
with a certificate executed on behalf of Quando by its Chief Executive Officer
and Chief Financial Officer to the effect that, as of the Effective Time, all
representations and warranties made by Quando and the Principal Shareholders in
the Merger Agreement are 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, all covenants and obligations of the Merger Agreement to
be performed by Quando on or before such date have been so performed in all
material respects, and certain conditions have been satisfied.
Further, the obligations of Quando and the Principal Shareholders to consummate
and effect the Merger are subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived,
in writing, by Quando: (i) the representations and warranties of Infoseek and
Sub in the Merger 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; (ii) Quando shall have received an
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Infoseek, concerning Infoseek's issuance of Infoseek Common Stock in
the Merger; (iii) Infoseek shall have executed and delivered to each Key
Employee his or her Employment Agreement and all of such Employment Agreements
shall be in full force and effect; (iv) all material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by Infoseek and Sub shall have been obtained and made; (v)
Infoseek shall have made offers of employment as set forth in the Merger
Agreement and shall not have withdrawn such offers of employment; and (vi)
Quando shall have been provided with a certificate executed on behalf of
Infoseek by a Vice President of Infoseek to the effect that, as of the
Effective Time, all representations and warranties made by Infoseek and Sub in
the Merger Agreement are 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, and all covenants and obligations of the Merger Agreement
to be performed by Infoseek have been so performed in all material respects.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by Quando and Infoseek, if they mutually consent to such termination;
(b) by Infoseek or Quando if (i) the Effective Time has not occurred by
February 28, 1999, unless such party seeking to terminate the Merger Agreement
had acted or failed to act in such a manner to be the principal cause of or
resulted in the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of the Merger Agreement or (ii)
there is a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger or there is any statute, rule or order
issued or deemed applicable to the Merger by any governmental entity which
would make consummation of the Merger illegal;
(c) by Infoseek if (i) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity which would
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prohibit Infoseek's or Sub's ownership or operation of any portion of the
business of Quando, or compel Infoseek or Quando to dispose of or hold separate
all or a portion of the business or assets of Quando or Infoseek as a result of
the Merger or (ii) Infoseek is not in material breach of its obligations under
the Merger Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in the Merger
Agreement on the part of Quando and such breach has not been cured within ten
(10) days after written notice to Quando (however, no cure period is required
for breaches which by their nature cannot be cured);
(d) by Quando if a majority of the Quando shareholders vote against the Merger
at the Quando Shareholders Meeting; or
(e) by Infoseek or Sub if (i) a majority of the Quando shareholders vote
against the Merger at the Quando Shareholders Meeting or (ii) an event having a
material adverse effect on Quando shall have occurred after the date of the
Merger Agreement.
If the Merger Agreement is terminated, then it shall become void and there
shall be no liability or obligation on the part of Infoseek, Sub, Quando or any
Principal Shareholder, or their respective officers, directors or shareholders.
However, each party shall remain liable for any breaches of the Merger
Agreement prior to its termination and certain portions of the Merger Agreement
shall remain in full force and effect and survive any termination of the Merger
Agreement.
The Merger Agreement may be amended by the parties thereto at any time by
execution of an instrument in writing signed on behalf of Infoseek, Sub, Quando
and the Principal Shareholders.
At any time prior to the Effective Time, Infoseek and Sub, on the one hand, and
Quando and the Principal Shareholders, 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 in the Merger
Agreement or in any document delivered pursuant thereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained therein. Any agreement on the part of a party to the Merger
Agreement to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
ESCROW FUND AND INDEMNIFICATION
In connection with the Merger, at the Effective Time, the Escrow Shares (as
defined below) will be registered in the name of and deposited with the Escrow
Agent, such deposit to constitute the Escrow Fund. The Escrow Shares will be
the shares of Infoseek Common Stock in an amount equal to ten percent (10%) of
the Merger Consideration. The Escrow Shares will be contributed to the Escrow
Fund on behalf of each holder of Quando Capital Stock at the Effective Time in
proportion to the aggregate number of shares of Infoseek Common Stock that such
holder would otherwise be entitled under the Merger Agreement. The Escrow Fund
will be available to compensate Infoseek, Sub and their officers, directors and
affiliates (the "Indemnified Parties") for (i) any losses incurred by Infoseek
or for which Infoseek would otherwise be liable as a result of any inaccuracy
or breach of a representation or warranty of Quando or the Principal
Shareholders contained in (a) the Merger Agreement, (b) any certificate of any
officer of Quando delivered pursuant to the Merger Agreement or (c) any
Shareholder Certificate, (ii) any failure by Quando or a Quando Shareholder to
perform or
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comply with any covenant contained therein relating to unresolved contingencies
existing at the Effective Time, (iii) any dispute between Quando and a certain
potential investor of Quando, as described in the Merger Agreement, (iv) the
actual Net Liabilities (that is, the amount equal to total liabilities minus
total current assets of Quando, as of the Closing Date) exceeding the greater
of the Estimated Net Liabilities or $405,739, or (v) the actual third party
expenses related to the Merger exceeding the greater of the Estimated Third
Party Expenses (excluding Quando Registration Expenses) or $50,000. For
purposes of compensating Infoseek for its losses, the Escrow Shares will be
valued at the Trading Price. In addition, if certain Losses (as defined below)
have not been satisfied by the Escrow Fund, each of the Principal Shareholders
shall severally indemnify the Indemnified Parties for Losses incurred as a
result of (i) any inaccuracy or breach of a representation or warranty of
Quando relating to capital structure, tax matters, intellectual property, or
such Principal Shareholder's Affiliate Agreement, and (ii) any dispute between
Quando and a potential investor disclosed in the Merger Agreement, up to an
amount equal to ten percent (10%) of their respective portions of the Merger
Consideration (the "Principal Shareholders' Indemnification Cap"). Such
Principal Shareholder may elect to pay this additional indemnity either in cash
or in Infoseek Common Stock (which shall be valued at the Trading Price).
Notwithstanding the above, in the event that an Indemnified Party incurs Losses
as a result of a claim that Quando's intellectual property violated a third
party's patent rights, only 75% of such Losses shall be subject to recovery
pursuant to the escrow and indemnification provisions of the Merger Agreement.
Shareholders will have voting rights with respect to the Escrow Shares while in
escrow, and will receive dividends, if any, currently attributable to the
Escrow Shares.
Subject of resolution of unsatisfied claims by Infoseek, the Escrow Fund and
Principal Shareholders' Indemnification Cap will terminate on June 30, 1999.
After the Effective Time, the Escrow Shares and the Principal Shareholders'
Indemnification Cap will be the exclusive remedy of the Indemnified Parties to
recover for any losses they suffer by reason of the breach of any
representation, warranty or covenant of Quando or the Principal Shareholders.
However, the Indemnified Party's remedy will not be so limited in the case of
fraud by Quando or the Principal Shareholders.
BY APPROVING THE MERGER AGREEMENT, QUANDO SHAREHOLDERS WILL HAVE CONSENTED TO
THE APPOINTMENT OF STANTON R. KOCH, A DIRECTOR OF QUANDO, TO ACT AS THE
SHAREHOLDER REPRESENTATIVE ON BEHALF OF QUANDO SHAREHOLDERS, TO AUTHORIZE
DELIVERY OF ESCROW SHARES TO THE INDEMNIFIED PARTIES IN SATISFACTION OF CLAIMS
BROUGHT BY THE INDEMNIFIED PARTIES, TO OBJECT TO SUCH DELIVERIES, TO AGREE TO,
TO NEGOTIATE AND TO ENTER INTO SETTLEMENTS AND COMPROMISES WITH RESPECT TO SUCH
CLAIMS, AND TO TAKE CERTAIN OTHER ACTION ON BEHALF OF QUANDO SHAREHOLDERS, ALL
AS MORE FULLY DESCRIBED IN ARTICLE VII OF THE MERGER AGREEMENT. SEE ARTICLE VII
OF THE MERGER AGREEMENT FOR A MORE DETAILED EXPLANATION OF THE ESCROW FUND AND
RIGHTS WITH RESPECT THERETO.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Merger Agreement provides that from and after the Effective Time, Infoseek
will cause the Surviving Corporation to fulfill the indemnification obligations
of Quando pursuant to the applicable portions of Quando's organizational
documents. If the action giving rise to indemnification is a result of the
representations and warranties made by Quando in the Merger Agreement, then
Infoseek shall
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have full recourse to the Escrow Fund to recover any amounts payable by
Infoseek or the Surviving Corporation pursuant to Infoseek's indemnification
obligations.
EMPLOYMENT MATTERS
Each employee of Quando who remains an employee of Infoseek after the Effective
Time shall be eligible, upon completion of Infoseek's standard employee
background and reference check, to receive salary and benefits (including
medical benefits, bonuses, 401(k) plan benefits and stock options) consistent
with Infoseek's standard human resource policies. Furthermore, in the event
that Infoseek relocates Quando's operations to the Seattle, Washington area
within two (2) years after the Closing Date, then Infoseek will pay the
reasonable and properly documented relocation expenses of all current employees
of Quando that relocate to the Seattle, Washington area with Quando. However,
Infoseek's obligation to pay such relocation expenses shall not exceed
$100,000.
FEES AND EXPENSES
Regardless of whether the Merger is consummated, all fees and expenses incurred
in connection with the Merger incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of the Merger
Agreement and the transactions contemplated thereby ("Third Party Expenses")
shall be the obligation of the respective party incurring such fees and
expenses. Notwithstanding the above, if the Merger is consummated, then
Infoseek will pay certain third party expenses incurred by Quando, paid to or
payable to Quando's legal counsel, and to Quando's accountants, and shall pay
Quando Registration Expenses. Furthermore, Infoseek shall have full recourse to
the Escrow Fund for payment of all Third Party Expenses incurred by Quando
exceeding the estimated Third Party Expenses (excluding Quando Registration
Expenses), but only to the extent that actual Third Party Expenses exceed
$50,000. However, if actual Third Party Expenses are less than Estimated Third
Party Expenses (excluding Quando Registration Expenses) (and/or less than
$50,000), then Quando shall not be obliged to refund or otherwise pay any
amounts into the Escrow Fund or to the Quando Shareholders. If the Merger is
consummated, Infoseek shall pay any Third Party Expenses incurred by Quando in
connection with the audit of Quando's financial statements.
OTHER COVENANTS
The Merger Agreement also contains various other covenants and agreements that
are customary in transactions of this nature. Among other things, Infoseek and
Quando have agreed to prepare and cause to be filed with the Commission this
Proxy Statement/Prospectus for the solicitation and approval of the
shareholders of Quando of the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement. Infoseek has also agreed to prepare and
cause to be filed with the Commission the Registration Statement on Form S-4 of
which this Proxy Statement/Prospectus is a part, with respect to those shares
of Infoseek Common Stock issuable in the Merger. Each of Infoseek and Quando
has agreed to comply with applicable law and the rules and regulations
promulgated by the Commission, to respond promptly to any comments of the
Commission or its staff and to have the Registration Statement on Form S-4
declared effective under the Securities Act as promptly as practicable after it
is filed with the Commission, and use all reasonable efforts to cause this
Proxy Statement/Prospectus to be mailed to Quando's Shareholders as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act.
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<PAGE>
Quando has agreed to notice, convene and hold a shareholders' meeting ("Quando
Shareholders Meeting") to vote on the Merger Agreement and related
transactions, on or about December 21, 1998; provided, however, that Infoseek
may delay such date up to forty-eight (48) days in the event such delay is
necessary to obtain the effectiveness of the Registration Statement on Form S-
4. Notwithstanding the above, the Quando Shareholders Meeting may be held on
another date upon the mutual agreement of Quando and Infoseek, and the Quando
Shareholders Meeting need not be held if Quando receives the unanimous written
consent of the Quando Shareholders on or before two business days prior to the
proposed Quando Shareholders Meeting.
Each of the parties to the Merger Agreement has also agreed to promptly furnish
to the other party all information concerning itself, its stockholders or
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 or Quando occurs or if Infoseek or Quando becomes
aware of any information that should be disclosed in an amendment or supplement
to the Registration Statement or the Proxy Statement/Prospectus, then Infoseek
or Quando, as applicable, shall inform the other thereof and shall cooperate
with each other in filing such amendment or supplement with the Commission and,
if appropriate, in mailing such amendment or supplement to the shareholders of
Quando.
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<PAGE>
OTHER AGREEMENTS
INFOSEEK LOAN TO QUANDO
Concurrent with the execution of the Merger Agreement, Quando executed a
secured promissory note (the "Note") evidencing a loan by Infoseek to Quando in
the aggregate principal amount of $360,000. The Note bears interest, payable
upon default or maturity of the Note, at a rate of six percent (6%) per year.
The performance of the obligations of Quando under the Note is secured by a
security interest in Quando's assets. The unpaid principal together with all
accrued interest, is due and payable on March 31, 1999.
In the event of the termination of the Merger Agreement (other than for failure
to consummate the transactions contemplated thereby by December 31, 1998),
Quando must within sixty (60) days after the date of such termination pay the
unpaid principal and accrued interest due and owing on the Note.
SERVICES AGREEMENT
On August 5, 1998, Quando entered into a services agreement ("Services
Agreement") with Infoseek. This Services Agreement provided that Quando was to
use its Internet search related technology and support to create certain
directories for Infoseek in exchange for monthly payments of seventy-five
thousand dollars ($75,000) during the term of the Services Agreement. This
Services Agreement had an initial term of ninety (90) days which was extended
by Infoseek, as provided in the Services Agreement, for an additional ninety
(90) day term.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
On or prior to the Closing Date, certain founding shareholders and other
employee shareholders (the "Key Employees") of Quando will enter into
employment and non-competition agreements ("Employment Agreements") with
Infoseek that provide, among other things, that such Key Employees shall not,
for a period of between eighteen (18) and twenty-four (24) months from the
Closing Date, engage in certain competitive business activities in any country.
The Employment Agreements also provide that the Key Employees shall not (i) act
as employees, agents, advisors or consultants of any competitor of Infoseek or
Quando, (ii) take any action to divert business from Infoseek or Quando, or
(iii) directly or indirectly solicit, encourage or induce any employee of
Infoseek or Quando to terminate such employee's employment with Infoseek or
Quando. The Employment Agreements also provide for a period of employment with
Infoseek or Quando for each Key Employee for a period of between one to two
years, and salaries, bonuses, stock options and severance benefits.
AFFILIATE AGREEMENTS
Pursuant to the Reorganization Agreement, all affiliates of Quando will enter
into Affiliate Agreements with Infoseek and Quando, which provide, among other
things, that such affiliate will not sell, transfer or otherwise dispose of the
shares of Infoseek issued to such affiliate in connection with the Merger other
than in compliance with Rule 145 of the Securities Act ("Rule 145") or such
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<PAGE>
affiliate delivers to Infoseek a written opinion from counsel, reasonably
acceptable to Infoseek, that such sale, transfer or disposition is exempt from
registration under the Securities Act. Additionally, the Affiliate Agreements
provide that Infoseek shall place legends on the stock certificates and give
stop transfer orders to its transfer agent with respect to the Infoseek common
stock received by such affiliate to ensure compliance with Rule 145. Quando's
affiliates include all of Quando's directors and officers and any shareholder
that owns 10% or more of Quando's outstanding capital stock.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial information for
Infoseek consists of the Unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1997, and for the nine months ended
September 30, 1998 and the Unaudited Pro Forma Combined Condensed Balance Sheet
as of September 30, 1998 (collectively, the "Pro Forma Statements"). The Pro
Forma Statements give effect to Infoseek's acquisition of Starwave through a
merger and exchange of shares and the reincorporation of Infoseek California
into Delaware pursuant to which Infoseek California became a wholly-owned
subsidiary of Infoseek, both on November 18, 1998. In addition, the Pro Forma
Statements give effect to Disney's purchase of 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 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
Statements of Operations for the year ended December 31, 1997 and the nine
months ended September 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
September 30, 1998.
On July 24, 1998, Infoseek entered into the Merger Agreement to acquire Quando
in exchange for approximately $17 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
in December 1998. The Unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1997 and the nine months ended
September 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 September 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 nine months ended September 30, 1998 with Starwave's historical
results for the year ended December 31, 1997 and the nine months ended October
4, 1998 and Quando's historical results of operations for the year ended
December 31, 1997 and the nine months ended September 30, 1998, respectively.
In addition, the Unaudited Pro Forma Combined Condensed Statements of
Operations include the impact of certain related agreements which become
effective with the mergers described above. These agreements are described more
fully in the notes to the Unaudited Pro Forma Combined Condensed Financial
Statements. 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 September 30, 1998 and do not purport to indicate the
results of future operations.
The Starwave merger was accounted for using the purchase method of accounting.
The Quando acquisition will also 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.
In connection with the acquisitions of Starwave and Quando, Infoseek expects to
incur write-offs related to in-process research and development, currently
estimated at $72.6 million and $4.3 million,
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<PAGE>
respectively. The Unaudited Pro Forma Combined Condensed Balance Sheet includes
the effect of the write-offs related to in-process research and development;
however, the Unaudited Pro Forma Combined Condensed Statements of Operations do
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 merger are consummated. In addition,
Infoseek expects to incur costs of integration estimated at up to $7.0 million
of which $1.4 of costs were included in the results of operations of Infoseek
for the nine months ended September 30, 1998. The Pro Forma Statements do not
include the remaining costs of integration of up to $5.6 million, 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."
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<PAGE>
The Pro Forma Statements should be read in conjunction with the related notes
included in this document and the audited consolidated financial statements of
Infoseek and the notes thereto, and the audited financial statements of
Starwave and Quando, including the notes thereto, included elsewhere in this
Proxy Statement/Prospectus.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(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......... -- -- -- 34,866 (8) 38,524
3,658 (18)
Research and
development........... 7,900 1,840 161 995 (8) 10,937
41 (18)
Sales and marketing.... 34,320 1,598 12 2,907 (8) 75,674
3,834 (4)
33,000 (11)
3 (18)
General and
administrative........ 7,042 3,188 419 1,683 (8) 12,440
108 (18)
Goodwill amortization.. -- -- -- 65,625 (8) 70,266
4,641 (18)
Restructuring and other
charges............... 7,349 -- -- -- 7,349
-------- -------- ----- --------- ---------
Total costs and
expenses................ 62,930 14,293 593 163,772 241,588
-------- -------- ----- --------- ---------
Operating loss........... (27,848) (8,482) (337) (147,404) (184,071)
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) $(147,478) $(194,918)
======== ======== ===== ========= =========
Basic and diluted net
loss per share.......... $ (1.00) $ (3.36)
Shares used in computing
basic and diluted net
loss per share.......... 26,627 31,307 57,934
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(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.................. $50,715 $ 4,348 $ 514 $ 21,626 (3) $ 77,203
Costs and expenses:
Hosting, content and
website costs (10)..... 7,956 2,661 5 18,220 (3) 30,756
3,244 (3)
(1,330)(4)
Amortization of
intangibles related to
hosting, content and
website costs.......... -- -- -- 24,601 (8) 28,893
1,549 (8)
2,743 (18)
Research and
development............ 7,432 990 413 746 (8) 9,612
31 (18)
Sales and marketing..... 35,144 85 1 2,180 (8) 63,492
1,330 (4)
24,750 (11)
2 (18)
General and
administrative......... 7,876 2,111 317 1,262 (8) 11,647
81 (18)
Goodwill amortization... -- -- -- 49,219 (8) 52,699
3,480 (18)
------- -------- ----- --------- ---------
Total operating
expenses............... 58,408 5,847 736 132,108 197,099
------- -------- ----- --------- ---------
Operating loss............ (7,693) (1,499) (222) (110,482) (119,896)
Loss from Joint Ventures.. -- (11,436) -- (284)(3) (11,720)
Interest income (expense),
net...................... 1,999 462 (59) -- 2,402
------- -------- ----- --------- ---------
Net loss.................. $(5,694) $(12,473) $(281) $(110,766) $(129,214)
======= ======== ===== ========= =========
Basic and diluted net loss
per share................ $ (0.19) $ (2.09)
Shares used in computing
basic and diluted net
loss per share........... 30,512 31,307 61,819
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
75
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(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.......... $ 6,801 $ 1,415 $ 76 $ 70,013 (2) $ 78,305
Short-term
investments.......... 47,740 -- -- -- 47,740
Accounts receivable,
net.................. 7,619 1,072 101 -- 8,792
Receivables from
related parties...... -- 516 -- -- 516
Prepaid to service
providers............ 5,838 -- -- -- 5,838
Other current assets.. 998 803 8 -- 1,809
-------- --------- ------- --------- ----------
Total current
assets............. 68,996 3,806 185 70,013 143,000
Property and equipment,
net.................... 15,177 4,629 92 -- 19,898
Developed technology.... -- -- -- 29,900 (1) 37,216
7,316 (13)
Assembled workforce..... -- -- -- 15,300 (1) 15,603
303 (13)
Direct acquisition
costs.................. 2,825 -- -- -- 2,825
Deposits and other
assets................. 3,315 -- 4 -- 3,319
Goodwill................ -- -- -- 656,250 (1) 665,531
9,281 (13)
Joint Venture
relationships.......... -- 7,377 -- 178,500 (1) 185,877
-------- --------- ------- --------- ----------
Total assets........ $ 90,313 $ 15,812 $ 281 $ 966,863 $1,073,269
======== ========= ======= ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 6,717 $ 1,816 $ 159 $ -- $ 8,692
Accrued payroll and
related expenses..... 2,191 3,365 -- -- 5,556
Accrued liabilities to
service providers.... 1,558 -- -- -- 1,558
Other accrued
liabilities.......... 2,418 663 -- 22,000 (5) 26,081
1,000 (14)
Due to affiliates..... -- 1,023 -- -- 1,023
Deferred revenue...... 4,789 60 -- -- 4,849
Short-term
obligations.......... 2,942 -- 400 -- 3,342
-------- --------- ------- --------- ----------
Total current
liabilities........ 20,615 6,927 559 23,000 51,101
Deferred tax liability.. -- -- -- 41,601 (9) 44,115
2,514 (19)
Long-term obligations... 2,981 -- 447 -- 3,428
Stockholders' equity:
Convertible preferred
stock................ -- -- 822 (822)(15) --
Common stock.......... 121,292 128,173 165 978,674 (6) 1,245,139
16,835 (16)
Accumulated deficit... (53,724) (115,689) (1,712) 43,089 (7) (130,663)
(2,627)(17)
Deferred
compensation......... (717) (3,599) -- 3,599 (12) (717)
Notes receivable from
stockholders......... (134) -- -- (139,000)(2) (139,134)
-------- --------- ------- --------- ----------
Total stockholders'
equity............. 66,717 8,885 (725) 899,748 974,625
-------- --------- ------- --------- ----------
Total liabilities
and stockholders'
equity............. $ 90,313 $ 15,812 $ 281 $ 966,863 $1,073,269
======== ========= ======= ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998
The Pro Forma Statements give effect to Infoseek's acquisition of Starwave
through a merger and exchange of shares. Disney purchased 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 in exchange for approximately $70.0 million in cash and a
$139.0 million five-year promissory note. The Unaudited Pro Forma Combined
Condensed Statements of Operations for the year ended December 31, 1997 and the
nine months ended September 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
September 30, 1998.
In addition, the Unaudited Pro Forma Combined Condensed Statements of
Operations include the effect of certain related agreements that became
effective upon consummation of the merger described above. Under the
Representation Agreements (as defined below), Starwave contracted for, and has
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
GO Network. These costs are reflected, on a straight-line basis, in the Pro
Forma Statements as increased sales and marketing expenses.
On July 24, 1998, Infoseek entered into the Merger Agreement to acquire 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
in December 1998. The Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1997 and the nine months ended September 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 September 30, 1998.
The Starwave merger was 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
based on actual fair value. The Quando acquisition will also 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 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 Quando acquisition has been completed. Infoseek does
not expect that the final allocation of the purchase
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<PAGE>
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 merger.
In connection with the acquisitions of Starwave and Quando, Infoseek expects to
incur write-offs related to in-process research and development, currently of
approximately $72.6 million and $4.3 million, respectively. The Unaudited Pro
Forma Combined Condensed Balance Sheet includes the effect of the write-offs
related to in-process research and development; however, the Unaudited Pro
Forma Combined Condensed Statements of Operations do 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 merger are consummated. In addition, Infoseek expects to incur costs of
integration estimated at up to $7.0 million, of which $1.4 million was included
in the results of operations for the nine months ended September 30, 1998. The
Pro Forma Statements do not include the remaining costs of integration of up to
$5.6 million as they will affect future operations.
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 September 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 for the Starwave merger, (i)
a wholly-owned subsidiary of Infoseek ("Infoseek Merger Sub") has merged with
and into Infoseek California, Infoseek California is a wholly-owned subsidiary
of Infoseek, and all outstanding shares of common stock of Infoseek California
have been converted into shares of the common stock of Infoseek, at the rate of
one share of Infoseek common stock for each share of Infoseek California common
stock, and (ii) a wholly-owned subsidiary of Starwave ("Starwave Merger Sub")
has merged with and into Starwave, Starwave is a wholly-owned subsidiary of
Infoseek, and all outstanding shares of common stock of Starwave were converted
into shares of common stock of Infoseek.
The Starwave merger was 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 Starwave
merger.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
STARWAVE INFOSEEK FAIR VALUE
SHARES SHARES (IN THOUSANDS)
----------- ---------- --------------
<S> <C> <C> <C>
Shares................................. 97,875,056 25,932,681 $840,738
Stock Options.......................... 8,323,301 2,205,316 57,096
----------- ---------- --------
Totals............................... 106,198,357 28,137,997 $897,834
=========== ========== ========
</TABLE>
The Starwave shares were first converted to Infoseek equivalent shares by
taking the number of Starwave shares divided by the exchange ratio of
approximately 0.26 Starwave shares for each Infoseek 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 shares to be acquired.
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<PAGE>
With respect to stock options exchanged as part of the Starwave merger, all
vested Starwave options exchanged for vested Infoseek options are included as
part of the purchase price based on their fair value. Any unvested Starwave
options issued in exchange for unvested Infoseek 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 shares (2,205,316 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).
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
based on their actual 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 September 30, 1998.... $ 8,885
Intangible assets acquired:
Joint Venture relationships (ESPN
Joint Venture and ABCNews Joint
Venture).......................... 178,500 10 $ 17,850
Developed technology............... 29,900 2 14,950
Assembled workforce................ 15,300 2 7,650
In-process technology.............. 72,600
Goodwill........................... 656,250 10 65,625
Deferred tax liability............. (41,601)
--------
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 $29.9 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
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<PAGE>
$178.5 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 goodwill allocation is $656.3 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
were underway at the time of the Starwave merger and will, 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.
The in-process technology acquired from Starwave in the transaction consists
primarily of technology related to GO Network and to replacement and
enhancement of Starwave's core technology. Development of GO Network started in
July 1998, following the announcement of the Starwave merger. An initial,
limited version of GO Network is expected to be introduced in the fourth
calendar quarter of 1998. The majority of the functionality planned for GO
Network 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 GO Network. 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 GO Network without having to re-input
personal information. Infoseek believes these are key features of GO Network,
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 GO Network.
The full functionality intended for the planned GO Network 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 GO
Network and to complete the in-process technology. While Infoseek currently
plans to launch GO
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Network 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 GO Network in a timely manner, or if the combined companies
incur excessive expenses in this connection or in an attempt to improve GO
Network or promote and maintain their brands, the combined companies'
businesses, financial condition and operating results will be materially
adversely affected.
2. Disney purchased 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, 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.
At the closing, Infoseek delivered a Warrant to Disney to purchase 15,720,000
shares of Infoseek 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
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).
Disney delivered 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.
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 ABCNews Joint Venture, each entered into
in conjunction with the Starwave merger (the "Representation Agreements"),
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
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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 nine months ended
September 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.
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 Starwave merger, 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.
6. The pro forma adjustment to "common stock" reflects the elimination of
Starwave's common stock ($128.2 million) and the impact of the issuance of
Infoseek 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 ($115.7 million) and the in-process
technology charge ($72.6 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 $41.6 million to reflect the net tax effect of book/tax basis
differences in the acquired intangibles,
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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 Disney and Infoseek,
Disney has agreed to grant to Infoseek a worldwide license to exploit the
trademarks and World Wide Web addresses associated with GO Network and Infoseek
has agreed to pay Disney 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. The Unaudited Pro Forma Combined Condensed Statements of Operations do
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>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Net loss............................................. $(129,214) $(194,918)
Interest expense..................................... 619 2,782
Pro Forma Amortization of Intangibles:
Goodwill ........................................... 52,699 70,266
Developed technology................................ 13,956 18,608
Assembled workforce................................. 5,851 7,802
Joint Venture relationships......................... 13,388 17,850
--------- ---------
EBITA................................................ $ (42,701) $ (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 GO Network. The Unaudited Pro Forma Combined Condensed
Statements of Operations include an adjustment to reflect recognition of
expense under this agreement, on a straight-line basis, for promotional
services for GO Network.
12. The pro forma adjustment is to eliminate deferred compensation related to
Starwave stock options.
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13. The Quando acquisition will be accounted for using the purchase method of
accounting. The purchase price is approximately $17 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 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
September 30, 1998...................... $ (725)
Intangible assets acquired:
Developed Technology..................... 7,316 2 $3,658
Assembled Workforce...................... 303 2 152
In-Process Technology.................... 4,339
Goodwill................................. 9,281 2 4,641
Deferred Tax Liability................... (2,514)
-------
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 $7.3 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 $0.3 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 $9.3 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
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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
in-process research and development charge was revised from $9.4 million in the
original preliminary evaluation to $4.3 million primarily due to a decrease in
the in-process research and development that Infoseek anticipates using in the
future if successfully developed. The estimated amount of the in-process
research and development charge is still 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
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 December 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 ($1.7 million) and the in-process technology
charge ($4.3 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 $2.5 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.
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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
nine months ended September 30, 1998 and 1997 and the consolidated balance
sheet data at September 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
nine months ended September 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 Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
AUGUST 30, 1993 ENDED
YEARS ENDED DECEMBER 31, (INCEPTION) TO SEPTEMBER 30,
------------------------------------------ DECEMBER 31, -----------------
1997 1996 1995 1994 1993 1998 1997
---------------------- --------- --------- --------------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF OPERATIONS DATA(3):
Total revenues........... $ 35,082 $ 15,095 $ 1,032 $ -- $ -- $50,715 $ 22,407
Costs and expenses
Hosting, content and
website costs.......... 6,319 3,194 614 -- -- 7,956 4,397
Research and
development............ 7,900 4,550 1,175 1,063 8 7,432 5,879
Sales and marketing..... 34,320 20,455 1,488 97 -- 35,144 22,520
General and
administrative......... 7,042 4,177 1,148 360 19 7,876 5,242
Restructuring and other
charges(1)............. 7,349 -- -- -- -- -- 7,349
---------- --------- -------- -------- ---- ------- --------
Total costs and
expenses............. 62,930 32,376 4,425 1,520 27 58,408 45,387
---------- --------- -------- -------- ---- ------- --------
Operating loss........... (27,848) (17,281) (3,393) (1,520) (27) (7,693) (22,980)
Interest income, net..... 1,286 1,343 97 10 -- 1,999 1,066
---------- --------- -------- -------- ---- ------- --------
Net loss................. $ (26,562) $ (15,938) $ (3,296) $ (1,510) $(27) $(5,694) $(21,914)
========== ========= ======== ======== ==== ======= ========
Basic and diluted net
loss per share (pro
forma in 1995)(2)....... $ (1.00) $ (0.72) $ (0.21) $ (0.19) $ (0.83)
========== ========= ======== ======= ========
Shares used in computing
basic and diluted net
loss per share.......... 26,627 22,120 15,535 30,512 26,270
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993 1998
------- ------- ------ ---- ---- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(3):
Cash, cash equivalents and
short-term investments....... $31,439 $46,653 $1,626 $568 $177 $54,541
Working capital (deficit)..... 19,018 41,997 93 458 (99) 48,381
Total assets.................. 51,489 58,332 5,123 859 318 90,313
Long-term obligations......... 4,493 1,892 838 210 -- 2,981
Total shareholders' equity
(deficit).................... 27,006 48,985 2,142 520 (27) 66,717
</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 nine months ended
September 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.
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INFOSEEK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Infoseek 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 17 of this 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," "--Dependence on Third Party Relationships,
Advertising Relationships and Joint Ventures," "--Intense Competition," "--
Limited Computer Systems Capacity and Risks of System Failure; Reliance on
Advertising Management System," and "--Technological Change; Need for Continued
Technological Innovation."
INFOSEEK 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 third
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 $7.4 million related to the discontinuance of certain
non-strategic business arrangements and management changes.
Beginning in early 1997, Infoseek began to license its Ultraseek Server product
to corporate customers for use on their intranet and public Web site search
applications. Such licensing revenues represented approximately 11% of total
revenues for the nine month period ended September 30, 1998. For the nine month
period ended September 30, 1997, licensing revenues represented approximately
6% of total revenues. 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 decrease in relative percentage of
revenue) is not expected to have a material effect on Infoseek's gross margin
or profit margin in the future.
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
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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.
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 third quarter of 1998, Infoseek entered into various
sponsor and partnership agreements covering 12 of Infoseek's 18 channels. The
duration of Infoseek's sponsorship and partnership agreements range from two
months to three years and revenues are generally recognized ratably over the
term of the agreements, provided that minimum impressions are met, and are
included in advertising revenues.
Infoseek's third quarter 1998 revenues of approximately $19.2 million represent
a 129% increase as compared to the third quarter 1997 revenues of approximately
$8.4 million. Average daily page views increased to 21.4 million in September
1998 from 20.3 million average daily page views in June 1998. Through September
1998, Infoseek derived a substantial majority of its revenues from the sale of
advertisements and sponsorships on its Web pages. These revenues accounted for
approximately 89% of total revenues during the third quarter of 1998 compared
with 90% during the third quarter of 1997. For the nine months ended September
30, 1998, advertising and sponsorship revenues accounted for approximately 89%
of total revenues compared with 94% 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.
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 management currently estimates that Infoseek will not achieve profitability
until at least 2002, and excluding the amortization of goodwill and other
intangibles associated with Infoseek's acquisition of Starwave and related
transactions, until at least 2000. As of September 30, 1998, Infoseek had an
accumulated deficit of approximately $53.7 million. 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 1998,
there can be no assurance that this growth rate will be sustained, that
revenues will continue to grow or that Infoseek will achieve profitability. In
1997 and 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 in the future. 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 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 Starwave Acquisition (as described below); the launch of GO
Network; 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
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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., AT&T, N2K, 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 sponsorships, 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 an agreement with Netscape in June 1998. Under the June agreement,
Infoseek is purchasing 15% of Netscape's available search traffic, which
traffic had decreased from 30% a year ago. In November 1998, Infoseek and
Netscape renegotiated the terms of the June agreement to provide for the
purchase of 5% of Netscape's available search traffic beginning January 11,
1999 and through the duration of the agreement which terminates May 31, 1999.
Traffic on the core Infoseek search service increased 17% in September 1998
compared to June 1998 and saw reduced dependence on traffic purchased from
Netscape. September traffic from lower-revenue generating pages, namely chat
pages, were down 10% from the month of June 1998. In addition, page views
sourced from Netscape declined from 13% of total page views in June 1998 to 12%
of total page views in September 1998. While Infoseek believes that it now has
a better balance in the sources of its traffic, as Netscape comprised only 12%
of total traffic and Microsoft provided 9% of total traffic in the month of
September 1998, if total traffic declines or does not continue growing, it
could result in an adverse impact on Infoseek's business, results of operations
and 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 relationships 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
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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. See "Risk Factors--Risks of Infoseek--Limited
Operating History; Historical Losses; Anticipation of Continued Losses," "--
Potential Fluctuations in Future Results," "--Dependence on Third Party
Relationships, Advertising Relationships and Joint Ventures" and "--Dependence
on Continued Growth in Use of the Internet, Electronic Commerce and Internet
Advertising."
WebChat Acquisition. 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
exchanged approximately 316,000 shares of Infoseek common stock and reserved
approximately 11,000 shares of Infoseek common stock for WebChat options
assumed by Infoseek. 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.
Disney Transaction. In June 1998, Infoseek entered into agreements with
Starwave and Disney relating to an acquisition of Starwave, of which Disney was
the principal shareholder, by Infoseek through a merger and exchange of shares
(the "Starwave Acquisition") pursuant to an Agreement and Plan of
Reorganization (the "Starwave Merger Agreement"). The transactions contemplated
by the Starwave Merger Agreement were completed on November 18, 1998. In
accordance with the Starwave Merger Agreement, Infoseek issued 25,932,681
shares of Infoseek common stock for all outstanding Starwave shares. Infoseek
also reserved 2,205,316 shares of Infoseek common stock for Starwave stock
options assumed by Infoseek. The fair value of Infoseek's shares and options
issued was approximately $897.8 million. In addition, Infoseek incurred direct
acquisition costs of approximately $22.0 million, which were included in the
purchase price of Starwave. The total purchase price of Starwave was therefore
approximately $919.8 million. The Starwave Acquisition is being accounted for
as a purchase transaction. In addition, Disney purchased 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 in exchange for approximately $70.0 million in cash and a
$139.0 million five-year promissory note. The warrants will enable Disney to
achieve a majority stake in Infoseek over time.
In addition, Infoseek and Disney have established a strategic relationship
concerning the development, launch and promotion of GO Network that will
combine certain content, promotion, brands and technologies of Infoseek,
Starwave and the Joint Ventures. In connection with GO Network, a subsidiary of
Disney has agreed to provide, and Infoseek has agreed to purchase, $165.0
million in promotional support and activities over five years. See "Infoseek
Business."
Because the acquisition of Starwave is being accounted for under the purchase
method of accounting, the purchase price is being allocated to the acquired
assets and liabilities of Starwave. An in-process research and development
charge of approximately $72.6 million will be recorded in the quarter ending
December 31, 1998. In addition, intangible assets related to developed
technology and assembled workforce of approximately $45.2 million will be
amortized over two years. Intangible
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assets related to goodwill and the Joint Ventures of approximately $656.3
million and $178.5 million, respectively, will be amortized over ten years. In
addition, Infoseek expects to incur increased operating expenditures associated
with the expanded operations resulting from the transaction, as well as the
development, launch and promotion of GO Network. In this regard, Infoseek has
agreed to use commercially reasonable efforts to meet certain spending
requirements for GO Network pursuant to the terms of a license agreement
between Infoseek and Disney related to GO Network (the "License Agreement").
Subject to adjustment by unanimous vote of the two member advisory committee
established pursuant to a product management agreement between Infoseek and
Disney (the "Product Management Agreement"), these spending requirements for GO
Network for the first three years are $40.5 million, $58.3 million and $64.8
million, respectively. In addition, pursuant to a promotional services
agreement (the "Promotional Services Agreement"), Infoseek has agreed to
purchase $165.0 million in promotional services over a five-year period for GO
Network. The amounts spent on the purchase of promotional services under the
Promotional Services Agreement apply towards the spending requirements under
the License Agreement. As a result, Infoseek's profitability is expected to be
delayed beyond the time when Infoseek, prior to consummating the Disney
Transaction, may have otherwise achieved profitability. Management currently
estimates that Infoseek will 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 Infoseek would not achieve profitability and statements
concerning GO Network 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 and the Merger--Uncertainties Relating
to Integration of Starwave Operations, Employees and Customers" "--Risks
Related to Development, Launch and Acceptance of GO Network," and "--Risks of
Acquisition Strategy."
Quando Acquisition. Infoseek expects to account for the Quando acquisition as a
purchase transaction and expects to incur a write-off related to in-process
research and development of approximately $4.3 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 $16.9 million and will be amortized
over two years.
WebTV Transaction. 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 make cash payments to WebTV totalling
$26.0 million, with $15.0 million of such amount is being paid in advance for
the first five quarters upon mutual acceptance of the technology by both
parties. The remaining $11.0 million is being paid 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
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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.
INFOSEEK RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 1998 and 1997
Total Revenue
For the nine months ended September 30, 1998 and 1997, total revenues were
$50,715,000 and $22,407,000, respectively. During the first nine months of 1998
and 1997, Infoseek derived a substantial majority of its revenues from the sale
of advertisements and sponsorships on its Web pages. For the nine months ended
September 30, 1998 and 1997, advertising revenues were $45,044,000 and
$21,062,000, respectively, representing 89% and 94% of total revenues in these
periods. The growth in advertising and related 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 and sponsorship space on
its websites. 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 websites for reciprocal advertising space or traffic in other media
publications or other websites 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 an enhanced version
of its service which now features 18 "channels," designed to bring together
topical information, services, products and communities on the Web. The
enhanced version of the 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.
For the nine months ended September 30, 1998 and 1997, licensing revenue
represented approximately 11% and 6%, respectively, of total revenues.
Infoseek's current business model is to generate revenues through
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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 increased in absolute dollars during the first
nine months of 1998 compared to the first nine months 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 $6,018,000 in connection with certain stock
options granted through September 30, 1998 of which $352,000 was recorded
during the nine months ended September 30, 1998. 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 nine months ended
September 30, 1998 and 1997, Infoseek amortized $314,000 and $717,000,
respectively. The amortization of this deferred compensation will continue to
have an adverse effect on Infoseek's results of operations, primarily through
1999. 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. See "Infoseek Overview--WebTV Transaction."
Hosting, Content and Website Costs
For the nine months ended September 30, 1998 and 1997, hosting, content and
website costs were $7,956,000 and $4,397,000, respectively. Hosting, content
and website costs consist primarily of costs associated with the enhancement,
maintenance and support of Infoseek's websites, including telecommunications
costs and equipment depreciation. Hosting, content and website costs also
include costs associated with the licensing of certain third-party
technologies. Hosting, content and website costs increased in the nine months
ended September 30, 1998 and 1997 as Infoseek added additional equipment and
personnel to support its websites 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 nine months ended September 30, 1998 and 1997, research and development
expenses were $7,432,000 and $5,879,000, 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 nine months ended
September 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 will continue to increase in dollar amount in future periods.
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Sales and Marketing
For the nine months ended September 30, 1998 and 1997, sales and marketing
expenses were $35,144,000 and $22,520,000, respectively. Sales and marketing
expenses consist primarily of advertising, promotional expenses and
compensation of sales and marketing personnel.
Sales and marketing expenses for the nine month periods ended September 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. Through April 30,
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
premier providers of navigational services (along with Excite, Lycos, and
Yahoo!). The Netscape arrangement was subsequently extended through May 31,
1998. The payments to Netscape were being recognized ratably over the term of
the agreement.
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 LookSmart). Under terms of the agreement, 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. In November 1998, Infoseek and Netscape
renegotiated the terms of the June agreement to provide for the purchase of 5%
of Netscape's available search traffic beginning January 11, 1999 and through
the duration of the agreement, which terminates May 31, 1999. Pages sourced
from Netscape have declined from 30% a year ago to 13% in June 1998 and 12% in
September 1998 and a loss of Netscape sourced pages could have an adverse
impact on Infoseek's business, results of operations and financial condition
and prospects. As of September 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. Under the
terms of these agreements, during the nine month periods ended September 30,
1998 and 1997, Infoseek paid $6,595,000 and $5,416,000, respectively to
Netscape.
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 websites. 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 nine months
ended September 30, 1998 and 1997, Infoseek recognized sales and marketing
expenses of approximately $506,000 and $99,750, respectively, under this
agreement as a component of sales and marketing expense.
Infoseek also has an agreement with Microsoft to provide navigational services
on certain Microsoft websites through which Infoseek also receives traffic. In
exchange for such traffic, Infoseek makes available to Microsoft advertising
space on the Infoseek service free of charge. Effective October 1, 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 twelve month
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Microsoft agreement, 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 will result in amortizing the
obligated amount over the one-year term of the agreement, beginning 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 of Infoseek--
Dependence on Third Party Relationships, Advertising Relationships and Joint
Ventures."
The increase in sales and marketing expenses for the nine months ended
September 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 nine months ended September 30, 1998 and 1997, general and
administrative expenses were $7,876,000 and $5,242,000, 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 nine months ended
September 30, 1998 over the comparable periods in 1997 was the result of hiring
additional administrative and executive staff 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 Disney Transaction, Infoseek incurred direct costs of approximately $2.8
million as of September 30, 1998 and estimates that it will incur total direct
costs of approximately $22.0 million, which will be accounted for as part of
the purchase price of the transactions. The $22.0 million in Merger costs
includes approximately $5.0 million for liabilities related to involuntary
employee termination benefits and relocations of Starwave employees and $5.0
million for costs to exit other Starwave activities, primarily operating leases
of Starwave. Infoseek expects to incur additional integration costs of up to
$7.0 million, of which $1.4 million were included in the results for the
quarter ended September 30, 1998. The remaining integration costs of up to $5.6
million will affect future operations and do not qualify as liabilities in
connection with a purchase business combination. There can be no assurance that
Infoseek will not incur additional material charges in subsequent quarters to
reflect additional costs associated with the Disney Transaction or other
transactions. See "Risk Factors--Risks Relating to the Combined Companies and
the Merger--Amortization of Goodwill
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and Increased Operating Expenses," "--Charges and 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 were 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 were written off in June
1997.
Income Taxes
Due to 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 carryforwards of approximately $45,000,000 and
$29,500,000, respectively. The federal net operating loss carryforwards will
expire beginning in 2009 through 2012, if not utilized, and the state net
operating loss carryforwards 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.
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 $32,941,000, $14,951,000 and $849,000, respectively, representing 94%, 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 websites.
Also included in advertising revenues is the exchange by Infoseek of
advertising space on Infoseek's websites for reciprocal advertising space or
traffic in other media publications or other websites 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
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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 6% of total revenues for the year. In 1996
and 1995, advertising revenues and other include $144,000 and $183,000,
respectively, of 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 1996 as Infoseek added
additional equipment and personnel to support its websites 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
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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 websites. 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.
INFOSEEK 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 equipment term loans. 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 nine months ended September 30, 1998, operating activities used
cash of $10,970,000 due primarily to Infoseek's net loss and increases in
deposits and other current assets, direct acquisition costs and a decrease in
accrued liabilities to service providers offset by increases in depreciation
and amortization and deferred revenue. For the nine month period ended
September 30, 1997, operating activities used cash of $15,301,000 due primarily
to Infoseek's net loss partially
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offset by increases in accrued restructuring and other charges, depreciation
and amortization and deferred revenue. For the nine months ended September 30,
1998, investing activities used cash of $28,794,000 primarily related to the
net purchases of short-term investments. For the nine months ended September
30, 1997, investing activities provided net cash of $7,282,000, primarily
associated with the sale of short-term investments. Financing activities
generated cash of $43,242,000, and $6,772,000, in the nine months ended
September 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 $54,541,000 in cash, cash equivalents and short-term investments
at September 30, 1998. Infoseek currently anticipates that its cash, cash
equivalents, short-term investments, 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 December 31, 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 stockholders of Infoseek will be
reduced, stockholders 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 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 Related to Infoseek--Future Capital Needs;
Uncertainty of Additional Financing."
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STARWAVE 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.com, 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 Disney (the "Starwave Stock
Purchase Agreement"), Starwave issued and sold to Disney 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.com). Following these
transactions, Starwave continued its website hosting, software development and
research activities, while the majority of its website 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 Disney,
Disney acquired all of the shares of Starwave common stock owned by Mr. Allen,
thereby increasing Disney's percentage ownership of Starwave's outstanding
capital stock from approximately 41% to approximately 91% on a primary shares
basis.
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On November 18, 1998, Infoseek acquired all of the outstanding capital stock of
Starwave. See "--Infoseek Overview" and "Infoseek Relationship with Disney."
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.com, 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 on November 18, 2008, and may
be subject to earlier termination in certain circumstances.
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.com 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.
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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.
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The following selected consolidated financial data are derived from the
consolidated financial statements of Starwave included elsewhere in this 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 Proxy Statement/Prospectus.
STARWAVE SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED FISCAL YEAR ENDED
--------------------------- ------------------------- ------------------------
SEPTEMBER 28, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, OCTOBER 4, SEPTEMBER 28,
1997 1996 1996 1995 1998 1997
------------- ------------- ------------ ------------ ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data(1):
Revenues................ $ 4,892 $ 4,583 $ 8,302 $ 1,111 $ 5,266 $ 8,611
-------- -------- -------- -------- -------- --------
Operating expenses
Cost of online
services.............. 7,185 11,046 18,170 6,577 3,143 14,309
Development............ 1,605 5,586 6,138 5,771 1,225 2,157
Sales and marketing.... 1,589 2,872 5,492 1,789 94 4,209
General and
administrative........ 2,527 3,389 4,845 3,388 2,772 3,983
-------- -------- -------- -------- -------- --------
Total operating
expenses.............. 12,906 22,893 34,645 17,525 7,234 24,658
-------- -------- -------- -------- -------- --------
Operating loss.......... (8,014) (18,310) (26,343) (16,414) (1,968) (16,047)
-------- -------- -------- -------- -------- --------
Other income (expense)
Loss from affiliate--
ESPN Joint
Venture(2)............ (2,251) -- -- -- (4,139) (2,251)
Loss from affiliate--
ABC News Joint
Venture(2)............ (5,958) -- -- -- (10,020) (5,958)
Interest (expense)
income................ (1,814) (3,187) (4,675) (3,023) 748 (3,302)
Other, net............. 464 (52) (658) 8 (47) (142)
-------- -------- -------- -------- -------- --------
Net other expenses..... (9,559) (3,239) (5,333) (3,015) (13,458) (11,653)
-------- -------- -------- -------- -------- --------
Loss from continuing
operations............. (17,573) (21,549) (31,676) (19,429) (15,426) (27,700)
-------- -------- -------- -------- -------- --------
Loss from discontinued
operations............. -- (4,289) (4,289) (7,474) -- --
-------- -------- -------- -------- -------- --------
Net loss................ $(17,573) $(25,838) $(35,965) $(26,903) $(15,426) $(27,700)
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) In April 1997 Starwave entered into the ESPN Joint Venture and the ABCNews
Joint Venture. Subsequently, Starwave continued its business of website
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.com 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
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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 Proxy Statement/Prospectus relate only to continuing
operations. See "--Starwave Discontinued Operations."
Starwave began a new line of business in February 1997 to provide website
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 TWELVE MONTHS ENDED OCTOBER 4, 1998 AND SEPTEMBER 28,
1997
Revenues
Revenues for the twelve months ended October 4, 1998 and September 28, 1997
were $5,266,000 and $8,611,000, respectively. Beginning April 1, 1997, the
majority of revenues were earned by the Joint Ventures, resulting in a decline
in the total revenue attributable to Starwave for comparable periods.
For the twelve months ended October 4, 1998, $3,139,000 of Starwave's revenues
were derived from website hosting services and $1,779,000 from software license
revenue.
For the twelve months ended September 28, 1997, Starwave recognized advertising
revenues of $5,210,000. 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 twelve months ended October 4, 1998 and
September 28, 1997 were $3,143,000 and $14,309,000, 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
twelve months ended October 4, 1998 and September 28, 1997 were $1,225,000 and
$2,157,000, respectively, representing 23% and 25%, 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
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expenses. For the twelve months ended October 4, 1998 and September 28, 1997,
sales and marketing expenses were $94,000 and $4,209,000, 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 twelve months ended October 4, 1998 and September 28, 1997, general and
administrative costs were $2,772,000 and $3,983,000, respectively, representing
53% and 46%, 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.
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>
TWELVE MONTHS ENDED
----------------------------------
OCTOBER 4, 1998 SEPTEMBER 28, 1997
--------------- ------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loss from the ESPN Joint Venture(1)......... $ (4,139) $(2,251)
Loss from the ABCNews Joint Venture(1)...... (10,020) (5,958)
Interest income (expense)................... 748 (3,302)
Other expense............................... (47) (142)
</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 $4,892,000 and $4,583,000, 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 $2,446,000 and $3,475,000, respectively, representing 50% 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 $7,185,000 and $11,046,000,
respectively. Beginning April 1, 1997, all
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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 $1,605,000 and $5,586,000 respectively, representing
33% and 122%, respectively, of total revenues. Development costs incurred on
behalf of the Joint Ventures' websites 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 $1,589,000 and $2,872,000,
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 $1,301,000 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 website hosting operations.
General and Administrative. For the nine months ended September 28, 1997 and
September 30, 1996, general and administrative costs were $2,527,000 and
$3,389,000, 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.
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, 1997 SEPTEMBER 30, 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 $8,302,000 and $1,111,000,
respectively.
For the years ended December 31, 1996 and 1995, advertising revenues were
$6,100,000 and $800,000, respectively, representing 73% and 72%, respectively,
of total revenues.
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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 $18,170,000 and $6,577,000, 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 $6,138,000 and $5,771,000 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 $5,492,000 and $1,789,000,
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 $4,845,000 and $3,388,000, 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>
Interest expense increased during each of the years ended December 31, 1996 and
1995 ($3,023,000 during 1995 from $1,400,000 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
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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 $4,700,000 in
1994, $7,474,000 in 1995 and $1,046,000 in 1996. The loss on disposal of the
Multimedia CD-ROM segment of $3,243,000 in 1996 included the provision for
operating losses through the phase-out period.
STARWAVE 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 October 4,
1998, Starwave had incurred net operating losses of approximately $70.2 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 2012. 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 $27,190,000 and $30,060,000 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 $6,807,000
was primarily attributable to net operating losses incurred in the period. Net
cash used in investing activities of $2,585,000 and $3,321,000 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 $13,873,000 for the nine months ended September 28, 1997 was
attributable to purchases of equipment and leasehold improvements of
$1,336,000, and for funding of the ESPN Joint Venture and the ABCNews Joint
Venture of $12,537,000. Net cash provided by operating activities for the year
ended October 4, 1998 of $3,334,000 was the result of net operating
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losses offset by non-cash items. Net cash used in investing activities of
$20,390,000 for the year ended October 4, 1998 was attributable to purchases of
equipment and leasehold improvements of $3,182,000 and for funding of the ESPN
Joint Venture and the ABCNews Joint Venture of $17,208,000. 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
October 4, 1998, the ESPN Joint Venture's minimum royalty liability totaled
$6,250,000 and the ABCNews Joint Venture's minimum royalty liability totaled
$750,000. 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 twelve months ended October 4, 1998 and
for the six months ended September 28, 1997, capital contributed to the ESPN
Joint Venture was $5,735,000 and $5,377,000, respectively, and cash provided
for the ABCNews Joint Venture was $11,483,000 and $8,660,000, respectively.
Starwave's cash requirements were funded by Disney through November 18, 1998
and are now funded by Infoseek.
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 more
meaningful.
THE ESPN JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997 (INCEPTION) TO TWELVE MONTHS ENDED
SEPTEMBER 28, 1997 OCTOBER 4, 1998
---------------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................... $ 6,996 $19,193
Operating expenses
Cost of online services...... 7,168 15,715
Development.................. 515 1,847
Sales and marketing.......... 2,262 5,724
General and administrative... 811 3,055
------- -------
Total operating expenses....... 10,756 26,341
------- -------
Operating loss................. (3,760) (7,148)
Net other income............... 8 249
------- -------
Loss from operations........... $(3,752) $(6,899)
======= =======
</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 twelve months ended
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October 4, 1998 were $6,996,000 and $19,193,000, respectively. Advertising
revenues for the corresponding periods were $4,868,000 and $13,459,000,
respectively, representing 70%, and 70%, 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 twelve months
ended October 4, 1998 were $7,168,000 and $15,715,000, 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 twelve months ended October 4, 1998 were $515,000 and $1,847,000,
respectively. These amounts represent 7% and 10%, respectively, of total
revenues in those periods. The increase in costs for the twelve months ended
October 4, 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 twelve months ended October 4, 1998
were $2,262,000 and $5,724,000, respectively, representing 32% and 30%,
respectively, of total revenues. The ESPN 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 ESPN Joint Venture, as well as fees for professional
services. General and administrative expenses for the six months ended
September 28, 1997, and twelve months ended October 4, 1998 were $811,000 and
$3,055,000, respectively, representing 12% and 16%, 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.
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THE ABCNEWS JOINT VENTURE
<TABLE>
<CAPTION>
APRIL 1, 1997 (INCEPTION) TO TWELVE MONTHS ENDED
SEPTEMBER 28, 1997 OCTOBER 4, 1998
---------------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues....................... $ 1,929 $ 9,878
Operating expenses
Cost of online services...... 9,015 18,182
Development.................. 532 1,751
Sales and marketing.......... 1,777 3,959
General and administrative... 537 2,746
------- --------
Total operating expenses....... 11,861 26,638
------- --------
Operating loss................. (9,932) (16,760)
Net other income............... 2 61
------- --------
Loss from operations........... $(9,930) $(16,699)
======= ========
</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 twelve months ended October 4, 1998 were $1,929,000 and
$9,878,000, respectively. Advertising revenues for the corresponding periods
were $937,000 and $4,034,000, respectively, representing 49% and 41%,
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 twelve
months ended October 4, 1998 were $9,015,000 and $18,182,000, 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 the twelve months ended October 4, 1998 were $532,000 and $1,751,000,
respectively. These amounts represent 28% and 18%, 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
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expenses. Sales and marketing expenses for the six months ended September 28,
1997 and the twelve months ended October 4, 1998 were $1,777,000 and
$3,959,000, respectively, representing 92% and 40%, 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 twelve months ended October 4, 1998 were $537,000
and $2,746,000, respectively, representing 28% and 28%, 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.
YEAR 2000 COMPLIANCE
Infoseek is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. Virtually every computer
operation will be affected by the "year 2000 problem." Many computer systems
only provide for a two digit date and therefore will not properly recognize
dates when the year changes from 1999 ("99" in most systems) to 2000, since the
system may recognize the year as 1900 instead of 2000. Computer systems that do
not properly recognize the year 2000 could generate incorrect data or cause a
system to fail.
Infoseek management has conducted a review of Infoseek's exposure to the year
2000 problem. Infoseek is working with its major computer system vendors, data
feed and software vendors to determine if they are prepared for the year 2000.
Based on Infoseek's internal review and discussions with these vendors,
Infoseek currently believes that its internal systems are year 2000 compliant
(with the exception of three systems, which are scheduled to be replaced as
part of a regular upgrade program prior to the end of 1999 and are not material
to Infoseek's operations). Infoseek does not expect to incur significant
expenses or to have to purchase additional computer systems to avoid the year
2000 problem, for either Infoseek's internal information technology systems or
Infoseek's products and services.
Despite Infoseek's review, the effects of the year 2000 problem are still very
uncertain. Infoseek cannot assure you that its vendors' representations are
accurate. Infoseek has also not investigated year 2000 compliance by third
parties who are not vendors of Infoseek. Infoseek has no control over these
third parties' compliance. For example, if a link on GO Network or the Infoseek
search service points to a website which is not year 2000 compliant, that link
may not be available to users and therefore the Infoseek services will offer
fewer features. If many linked sites do not work, the value of user traffic and
advertising on Infoseek's websites could materially decrease.
If Infoseek or any of its viewers, customers, linked sites, advertisers,
vendors or other third parties are not year 2000 compliant, Infoseek's
business, results of operations, financial condition and prospects could be
seriously harmed.
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INFOSEEK BUSINESS
On November 18, 1998, Infoseek acquired Starwave and became the parent company
of Infoseek California. Infoseek's business currently consists primarily of
holding the capital stock of Infoseek California and Starwave, each of which
continues to operate its historic business as described below. In addition,
Infoseek has, in conjunction with Disney, begun to establish a strategic
relationship concerning the development, launch and promotion of GO Network,
also as described below. Infoseek plans to devote a substantial portion of its
resources in the future to developing, launching and promoting GO Network.
GO NETWORK
GO Network will combine certain content, promotion, brands and technologies of
Infoseek, Starwave and the ABCNews and ESPN Joint Ventures. GO Network will
provide for universal navigation, registration, community and commerce services
across the Infoseek and Starwave websites, as well as ESPN.com, ABCNEWS.com and
certain Disney websites. Infoseek believes that GO Network will address
customers' needs by providing utility, ease of use, speed, personalization and
choice. Infoseek intends, through GO Network, to offer a broad selection of
popular branded content to audiences ranging from kids, to families, to
business users. GO Network will contain content and customization, community,
search and directory, commerce, communication and connectivity intended to
create a complete online experience for its users. Infoseek plans a beta launch
of GO Network in December 1998, with a full launch expected to follow in the
first quarter of 1999.
In connection with GO Network, Infoseek is required to purchase $165 million in
promotional support and activities over five years from ABC, Inc., a wholly-
owned subsidiary of Disney. Such promotional activity is expected to include
print, outdoor, radio and television exposure nationally. In addition, Disney
has agreed to co-brand all ABCNEWS.com and ESPN.com owned non-traditional media
promotions with promotions for GO Network.
THE 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. 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 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. 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 websites.
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The Infoseek Service and Product Offerings
Internet End-User Services and Products
The Infoseek Service is a free search and navigation service targeted to
viewers at home, in business and in schools. The 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 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 Precision, 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.
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 December 1, 1998, Infoseek had increased its
directory of websites to over 800,000 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 an arrangement
with United Parcel Services of America, Inc. ("UPS"), viewers can access
the UPS tracking system by clicking on a link on the Infoseek home page.
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.
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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 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, Business Wire, Hoover's, Inc., 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 websites. 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 autobytel.com, a website 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 this software to
customers in the publishing industry (International Data 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
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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%, 94%, 94%
and 99% of Infoseek's total revenues for the nine months ended September 30,
1998 and 1997 and the years ended December 31, 1997 and 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.
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") for run of
site rotations 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 for directory and channel rotations 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.
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Sponsors and partners with whom Infoseek has executed agreements include the
following:
CHANNEL SPONSORS AND PARTNERS
Automotive autobytel.com, Insweb
Careers CareerPath
Communications AT&T
Computers CMP Media, Inc.
Entertainment N2K, DVD Express
Health Women.com, Onhealth, Vitamin Shoppe
Internet CMP Media, Inc.
Personal Finance Microsoft Investor, Datek Online
Travel Microsoft Expedia
Real Estate NetSelect, Apartments.com, HomeShark
Women's iVillage
CROSS-SERVICE
UPS
Borders Online
Microsoft Sidewalk
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 has been able to supplement its
banner advertising business with media-based revenues for sponsorships in its
channels and sub-channels. A cross-service sponsor's content or service appears
on the Infoseek Service home page or on multiple channels across the Infoseek
Service.
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 during 1997 owned a substantial amount of
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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 September 30, 1998, Infoseek's advertising sales staff consisted of 54
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.
International Operations
Infoseek offers its service internationally through partnerships with local
providers of directory and editorial content in Brazil, Denmark, Holland,
France, Germany, Italy, Japan, Mexico, 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 and 1997 and through September 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--Risks
Associated With International Expansion."
THE 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.com, 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.
Starwave seeks to (i) provide comprehensive, entertaining programming that is
constantly updated, (ii) leverage its 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.
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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.com, 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.com and
ABCNEWS.com, respectively.
The Joint Ventures have terms of ten years from November 18, 1998 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.com, including a premium subscription, 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.com and the NBA Store within NBA.com. Finally, Starwave
provides hosting services, and licenses some of its proprietary software, to
Disney.
TECHNOLOGY
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
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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 the 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 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 impressions of specific advertisement options marketed
by Infoseek or otherwise sought by advertisers. Infoseek believes that it will
be necessary to significantly improve its internally developed advertising
management system or to implement a different advertising management system to
address increasing advertising volume. Infoseek is in the process of evaluating
Starwave's advertising management systems. To the extent that Infoseek
encounters material difficulties in utilizing Starwave's system, Infoseek will
need to devote sufficient resources to enhance its 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.
Starwave Technology
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.
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MARKETING AND DISTRIBUTION
Marketing
Infoseek builds brand awareness through an integrated plan utilizing online and
traditional media, public relations and promotions. Infoseek's marketing plans
are currently being revised to reflect the upcoming launch of GO Network.
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
software to its 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. The 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 the Infoseek Service relative to other alternatives
and the compensation paid by Infoseek for advertising.
Starwave Marketing and Distribution
Starwave seeks to 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) and
trade advertisements. 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.
COMPETITION
The market for Internet and intranet products and services is very competitive.
Infoseek expects the market to become more competitive. Because the market for
search and portal services is new and developing, Infoseek cannot predict how
competition will affect Infoseek, its competitors or its customers. Infoseek
believes that the Internet market increasingly will require portal services to
deliver a large variety of multimedia content and services. Infoseek believes
that its future success partly depends on its ability to deliver a broad
variety of multimedia content and services. Infoseek believes this includes the
following:
. Electronic commerce
. Enhanced search and directory functions
. Development of online communities, including chat, e-mail and games
. Timely, relevant and diverse high-quality multimedia content
. Access to live video and audio events
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With respect to attracting advertisers, in order to be competitive Infoseek
believes it must offer:
. a large number of viewers
. viewers with attractive demographic profiles
. cost-effectiveness
Infoseek believes that the number of companies selling advertising on the Web
and the amount of advertising space on the Internet have greatly increased
recently. Infoseek may therefore face a market which demands lower prices for
the purchase of advertisements and this could result in a decline in Infoseek's
revenues.
Infoseek may not be able to compete successfully. If Infoseek fails to respond
to competitive pressures, including those listed below, Infoseek's business,
results of operations, financial condition and prospects will be seriously
harmed.
Infoseek believes it faces competition in numerous areas, including the
following:
. Consolidated Internet Products. Companies like Yahoo!, America Online,
Netscape, Microsoft, Excite, CNET (Snap) and Lycos offer integrated
products which include a variety of features. Such products often offer
search and directory services on the Internet, white and yellow pages, e-
mail listings, news and sports, financial and stock information, weather,
internet commerce, auctions and classifieds, chat, bulletin boards, e-
mail and other community and information features. These companies have
often developed integrated products through internal development, through
acquisitions of competitors of Infoseek or strategic and licensing
arrangements with competitors of Infoseek. Because these sites are often
an initial point of entry for Internet viewers or have a large number of
users, it is likely they will continue developing, acquiring or licensing
Internet search and navigation functions competitive with those offered
by Infoseek. These competitors will also likely attempt to control
Internet content, such as news, sports and entertainment. These
competitors may take actions that make it more difficult for viewers to
find and use Infoseek's products and services or that makes Infoseek's
products and services including GO Network less effective. If these
integrated services continue to expand, Infoseek's business, results of
operations, financial condition and prospects could be seriously harmed.
. Search and Navigation Products. Many companies currently offer Web search
and navigation products which compete with Infoseek's search service.
These include DEC/AltaVista, Excite, HotBot, Inktomi, Lycos, Snap and
Yahoo! The two most widely used Web browsers are produced by Netscape and
Microsoft. Each of these browsers contain easy to locate search buttons
and feature "push" technologies, both of which can direct search traffic
to services which compete with Infoseek.
. Search Software. Infoseek's Ultraseek Server product competes directly
with intranet products and services offered by companies such as
DEC/AltaVista, Lycos, Open Text and Verity.
. Internet Media Sources. Through the production of ESPN.com and
ABCNEWS.com, Infoseek competes with other Internet sites that provide
news and sports information. For
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example, many Internet sites such as CBS Sportsline, CNNsi, Yahoo! Sports
and Fox Sports Online provide information on sports. Internet sites such
as CNN, The New York Times, The Washington Post, CBS News and MSNBC
provide news and analysis. Sites such as Microsoft Investor, Quicken
Financial Network, Reuters, DowJones, Bloomberg and CNNfn provide
financial news. Other sites, like E! Online and Entertainment
Weekly/PathFinder offer entertainment news.
. Competition from Internet and other advertising media. Infoseek competes
with online services, other Web site operators and advertising networks
for advertisers. Infoseek also competes with other media sources such as
broadcast television, cable television, radio, newspapers and magazines.
Typical competitors in these media sources are print publications such as
Sports Illustrated, USA Today, The New York Times and The Washington
Post, as well broadcast and cable sources such as ABC, NBC, CBS, CNN and
Fox. Infoseek competes with these other media sources for a portion of
advertisers' total advertising budgets. Infoseek also competes with these
other media sources for viewers. To compete successfully against these
other sources, Infoseek must provide interesting and popular interactive
content. In addition, Infoseek's partners in its joint venture
relationships, ESPN and ABC, have certain rights to compete with
Infoseek. For example, ESPN and ABC sell advertising on their broadcast
programs in competition with Infoseek.
. Competition from Electronic Retailers. If and when Infoseek begins to
offer substantial electronic commerce capabilities, it will face
competition from many internet sites which offer products and services
for sale over the internet. Websites such as Yahoo!, AOL/Netcenter,
Excite, MSN, Lycos, Amazon.com and others already offer items for sale
over the Internet, and have established brand names and infrastructure
for electronic commerce.
. Other Internet sites. Infoseek also competes for users with many other
commercial and non-profit websites.
In order for Infoseek to compete successfully, Infoseek must overcome many
risks, including:
. Low barriers to entry to the Internet. Infoseek believes that it is
relatively inexpensive to develop new internet technologies, products and
services. It is likely that other companies may offer similar products
and services that compete with Infoseek for advertisers.
. Quickly Changing Market. Because the Internet market is new and changing
quickly, Infoseek cannot predict which companies are likely to offer
competitive services in the future.
. Reliance on Advertising Revenues. Infoseek depends on advertising sales
for revenue. Because the Internet is still a new advertising medium,
there is a risk that the number of advertisers purchasing advertisements
on the Internet could decrease. Such a decrease could result in lower
advertising revenues for Infoseek.
If Infoseek does not compete effectively, it will suffer immediate harm to its
services, results of operations and prospects.
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Infoseek's success depends heavily upon its exclusive technology, brand names
and Internet locations ("domain names"). To protect its rights to its software,
systems, documentation and product features, Infoseek currently relies on a
combination of:
. patent, copyright and trademark and service mark laws
. trade secret laws
. confidentiality procedures, and
. contractual provisions
These methods of protection may not be adequate to protect against others using
Infoseek's technology, brand names and content. Accordingly, Infoseek cannot
assure you that it will be able to maintain the goodwill associated with its
products and services or competitive features.
Infoseek and its Subsidiaries holds three United States patents and currently
has 15 United States patent applications pending and six foreign patent
applications pending. 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.
Despite these measures, Infoseek may not be able to protect its intellectual
property. Infoseek may not be able to protect its technology because:
. Pending and new patent applications and trademark registrations may not
be approved
. Even if issued, new patents and trademark registrations may be
challenged, invalidated or designed around
. Infoseek's new products or technologies may not be patentable
. Time-consuming and costly litigation may be necessary to protect
Infoseek's proprietary technologies
. Policing unauthorized use of Infoseek's intellectual property is
difficult and expensive, particularly given the global nature of the
Internet and the ease of digital copying
. 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, duplicate Infoseek's
products or design around patents issued to Infoseek or other
intellectual property rights of Infoseek
The application of copyright and trademark laws to the Internet and other
digital media is very uncertain. There has been a substantial amount of
litigation in the technology industry regarding intellectual property rights.
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Further, Infoseek may not be able to use its intellectual property or further
develop its business because of third parties. Third parties:
. may bring claims of patent, copyright or trademark infringement against
Infoseek
. may obtain patents or other intellectual property rights which may limit
Infoseek's ability to do business or require Infoseek to license or
cross-license technology
. may claim Infoseek has misappropriated their creative ideas or formats or
otherwise infringed upon their proprietary rights
. may bring costly, time consuming lawsuits which divert management
attention, require Infoseek to enter into costly royalty or licensing
arrangements or prevent Infoseek from using important technologies or
methods
Infoseek is aware of a number of issued patents which cover interactive
programming, Internet programming and techniques, and electronic commerce. For
example, Infoseek is aware of a U.S. patent recently issued to Carnegie Mellon
related to Web spider technology. This patent has been licensed to Lycos and is
currently used 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 its products and services do not infringe the Carnegie
Mellon patent, Infoseek cannot assure you it would prevail if Lycos or Carnegie
Mellon claimed Infoseek infringed such patent. Infoseek expects patent
infringement regarding Internet technologies to increase as the number of
products and competitors in this market grows and as new patents are issued.
Infoseek expects that patents, particularly in the areas of real-time or
"streaming" audio and video, online commerce and "digital cash," and other
technologies may issue in the future. Some of these technologies may be
considered to be critical to long-term success in the Internet marketplace.
Infoseek has also from time to time received informal notices from copyright
and trademark holders regarding use of music, images and websites in their
services.
Infoseek cannot assure you that it can adequately protect its intellectual
property. If Infoseek fails to protect its intellectual property, it could
suffer serious harm to its business, results of operations or prospects.
Infoseek also cannot assure you that third parties will not in the future claim
infringement by Infoseek with respect to Infoseek's current or future products.
Any such claims or counterclaims could (i) be time-consuming, (ii) result in
costly litigation, (iii) cause product release delays, (iv) require Infoseek to
redesign its products or (v) require Infoseek to enter into royalty or
licensing agreements. These claims of infringement, whether successful or not,
could seriously harm Infoseek's business, results of operations or prospects.
EMPLOYEES
As of September 30, 1998, Infoseek California had 319 full-time employees,
including 84 in research and development, 141 in sales and marketing, 22 in
operations and 72 in finance and administration. Also as of September 30, 1998,
Starwave had a total of 336 employees (including those employees supporting the
Joint Ventures), of which 43 were involved in Starwave's technology division,
41 were in Web operations and MIS, 35 were in general administration and
development and 217 were involved in the Joint Ventures. None of these
employees is represented by a labor union. None of Infoseek, Starwave and the
Joint Ventures has experienced any work stoppages and each considers
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its relations with its employees to be good. Infoseek's performance is
substantially dependent on the continued services of the management teams of
Infoseek, Starwave and the Joint Ventures 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.
PROPERTIES
Infoseek's principal administrative, sales, marketing, and research and
development facility is located in Sunnyvale, California. Infoseek leases
approximately 150,000 square feet (a section of which is currently subleased to
another tenant) in Sunnyvale pursuant to several lease agreements which
generally extend through October 2002. Infoseek is also in negotiations
regarding additional space in Sunnyvale. Infoseek also leases approximately
61,000 square feet in Seattle, Washington for the headquarters and principal
operations of Starwave and 6,000 square feet in Bellevue, Washington for
additional Starwave operations. Infoseek also leases approximately 12,000
square feet in San Francisco, California and approximately 3,000 square feet in
New York, New York. The Company also maintains several other offices throughout
the country, and the ABCNews Joint Venture and ESPN Joint Venture maintain
space in New York, New York and Bristol, Connecticut pursuant to arrangements
with ABC and ESPN.
Infoseek believes that its existing facilities are adequate for its current
needs and that additional space will be available as needed. There can be no
assurance, however, that additional space will be available on good terms or at
all.
LITIGATION
Infoseek is not currently a party to any material litigation.
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INFOSEEK RELATIONSHIP WITH DISNEY
The following is a summary of certain business transactions and relationships
between Infoseek and Disney.
IN GENERAL
Infoseek California, Infoseek, Starwave and Disney entered into the Starwave
Merger Agreement. Pursuant to the Starwave Merger Agreement, Infoseek acquired
Starwave, which had been approximately 91% owned by Disney (excluding shares
underlying options outstanding under Starwave stock option plans), and
established a new holding company structure which involved a reincorporation
into Delaware, the result of which was that each of Starwave and Infoseek
California became wholly-owned subsidiaries of Infoseek. This transaction
closed on November 18, 1998. Accordingly, the business of Infoseek consists
primarily of holding the capital stock of Infoseek California and Starwave, and
each of Infoseek California and Starwave continues to operate their current
businesses. In addition, Infoseek and Disney have established a strategic
relationship concerning the development, launch and promotion of GO Network.
In light of Disney's ownership interest in Starwave, Disney received 23.5
million shares of Infoseek common stock as a result of Infoseek's acquisition
of Starwave. In addition, Disney purchased, pursuant to a Common Stock and
Warrant 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") at certain times, at certain prices and subject to certain
conditions, in exchange for approximately $70.0 million in cash and a $139.0
million five-year promissory note.
As a result of the transactions described above, Disney and its affiliates hold
approximately 43% of Infoseek's outstanding common stock and have the right to
acquire, through the Warrant, which becomes exercisable over time, an
additional 15,720,000 shares of Infoseek 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. Disney also has certain contractual rights to maintain its initial
percentage stock and warrant ownership through direct purchases from Infoseek
in the event of dilutive issuances. In the event the Merger with Quando is
consummated, Disney will have a right to purchase shares of Infoseek common
stock and a warrant to purchase shares of Infoseek common stock sufficient to
maintain its current ownership interest in Infoseek. Further, upon closing of
the transactions described above, the Infoseek Board of Directors was expanded
from five to eight members, with three Disney designees, Steven Bornstein,
Robert Iger and Jake Winebaum, appointed to the Board. See "Infoseek
Management."
RELATED AGREEMENTS
Infoseek and Disney also 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
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following consummation of the date of the agreement, subject to earlier
termination under certain circumstances, Disney 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 approval with
respect to certain matters and, together with Infoseek's Certificate of
Incorporation, 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.
Infoseek and Disney also entered into a number of licensing and commercial
agreements contemplating the development, launch and promotion of GO Network.
GO Network is based, in part, upon certain intellectual property owned by
Disney licensed to Infoseek pursuant to the terms of a royalty-bearing license
agreement. While owned and operated by Infoseek, GO Network also is 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 GO Network, Disney's wholly-owned subsidiary, ABC, Inc. agreed
to provide, and Infoseek agreed to purchase, $165 million in promotional
support and activities over five years. As part of such promotion, Disney
agreed to co-brand all ABCNEWS.com and ESPN.com owned non-traditional media
promotion with promotions for GO Network. Disney has also agreed to integrate
Infoseek's search and directory technology into its own Internet-based
services.
Disney also agreed to amend certain aspects of the Joint Ventures. Starwave
also agreed to act pursuant to representation agreements as the representative
of the ABCNews Joint Venture and ESPN Joint Venture for the sale of advertising
services.
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INFOSEEK MANAGEMENT
The following table sets forth certain information concerning Infoseek's
current executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<C> <C> <S>
Harry M. Motro............... 38 President, Chief Executive Officer and
Director
Leslie E. Wright............. 45 Senior Vice President, Chief Operating
Officer and Chief Financial Officer
Barak Berkowitz.............. 45 Senior Vice President and General Manager,
GO Network
Bhagwan D. ("B.D.") Goel..... 35 Senior Vice President and General Manager,
Commerce
Beth A. Haggerty............. 39 Senior Vice President, Worldwide Sales and
Strategic Partnerships
Patrick Naughton............. 33 Senior Vice President and Chief Technical
Officer
Andrew E. Newton............. 55 Vice President, General Counsel and
Secretary
Steven T. Kirsch............. 41 Chairman of the Board of Directors
Steven Bornstein*............ 46 Director
Robert Iger*................. 47 Director
L. William Krause(1)......... 56 Director
Matthew J. Stover(2)......... 43 Director
Jake Winebaum*............... 38 Director
John E. Zeisler(1)(2)........ 46 Director
</TABLE>
- --------
* Messrs. Bornstein, Iger and Winebaum were appointed to the Infoseek Board of
Directors pursuant to the terms of a Governance Agreement entered into
between Infoseek and Disney in connection with Infoseek's acquisition of
Starwave and related transactions. See "Infoseek Relationship with Disney."
(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 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.
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. In November 1998, Mr. Wright resumed the role
of Chief Financial Officer in addition to his role as Senior Vice President and
Chief Operating Officer. 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
and became Senior Vice President and General Manager, GO Network in November
1998. 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
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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.
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 joined Infoseek in November 1998 as Senior Vice President
and Chief Technical Officer. Prior to joining Infoseek, Mr. Naughton was
President and Chief Technology Officer of Starwave, which position he had 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.
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 1989 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.
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Steven Bornstein became a director of Infoseek in November 1998. Mr. Bornstein
has been President and Chief Executive Officer of ESPN since September 1990 and
is also a director of ESPN.
Robert Iger became a director of Infoseek in November 1998. 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 1994, Mr. Stover has served as
President and Chief Executive Officer of Bell Atlantic Yellow Pages Company,
formerly known as NYNEX Information Resources Company. Since January 1998, Mr.
Stover has served as Chairman of the Board of Bell Atlantic Yellow Pages. 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 became a director of Infoseek in November 1998. 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 is also a member of the advisory committee
which oversees GO Network.
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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.
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SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS OF INFOSEEK
The following table sets forth certain information regarding beneficial
ownership of Infoseek common stock as of November 30, 1998 (except as otherwise
noted) by (i) each director of Infoseek, (ii) Infoseek's Chief Executive
Officer and each of the four other most highly compensated executive officers
of Infoseek during the fiscal year ended December 31, 1997, (iii) all directors
and executive officers of Infoseek as a group, and (iv) all those known by
Infoseek to be beneficial owners of more than five percent of outstanding
shares of Infoseek common stock. This table is based on information provided to
Infoseek or filed with the Commission by Infoseek'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
NUMBER OF SHARES COMMON STOCK INFOSEEK DELAWARE
BENEFICIALLY OWNED OWNED PRIOR TO COMMON STOCK
BENEFICIAL OWNER (1) MERGER OWNED AFTER MERGER
---------------- ------------------ -------------- ------------------
<S> <C> <C> <C>
Steven T. Kirsch(2)...... 5,888,855 9.67% 9.59%
Harry M. Motro(3)........ 438,500 * *
Matthew J. Stover(4)..... 164,384 * *
John E. Zeisler(5)....... 69,374 * *
L. William Krause(6)..... 15,000 * *
Andrew E. Newton(7)...... 504,213 * *
John S. Nauman(8)........ 102,246 * *
Leo R. Jolicoeur(9)...... 43,746 * *
Patrick J. Naughton(10).. 438,128 * *
Steven Bornstein(11)..... 0 * *
Robert Iger(11).......... 0 * *
Jake Winebaum(11)........ 0 * *
The Walt Disney
Company(12)............. 26,103,965(13) 42.86% 42.50%
All directors and
executive officers as a
group (14 persons)(14).. 33,828,220 54.60% 55.07%
</TABLE>
- --------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
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 November 30, 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. The address for each
of Messrs. Kirsch, Motro, Stover, Zeisler, Krause, Jolicoeur and Ms.
Haggerty is as follows: c/o Infoseek Corporation, 1399 Moffett Park Drive,
Sunnyvale, California 94089. The address for Mr. Naugton is as follows:
c/o Starwave Corporation, 13810 S.E. Eastgate Way, Suite 400, Bellevue,
Washington 98005. The address for each of Messrs. Bornstein, Iger and
Winebaum is as follows: c/o The Walt Disney Company, 500 South Buena Vista
Street, Burbank, California 91521.
(2) Represents 5,888,855 shares held in the name of trusts for the benefit of
Mr. Kirsch and his family members.
133
<PAGE>
(3) Includes 437,500 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998.
(4) 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 November 30, 1998, of which 10,313 shares would be
subject to Infoseek's right of repurchase. Also includes 149,384 shares
held by Bell Atlantic Electronic Commerce Services, Inc., 35 Village Road,
Middletown, Massachusetts 01949. Mr. Stover disclaims beneficial ownership
of such shares.
(5) Includes 56,875 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998, of which 14,063 shares
would be subject to Infoseek's right of repurchase.
(6) Includes 15,000 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998, of which 13,125 shares
would be subject to Infoseek's right of repurchase.
(7) Includes 28,125 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998.
(8) Includes 40,625 shares which are subject to Infoseek's right of
repurchase, and 15,625 shares issuable pursuant to stock options that may
be exercised within 60 days after November 30, 1998.
(9) Includes 42,312 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998.
(10) Includes 380,103 shares which are issuable pursuant to stock options which
may be exercised within 60 days of November 30, 1998.
(11) 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.
(12) Includes both The Walt Disney Company and its wholly owned subsidiary,
Disney Enterprises, Inc. ("DEI"). For federal securities law purposes, The
Walt Disney Company is deemed to have investment and voting power over
shares of Infoseek common stock held by itself as well as by its
subsidiary, DEI. In connection with the Merger and other transactions,
Disney will have the right to purchase shares of Infoseek common stock
sufficient to maintain an approximately 43.0% ownership interest in
Infoseek as well as a warrant to purchase additional shares of Infoseek
common stock.
(13) Does not include 15,720,000 shares that Disney may purchase pursuant to a
warrant Disney holds which is not exercisable within 60 days unless
certain contingencies principally outside Disney's control occur.
(14) Includes 1,048,977 shares issuable pursuant to stock options that may be
exercised within 60 days after November 30, 1998, including those options
identified in footnotes (2) through (11).
134
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning compensation paid by Infoseek for the fiscal years ended December
31, 1997, 1996 and 1995 (unless otherwise noted below) to the individuals who
served as Infoseek's Chief Executive Officer during the Last Fiscal Year and
the four other most highly compensated executive officers of Infoseek who were
serving as such at the end of the fiscal year ended December 31, 1997 (the
"Last Fiscal Year") (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(L) OPTIONS COMPENSATION
- --------------------------- ------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Harry M. Motro(2) ............................... 1997 $169,551 $ 69,230 1,000,000 $150,000(3)
President and Chief Executive Officer 1996 -- -- -- --
1995 -- -- -- --
Andrew E. Newton ................................ 1997 $160,000 $ 65,000 75,000 --
Vice President, General Counsel and Secretary 1996 $140,000 $ 80,000 -- --
1995 $128,333 $ 40,000 -- --
Patrick J. Naughton(4) .......................... 1997(5) $205,006 -- 264,957(6) --
Senior Vice President and Chief 1996 $163,164 -- 270,256(6)
Technical Officer 1995 $135,363 -- 8,280(6)
John S. Nauman(7) ............................... 1997 $175,000 $ 75,000 -- --
Vice President, Engineering 1996 $140,961 $ 25,000 200,000 --
1995 -- -- -- --
Leo R. Jolicoeur(8) ............................. 1997 $125,615 $ 47,250 110,000 --
Vice President, Online Services 1996 $101,056 $ 20,000 37,500 --
1995 $ 16,524 $ 3,333 75,000 --
Robert E.L. Johnson III ......................... 1997 $120,512 $ 7,270 -- $287,500(9)
1996 $200,000 $101,000 75,000 --
1995 $ 12,179 -- 1,200,000 --
</TABLE>
- --------
(1) Represents bonus payments earned during the Last Fiscal Year, a portion of
which was paid after December 31, 1997.
(2) Mr. Motro became President and Chief Executive Officer of Infoseek in the
second quarter of 1997 at an annual salary of $250,000.
(3) Represents a one-time relocation payment to Mr. Motro.
(4) Mr. Naughton was President and Chief Technical Officer of Starwave prior to
Infoseek's acquisition of Starwave on November 18, 1998. Upon such
acquisition, Mr. Naughton became Senior Vice President and Chief Technical
Officer of Infoseek.
(5) Starwave's fiscal year 1997 ended September 28, 1997.
(6) Options were granted pursuant to Starwave's stock option plans, which were
assumed by Infoseek on November 18, 1998. Number reflects conversion from
options for shares of Starwave common stock to options for shares of
Infoseek common stock.
(7) In February 1996, Mr. Nauman became Vice President, Engineering.
(8) In December 1997, Mr. Jolicoeur became Vice President, Online Services of
Infoseek at an annual salary of $135,000.
(9) Represents consulting fees paid to Mr. Johnson for consulting services
rendered after his resignation as Chief Executive Officer.
135
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants made to
each of the Directors and Named Executive Officers during the Last Fiscal Year.
No stock appreciation rights were granted to these individuals during such
year.
INDIVIDUAL GRANTS(1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE FOR OPTION TERM(4)
GRANTED FISCAL PRICE EXPIRATION --------------------------------
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5% ($) 10%($)
---- ---------- ------------ --------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Harry M. Motro.......... 1,000,000 23.35% $5.00 7/08/07 $ 3,144,473 $ 7,968,712
Andrew E. Newton........ 75,000 1.75% $5.00 7/08/07 $ 235,835 $ 597,653
John Nauman............. -- -- -- -- -- --
Leo R. Jolicoeur........ 110,000 2.57% $5.00 7/08/07 $ 345,892 $ 846,558
Robert E.L. Johnson
III.................... -- -- -- -- -- --
Patrick J. Naughton
(5).................... 264,957(6) 4.75%(6) $8.56(6) 3/28/07 $ 1,426,020(6) $ 3,613,814(6)
</TABLE>
- --------
(1) Except for the options granted to Mr. Naughton, these options were granted
under Infoseek's 1996 Stock Option/Stock Issuance Plan. The grant dates for
these options are as follows: Mr. Motro: July 8, 1997; Ms. Haggerty: August
13, 1997; Mr. Newton: July 8, 1997; Mr. Jolicoeur: July 8, 1997. The grant
date for Mr. Naughton's options is March 28, 1997, and such options were
granted under Starwave's 1997 Nonqualified Stock Option Plan which was
assumed by Infoseek on November 18, 1998. Each option has a maximum term of
10 years measured from the grant date, subject to earlier termination upon
the optionee's cessation of service with Infoseek.
(2) Infoseek granted options to purchase 5,575,591 shares of common stock
during the Last Fiscal Year. Such number reflects Infoseek's acquisition of
Starwave and its assumption of option grants under Starwave's 1997
Nonqualified Stock Option Plan and its Revised 1992 Combined Incentive and
Nonqualified Stock Option Plan Amended and Restated as of March 7, 1995,
both of which were assumed by Infoseek on November 18, 1998.
(3) The exercise price may be paid in cash or in shares of Infoseek's common
stock valued at fair market value on the exercise date. Infoseek may also
finance the option exercise by loaning the optionee sufficient funds to pay
the exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with such
exercise.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. There is no assurance that the
actual stock price appreciation over the 10-year option terms will be at
the assumed 5% and 10% levels or at any other defined level. Unless the
market price of the common stock appreciates over the option term, no value
will be realized from the option grants made to the executive officers.
(5) Mr. Naughton became an executive officer of Infoseek upon Infoseek's
acquisition of Starwave on November 18, 1998. Prior to such acquisition,
Mr. Naughton was President and Chief Technology Officer of Starwave.
(6) Numbers reflect Infoseek's assumption of option grants by Starwave pursuant
to Infoseek's acquisition of Starwave and the resulting conversion of such
option grants from options to purchase shares of Starwave common stock to
options to purchase shares of Infoseek common stock.
136
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning option exercises and
option holdings during the Last Fiscal Year with respect to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES UNDERLYING AT ASSUMED ANNUAL RATES OF
SHARES UNEXERCISED OPTIONS STOCK PRICE APPRECIATION
ACQUIRED AT FISCAL YEAR END (#) FOR OPTION TERM ($) (1)
UPON VALUE ------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ----------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Harry M. Motro.......... -- -- -- 1,000,000 $ 0 $ 5,750,000
Andrew E. Newton........ -- -- -- 75,000 $ 0 $ 431,250
John S. Nauman.......... -- -- 14,583 35,417 $ 23,697 $ 57,552
Leo R. Jolicoeur........ 28,000 $ 285,272 32,937 161,563 $ 344,148 $ 1,168,480
Robert E. L. Johnson
III.................... 574,993 $3,664,135 25,000 49,999 $ 265,425 $ 530,839
Patrick J. Naughton(2).. 67,955 $ 580,920 238,463 349,744 $ 2,082,363 $ 1,883,623
</TABLE>
- --------
(1) The value of an "in-the-money" stock option represents the difference
between the aggregate estimated fair market value of the underlying
securities, based on the closing price of $10.75 per share of Infoseek's
common stock on the Nasdaq National Market on December 31, 1997, and the
aggregate exercise price of the subject stock option.
(2) Numbers reflect Infoseek's assumption of option grants by Starwave pursuant
to Infoseek's acquisition of Starwave and the resulting conversion of such
option grants from options to purchase shares of Starwave common stock to
options to purchase shares of Infoseek common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of Infoseek's Board of Directors was formed in April
1996 and is currently comprised of Mr. Krause and Mr. Zeisler. Neither of these
individuals was at any time during the Last Fiscal Year, or at any other time,
an officer or employee of Infoseek. No member of the Compensation Committee of
Infoseek serves as a member of the Board of Directors or compensation committee
of any entity that has one or more executive officers serving as a member of
Infoseek's Board of Directors or Compensation Committee.
137
<PAGE>
CERTAIN TRANSACTIONS
Disney
Infoseek and Disney entered into a number of business transactions in
connection with Infoseek's acquisition of Starwave. For a full description of
such transactions as well as ongoing relationships and transactions, see
"Infoseek Relationship with Disney" and "Infoseek Management's Discussion and
Analysis of Financial Results and Results of Operations--Infoseek Overview--
Disney Transaction."
Starwave
In addition, Infoseek's subsidiary Starwave has entered into several
transactions with Disney, its former majority shareholder. Pursuant to the
Starwave Stock Purchase Agreement, Starwave issued and sold to Disney
39,869,348 shares of Starwave common stock for aggregate consideration of $82
million. Pursuant to the Starwave Stock Purchase Agreement, Starwave has
certain indemnification obligations to Disney, which Disney agreed to
relinquish in connection with Infoseek's acquisition of Starwave and related
transactions.
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.com, 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. See
"Infoseek Relationship with Disney."
The agreements relating to the Joint Ventures, as amended in connection with
Infoseek's acquisition of Starwave, have terms of ten years following such
acquisition 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.
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
138
<PAGE>
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.
Netscape
Since March 1995, Infoseek's service has been listed as a navigational service
on the Netscape Web page accessible via the "NetSearch" button. Through April
30, 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 was subsequently extended through May 31,
1998.
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 LookSmart). Under terms of the agreement, 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. In November 1998, Infoseek and Netscape
renegotiated the terms of the June agreement to provide for the purchase of 5%
of Netscape's available search traffic beginning January 11, 1998 and through
the duration of the agreement which terminates May 31, 1999. Pages sourced from
Netscape have declined from 30% a year ago to 13% in June 1998 and 12% in
September 1998 and a loss of Netscape sourced pages could have an adverse
impact on Infoseek's business, results of operations and financial condition
and prospects. As of September 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. Mr.
Zeisler's wife, Jennifer Bailey, is a Senior Vice President of Netscape.
Other
Infoseek has granted options to certain of its directors and executive
officers. See "Management--Option Grants in Last Fiscal Year" and "--Security
Ownership of Management and Principal Shareholders of Infoseek."
Infoseek has entered into indemnification agreements with its executive
officers, directors and certain significant employees. Infoseek's
indemnification agreements will require Infoseek, among other things, to
indemnify such persons against certain liabilities that may arise by reason of
their status or service as directors, executive officers or significant
employees and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
At the present time, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of Infoseek in which indemnification
would be required or permitted. Infoseek is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
139
<PAGE>
Infoseek believes that all of the transactions set forth above were made on
terms no less favorable to Infoseek and its affiliates than could have been
obtained from unaffiliated third parties. Any future transactions, including
loans, between Infoseek and any of its officers, directors, affiliates and
principal shareholders will be on terms no less favorable to Infoseek than can
be obtained from unaffiliated third parties. Any such transactions will be
subject to approval of a majority of the Infoseek Board of Directors, including
a majority of the independent, disinterested directors.
140
<PAGE>
QUANDO SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1996 and 1997 and for
the three-year period ended December 31, 1997 are derived from the audited
financial statements of Quando included elsewhere in this Proxy
Statement/Prospectus and should be read in conjunction with such financial
statements, the related notes thereto and the other financial information
pertaining to Quando included elsewhere in this Proxy Statement/Prospectus. The
following selected financial data as of September 30, 1998 and for the nine
months ended September 30, 1997 and 1998 are derived from unaudited financial
statements of Quando included elsewhere in this Proxy Statement/Prospectus. The
following selected financial data as of December 31, 1995, 1994 and 1993 and
for the period from December 14, 1993 (inception) through December 31, 1993 and
the year ended December 31, 1994 are derived from unaudited financial
statements of Quando not included elsewhere in this Proxy Statement/Prospectus.
In the opinion of management, the unaudited information presented in the
following financial data reflects all adjustments, which are of a normal
recurring nature, necessary to present fairly the information as follows.
Operating results for the nine-months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 14,
1993 (INCEPTION) NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 THROUGH SEPTEMBER 30,
-------------------------------------------- DECEMBER 31, --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- ----------- ---------------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues, net........... $ 255,723 $ 33,182 $ 71,186 $ 21,388 $ -- $ 513,713 $ 147,450
Cost of goods sold...... 654 19,373 32,212 8,881 -- 5,349 600
--------- --------- --------- --------- ----- --------- ---------
Gross margin........... 255,069 13,809 38,974 12,507 -- 508,364 146,850
--------- --------- --------- --------- ----- --------- ---------
Operating expenses:
Research and
development........... 161,339 115,782 127,273 8,473 -- 413,260 112,828
Sales and marketing.... 12,000 2,000 400 -- -- 699 2,901
General and
administrative........ 418,850 326,103 361,156 180,468 204 316,759 291,167
--------- --------- --------- --------- ----- --------- ---------
Total operating
expenses............. 592,189 443,885 488,829 188,941 204 730,718 406,896
Operating loss.......... (337,120) (430,076) (449,855) (176,434) (204) (222,354) (260,046)
Other expenses, net..... (16,281) (12,671) (8,248) (151) -- (59,025) (18,424)
--------- --------- --------- --------- ----- --------- ---------
Net loss................ $(353,401) $(442,747) $(458,103) $(176,585) $(204) $(281,379) $(278,470)
========= ========= ========= ========= ===== ========= =========
Basic and diluted net
loss per common
share(1)(2)............ $ (0.08) $ (0.08) $ (0.08) $ (0.06) $ (0.06)
Shares used in computing
net loss per common
share(1)(2)............ 4,598,424 5,445,000 5,445,000 4,445,000 4,650,128
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- SEPTEMBER 30,
1997 1996 1995 1994 1993 1998
--------- --------- ----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 50,984 $ 2,935 $ 3,322 $ 50,270 $796 $ 75,779
Working capital
(deficit).............. (248,341) (266,461) (207,251) 24,497 796 (373,995)
Total assets............ 126,624 57,805 74,913 155,461 796 281,075
Shareholders' loans..... 67,658 66,991 51,364 -- -- 40,000
Convertible debt........ 247,000 -- -- -- -- 447,000
Total shareholders'
equity (deficit)....... (448,942) (211,591) (179,107) 103,995 796 (725,321)
</TABLE>
- --------
(1) The year ended December 31, 1995 was the first full year that Quando was
subject to federal and state corporate income taxes following the
termination of its Subchapter S election effective October 21, 1994.
Guidelines of the Commission allow loss per share data to be presented only
when a company converts to a taxable status. Accordingly, loss per share
data have been presented only for the years ended December 31, 1997, 1996
and 1995 and the nine months ended September 30, 1998 and 1997.
(2) The earnings per share amounts prior to 1997 and for the nine months ended
September 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.
141
<PAGE>
QUANDO 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. 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 18 of this Proxy Statement/Prospectus, including those entitled "Risks
Related to Quando--Limited Operating History; Historical Losses; Anticipation
of Continued Losses; Need for Additional Financing," "--Intellectual Property
Rights," "--Dependence on Key Employees," "--Dependence on Key Customers; Sales
Force," "--Intense Competition,"-- and "Technological Change; Need for
Continued Technological Innovation."
OVERVIEW
Quando develops and markets search and navigational services for the Internet.
Quando was originally organized under the name Media Mosaic in December 1993,
as a subchapter S Corporation, and commenced operations in January 1994. From
inception through December 1995, Media Mosaic developed and published "how to"
CD-ROMs for several activities and hobbies. In October 1994 Media Mosaic
revoked its S Corporation tax status election and began operations as a
subchapter C Corporation. Effective September 27, 1996, Media Mosaic changed
its name to Quando, Inc.
By December 1995, management had determined that Quando's CD-ROM product was
not generating the sales necessary to sustain the business. At this point
management began focusing upon the development of a new product which would
allow the end-user to be able to search the Internet for information about a
particular subject. In December 1996, Quando completed the first version of
this product.
Quando's product searches the Internet with "software robots" to build custom
directories or information customized to each customers preferences. The
directories range from general and specialized event indexes to audio clip
libraries and shopping guides. The products are designed to be user friendly,
including full drag and drop PIM (Personal Information Management) capability
and branding capabilities. Quando began generating revenues from the sales of
these products in 1997.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Total Revenues, net
For the nine months ended September 30, 1998 and 1997, total net revenues were
$513,713 and $147,450, respectively.
During the first nine months of 1998 and 1997, Quando's revenues resulted
primarily from fees for search and navigational services and fees for
engineering or other customization of directory services. Search and
navigational service fee revenue is recognized monthly as it is earned and
custom engineering project revenue is recognized on a completed contract basis.
Quando's current business model is to generate revenues through the sale of
custom event search and navigational services and the engineering of these
services. There can be no assurance that current customers will continue to
purchase search and navigational services and custom engineering projects from
Quando or that Quando will be able to successfully attract additional
customers.
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Cost of Goods Sold
For the nine months ended September 30, 1998 and 1997, cost of goods sold were
$5,349 and $600, respectively. Cost of goods sold consist primarily of expenses
incurred related to software license fees.
Operating Expenses
Research and Development. For the nine months ended September 30, 1998 and
1997, research and development expenses were $413,260 and $112,828,
respectively. Research and development expenses consist principally of
personnel costs and fees paid to contractor engineers. Costs related to
research, design and development of new or expanded search engine services have
been charged to research and development expense as incurred.
The increase in research and development expenses for the nine months ended
September 30, 1998 over the corresponding period in 1997 was primarily the
result of increased demand for product and additional personnel added to
continuously update Quando's search engines. Quando believes that a significant
level of product development expenses is required to continue to remain
competitive in its industry.
General and Administrative. For the nine months ended September 30, 1998 and
1997, general and administrative expenses were $316,759 and $291,167,
respectively. General and administrative expenses consist primarily of payroll
and related expenses, occupancy costs and professional services.
The increase in general and administrative expense for the nine months ended
September 30, 1998 over the comparable period in 1997 was the result of hiring
additional administrative and selling personnel to continue the expansion of
Quando's business.
Other Expense, net
For the nine months ended September 30, 1998 and 1997, other expense, net was
$59,025 and $18,424, respectively. Other expense, net consists primarily of
interest expense. The increase in interest expense is due to an increase in the
outstanding convertible debt balance. During the first nine months of 1997
Quando issued $140,000 in convertible debt which was outstanding for the full
nine month period ending September 30, 1998. Additionally, Quando issued
$200,000 in convertible debt and obtained a loan for $360,000 in the first nine
months of 1998.
Income Taxes
Due to Quando's loss position, there was no provision for income taxes for any
of the periods presented.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
During 1996 Quando changed their business focus from developing and publishing
"how to" CD-ROM's to developing and marketing custom search and navigational
services for the Internet. The change in the business focus should be
considered when reviewing the following discussion.
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Total Revenues, net
For the years ended December 31, 1997 and 1996, total revenues, net were
$255,723 and $33,182, respectively. During the year ended December 31, 1997,
Quando's revenues resulted primarily from fees for search and navigational
services and fees for engineering or other customization of search and
navigational services. Search and navigational service fee revenue is
recognized monthly as the fees are earned and custom engineering revenue is
recognized on a completed contract basis. During the year ended December 31,
1996, Quando's revenue was derived primarily from the sale of CD-ROM products.
CD-ROM product sales were recognized upon shipment.
Cost of Goods Sold
For the years ended December 31, 1997 and 1996, cost of goods sold were $654
and $19,373, respectively. Cost of goods sold consists primarily of software
license fees in 1997 and is comprised of the cost of manufacturing and
packaging CD-ROMs in 1996.
Operating Expenses
Research and Development. For the years ended December 31, 1997 and 1996,
research and development expenses were $161,339 and $115,782, respectively.
Research and development expenses consist principally of personnel costs
including fees paid to contract engineers. 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
expense for the year ended December 31, 1997 over the corresponding period in
1996 was primarily the result of the change in Quando's business focus.
Sales and Marketing. For the years ended December 31, 1997 and 1996, sales and
marketing expense were $12,000 and $2,000, respectively. Sales and marketing
expenses consist principally of advertising expenses. The increase in sales and
marketing expense for the year ended December 31, 1997 over the corresponding
period in 1996 was due to advertising expenses incurred to make the public
aware of Quando's new product offerings.
General and Administrative. For the years ended December 31, 1997 and 1996,
general and administrative expenses were $418,850 and $326,103, respectively.
The increase in general and administrative expense for the year ended December
31, 1997 over the comparable period in 1996 was the result of hiring additional
employees related to the change in Quando's business focus.
Other Expense, net
For the years ended December 31, 1997 and 1996, other expense, net was $16,281
and $12,671, respectively. Other expense, net consists primarily of interest
expense. Interest expense for the 1997 and 1996, totaled $26,151 and $14,897,
respectively. The increase in interest expense is due to Quando issuing
$247,000 in convertible debt during 1997. The convertible debt bears interest
at 10% to 12% per annum and is payable between January 1, 2000 and April 1,
2000. In 1997, a creditor of Quando forgave $10,000 of Quando's accounts
payable balance, this was included as other income, and partially offsets the
interest expense incurred during the year.
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Income Taxes
Due to Quando's loss position, there was no provision for income taxes for any
of the periods presented. As December 31, 1997, Quando had federal and state
operating loss carryforwards and research and experimentation credits of
approximately $1,280,000 and $40,000, respectively. These carryforwards will
expire between 2000 and 2012 if not used by Quando to reduce income taxes
payable in future periods. Certain future changes in ownership of Quando, may
restrict the utilization of these carryforwards. A valuation allowance has been
recorded for the entire deferred tax asset as a result of uncertainties,
regarding the realization of the assets due to the lack of earnings history of
Quando.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND 1995
During 1996, Quando changed their business focus from developing and publishing
"how to" CD-ROMs to developing and marketing search and navigational directory
services for the Internet. The change in the business focus should be
considered when reviewing the following discussion.
Total Revenues, net
For the years ended December 31, 1996 and 1995, total revenues, net were
$33,182 and $71,186, respectively. During the year ended December 31, 1996,
Quando discontinued selling their CD-ROM products and concentrated upon
developing custom search and navigational services for the Internet or Web.
During the year ended December 31, 1995, Quando's revenues were derived
primarily from the sale of CD-ROM products. Quando developed and sold two CD-
ROM products for Windows and Macintosh: "Mountain Biking" and "Rock Climbing--
Freedom of the Hills." The CD-ROMs generally sold for $59.95 each retail and
approximately $22.00 each wholesale. The CD-ROMs were available through various
distribution channels including outdoor sports stores, book stores and computer
retail stores.
Cost of Goods Sold
Cost of goods sold for the years ended December 31, 1996 and 1995, were $19,373
and $32,212, respectively. Cost of goods sold consists primarily of costs to
manufacture and package CD-ROMs. Cost of goods sold decreased in 1996 due to
the reduction in sales. As a percentage of revenues cost of sales increased for
the year ended December 31, 1996 to 58%, compared to 45% for the year ended
December 31, 1995. The increase in cost of sales as a percentage of revenues is
due to lower selling prices on Quando's CD-ROM products and the write-down of
inventory which was not sold at the time of the change in the business focus.
Operating Expenses
Research and Development. For the years ended December 31, 1996 and 1995
research and development expenses were $115,782 and $127,273, respectively.
Research and development expense consists principally of personnel costs
including contractors. The decrease in research and development expense for the
year ended December 31, 1996 over the corresponding period in 1995 was
primarily the result of Quando reducing the number of employees in the
beginning of 1996. Throughout 1996, additional contractors were hired, as
Quando needed, in order to complete development of its new product.
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Sales and Marketing. For the years ended December 31, 1996 and 1995, sales and
marketing expenses were $2,000 and $400, respectively. The increase in sales
and marketing expense for the year ended December 31, 1996 over the
corresponding period in 1995 was primarily the result of the effort to sell
Quando's remaining inventory of CD-ROMs.
General and Administrative. For the years ended December 31, 1996 and 1995,
general and administrative expenses were $326,103 and $361,156, respectively.
General and administrative expenses consist primarily of payroll and related
expenses, occupancy costs and professional services. The decrease in general
and administrative expense for the year ended December 31, 1996 over the
corresponding period in 1995 was primarily the result of Quando reducing the
number of employees in 1996. The decrease was also due to the spending
constraints implemented by Quando to control expenditures due to cash flow
problems during the change in business focus.
Other Expense, net
For the years ended December 31, 1996 and 1995, other expense, net was $12,671
and $8,248, respectively. Other expense, net consists primarily of interest
expense. The increase in interest expense is due to shareholders loans for
$51,364 being outstanding for the entire 1996 period, while only being
outstanding for a partial part of 1995. Total shareholder loans totaled $66,991
at December 31, 1995 compared to $15,627 at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1998, Quando financed its operations and
met its capital expenditure requirements primarily from proceeds derived from
the issuance of equity, convertible debt securities, notes payable and sales.
For the nine months ended September 30, 1998, operating activities used cash of
$445,262, primarily due to net losses offset by increases in accounts payable
and other accrued expenses. For the nine months ended September 30, 1998,
investing activities used cash of $67,285 related to the purchase of equipment.
Financing activities generated cash of $537,342 in the first nine months of
1998 from the issuance of $240,000 of convertible debt and a $360,000 note
payable.
For 1997, 1996 and 1995, operating activities used cash of $308,113, $386,975
and $292,218, respectively. The net cash used during these periods was
primarily due to net losses from operations, partially offset by increases in
accounts payable and accrued expenses. For 1997 and 1996, investing activities
used cash of $7,552 and $39,302, respectively, related to the purchase of
equipment. For 1995, investing activities provided cash of $18,905 due to the
sale of equipment partially offset by the purchase of equipment. Financing
activities generated cash of $363,717, $425,890 and $226,365 in 1997, 1996 and
1995, respectively, primarily from the issuance of preferred stock, shareholder
loans and the issuance of convertible debt.
Quando's independent auditors have included in their audit report an
explanatory paragraph which states that Quando's recurring losses from
operations raise substantial doubt about its ability to continue as a going
concern. Quando has generated operating cash losses from its inception.
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On July 24, 1998, Quando entered into the Merger Agreement with Infoseek and
certain other parties. Pursuant to the Merger Agreement, among other things,
all the issued and outstanding shares of Quando common stock 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. Effective
upon the signing of the Merger Agreement, Infoseek loaned Quando $360,000
against a secured promissory note issued by Quando to Infoseek. All principal
and accumulated interest on this note is due and payable on March 31, 1999.
This note is secured by Quando's assets and bears interest at a rate of 6%
annually.
This acquisition is expected to provide Quando with the additional financial
resources to continue operations. If the acquisition is not completed, Quando
would have to find alternative financing sources to continue operations.
YEAR 2000
Quando 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. In
general, Quando has evaluated its products and has determined that they are
currently Year 2000 compliant. Although management does not expect Year 2000
issues to have a material impact on its business or future results of
operations, there can be no assurance that there will not be interruptions of
operations or other limitations of system functionality or that the Company
will not incur significant costs to avoid such interruptions or limitations. In
addition, Quando does not currently have information covering the Year 2000
compliance status of its suppliers and customers. In the event that any of
Quando's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, Quando's business or operations could be
adversely affected.
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 changes in equity. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of earlier
financial statements for comparative purposes is required. Quando 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 131"). SFAS 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
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determining the company's operating segments is the manner in which management
operates the business. SFAS 131, is effective for fiscal years beginning after
December 15, 1997. Quando does not expect implementation to have a significant
impact on its financial statements.
In October 1997, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 97-2 "Software Revenue Recognition" which
provides guidance on applying generally accepted accounting principles in
recognizing revenue of software transactions. Quando adopted SOP 97-2 on
January 1, 1998. The impact to Quando's financial statements was not material.
Related to the SOP 97-2, the AICPA issued SOP 98-4 "Deferral of the Effective
Date of a Provision of SOP 97-2, "Software Revenue Recognition." SOP 98-4
defers for one year, the application of several paragraphs and examples in SOP
97-2 that limit the definition of vendor specific objective evidence of the
fair value of various elements in a multiple element arrangement. The impact on
Quando's financial statements is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability at its fair
value. The standard also requires that changes in the derivatives' fair value
be recognized currently in the results of operations unless specific hedge
accounting criteria are met. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. Quando does not expect SFAS 133 to have a material impact
on its financial statements.
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QUANDO BUSINESS
Quando provides search and navigational services for the Internet. To provide
these services, Quando creates constantly-updated directories of information
obtained from the Internet for use in searching the Web--including shopping
guides, event guides, contact directories and audio clip libraries, review
guides and website rating guides. Quando builds the directories with a
proprietary robot technology and database processing techniques. Quando
provides the use of these online directories and guides as a service to its
customers, such as Infoseek, IBM and America Online. Quando's customers then
provide these online directories and guides on their Internet websites for use
by their customers who desire to obtain specific consumer information from the
Internet in an easy-to-use format.
Quando's technology collects data from the Web and converts it into a more
usable format for consumers. Quando's technology scans hundreds of websites and
can gather and process five different types of data collected from the Web.
PRODUCTS AND TECHNOLOGY
Quando's technology uses proprietary parsing and database techniques to gather,
process and deliver data content in a usable format to consumers in the form of
directories and guides. The technology architecture consists of three phases or
types of technology: data collection, data processing, and content delivery.
Data content is generally collected on websites available to the public, but
Quando can also obtain data via email, spreadsheets, flat files, and databases
from partners and customers. Quando has developed proprietary robot technology
named QBot to visit various websites and retrieve data. QBot can also be used
on email, spreadsheets, and other forms of manual entry.
After obtaining the "raw" data from the Web, Quando begins the second phase of
the technology architecture: processing of the data. Quando processes its data
using parsing techniques and database tools to refine the data content into a
usable format. For example, various events are advertised on many websites, but
each announcement of an event can be presented using different fonts, writing
styles and/or grammar to describe the date and time an event will be held. The
Quando processing technology recognizes nearly all of the possible ways to
describe such data and identifies duplicate announcements of the same event,
even when such event is described differently on various websites.
Similarly, products offered for sale at different e-commerce websites may
describe the same product using different names. For example, "Sony 27 inch
television" at one Website and "Sony27CTV" used at another Website both
describe the same product using different grammar. Quando's processing
technology identifies and eliminates such duplicates.
To date, Quando has established five technologies for collecting five different
types of data content and processing them into a usable format for consumers:
(i) events--EventBot; (ii) venue information--WhoBot; (iii) product
information--ShoppingBot; (iv) website summary information--SchoolBot; (v)
audio clips and live Webcasts on the internet. Quando believes the technology
architecture can be applied to many more types of data content on the Web.
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The third phase of Quando's technology architecture is the delivery of the
data, which has been collected and processed, to provide the guides and
directories in a usable format for consumers. Quando's technology utilizes a
combination of database techniques and Javascript programming to enable Quando
to offer its users directories and "search engine"-like tools. Queries using
such directors and "search engine"-like tools are made directly to Quando's
high-speed database that provides search results without having to search the
Web (because Quando's technology has already collected and processed the
requested data content).
SALES AND DISTRIBUTION
Quando sells constantly-updated, customized directories and guides assembled by
Quando to Internet websites such as Infoseek, America Online's Digital City
subsidiary and IBM. These customers then offer such directories and guides at
their own websites, and pay Quando for such service. Contracts for this type of
service range from 3 to 12 months, and are typically paid in advance. Quando
does not license the technology to its customers or any other parties.
Quando also charges its customers for custom engineering and other
modifications required by a customer to meet such customer's specific service
needs. Quando typically retains all rights to any modified technology.
Quando's services are sold through a direct sales force. Product development,
marketing, administration, sales and support for Quando's customers are managed
through its 5,000 square foot corporate headquarters facility in Portland,
Oregon.
Online services are provided under contract by Easystreet Online, an internet
service provider in Beaverton, Oregon. All Quando software and hardware
directly accessed by customers resides in the Easystreet Online secure
facilities.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Quando 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 Quando, that others will not develop or have
not developed similar or superior technologies, or that third parties will not
copy or otherwise obtain and use the technologies of Quando without
authorization. After giving effect to the Merger, Quando's proprietary
technologies may receive greater exposure in U.S. and international markets.
Effective patent, copyright, trademark and trade secret protection may be
unavailable or limited in certain markets.
Quando has not filed any patent applications to date, but anticipates filing
patent applications with respect to certain of its software and online
technologies in the future. There can be no assurance, however, 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 Quando. Quando's success is also dependent in part on
the protection of existing 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 Quando's content or Internet addresses (commonly referred to as
"domain names" such as ShoppingBot.com. Quando
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has registered certain of its trademarks and will continue to evaluate the
registration of additional service marks and trademarks, as appropriate. There
can be no assurance that Quando'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 Quando's business,
financial condition and operating results.
COMPETITION
The market for Internet products and services is highly competitive,
particularly for the robot and data management services that Quando provides to
customers. Quando believes the competition for robot services in particular and
the Internet in general is increasing and will continue to intensify.
Furthermore, Quando's customers such as America Online and Infoseek are subject
to intense competition, which may strongly affect Quando and other robot
service companies. The market for Internet search and navigational services
such as Infoseek has only recently begun to develop, and Quando cannot predict
with any certainty how competition will affect Infoseek and Quando, their
competitors, or their customers. There can be no assurance that Quando will be
able to compete successfully or that the competitive pressures faced by Quando,
including those listed below, will not have a material adverse effect on
Quando's business, results of operations, financial condition and prospects.
Competition from Consolidated Robot Companies. Quando's competitors, such as
Junglee and Jango, offer similar technologies and products, and have recently
merged with major Internet companies (Junglee with Amazon.com and Jango with
Excite). This has created stronger competition, since the parent companies can
provide greater financial and technical resources and abilities, leading to
more successful robot-based products and services. In addition, these combined
companies have already begun to integrate the robot technology into multiple
facets of the parent company's existing products, services, and markets, which
in turn can provide a higher quality user experience, increase market share,
and attract new customers and partners. Quando expects that continued or
increased competition from such combined companies, and the resulting increase
in market share, customers and strategic partners could have a material adverse
effect on Quando's business, results of operations, financial condition and
prospects.
Competition from Robot Companies. Quando's competitors, such as Inktomi, offer
or may soon offer similar technologies and products to Quando's customers, such
as America Online and Infoseek. Inktomi already provides America Online with
key services on an outsourced basis under a multi-million dollar contract. Such
competing companies as Inktomi have greater resources and abilities to offer
superior products and services. In addition, entities that sponsor or maintain
high-traffic websites or that provide an initial point of entry for Internet
viewers, such as Netscape, can be expected to consider further development,
acquisition or licensing of robot and data management functions competitive
with those offered by Quando. Further such entities could take actions that
make it more difficult for customers to license Quando's products and services.
Continued or increased competition from such companies could have a material
adverse effect on Quando's business, results of operations, financial condition
and prospects.
Acceptance of Quando's Business Model. Quando's future success is highly
dependent upon the increased use of companies like Quando to provide key
services and products to Internet companies
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on an outsourced basis. The market for such outsourced 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 Quando's customers have only limited experience
with the products and services they offer via Quando, and have not yet devoted
a significant portion of their operational expenditures to outsourced robot
services, and may not find such outsourcing to be effective for winning
customers and increasing revenue. Furthermore, many Quando customers would
regard outsourcing a key technology as a substantial and significant
disadvantage in comparison to creating, controlling, and owning such technology
in-house. There can be no assurance that Quando customers, once they find
Quando's services to be successful in winning customers and increasing revenue,
will not choose to create similar technology in house and compete directly with
Quando and with Quando's other customers.
EMPLOYEES
As of December 2, 1998, Quando had approximately 26 full-time employees. Quando
is not a party to any collective bargaining agreement and considers its
employee relations to be good.
LITIGATION
Quando is not currently a party to any litigation.
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SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL SHAREHOLDERS OF QUANDO
The following table sets forth, as of December 2, 1998, certain information
with respect to the beneficial ownership of shares of Quando common stock by
(i) each Quando director, (ii) each of Quando's executive officers, (iii) all
directors and executive officers of Quando as a group, and (iv) each person (or
group of affiliated persons) known to Quando to be the beneficial owner or 5%
of more of Quando's outstanding shares. Except as otherwise noted, Quando
believes that the beneficial owners of the shares of Quando 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 QUANDO SHARES OF INFOSEEK
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO MERGER (1)(2) AFTER MERGER (3)
------------------------------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
---------------- ------------ ---------------------- ---------
<S> <C> <C> <C> <C>
David Billstrom............. 2,222,500 25.85% 136,228 *
William Neuhauser........... 2,222,500 25.85% 136,228 *
Patricia Allie.............. 65,000 * 3,984 *
Hilary Lombard.............. 130,667 1.52% 8,009 *
Scott Maxson................ 147,750 1.72% 9,056 *
Stanton R. Koch............. 700,269(4) 8.14% 42,922 *
Daniel C. Lynch............. 1,318,639(5) 15.34% 80,825 *
Robert Woodell.............. 248,586(6) 2.89% 15,237 *
All directors and executive
officers as a group
(8 persons)................ 7,055,911 82.05% 432,492 *
</TABLE>
- --------
* Less than 1%
(1) The address for each of Messrs. Billstrom, Neuhauser, Koch, Maxson, Lynch
and Woodell and Ms. Allie and Ms. Lombard is c/o Quando, Inc., 520 NW Davis
Street, Portland, Oregon 97209.
(2) Percentage ownership calculations are based on 8,598,508 shares of Quando
capital stock outstanding as of December 2, 1998 (on an as converted
basis). Beneficial ownership is determined in accordance with the rules of
the Commission and includes voting and investment power with respect to
shares. Shares of Quando common stock subject to options or warrants
currently exercisable or exercisable within 60 days of December 2, 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) On an as-converted basis and based on the exchange ratios used in the
Merger, 0.0613, 0.0777, and 0.0702 shares of Infoseek common stock shall be
issued for each outstanding share of Quando common stock, Quando Series A
preferred stock and Quando Series B preferred stock, respectively.
Percentage ownership calculations are based on an estimated 61,430,023
shares of Infoseek common stock outstanding following the Merger, which is
subject to any additional shares of Infoseek common stock that may be
issued prior to the effective time of the Merger in transactions (if any)
separate from those described herein.
(4) Includes 2,000 shares in the form of unexercised nonstatutory stock options
exercisable within 60 days of December 2, 1998.
(5) Includes 750 shares in the form of unexercised nonstatutory stock options
exercisable within 60 days of December 2, 1998.
(6) Includes 500 shares in the form of unexercised nonstatutory stock options
exercisable within 60 days of December 2, 1998.
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QUANDO MANAGEMENT
The following table sets forth certain information concerning Quando's current
executive officers, directors and certain members of its senior management.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
David Billstrom......... 37 Chief Executive Officer, President and Chairman of the Board
Patricia Allie.......... 39 Vice President of Operations
Hilary Lombard.......... 36 Vice President of Content
Scott Maxson............ 37 Vice President of Data Technology
William Neuhauser....... 40 Chief Technical Officer, Vice President of Development, Director
Stanton R. Koch......... 39 Director
Daniel C. Lynch......... 57 Director
Robert Woodell.......... 54 Director
</TABLE>
David Billstrom has served as Chief Executive Officer, President and a director
of Quando since December 1993, and Chairman of the Board since March 1997. He
co-founded Quando with Mr. Neuhauser. Mr. Billstrom has worked in the computer
industry for 18 years in marketing, sales, product management, and engineering.
Prior to co-founding Quando, Mr. Billstrom held various positions with Intel
Corporation from 1986 until 1993, including management positions in the
Supercomputer Systems Division, in both the U.S. and in Europe. Mr. Billstrom
attended Reed College.
Patricia Allie has served as Vice President of Operations since February 1998.
She joined Quando in September 1997 as Director of Operations. Prior to joining
Quando, Ms. Allie was Production Manager and a project leader for Synektron, a
manufacturer of computer disc drive motors. Previously she was a manufacturing
engineer and an industrial engineer for Synektron and held similar positions in
the paper products industry, including materials manager, production scheduler
and senior industrial engineer for Scott Paper Company. Ms. Allie holds a B.S.
in Industrial Engineering from SUNY Buffalo.
Hilary Lombard has served as Vice President of Content of Quando since March
1997. Ms. Lombard co-developed the original Quando concept. Ms. Lombard joined
Quando in March 1995 (under the Media Mosaic name), where she directed the
development of Media Mosaic's consumer CD-ROM, Rock Climbing/The Freedom of the
Hills. Prior to joining Quando, Ms. Lombard was an educator in corporate,
secondary and higher education environments, including The Southern Company and
AT&T. She holds an M.Ed. in Adult Education, and M.S. in Instructional
Technology and a B.A. in English from Tufts University.
Scott Maxson has served as Vice President of Data Technology of Quando since
March 1997. Mr. Maxson co-developed the original Quando concept and designed
the data architecture. He was also the lead developer in Quando's development
agreement with America Online and is an Oracle expert. Mr. Maxson joined Quando
in February 1995 (under the Media Mosaic name) where he directed the
development of a joint project with L.L.Bean to develop a CD-ROM on flyfishing.
Prior to joining Quando, Mr. Maxson developed user interfaces and databases for
use in clinical trials of
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pharmaceuticals with Clinical Trial Systems, Inc. from 1990 to 1995. Prior to
joining Clinical Trial Systems, Inc., Mr. Maxson was a design engineer for
Tektronix where he was awarded a U.S. patent for his work on electron beam
devices. Mr. Maxson holds a B.A. in Physics from Reed College.
William Neuhauser has served as Vice President of Development, Chief Technology
Officer and director of Quando since December 1993. Mr. Neuhauser co-founded
Quando with Mr. Billstrom and is the architect of the Quando technology. Prior
to co-founding Quando, Mr. Neuhauser was President of Chorus Systems, Inc., a
subsidiary of Chorus systemes SA of France, which develops microkernel
operating system products from 1990 to 1993. From 1986 to 1990 Mr. Neuhauser
was a manager at the parent company, Chorus Systemes SA of France where he
directed product management and licensed technology to partners and customers.
Mr. Neuhauser holds a B.A. in Biology from Reed College. He has served on the
board of directors of Chorus systemes, Oregon Software and the Software
Association of Oregon.
Stanton R. Koch has served as a director of Quando since December 1993. Mr.
Koch currently serves as World Wide Product Planning Manager for Word at
Microsoft Corporation, which he joined in 1986. At Microsoft Mr. Koch has
served in marketing, merchandising and product management roles. Prior to
joining Microsoft, Mr. Koch developed consumer software for small companies. He
holds a B.A. in Mathematics from Reed College.
Daniel C. Lynch has served as a director of Quando since March 1997 and has
advised Quando since June 1996. Mr. Lynch is a founder of CyberCash, Inc. and
has served as Chairman of the Board of Directors since CyberCash's formation in
1994. Prior to his tenure at CyberCash, Inc., Mr. Lynch was a private investor.
He also founded Interop Company, which is now a division of Softbank Expos, and
is an investor in a number of private startup companies in the Internet arena.
Mr. Lynch holds a B.A. from Loyola Marymount University and an M.S. in
Mathematics from UCLA.
Robert Woodell has served as a director of Quando since August 1996. Mr.
Woodell is a member of the board of directors of Oregon Brewing Company and
served as a Director of Rogue River Brewing Company from 1986 to 1997. From
1991 to 1996, Mr. Woodell was a private investor in various companies. From
1987 to 1991 he served as the Executive Director for the Port of Portland, and
prior to that, was appointed a Commissioner of the Port of Portland in 1987.
From 1968 to 1986, Mr. Woodell was an executive with Nike, most recently as
President and a member of the Board of Directors. Mr. Woodell attended the
University of Oregon.
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DISSENTERS' RIGHTS
If the Merger Agreement is approved by the required percentage of the
shareholders of Quando and is not abandoned or terminated, any holder of Quando
capital stock may, by complying with Sections 60.551 through 60.594 of the
Oregon Business Corporation Act, be entitled to dissenters' rights as described
therein. The record holders of the shares of Quando common stock that dissent
from the Merger (the "Dissenting Shares") are referred to herein as "Quando
Dissenting Shareholders."
OREGON DISSENTERS' RIGHTS
The following discussion is not a complete statement of the Oregon Business
Corporation Act relating to dissenters' rights, and is qualified in its
entirety by reference to Sections 60.551 through 60.594 of the Oregon Business
Corporation Act attached to this Proxy Statement/Prospectus as Annex B and
incorporated herein by reference. This discussion and Sections 60.551 through
60.594 of the Oregon Business Corporation Act should be reviewed carefully by
any holder who wishes to exercise statutory dissenters' rights or wishes to
preserve the right to do so, since failure to comply with the required
procedures will result in the loss of such rights.
ANNEX B SHOULD BE REVIEWED CAREFULLY BY ANY QUANDO SHAREHOLDER WHO WISHES TO
EXERCISE DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, SINCE
FAILURE TO COMPLY WITH THE PROCEDURES OF THE STATUTE WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS.
A shareholder who is a record shareholder or beneficial owner of shares held in
a voting trust or a nominee as the record shareholder may dissent from and
obtain payment for the fair value of the shareholder's shares in the event of
consummation of a plan of merger if the shareholder is entitled to vote on the
merger. A shareholder who wishes to assert dissenters' rights must 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 merger is
consummated, and the shareholder must not vote such shares in favor of the
merger.
Pursuant to Sections 60.551 through 60.594 of the Oregon Business Corporation
Act, holders of Dissenting Shares may require Quando to repurchase their
Dissenting Shares at a price equal to the fair value of such shares determined
as of the day before the first announcement of the terms of the Merger,
excluding any appreciation or depreciation in consequence of the proposed
Merger.
Within ten (10) days following approval of the Merger by the shareholders of
Quando, Quando is required to deliver to each person who provided written
notice prior to the vote of his or her intent to demand payment for his or her
Dissenting Shares and who did not vote in favor of the Merger a dissenters'
notice which shall: (i) state where the payment demand will be sent and where
and when certificates for certificated shares will be deposited and to what
extent the transfer of uncertificated shares will be restricted after the
payment demand is received; (ii) supply a form for demanding payment which will
include the date of the first announcement of the terms of the proposed Merger
to media or to shareholders and require that any person asserting dissenters'
rights certify whether the person acquired beneficial ownership of the shares
before that date; (iii) set a date by which Quando must receive the payment
demand, which date may not be less than 30 nor more than 60 days after the
dissenters' notice is delivered; and (iv) be accompanied by a copy of Sections
60.551 through 60.594 of the Oregon Business Corporation Act.
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A shareholder who has sent a dissenters' notice must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date of the first announcement of the terms of the proposed Merger to the media
or to shareholders and deposit the share certificates in accordance with the
terms of the dissenters' notice.
As soon as the Merger is consummated or upon receipt of a payment demand,
Quando must pay to each Quando Dissenting Shareholder the amount Quando
estimates to be the fair value of Dissenting Shareholder's shares, plus accrued
interest. The payment must be accompanied by: (i) Quando's balance sheet as of
the end of the fiscal year ending not more than 16 months before the date of
payment, an income statement for that year and the latest available interim
financial statements, if any; (ii) a statement of Quando's estimate of the fair
value of the shares; (iii) an explanation of how the interest was calculated;
(iv) a statement of the Dissenting Shareholder's rights in the event the
Dissenting Shareholder is dissatisfied with the payment offer; and (v) a copy
of Sections 60.551 through 60.594 of the Oregon Business Corporation Act. If
Quando does not consummate the Merger within 60 days after the date set for
demanding payment and depositing share certificates, Quando must return the
share certificates and release transfer restrictions on uncertificated shares.
If Quando consummates the Merger after such action, Quando must send a new
dissenters' notice and repeat the payment demand procedure.
Quando may elect to withhold payment from a Dissenting Shareholder who was not
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement of the proposed Merger to the
media or to shareholders. If Quando elects to withhold payment, then, after
consummation of the Merger, Quando must estimate the fair value of the shares
held by such Dissenting Shareholder plus accrued interest and pay this amount
to each Dissenting Shareholder who agrees to accept it full satisfaction of
such demand.
Within 30 days after Quando makes or offers payment for the Dissenting Shares,
a Dissenting Shareholder may notify Quando in writing of the Dissenting
Shareholder's own estimate of the fair value of such Dissenting Shares and
amount of interest due and demand payment of such estimate less any payment
received from Quando for such Dissenting Shares (or if Quando has withheld
payment pursuant to the foregoing paragraph, reject Quando's offer and demand
payment of such estimate) if: (i) the Dissenting Shareholder believes that the
amount paid or offered is less than the fair value of the Dissenting Shares or
that the interest was incorrectly calculated; (ii) Quando fails to make payment
within 60 days after the date set for demanding payment; or (iii) Quando,
having failed to consummate the Merger, does not return the share certificates
or release transfer restrictions on uncertificated shares within 60 days after
the date set for demanding payment.
In the event a demand for payment remains unsettled after the Dissenting
Shareholder exercises rights as set forth in the foregoing paragraph, Quando
must commence a proceeding within 60 days after receiving the Dissenting
Shareholder's payment demand and petition the court to determine the fair value
of the Dissenting Shares and accrued interest or else pay the Dissenting
Shareholder the amount demanded by such Dissenting Shareholder. Quando must
commence the proceeding in the circuit court of the county where Quando's
principal office is located and make all Dissenting Shareholders whose demands
remain unsettled parties to the proceeding. The circuit court may appoint one
or more appraisers to receive evidence and recommend the fair value of the
Dissenting Shares. Each Dissenting
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Shareholder is entitled to judgment for the amounts, if any, by which the court
finds fair value of the Dissenting Shares exceeds the amount paid by the
corporation (or for the fair value plus accrued interest of the Dissenting
Shareholders' after-acquired shares for which the corporation elected to
withhold payment). The court in an appraisal proceeding shall assess all costs
of the proceeding against Quando except that the court may assess costs against
Dissenting Shareholders if the court finds that the Dissenting Shareholders
acted arbitrarily, vexatiously or not in good faith. The court may assess the
fees and expenses of counsel and experts of the respective parties in amounts
the court finds equitable.
Any shareholder who fails to follow the procedures detailed above will lose the
right to dissent from the Merger. A negative vote, alone, will not constitute
written objection required prior to the Special Meeting of Shareholders. Any
shareholder making a written demand for payment is thereafter entitled only to
payment as provided in the Oregon Business Corporation Act; he or she is no
longer entitled to vote or otherwise exercise any shareholder rights as to his
or her shares of Quando capital stock. Consent of Quando is required for the
withdrawal of demand for payment.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF INFOSEEK CAPITAL STOCK
The authorized capital stock of Infoseek consists of 525,000,000 shares of
capital stock, of which 500,000,000 shares are designated as common stock, and
25,000,000 shares are designated as preferred stock.
Infoseek Common Stock
As of November 30, 1998, 60,902,973 shares of Infoseek common stock were
outstanding. After giving effect to the transactions contemplated by the Merger
Agreement, and assuming no other issuances of common stock after November 30,
1998, there will be approximately 61,430,023 shares of Infoseek common stock
outstanding. The holders of Infoseek 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 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, the holders of Infoseek common stock are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of liquidation preferences to holders of Infoseek preferred stock, if any.
Infoseek common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Infoseek common stock. All outstanding shares of Infoseek common
stock are fully paid and non-assessable, and the shares of Infoseek common
stock to be outstanding upon completion of the Merger will be fully paid and
non-assessable. Each share of Infoseek common stock has associated with it
certain rights to acquire shares of Infoseek capital stock pursuant to a
"poison pill" rights plan. See "--Infoseek Preferred Stock" and "--Infoseek
Stockholders Rights Plan; Infoseek Series A Participating Preferred Stock."
Infoseek Preferred Stock
Infoseek has 25,000,000 shares of Infoseek preferred stock authorized, of
which, as of November 30, 1998, no shares were outstanding. Subject to the
terms of the Governance Agreement, the Infoseek Board has the authority to
issue these shares of Infoseek 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
Infoseek 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
board of directors, without stockholder approval (subject to applicable stock
exchange rules), may issue Infoseek preferred stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Infoseek common stock, and the issuance of Infoseek preferred stock
may have the effect of delaying, deferring or preventing a change in control of
Infoseek. Infoseek 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, as defined
below. See "--Infoseek Stockholders Rights Plan; Infoseek Series A
Participating Preferred Stock."
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Infoseek Stockholders Rights Plan; Infoseek Series A Participating Preferred
Stock
Pursuant to Infoseek's "poison pill" Preferred Shares Rights Plan (the "Rights
Plan"), each share of Infoseek common stock has associated with it certain
rights to acquire shares of Infoseek's Series A Participating preferred stock,
par value $0.001 (collectively, the "Rights" and each, a "Right"). 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 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 common stock by an Acquiring
Person. If the Rights are triggered because an Acquiring Person beneficially
owns 15% or more of Infoseek 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 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
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. 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 among Infoseek and Disney
dated June 18, 1998.
Transfer Agent and Registrar
Boston EquiServe, L.P., serves as the transfer agent and registrar of Infoseek
common stock.
DESCRIPTION OF QUANDO CAPITAL STOCK
The authorized capital stock of Quando will consist, prior to the closing of
the Merger of 19,000,000 shares of capital stock, of which 15,000,000 shares
are common stock with no par value ("Quando common stock"), and 4,000,000
shares are preferred stock with no par value ("Quando preferred stock").
Quando Common Stock
As of December 2, 1998 6,466,125 shares of Quando common stock were
outstanding. The holders of Quando common stock are entitled to one vote per
share on all matters to be voted upon by the shareholders. Shareholders may not
cumulate votes in connection with the election of directors. Subject to the
preferential rights of the Quando preferred stock, the holders of shares of
Quando common stock are entitled to receive dividends; payable either in cash,
property or shares of capital stock, when and if declared by Quando's Board of
Directors out of funds legally available therefor. Quando may not issue
additional shares of Quando common stock without the prior written consent of
the holders of at least 50% of the then outstanding shares of Quando common
stock; provided that
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such restriction will terminate at the earlier of: (a) ten days prior to the
closing of an underwritten public offering in which the aggregate net proceeds
to Quando exceed $7,500,000 (subject to certain other limitations); or (b) the
date on which David Billstrom and Will Neuhauser together cease to own at least
50% of the outstanding shares of the Quando common stock. In the event of any
dissolution, liquidation, or winding up of the affairs of Quando, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Quando preferred stock, holders of Quando common
stock are entitled, unless otherwise required by law, to receive all of the
remaining assets of Quando of whatever kind available for distribution to
shareholders ratably in proportion to the number of shares of Quando common
stock held by them respectively. Quando common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to Quando common stock. All outstanding
shares of Quando common stock are fully paid and non-assessable.
Quando Preferred Stock
As of December 2, 1998 1,180,000 shares of Quando preferred stock were
outstanding of which 300,000 shares are Series A preferred stock and 880,000
shares are Series B preferred stock (together, "the convertible preferred
stock"). No dividends will be declared any paid on any shares of the then
outstanding shares of convertible preferred stock except in the event that the
Quando Board of Directors declares a dividend payable upon the then outstanding
shares of the Quando common stock, in which case the holders of the convertible
preferred stock shall be entitled to the amount of dividends per share of
convertible preferred stock as would be declared payable on the largest number
of whole shares of common stock into which each share of convertible preferred
stock held by each holder thereof could be converted. In the event of any
liquidation, dissolution or winding up of Quando, holders of each share of
convertible preferred stock shall be entitled to be paid first out of the
assets of Quando available for distribution to holders of Quando capital stock
before any sums shall be paid or any assets distributed among the holders of
Quando common stock, an amount equal to the greater of: (a) $1.00 per share of
Series A preferred stock and $0.625 per share of Series B preferred stock, plus
an amount equal to all accrued and unpaid dividends thereon; or (b) the amount
per share of convertible preferred stock that would have been payable had each
such share been converted to Quando common stock immediately prior to such
event of liquidation, dissolution or winding up, plus an amount equal to all
accrued but unpaid dividends thereon. Each holder of convertible preferred
stock has the right, at his or her option to convert his or her shares into
shares of Quando common stock. Each share of convertible preferred stock could
initially be converted into one share of Quando common stock. However the
convertible preferred stock is subject to certain antidilution protections,
such that as of December 2, 1998, each outstanding share of Series A Preferred
Stock could be converted into approximately 1.2685 shares of Quando common
stock, and each outstanding share of Series B preferred stock could be
converted into 1.1462 shares of Quando common stock. All shares of convertible
preferred stock may, at Quando's option, be converted into Quando common stock
within ten days prior to the closing of certain underwritten public offerings
in which the aggregate proceeds to Quando exceed $7,500,000. Except as set
forth above, the Quando Board of Directors has the authority to issue the
shares of Quando preferred stock in one or more series, and to fix the
preferences, limitations and relative rights granted to or imposed upon any
unissued and undesignated shares of Quando preferred stock and to fix the
number of shares constituting any series and the designations of such series
without any further vote or action
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by the shareholders. The Quando Board of Directors, without shareholder
approval, can issue Quando preferred stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders of
Quando common stock.
Transfer Agent and Registrar
Quando currently acts as the transfer agent and registrar of Quando capital
stock.
COMPARISON OF CAPITAL STOCK OF INFOSEEK AND QUANDO
Infoseek is incorporated in the State of Delaware and Quando is incorporated in
the State of Oregon. Following the Effective Time, Quando will continue to be
governed by the Oregon Business Corporation Act ("Oregon Law") and Infoseek
will continue to be governed by the Delaware General Corporation Law ("Delaware
Law"). Shareholders of Quando, however, will hold Infoseek common stock rather
than Quando common stock, and therefore, the rights of such shareholders will
be governed by Delaware Law, and the provisions of the Infoseek Amended and
Restated Certificate of Incorporation ("Certificate") and the Infoseek Bylaws,
rather than the Quando Articles of Incorporation ("Articles") and the Quando
Bylaws. The following is a summary comparison of certain provisions of Oregon
Law and Delaware Law and the charters and bylaws of the respective
corporations. This summary does not purport to be complete and is qualified in
its entirety by reference to the corporate statutes of those states, and the
corporate charters and bylaws of Infoseek and Quando. In addition, the
contractual terms of the Governance Agreement also affect Infoseek's corporate
governance. See "Risk Factors--Risks of Infoseek--Risks Related to Infoseek's
Relationship with and Dependence on Disney; Possibility of Control by Disney"
and "Infoseek's Management's Discussion and Analysis of Financial Condition and
Results of Operations--Infoseek Overview--Disney Transaction."
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 may choose. Without cumulative voting, the holders of a
majority of the shares present at an annual meeting or any special meeting held
to elect directors would have the power to elect all the directors to be
elected at that meeting, and no person could be elected without the support of
holders of a majority of the shares voting at such meeting. Under
Delaware Law, cumulative voting in the election of directors is not mandatory
but is a permitted option. The Infoseek Certificate and the Infoseek Bylaws do
not permit cumulative voting. Under Oregon Law, shareholders do not have a
right to cumulative voting unless the articles of incorporation provide
otherwise. The Quando Articles do not provide for cumulative voting.
Power To Call Special Meeting of Shareholders. Under Delaware Law, a special
meeting of stockholders may be called by the board of directors or any other
person as may be provided in the certificate of incorporation or bylaws. The
Infoseek Bylaws provide that special meetings of the stockholders may be called
at any time by the board of directors, the chairman of the board of directors,
the president or by one or more stockholders entitled to cast not less than ten
percent (10%) of the votes at the meeting. Under Oregon 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 of
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incorporation or the bylaws or the holders of at least ten percent (10%) of all
votes entitled to be cast at such meeting. The Quando Bylaws provide that a
special meeting of shareholders may be called at any time by the president, the
board of directors or by one or more shareholders holding not less than one-
tenth of the outstanding shares entitled to vote at the meeting.
Shareholder Action Without a Meeting. Under Delaware Law, unless otherwise
provided in the certificate of incorporation, any action which may be taken at
a meeting of the stockholders may be taken without a meeting and without prior
notice if a consent in writing is signed by the holders of outstanding shares
having at least the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. The Infoseek Certificate eliminates the ability of
stockholders to vote by written consent. Under Oregon Law, any action required
or permitted to be taken at a meeting of the shareholders may be taken without
a meeting if the action is taken by all shareholders entitled to vote on the
action. The Quando Bylaws contain a provision for shareholder action without a
meeting.
Size of the Board of Directors. Under Delaware Law, the number of directors is
fixed by the bylaws, unless the certificate of incorporation fixes the number
of directors. The Infoseek Certificate does not specify the number of
directors, and the Infoseek Bylaws allow the Infoseek Board to set the exact
number of directors within the range of six (6) to eleven (11) persons. The
number of directors is currently fixed at eight (8). Under Oregon Law, the
number of directors may be fixed in either the articles of incorporation or
bylaws. The board of directors or the shareholders of an Oregon corporation may
change the authorized number of directors within the minimum and maximum range
if the articles of incorporation or bylaws establish a variable range for the
size of the board of directors. If the articles of incorporation establish a
fixed or variable range, then, after shares are issued, only the shareholders
may change the range for the size of the board or change from a fixed or
variable-ranged size board by amendment to the corporation's articles of
incorporation. If the bylaws establish a fixed or variable range, then either
the board of directors or the shareholders may change the range for the size of
the board or change from a fixed or variable range size board by amendment to
the corporation's bylaws in the manner provided in the bylaws unless the number
of directors is fixed in the corporation's articles of incorporation, in which
case a change in the number of directors may be made only by amendment to the
articles of incorporation. The Quando Bylaws currently provide that Quando will
have a minimum of one (1) director.
Classification of Board of Directors. A classified board is one with respect to
which a certain number of directors, but not necessarily all, are elected on a
rotating basis each year. Delaware Law permits, but does not require, a
classified board of directors, pursuant to which the directors can be
divided into as many as three classes with staggered terms of office, with only
one class of directors standing for election each year. The Infoseek
Certificate and Bylaws do not provide for a classified board. If there are six
(6) or more directors, Oregon Law permits, but does not require, an Oregon
corporation to provide in its articles of incorporation or bylaws for a
classified board of directors, pursuant to which the directors can be divided
into up to two or three classes of directors with staggered terms of office,
with only one class of directors to stand for election each year. The Quando
Articles do not provide for a classified board of directors.
Special Meetings of the Board of Directors. Under the Infoseek Bylaws, meetings
of the Infoseek Board may be called by the chairman of the board, the
president, any vice president, the secretary or
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any two directors upon two (2) or four (4) days' notice (depending upon the
method of notice). Oregon Law provides that unless the articles of
incorporation or bylaws set forth a longer or shorter period, special meetings
of a company's board of directors must be preceded by at least two days' notice
of the date, time and place of the meeting. The Quando Bylaws stipulate that
special meetings of the board may be called by the president or by a majority
of the directors upon two (2) business days' notice.
Removal of Directors. Under Delaware Law, any director or the entire board of
directors of a corporation that does not have a classified board of directors
or cumulative voting may be removed with or without cause with the approval of
a majority of the outstanding shares entitled to vote at an election of
directors. The Infoseek Certificate and Bylaws do not provide for a classified
board of directors or cumulative voting. As a result, any director of Infoseek
or the entire Infoseek Board of Directors may be removed with or without cause
with the approval of a majority of the Infoseek outstanding shares entitled to
vote at an election of directors. Under Oregon Law, any director of an Oregon
corporation may be removed with or without cause by the shareholders unless the
articles of incorporation provide that directors may only be removed for cause.
If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may vote to remove the director. If
cumulative voting is authorized, a director may not be removed if the number of
votes cast against such a removal would be sufficient to elect the director
under cumulative voting. If cumulative voting is not authorized, a director may
be removed only if the number of votes cast to remove the director exceed the
votes cast not to remove the director. Furthermore, a director may be removed
by the shareholders only at a meeting called for the purpose of removing the
director. The Quando Bylaws provide that any director may be removed, with or
without cause, at a meeting expressly called for such purpose unless the Quando
Articles provide for removal only for cause. The Quando Articles do not require
cause to remove a director.
Transactions Involving Officers or Directors. An Oregon corporation may loan
money to, or guarantee any obligation incurred by, its directors only if the
loan or guarantee is approved by a majority of the votes represented by the
outstanding voting shares of all classes, voting as a single group, excluding
the voting shares owned by or voted under the control of the benefited
director, or if the board of directors and any affected officer determine such
loan or guarantee benefits the corporation and the board of directors and
approves the loan or guarantee or general plan authorizing the loans and
guarantees. With respect to any other contract or transaction between the
corporation and one or more of its directors, such transactions are neither
void nor voidable if the director's interest is made known to the board of
directors or a committee of the board of directors or the shareholders of the
corporation, who thereafter approve the transaction, or the contract or
transaction is fair to the corporation Oregon Law does not specifically
regulate loans to officers or employees.
Under Delaware Law, any corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation, including any officer or employee who is also a director of the
corporation, whenever, in the judgment of the directors, such loan, guaranty or
assistance may reasonably be expected to benefit the corporation. Furthermore,
under Delaware Law, contracts or transactions between a corporation and (i) any
of its directors or (ii) a second corporation of which a director is also a
director are not void or voidable if the material facts as to the transaction
and as to the director's interest are fully disclosed and the disinterested
directors
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or a majority of the disinterested shareholders represented and voting at a
duly held meeting approve or ratify the transaction in good faith, or the
person asserting the validity of the contract or transaction sustains the
burden of proving that the contract or transaction was just and reasonable as
to the corporation at the time it was authorized, approved or ratified.
Limitation of Liability of Directors; Indemnification. Under Oregon Law, a
corporation's articles of incorporation may set forth a provision eliminating
or limiting the personal liability of a director to the corporation or its
shareholders for monetary damages for conduct as a director. However, such
provisions may not eliminate or limit a director's liability for: (a) breaches
of the director's duty of loyalty to the corporation or its shareholders; (b)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of the law; (c) the payment of unlawful distributions; or
(d) any transaction from which the director derived an improper personal
benefit. Under Oregon Law, a corporation may, subject to the limitations
described below, indemnify a director against liability incurred if the conduct
was in good faith, the individual reasonably believed the individual's conduct
was in the best interests of the corporation and, in the case of a criminal
proceeding, the individual had no reasonable cause to believe the conduct was
unlawful. Under Oregon Law, a director may not be indemnified in connection
with a proceeding in which the director was found liable to the corporation or
in connection with any other proceeding charging improper personal benefit to
the director in which the director was found liable on the basis that personal
benefit was improperly received. The Quando Articles contain provisions
limiting a director's liability to the fullest extent permitted by Oregon Law.
Oregon Law provides for mandatory indemnification of officers and directors
when the indemnified party is wholly successful on the merits or otherwise in
the defense of any proceeding to which the director was a party because of
being a director. Officers are entitled to the same mandatory indemnification
as are directors under the Oregon Business Corporation Act.
The Infoseek Certificate eliminates the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permissible under Delaware Law, as
such law exists currently and as it may be amended in the future. Under
Delaware Law, such provision may not eliminate or limit director monetary
liability for: (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. Such
limitation of liability provisions also may not limit a director's liability
for violation of, or otherwise relieve the company or its directors from the
necessity of complying with federal or state securities laws, or affect the
availability of nonmonetary remedies such as injunctive relief or rescission.
Delaware Law generally permits indemnification of expenses, including
attorneys' fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the
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performance of his or her duty to the corporation. Delaware Law requires
indemnification of expenses to the extent the individual being indemnified has
successfully defended any action, claim, issue or matter therein, on the merits
or otherwise.
Expenses incurred by an officer or director in defending any action may be paid
in advance, under Delaware Law, if such director or officer undertakes to repay
such amounts if it is ultimately determined that he or she is not entitled to
indemnification. In addition, Delaware Law authorizes a corporation's purchase
of indemnity insurance for the benefit of its officers, directors, employees
and agents whether or not the corporation would have the power to indemnify
against the liability covered by the policy.
Delaware Law also permits a Delaware corporation to provide indemnification in
excess of that provided by statute. Delaware Law does not require authorizing
provisions in the certificate of incorporation. Limitations on indemnification
may be imposed by a court based on principles of public policy.
Dividends and Repurchases of Shares. Oregon Law permits a corporation, unless
otherwise restricted by its articles of incorporation, to make distributions to
its shareholders if, in the judgment of the directors, the corporation would be
able to pay its debts as they come due in the usual course of business and the
corporation's total assets would at least equal the sum of its total
liabilities plus, unless the articles permit otherwise, the amount that would
be needed if the corporation were 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. The
Quando Articles do not otherwise restrict the ability of the Board to make
distributions to its shareholders. In addition, Oregon Law generally provides
that a corporation may redeem or repurchase its shares.
Delaware Law permits a corporation to declare and pay dividends out of surplus
or, 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. However, if the
amount of capital of the corporation following the declaration and payment of
the dividend is 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, the directors may not declare and pay out a dividend
from the corporation's net profits. In addition, Delaware Law generally
provides that a corporation may redeem or repurchase its shares only if the
capital of the corporation is not impaired and such redemption or repurchase
would not impair the capital of the corporation.
Approval of Certain Corporate Transaction. Under both Oregon Law and Delaware
Law, with certain exceptions, any merger, consolidation or sale of all or
substantially all the assets of a corporation must be approved by the
corporation's board of directors and a majority of the outstanding shares
entitled to vote. In addition, Infoseek's Certificate contains certain other
approval provisions. See "--Supermajority and Disinterested Approvals."
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Supermajority and Disinterested Approvals. In addition to the general
requirements of Delaware law on voting described above, in connection with the
transactions with Disney and the Governance Agreement between Infoseek and
Disney, Infoseek's Certificate contains certain other approval requirements as
follows.
Events Requiring Disinterested Stockholder Approval. Pursuant to the
Governance Agreement and the Infoseek Certificate, 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 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.
"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
Commission 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.
Events Requiring Disinterested Board Approval. Pursuant to the Governance
Agreement and the Infoseek Certificate, 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
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 period of Disney's standstill obligation (the
"Standstill Period"), a member of the Board of Directors of Infoseek who is
not a Disney appointed director (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, (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
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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 tender offer, or (b) following
an event which terminates the standstill so long as the cause of the
Standstill Termination Event was not a tender offer by Disney, (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 Securities Exchange Act) relating to the election of directors of
Infoseek, (viii) any termination by Disney of the trademark license
agreement between Disney and Infoseek (a) as a result of Infoseek's failure
to use commercially reasonable efforts to meet certain spending requests
for GO Network, 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.
Quando has no such provisions in its articles and bylaws or by agreement.
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Class Voting in Certain Corporate Transactions. Under Delaware Law, certain
amendments of a corporation's certificate of incorporation must be approved by
a majority of the outstanding shares of each class of stock (without regard to
limitations on voting rights). With certain exceptions, any Merger or sales of
all or substantially all of the assets of a corporation must be approved by the
holders of a majority of the outstanding stock of the corporation. Oregon Law
does not generally require separate class votes of all voting classes in order
to approve charter amendments and sales of substantially all assets. Oregon
Law, however, provides that all classes of stock, even nonvoting classes of
stock, vote on charter amendments, mergers and share exchanges that affect the
rights of holders of such class. See "--Supermajority and Disinterested
Approvals."
Business Combinations/Merger. Under Section 203 of the Delaware General
Corporation Law ("Section 203"), a Delaware corporation is prohibited from
engaging in a "business combination" with an interested shareholder "for three
years following the date that such person or entity becomes an interested
shareholder." With certain exceptions, an interested shareholder is a person or
entity who or which owns, individually or with or through certain other persons
or entities, fifteen percent (15%) or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only). The three-year moratorium imposed by Section 203 on
business combinations of Section 203 does not apply if (i) prior to the date on
which such stockholder becomes an interested stockholder, the Board of
Directors of the subject corporation approves either the business combination
or the transaction that resulted in the person or entity becoming an interested
stockholder; (ii) upon consummation of the transaction that made him or her an
interested stockholder, the interested stockholder owns at least eighty-five
percent (85%) of the corporation's voting stock outstanding at the time the
transaction commenced (excluding from the 85% calculation shares owned by
directors who are also officers of the subject corporation and shares held by
employee stock plans that do not give employee participants the right to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person or entity becomes an interested stockholder, the
Board approves the business combination and it is also approved at a
stockholder meeting by sixty-six and two-thirds percent (66 2/3%) of the
outstanding voting stock not owned by the interested stockholder. Although a
Delaware corporation to which Section 203 applies may elect not to be governed
by Section 203, the Board of Directors of Infoseek intends that it be governed
by Section 203. Infoseek believes that most Delaware corporations have availed
themselves of this statute and have not opted out of Section 203.
Infoseek believes that Section 203 will encourage any potential acquiror to
negotiate with the Infoseek Board of Directors. Section 203 also might have the
effect of limiting the ability of a potential acquiror to make a two-tiered bid
for Infoseek in which all stockholders would not be treated equally.
Stockholders should note, however, that the application of Section 203 to
Infoseek will confer upon the Board the power to reject a proposed business
combination in certain circumstances, even though a potential acquiror may be
offering a substantial premium for Infoseek's shares over the then-current
market price. Section 203 would also discourage certain potential acquirors
unwilling to comply with its provisions.
Oregon Law contains a "business combinations" provision that is essentially the
same as Section 203 of the Delaware Law.
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Appraisal Rights. Under Oregon Law and Delaware Law, a shareholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to dissenters' rights or to appraisal rights
pursuant to which such shareholder may receive cash in the amount of the fair
market value of the shares held by such shareholder (as determined by a court
or by agreement of the corporation and the shareholder) in lieu of the
consideration such shareholder would otherwise receive in the transaction. The
limitations on the availability of appraisal rights under Oregon Law are
different from those under Delaware Law. Under Delaware Law, such fair market
value is determined exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, and such
appraisal rights are not available: (a) with respect to the sale, lease or
exchange of all or substantially all of the assets of a corporation; (b) 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 stockholders receive only shares of the surviving
corporation or shares of any other corporation that are either listed on a
national securities exchange or held of record by more than 2,000 holders, plus
cash in lieu of fractional shares of such corporations; or (c) to stockholders
of a corporation surviving a merger if no vote of the stockholders of the
surviving corporation is required to approve the merger under Delaware Law.
Under Oregon Law, appraisal rights are generally not available to holders of
shares of any class or series if the shares of the class or series were
registered with respect to a merger on a national securities exchange or quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
System ("Nasdaq") as a national market issue on the record date for the meeting
at which the merger is to be approved.
Dissenters' rights are available to the shareholders of Quando with respect to
the Merger. See "Dissenters' Rights."
Inspection of Shareholder List. Delaware Law allows any shareholder to inspect
the shareholder list for a purpose reasonably related to such person's interest
as a shareholder. Delaware Law also provides for inspection rights as to a list
of stockholders entitled to vote at a meeting within a ten day period preceding
a stockholders' meeting for any purpose germane to the meeting. Oregon Law
allows any shareholder to inspect the shareholder list beginning two days after
notice of a meeting is given for which the list was prepared and continuing
through the meeting.
Bylaws. Under Delaware Law, the corporation's bylaws may be adopted, amended or
repealed by the stockholders of the corporation. However, under Delaware Law, a
corporation may, in its certificate of incorporation, confer the power to
adopt, amend, or repeal the bylaws upon the directors, subject to the
stockholders' right to do the same. The Infoseek Certificate provides that the
board of directors has the right to adopt, amend, or repeal the bylaws. Under
Oregon Law, a corporation's bylaws may be adopted, amended or repealed either
by the board of directors or the shareholders of the corporation, unless the
corporation's articles provide that the shareholders solely have the power to
amend or repeal the bylaws, or the shareholders, in amending or repealing a
particular bylaw, provide expressly that the board of directors may not amend
or repeal that bylaw. The Quando Articles grants to its directors the power to
alter, amend or repeal any bylaws or adopt new bylaws, subject to repeal or
change of action by the shareholders.
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Control Share Act. The Oregon Control Share Act generally provides that a
person who acquires "control shares" cannot vote the shares unless voting
rights are approved by the corporation's preexisting disinterested
shareholders. Delaware law does not contain an equivalent to the Control Share
Act.
Dissolution. Under Oregon Law, a dissolution must be approved by written
consent of all shareholders or the dissolution must be initiated by the board
of directors and, unless the articles of incorporation or the board requires a
greater vote or a vote by voting groups, approved by a majority of the votes
entitled to be cast on the proposal for dissolution. The Quando Articles do not
contain any such supermajority or voting group requirement. Under Delaware Law,
unless the Board of Directors approves the proposal to dissolve, the
dissolution must be unanimously approved by all the stockholders entitled to
vote thereon. Only if the dissolution is initially approved by the Board of
Directors may the dissolution be approved by a simply majority of the
outstanding shares of the corporation's stock entitled to vote. In the event of
such a board-initiated dissolution, Delaware Law allows a Delaware corporation
to include in its certificate of incorporation a supermajority (greater than a
simple majority) voting requirement in connection with dissolutions. The
Infoseek Certificate contains a supermajority voting requirement. See "--
Supermajority and Disinterested Approvals."
LEGAL MATTERS
Certain legal matters in connection with the issuance of Infoseek common stock
in the Merger, and certain federal income tax consequences of the Merger will
be passed upon for Infoseek by Wilson Sonsini Goodrich & Rosati, Professional
Corporation. Certain federal income tax consequences of the Merger will be
passed upon for Quando by Pillsbury Madison & Sutro LLP.
EXPERTS
The consolidated financial statements of Infoseek at December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included
in this Proxy Statement/Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Starwave as of October 4, 1998 and
September 28, 1997 and for the year ended October 4, 1998 and the period from
January 1, 1997 to September 28, 1997 included in this Proxy
Statement/Prospectus have been so included in reliance on the report (which
contains explanatory paragraphs relating to transactions which changed
Starwave's capital and operating structure as described in Note 1 to the
consolidated financial statements) of PricewaterhouseCoopers LLP, independent
accountants, appearing elsewhere herein, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Starwave as of and for the year ended December 31,
1996 have been included in this Proxy Statement/Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
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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 Proxy Statement/Prospectus in reliance upon the report of KPMG
Peat Marwick LLP, independent auditors, 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.
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INFOSEEK CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP................................................. F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations ...................................... F-4
Consolidated Statements of Cash Flows ...................................... F-5
Consolidated Statements of Shareholders' Equity ............................ F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Infoseek Corporation
We have audited the accompanying consolidated balance sheets of Infoseek
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Infoseek Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Jose, California
January 16, 1998,
except for Note 8, as to which the date is February 12, 1998
and Note 2, as to which the date is April 17, 1998
F-2
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1996 1998
-------- -------- -------------
ASSETS
------ (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 3,323 $ 3,786 $ 6,801
Short-term investments..................... 28,116 42,867 47,740
Accounts receivable, less allowance for
doubtful accounts of $1,675 in 1998, $980
in 1997, and $350 in 1996................. 6,921 2,428 7,619
Prepaid to service providers............... -- -- 5,838
Other current assets....................... 648 371 998
-------- -------- --------
Total current assets..................... 39,008 49,452 68,996
Property and equipment:
Computer and office equipment.............. 16,525 9,651 24,958
Furniture and fixtures..................... 935 307 1,546
Leasehold improvements..................... 1,323 108 2,153
-------- -------- --------
18,783 10,066 28,657
Less accumulated depreciation and
amortization.............................. 8,295 2,479 13,480
-------- -------- --------
Net property and equipment................... 10,488 7,587 15,177
Direct acquisition costs..................... -- -- 2,825
Deposits and other assets.................... 1,993 1,293 3,315
-------- -------- --------
Total assets............................. $ 51,489 $ 58,332 $ 90,313
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................... $ 4,861 $ 3,269 $ 6,717
Accrued payroll and related expenses....... 1,630 1,362 2,191
Accrued liabilities to service providers... 4,221 -- 1,558
Other accrued liabilities.................. 2,262 1,070 2,418
Deferred revenue........................... 2,564 760 4,789
Accrued restructuring and other charges.... 1,877 -- --
Short-term obligations..................... 2,575 994 2,683
Short-term portion of capital lease
obligations............................... -- -- 259
-------- -------- --------
Total current liabilities................ 19,990 7,455 20,615
Long-term obligations........................ 4,493 1,892 2,668
Long-term portion of capital lease
obligations................................. -- -- 313
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized shares--5,000,000
No shares issued and outstanding........... -- -- --
Common stock, no par value:
Authorized shares--60,000,000
Issued and outstanding shares--31,508,000
in 1998, 27,534,000 in 1997, and
25,691,000 in 1996........................ 76,000 73,754 121,292
Accumulated deficit.......................... (48,030) (20,771) (53,724)
Deferred compensation........................ (753) (3,546) (717)
Notes receivable from shareholders........... (211) (452) (134)
-------- -------- --------
Total shareholders' equity............... 27,006 48,985 66,717
-------- -------- --------
Total liabilities and shareholders'
equity.................................. $ 51,489 $ 58,332 $ 90,313
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1997 1996 1995 1998 1997
-------- -------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Advertising revenues....... $ 32,941 $ 15,095 $ 1,032 $ 45,044 $ 21,062
Softwave licensing
revenues.................. 2,141 -- -- 5,671 1,345
-------- -------- ------- -------- ---------
Total revenues........... 35,082 15,095 1,032 50,715 22,407
COSTS AND EXPENSES
Hosting, content and
website costs............. 6,319 3,194 614 7,956 4,397
Research and development... 7,900 4,550 1,175 7,432 5,879
Sales and marketing........ 34,320 20,455 1,488 35,144 22,520
General and
administrative............ 7,042 4,177 1,148 7,876 5,242
Restructuring and other
charges................... 7,349 -- -- -- 7,349
-------- -------- ------- -------- ---------
Total costs and
expenses................ 62,930 32,376 4,425 58,408 45,387
-------- -------- ------- -------- ---------
Operating loss............... (27,848) (17,281) (3,393) (7,693) (22,980)
INTEREST INCOME (EXPENSE)
Interest income............ 1,943 1,771 115 2,516 1,502
Interest expense........... (657) (428) (18) (517) (436)
-------- -------- ------- -------- ---------
1,286 1,343 97 1,999 1,066
-------- -------- ------- -------- ---------
NET LOSS..................... $(26,562) $(15,938) $(3,296) $ (5,694) $ (21,914)
======== ======== ======= ======== =========
Basic and diluted net loss
per share................... $ (1.00) $ (0.72) $ (0.21) $ (0.19) $ (0.83)
Shares used in computing
basic and diluted net loss
per share (pro forma in
1995)....................... 26,627 22,120 15,535 30,512 26,270
</TABLE>
See accompanying notes.
F-4
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1997 1996 1995 1998 1997
-------- -------- ------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss..................... $(26,562) $(15,938) $(3,296) $ (5,694) $(21,914)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 4,849 2,157 438 5,185 3,920
Provision for doubtful
accounts................... 930 651 42 1,045 242
Writedown of restructure
related assets............. 2,080 -- -- -- --
Amortization of unearned
compensation related to
stock options.............. 832 1,347 44 314 717
Amortization of warrants
issued in connection with
term loan.................. -- -- 21 -- --
Fair value assigned to
services provided by
Netscape................... -- -- 200 -- --
Changes in operating assets
and liabilities
Accounts receivable......... (5,420) (2,580) (541) (1,743) (2,070)
Other current assets........ (211) (260) (92) (350) (186)
Prepaid to service
providers.................. -- -- -- (5,838) --
Deposits and other current
assets..................... (1,490) -- -- (1,322) (898)
Direct acquisition costs.... -- -- -- (2,825) --
Accounts payable............ 1,491 2,047 1,211 1,856 (1,219)
Accrued payroll and related
expenses................... 253 1,291 67 561 (237)
Accrued liabilities to
service providers.......... 4,221 -- -- (2,663) 2,357
Other accrued liabilities... 1,192 457 498 156 229
Deferred revenue............ 1,804 760 -- 2,225 854
Accrued restructuring and
other charges.............. 1,877 -- -- (1,877) 2,904
-------- -------- ------- --------- --------
Net cash used in operating
activities................. (14,154) (10,068) (1,408) (10,970) (15,301)
INVESTING ACTIVITIES
Purchases of available-for-
sale investments............ (44,769) (92,966) (2,483) (147,907) (29,667)
Proceeds from sales of
available-for-sale
investments................. 59,520 50,596 1,986 128,283 44,428
Issuance of notes
receivable.................. (950) (600) -- -- --
Purchase of property and
equipment................... (7,597) (6,857) (2,829) (9,170) (7,479)
-------- -------- ------- --------- --------
Net cash provided by (used
in) investing activities... 6,204 (49,827) (3,326) (28,794) 7,282
FINANCING ACTIVITIES
Proceeds from term loan...... 5,265 2,573 967 133 5,000
Repayments of term loan...... (1,082) (763) (100) (1,850) (815)
Principal payments on capital
leases...................... -- -- -- (132) --
Proceeds from issuance of
convertible debt............ 305 -- -- -- --
Payment of deposit........... -- (693) -- -- --
Proceeds from sale of
convertible preferred stock,
net of issuance costs....... -- 17,619 4,430 -- --
Proceeds from sale of common
stock, net of issuance
costs....................... 1,217 43,785 -- 43,015 972
Proceeds from the exercise of
stock options............... 1,183 6 -- 1,520 1,018
Proceeds from employee stock
purchase plan............... 295 -- -- 479 295
Proceeds from repayment of
notes receivable from
shareholders................ 302 28 -- 77 302
Repurchase of common stock... -- (3) (2) -- --
-------- -------- ------- --------- --------
Net cash provided by
financing activities....... 7,485 62,552 5,295 43,242 6,772
-------- -------- ------- --------- --------
Net Increase (decrease) in
cash and cash equivalents... (465) 2,657 561 3,478 (1,247)
Cash and cash equivalents at
beginning of period......... 3,788 1,129 568 3,323 3,788
-------- -------- ------- --------- --------
Cash and cash equivalents at
end of period............... $ 3,323 $ 3,786 $ 1,129 $ 6,801 $ 2,541
======== ======== ======= ========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unearned compensation related to stock options amounted to $440,000, $3,102,000
and $2,124,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, and $352,000 (unaudited) and none (unaudited) for the nine months
ended September 30, 1998 and 1997, respectively. Cash paid for interest expense
amounted to $657,000, $428,000 and $18,000 for the years ended December 31,
1997, 1996 and 1995, respectively, and $517,000 (unaudited) and $436,000
(unaudited) for the nine months ended September 30, 1998 and 1997,
respectively. Assets acquired under capital leases totaled $704,000 (unaudited)
and none (unaudited) for the nine months ended September 30, 1998 and 1997,
respectively (none for the years ended December 31, 1997, 1996, and 1995).
See accompanying notes.
F-5
<PAGE>
INFOSEEK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE TOTAL
----------------- ---------------- ACCUMULATED DEFERRED FROM SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT COMPENSATION SHAREHOLDERS EQUITY
------- -------- ------ -------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 9,421 $ 2,020 3,783 $ 38 $ (1,537) $ -- $ -- $ 521
Issuance of Series A
preferred stock for
purchased technology... 559 224 -- -- -- -- -- 224
Repurchase of common
stock from founder..... -- -- (155) (2) -- -- -- (2)
Issuance of Series C
convertible preferred
stock for cash, net of
issuance costs......... 5,600 4,430 -- -- -- -- -- 4,430
Issuance of warrants for
shares of series C
convertible preferred
stock.................. -- 21 -- -- -- -- -- 21
Issuance of common stock
to employee for note
receivable............. -- -- 372 50 -- -- (50) --
Unearned compensation
related to stock
options................ -- -- -- 2,124 -- (2,124) -- --
Amortization of unearned
compensation related to
stock options.......... -- -- -- -- -- 44 -- 44
Fair value assigned to
services provided by
Netscape............... -- -- -- 200 -- -- -- 200
Net loss and
comprehensive net
loss................... -- -- -- -- (3,296) -- -- (3,296)
------- -------- ------ -------- -------- ------- ----- --------
BALANCE AT DECEMBER 31,
1995................... 15,580 6,695 4,000 2,410 (4,833) (2,080) (50) 2,142
Cancellation of
convertible preferred
stock issued for
purchased technology... (280) -- -- -- -- -- -- --
Unearned compensation
related to stock
options................ -- -- -- 3,102 -- (3,102) -- --
Amortization of unearned
compensation........... -- -- -- -- -- 1,346 -- 1,346
Issuance of convertible
preferred stock for
cash, net of issuance
costs.................. 2,267 17,619 -- -- -- -- -- 17,619
Repurchases of common
stock.................. -- -- (325) (3) -- -- -- (3)
Issuance of common stock
to officers............ -- -- 787 910 -- -- (610) 300
Cancellation of note
receivable and
repurchase of shares... -- -- (365) (470) -- 290 180 --
Payment on shareholders'
notes receivable....... -- -- -- -- -- -- 28 28
Conversion of
convertible preferred
stock into common stock
upon the initial public
offering............... (17,567) (24,314) 17,567 24,314 -- -- -- --
Issuance of common stock
in connection with
initial public
offering, net of
issuance costs......... -- -- 3,973 43,485 -- -- -- 43,485
Exercise of common stock
options................ -- -- 54 6 -- -- -- 6
Net loss and
comprehensive net
loss................... -- -- -- -- (15,938) -- -- (15,938)
------- -------- ------ -------- -------- ------- ----- --------
BALANCE AT DECEMBER 31,
1996................... -- -- 25,691 73,754 (20,771) (3,546) (452) 48,985
Issuance of common stock
and activity from
merger with WebChat
Communications, Inc.... -- -- 167 571 (697) -- -- (126)
Issuance of common stock
for cash............... -- -- 58 1,217 -- -- -- 1,217
Unearned compensation
related to stock
options................ -- -- -- 440 -- (440) -- --
Amortization of unearned
compensation........... -- -- -- -- -- 832 -- 832
Reversal of unearned
compensation........... -- -- -- (2,071) -- 2,071 -- --
Writeoff deferred
compensation related to
restructure............ -- -- -- -- -- 330 -- 330
Repurchases of common
stock.................. -- -- (27) -- -- -- -- --
Issuance of common stock
for notes receivable... -- -- 38 61 -- -- (61) --
Payment on shareholders'
notes receivable....... -- -- -- -- -- -- 302 302
Conversion of debt into
common stock........... -- -- 27 550 -- -- -- 550
Exercise of common stock
options................ -- -- 1,445 1,183 -- -- -- 1,183
Issuance of common stock
through employee stock
purchase plan.......... -- -- 44 295 -- -- -- 295
Issuance of common stock
from exercise of
warrants............... -- -- 91 -- -- -- -- --
Net loss and
comprehensive net
loss................... -- -- -- -- (26,562) -- -- (26,562)
------- -------- ------ -------- -------- ------- ----- --------
BALANCE AT DECEMBER 31,
1997................... -- -- 27,534 76,000 (48,030) (753) (211) 27,006
Unearned compensation
related to stock
options (unaudited).... -- -- -- 352 -- (352) -- --
Amortization of unearned
compensation
(unaudited)............ -- -- -- -- -- 314 -- 314
Reversal of unearned
compensation
(unaudited)............ -- -- -- (74) -- 74 -- --
Payment on shareholders'
notes receivable
(unaudited)............ -- -- -- -- -- -- 77 77
Exercise of common stock
options (unaudited).... -- -- 480 1,520 -- -- -- 1,520
Issuance of common stock
through employee stock
purchase plan
(unaudited)............ -- -- 44 479 -- -- -- 479
Issuance of common stock
in connection with
follow-on public
offering, net of
issuance costs
(unaudited)............ -- -- 3,450 43,015 -- -- -- 43,015
Net loss and
comprehensive net loss
(unaudited)............ -- -- -- -- (5,694) -- -- (5,694)
------- -------- ------ -------- -------- ------- ----- --------
BALANCE AT SEPTEMBER 30,
1998 (UNAUDITED)....... -- $ -- 31,508 $121,292 $(53,724) $ (717) $(134) $ 66,717
======= ======== ====== ======== ======== ======= ===== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Infoseek Corporation, (the "Company"), 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 interest and facilitates the
purchase of related goods and services. The Company conducts its business
predominantly within one industry segment.
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany transactions and balances have been eliminated. As more fully
described in Note 2, a wholly owned subsidiary of the Company merged with
WebChat Communications, Inc. ("WebChat") in April 1998 in a pooling of
interests transaction. The consolidated financial statements for 1997 have been
restated to include the financial position, results of operations and cash
flows of WebChat. Prior to 1997, these amounts for WebChat were not significant
compared to those of the Company and accordingly, the Company's previously
issued financial statements were not restated. An adjustment was made to the
beginning 1997 common stock and accumulated deficit as a result of not
restating the Company's financial statements prior to 1997.
Unaudited Interim Financial Information--The accompanying consolidated
financial statements at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 are unaudited but include all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended September 30, 1998 are not necessarily indicative of
results for the entire fiscal year or future periods.
Cash and Cash Equivalents--The Company considers all highly liquid debt
instruments which are purchased with a maturity of three months or less to be
cash equivalents.
Short-Term Investments--The Company accounts for investments in accordance with
Financial Accounting Standards Board, Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. The Company's
short-term investments, which consist primarily of commercial paper and
government agency notes with maturities of one year or less, are classified as
available-for-sale and are carried at amortized cost which approximates fair
market value. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization, as well as any interest on the securities, is included in
interest income. Realized gains and losses and
F-7
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income (expense). The cost of securities
sold is based on the specific identification method. The Company had no
investments in equity securities at September 30, 1998 and December 31, 1997
and 1996.
Property and Equipment--Property and equipment are carried at cost less
accumulated depreciation. The Company depreciates property and equipment using
the straight-line method over the estimated useful lives of three to five
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the life of the related asset or the term of the lease.
Research and Development--Research and development expenditures are generally
charged to operations as incurred. Financial Accounting Standards Board,
Statement No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
In the Company's case, capitalization would begin upon completion of a working
model as the Company does not prepare detail program designs as part of the
development process. As of September 30, 1998 and December 31, 1997 and 1996,
capitalized costs of this nature were insignificant.
Stock-Based Compensation--The Company has elected to follow Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting of Stock Issued to
Employees" and related interpretations, in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Financial Accounting Standards Board, Statement No. 123
(SFAS No. 123) "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, with the exception of certain options granted
during the nine months ended September 30, 1998 and 1997 and for the years
ended December 31, 1997, 1996 and 1995 as discussed in Note 9, no compensation
expense is recognized as the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant.
Long-Lived Assets--In 1995, the Financial Accounting Standards Board released
the Statement No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS No. 121 has not had a material impact on the
consolidated financial statements of the Company.
Revenue Recognition--The Company's advertising revenues are derived principally
from short-term advertising contracts in which the Company guarantees a minimum
number of impressions for a fixed fee. Advertising revenues are recognized
ratably over the term of the contract provided that the monthly minimum
impressions are met, the Company does not have any remaining significant
F-8
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
obligations, and collection of the resulting receivable is probable. To the
extent the minimum guaranteed impressions are not met, the Company defers
recognition of the revenue until guaranteed impressions levels are met.
Also included in advertising revenues is the exchange by the Company of
advertising space on the Company's Web sites for reciprocal advertising space
in other media publications or other Web sites or receipt of applicable goods
and services. Revenues from these exchange transactions are recorded as
advertising revenue at the estimated fair value of the goods and services
received and are recognized when both the Company's advertisements and the
reciprocal advertisements are run, or goods or services are received.
Advertising revenues recognized under these trading activities were less than
10% of total revenues for all periods presented.
In late 1997, the Company released a new version of its service which now
features 18 "channels," and provides opportunities for revenue from the sale of
channel sponsorships, as well as to enable the Company 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
generally recognized on a straight line basis over the term of the agreements
provided that minimum impressions are met.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2, Software Revenue Recognition ("SOP 97-2"),
which superseded Statement of Position 91-1, Software Revenue Recognition, and
provides guidance on generally accepted accounting principles for recognizing
revenue on software transactions.
SOP 97-2 requires that revenue recognized from software arrangements be
allocated to each element of the arrangement based on the relative fair values
of the elements, such as software products, upgrades, enhancements, post
contract customer support, installation, or training. Under SOP 97-2, the
determination of fair value is based on objective evidence which is specific to
the vendor. If such evidence of fair value for each element of the arrangement
does not exist, all revenue from the arrangement is deferred until such time
that evidence of fair value does exist or until all elements of the arrangement
are delivered. SOP 97-2 was amended in February 1998 by Statement of Position
98-4 ("SOP 98-4"), Deferral of the Effective Date of a Provision of SOP 97-2,
which deferred for one year the specification of what was considered vendor
specific objective evidence of fair value for the various elements in a
multiple element arrangement. The Company has adopted the provisions of these
SOPs as of January 1, 1998.
The Company recognizes revenue allocable to software licenses and specified
upgrades upon delivery of the software product or upgrade to the end user,
unless the fee is not fixed or determinable or collectibility is not probable.
The Company considers all arrangements with payment terms extending beyond
twelve months and other arrangements with payment terms longer than normal not
to be
F-9
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
fixed or determinable. If the fee is not fixed or determinable, revenue is
recognized as payments become due from the customer.
Postcontract customer support ("PCS") includes telephone support, bug fixes,
and rights to upgrades on a when-and-if-available basis. In software
arrangements that include rights to multiple software products, specified
upgrades, PCS, and/or other services, the Company allocates the total
arrangement fee among each deliverable based on the relative fair value of each
deliverable based on vendor-specific objective evidence. Revenue allocable to
PCS is recognized on a straight-line basis over the period PCS is provided.
The Company derived revenues of $5,671,000 and $1,345,000 for the nine months
ended September 30, 1998 and 1997, respectively, and $2,141,000 for the year
ended December 31, 1997 from the licensing of its Ultraseek technology and the
sale of PCS.
During 1996 and 1995, the Company also derived revenues from fees related to a
premium subscription service offered to business and professional users.
Revenues from this service were recognized over the period the services were
provided. During the third quarter of 1996, the Company discontinued this
service.
Advertising Costs--Advertising costs are expensed as incurred. Advertising
costs, which include service provider fees and reciprocal advertising amounted
to $17,697,000 and $10,104,000 for the nine months ended September 30, 1998 and
1997, respectively, and were $15,104,000 and $8,523,000 for the years ended
December 31, 1997 and 1996, respectively. There were no advertising costs for
the year ended December 31, 1995. The Company does not incur any significant
direct response advertising costs.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, and trade receivables. The Company places
its cash equivalents and short-term investments with high-quality financial
institutions. Through September 30, 1998 and December 31, 1997, the Company
invested its excess cash in commercial paper, government agency notes and money
market funds. Through September 30, 1998 and December 31, 1997, the Company
operates predominantly in one business segment and sells advertising to various
companies across several industries. The Company generally does not require
collateral. The Company maintains allowances for credit losses, and such losses
have been within management's expectations. For the nine months ended September
30, 1998 and 1997 and for the year ended December 31, 1997, no customer
accounted for greater than 10% of revenues. For the year ended December 31,
1996, one customer (a related party, see Note 13) accounted for 13% of revenues
and for the year ended December 31, 1995, another customer accounted for 13% of
revenues.
Net Loss Per Share--In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 replaced
the calculation of primary and fully
F-10
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
diluted earnings per share with basic and diluted earnings per share. Unlike
primary and fully diluted earnings per share, outstanding nonvested shares are
not included in the computations of basic and diluted earnings per share until
the time-based vesting restriction has lapsed. Basic earnings per share also
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. In addition, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 98, Earnings Per Share in February 1998.
Staff Accounting Bulletin No. 98 effected the treatment of certain stock and
warrants ("cheap stock") issued within a one-year period prior to an initial
public offering. Earnings per share amounts presented have been restated to
conform to the requirements of SFAS No. 128 and Staff Accounting Bulletin No.
98.
Net loss per share information for 1997 has been adjusted on a retroactive
basis to give effect to the merger with WebChat (see Note 2), whereby each
share of WebChat was converted to 0.03 shares of Infoseek common stock. Share
information for 1996 and 1995 has not been restated due to WebChat amounts
being insignificant.
Pro Forma Net Loss Per Share--Pro forma net loss per share for the year ended
December 31, 1995 has been computed as described above and also gives effect,
even if antidilutive, to common equivalent shares from preferred stock that
automatically converted upon the closing of the Company's initial public
offering (using the as-if-converted method).
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 the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results inevitably will differ from those estimates, and such differences may
be material to the financial statements.
Comprehensive Income--During 1998, the Company adopted the Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive Income (SFAS No.
130). SFAS No. 130 establishes rules for reporting and displaying comprehensive
income or comprehensive loss. The Company's total comprehensive net loss was
the same as its net loss for the nine months ended September 30, 1998 and 1997
and for the years ended December 31, 1997, 1996 and 1995.
New Accounting Pronouncements--In June 1997, the Financial Accounting Standards
Board issued Statement No. 131, Disclosures About Segments of An Enterprise and
Related Information (SFAS No. 131). SFAS No. 131 is effective for the Company
for the year ended December 31, 1998 and requires the Company to use the
"management approach" in disclosing segment information. The Company does not
believe that the adoption of SFAS No. 131 will have a material impact on the
Company's results of operations, cash flows, or financial position.
F-11
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
Reclassifications--Certain reclassifications, none of which affected net loss,
have been made to prior year's amounts in order to conform to the current
year's presentation.
2. BUSINESS COMBINATION
On April 17, 1998, the Company acquired WebChat in a tax-free reorganization in
which a wholly owned subsidiary of the Company was merged directly into
WebChat. The Company has exchanged approximately 316,000 shares of Infoseek
Corporation common stock and has reserved approximately 11,000 shares for
WebChat options assumed by the Company. Each share exchanged represents 0.03
share of common stock of the Company for each share of the common, and
preferred stock of WebChat. Merger related expenses were not significant and
were recorded in the second quarter of 1998. The merger has been accounted for
under the pooling of interests method.
A reconciliation of revenues and net loss of the Company, as previously
reported, WebChat and combined for the year ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
REVENUES NET LOSS
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Infoseek................................................. $34,603 $24,623
WebChat.................................................. 479 1,939
------- -------
Combined................................................. $35,082 $26,562
======= =======
</TABLE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SHORT-TERM INVESTMENTS COST GAINS LOSSES FAIR VALUE
---------------------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper.................. $43,323 $ 1 $-- $43,324
Money market fund................. 4,417 -- -- 4,417
------- --- --- -------
Total........................... $47,740 $ 1 $-- $47,741
======= === === =======
</TABLE>
F-12
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SHORT-TERM INVESTMENTS COST GAINS LOSSES VALUE
---------------------- --------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper................... $23,007 $-- $-- $23,007
Government agency notes............ 4,003 2 -- 4,005
Money market fund.................. 1,106 -- -- 1,106
------- ---- ---- -------
Total............................ $28,116 $ 2 $-- $28,118
======= ==== ==== =======
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SHORT-TERM INVESTMENTS COST GAINS LOSSES VALUE
---------------------- --------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial paper................... $27,588 $ -- $ -- $27,588
Government agency notes............ 15,279 -- -- 15,279
------- ---- ---- -------
Total............................ $42,867 $ -- $ -- $42,867
======= ==== ==== =======
</TABLE>
Realized gains and losses were insignificant during the nine months ended
September 30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995.
F-13
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
4. OBLIGATIONS
In March 1997, the Company entered into a four year, $5,000,000 equipment term
loan facility. The loan bears interest at the bank's prime rate plus 0.25%
(8.75% at September 30, 1998 and December 31, 1997). Under the terms of the
agreement, the Company grants a security interest in certain assets of the
Company and must maintain financial covenants including minimum tangible net
worth and others based on monthly cash balances with which the Company was in
compliance as of September 30, 1998 and December 31, 1997. Under the equipment
term loan facility, the Company is restricted in its ability to pay dividends.
Interest only payments will be made during the first twelve months and
borrowings and interest will be repaid on a straight-line basis over 36 months
beginning in month thirteen of the facility. As of September 30, 1998 and
December 31, 1997, there was approximately $4,345,000 and $5,000,000,
outstanding against the term loan facility, respectively.
In February 1997, WebChat entered into a three and one half year $300,000
equipment term loan facility. The loan bears interest at the bank's prime rate
plus 2.5% (11% at December 31, 1997). Under the terms of the facility, WebChat
grants a security interest in certain assets and is restricted in its ability
to pay cash dividends. Interest-only payments will be made during the first six
months and principal and interest will be repaid on a straight-line basis over
36 months beginning in month seven of the facility. The Company repaid the
equipment term loan during the nine months ended September 30, 1998 and no
amount was outstanding under the equipment term loan facility as of September
30, 1998. As of December 31, 1997, there was approximately $265,000 outstanding
against the term loan facility.
In 1996 and 1995, the Company entered into term loan agreements with a lending
institution under which the Company borrowed approximately $3,540,000 to
finance the purchase of equipment. Borrowings made under the agreement are due
over 37 months, bear interest which ranges from 15.80% to 16.39%, and are
secured by certain assets of the Company. As of September 30, 1998, December
31, 1997 and December 31, 1996, approximately $1,006,000, $1,741,000 and
$2,886,000 were outstanding against the term loan agreements, respectively. In
connection with the term loan agreements, the Company paid a cash deposit of
$693,000 in 1996 to the lending institution which is included in deposits and
other assets on the balance sheet.
Maturities under these agreements as of September 30, 1998 and December 31,
1997 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1998........................................... $1,023 $2,575
1999........................................... 2,245 2,344
2000........................................... 1,667 1,733
2001........................................... 416 416
------ ------
$5,351 $7,068
====== ======
</TABLE>
F-14
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
5. COMMITMENTS
The Company leases its facilities under operating lease agreements which expire
at various dates through 2002. Total rent expense for the nine months ended
September 30, 1998 and 1997 was $2,003,000 and $866,000, respectively, and for
the years ended December 31, 1997, 1996 and 1995 total rent expense was
$1,397,000, $379,000 and $86,000, respectively. In January 1998, the Company
signed an agreement to sublease approximately 20,500 square feet of its
Sunnyvale, California facility. In connection with the sublease agreement, the
Company will receive future rent payments of approximately $372,000 in 1998 and
$300,000 in 1999. For the nine months ended September 30, 1998, the Company
recorded sublease rental income of $279,000.
The Company leases certain equipment under noncancelable lease agreements that
are accounted for as capital leases. Equipment under capital lease arrangements
is included in property and equipment and aggregated $704,000 at September 30,
1998. Related accumulated amortization was $209,000 at September 30, 1998.
Amortization expense related to assets under capital leases is included in
depreciation expense. In addition, the capital leases are secured by the
related equipment, and the Company is required to maintain liability and
property damage insurance.
Future minimum lease payments under noncancelable operating leases and capital
leases are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------------- -----------------
OPERATING CAPITAL OPERATING
LEASES LEASES LEASES
---------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
1998.................... $ 723 $ 51 $ 2,128
1999.................... 2,720 307 2,099
2000.................... 2,366 215 2,089
2001.................... 1,950 44 1,985
2002.................... 1,589 -- 1,712
--------- -------- -------
Total minimum payments.. $ 9,348 617 $10,013
========= =======
Less amount representing
interest............... (45)
--------
572
Less current portion.... (259)
--------
$ 313
========
</TABLE>
NETSCAPE
Historically, a large portion of the Company's traffic was derived through the
Web page of Netscape Communications Corporation ("Netscape"). In March 1996,
the Company entered into an agreement with Netscape, which provided that the
Company would be listed as a Premier Provider on Netscape's Web page for the
period from April 10, 1996 to March 31, 1997. This agreement with
F-15
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
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. In March
1997, Infoseek renewed its agreement with Netscape under terms that extended
the current contract through April 30, 1997 and thereafter provided for
Infoseek to be one of four premier providers displayed on Netscape's Web page
for the period of May 1, 1997 through April 30, 1998. The renewed agreement
with Netscape provided for payments of 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) over the term of the agreement.
As of June 1, 1998, the Company had entered into an one-year agreement with
Netscape with terms that provide for the Company 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 LookSmart). Under terms of the agreement, the
Company 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. The Company and
Netscape subsequently renegotiated the agreement (see Note 15).
During the nine months ended September 30, 1998 and 1997, the Company
recognized $6,595,000 and $5,416,000, respectively, of expense related to this
agreement and for the years ended December 31, 1997 and 1996, the Company
recognized $9,583,000 and $3,750,000, respectively, of expense related to this
agreement. The costs of the Netscape agreement are being recognized ratably
over the term of the agreement. As of September 30, 1998, the Company 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. At December 31, 1997, the Company had
$7,555,000 of cash commitment remaining in connection with the agreement. At
September 30, 1998 and December 31, 1997, $1,558,000 and $4,221,000 is included
in accrued liabilities to service providers, respectively.
In July 1997, the Company entered into an one-year agreement with Netscape
whereby it was designated as a premier provider of international search and
navigational guide services for the Netscape Net Search Program. Under the
terms of the agreement, the Company will provide services for 10 Netscape local
Web sites. The Company's agreement with Netscape provides for payments ranging
from a minimum of $666,000 ($400,000 in cash and $266,000 in reciprocal
advertising) to a maximum of $1,219,000 ($677,000 in cash and $542,000 in
reciprocal advertising) depending on the level of traffic delivered by
Netscape. For the nine months ended September 30, 1998 and 1997, the Company
incurred sales and marketing expenses of approximately $506,000 and $99,750
under this agreement, respectively. During the year ended December 31, 1997,
Netscape delivered traffic at the
F-16
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
minimum level and as a result the Company recognized sales and marketing
expenses of approximately $333,000 under this agreement. As of September 30,
1998, the Company had a cash commitment of $248,000. At December 31, 1997, the
Company had a cash commitment ranging from a minimum of $74,000 to a maximum of
$351,000 depending on the level of traffic delivered by Netscape in connection
with this agreement. This agreement originally expired on June 30, 1998, but
was subsequently extended to September 30, 1998 under similar terms.
MICROSOFT AND WEBTV NETWORKS
The Company also had an agreement with Microsoft Corporation ("Microsoft") to
provide navigational services on certain Microsoft web sites through which the
Company also receives traffic. In exchange for such traffic, the Company made
available to Microsoft advertising space on the Infoseek service free of
charge. Effective October 1, 1998, the Company terminated the agreement 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 twelve month Microsoft
agreement, the Company 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. The Company 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 will result in amortizing the
obligation over the one-year term of the agreement, beginning in the quarter
ended December 31, 1998 which is the quarter that the service is launched. In
connection with the agreement, the Company made a prepayment of $5,338,000 as
of September 30, 1998, which is included in prepaid to service providers.
In addition, the Company recently entered into an agreement with WebTV
Networks, Inc. ("WebTV") pursuant to which the Company will be the exclusive
provider of search and directory services to WebTV. Under this two year
agreement, the Company 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 which was effective on August 28,
1998, the Company is obligated to make cash payments to WebTV totaling
$26,000,000, with $15,000,000 of such amount being payable in advance for the
first five quarters upon mutual acceptance of the technology by both parties.
The remaining $11,000,000 is being paid ratably over the last three quarters of
the agreement term. Such payments by the Company 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. The Company is to receive all of
the revenue generated from such advertising sales up to a pre-determined amount
that is in excess of the Company's total payment obligations to WebTV under the
agreement, with allocations of such revenue between the Company and WebTV being
made beyond this pre-determined amount. In connection with the agreement, the
Company made a prepayment of $500,000 as of September 30, 1998, which is
included in prepaid to service providers.
F-17
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
CONTINGENCIES
From time to time, the Company may be a party of litigation and claims incident
to the ordinary course of its business. Although the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on the
Company's financial position results of operations, or cash flows.
6. RESTRUCTURING AND OTHER CHARGES
During the second quarter of 1997, the Company recorded restructuring and other
charges of approximately $7,400,000, of which approximately $6,200,000 related
to a program to discontinue 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
involves cash outflows, of which $3,100,000 has been completed as of December
31, 1997. Non-cash restructuring charges of approximately $2,400,000 relate
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, the Company has approximately
$1,900,000 remaining in its restructuring reserve, which was fully utilized as
of September 30, 1998.
7. SHAREHOLDERS' EQUITY
Preferred Stock--On May 15, 1996, the Board of Directors authorized 5,000,000
shares of undesignated preferred stock. In connection with this action, the
Board has the authority to issue in one or more series and to fix the rights,
preferences, privileges, and restrictions thereof, without further vote or
action by the shareholders. No such shares have been issued to date.
Convertible Preferred Stock--Through May of 1996, the Company issued series A,
B, C, and E convertible preferred stock. A portion of the Series E convertible
preferred stock was redeemable at the request of the holder. On June 11, 1996
the Company completed its initial public offering and at that time all
outstanding shares of convertible preferred stock were converted into common
stock on a one-for-one basis.
Common Stock--On May 15, 1996, the Company's Shareholders approved a 3-for-4
reverse stock split of the Company's preferred and common stock. All
outstanding preferred, common and common equivalent shares in the accompanying
financial statements have been retroactively adjusted to give effect to this
reverse stock split. At the same time, the Board of Directors approved the
increase of authorized common stock to 60,000,000 shares.
Founders' Common Stock--The Company has the right, at any time within sixty
days after termination of a founder's employment or service, to repurchase
certain common shares at the price per share paid by the founder. The Company's
right to repurchase lapses with respect to 25% of the total number of shares
held by the founder, commencing twelve months after purchase, and in
F-18
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
monthly increments of 2.08% of the total number of shares thereafter. There
were no founders' common shares subject to repurchase as of September 30, 1998
and at December 31, 1997 and 1996 there were 7,000 and 1,101,000 founders'
common shares subject to repurchase, respectively.
Shareholders' Notes Receivable--During 1997, 1996 and 1995, the Company entered
into agreements with certain officers and employees to sell approximately
38,000, 412,000 and 372,000 shares, respectively, of the Company's common stock
in exchange for full recourse promissory notes. The shares are subject to
repurchase by the Company, and such repurchase options lapse in monthly
increments of 2.08% of the total number of shares purchased. At September 30,
1998 and December 31, 1997 and 1996, there were approximately 53,000, 88,500
and 504,000 common shares, respectively, subject to repurchase by the Company.
Warrants--During 1995, in connection with an equipment financing transaction,
the Company issued warrants to purchase 100,000 shares of Series C convertible
preferred stock at an exercise price of $0.80 per share. These warrants are
exercisable at any time through October 2000. As of December 31, 1997, all
warrants had been exercised. The Company recorded additional interest expense
using the minimum value method to determine the value of the warrants.
Common Stock Reserved For Future Issuance--Shares of common stock reserved for
future issuance are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Preferred stock................................. 5,000 5,000
Stock option plan............................... 6,773 5,753
Employee stock purchase plan.................... 499 143
------ ------
12,272 10,896
====== ======
</TABLE>
8. FOLLOW-ON PUBLIC OFFERING
In February 1998, the Company completed a follow-on public offering of
3,450,000 shares of Common Stock and received proceeds of approximately
$43,015,000 net of underwriting discounts, commissions and other offering
costs.
9. STOCK OPTION/STOCK ISSUANCE PLAN
The Company's Stock Option Plan (the "Predecessor Plan") provides for the grant
of incentive stock options and non statutory stock options to employees and
consultants of the Company at prices ranging from 85% to 110% (depending on the
type of grant) of the fair market value of the common stock on the date of
grant as determined by the Board of Directors.
F-19
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
In April 1996, the Board of Directors adopted the 1996 Stock Option/Stock
Issuance Plan (the "1996 Plan") which was approved by the Company's
shareholders on May 15, 1996. The 1996 Plan is intended to serve as the
successor equity incentive stock issuance program to the Predecessor Plan.
Under the 1996 Plan, 7,225,000 shares of common stock have been authorized for
issuance. In June 1998, the Company's shareholders ratified and approved to
increase the number of shares available for grant by 1,500,000 to a total of
8,725,000 for the 1996 Stock Option/Stock Issuance Plan. The 1996 Plan is
divided into three separate components: the Discretionary Option Grant Program
under which eligible individuals may be granted options to purchase shares of
common stock at an exercise price of not less than 85% of their fair market
value on the grant date; the Stock Issuance Program under which eligible
individuals may be issued shares of common stock directly through the purchase
of such shares at a price of not less than 85% of their fair market value at
the time of issuance or as a bonus tied to the performance of services; and the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non employee Board members to purchase
shares of common stock at an exercise price equal to 100% of their fair market
value on the grant date.
The vesting and exercise provisions of the option grants are determined by the
Board of Directors. Options generally vest and become exercisable as to 25% of
the shares one year from the date of grant and the balance in monthly
increments over the subsequent three years of service. Options expire no later
than ten years from the date of grant. Options for the purchase of 1,171,000,
583,000 and 845,000 shares were exercisable as of September 30, 1998 and
December 31, 1997 and 1996, respectively.
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting of Stock Issued to Employees" and related
interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board, Statement No. 123 (SFAS No. 123)
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. The
Company, under APB No. 25, generally does not recognize compensation expense as
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant.
Through September 30, 1998 and December 31, 1997, the Company recorded
aggregate deferred compensation of $6,018,000 and $5,666,000, respectively,
representing the difference between the grant price and the deemed fair value
of the Company's common stock granted during those periods. The amortization of
deferred compensation is being charged to operations and is being amortized
over the vesting period of the options, which is typically four years. For the
nine months ended September 30, 1998 and 1997, amortized expenses were $314,000
and $717,000, respectively, and for the years ended December 31, 1997, 1996 and
1995, the amortized expenses were $832,000, $1,346,000 and $44,000,
respectively.
F-20
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
Pro forma information regarding net loss and loss per share is required by SFAS
No. 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of this statement. The fair value
for options granted during 1997 were estimated at the date of grant using the
Black-Scholes multiple option pricing model with the following weighted average
assumptions: risk-free interest rate ranging from 5.53% to 6.77%; a dividend
yield of 0.0%; a volatility factor of the expected market price of the
Company's common stock of .87; and a weighted-average expected life of the
option of five years for officers and four years for non officers. Subsequent
to the Company's initial public offering in June 1996, the fair value of
options granted during the balance of 1996 were estimated with the following
weighted average assumptions: risk-free interest rates ranging from 5.18% to
6.58% in 1996 and 5.34% to 7.03% in 1995; a dividend yield of 0.0%; a
volatility factor of the expected market price of the Company's common stock of
.80; and a weighted-average expected life of the option of five years for
officers and four years for non officers. The fair value for options granted
prior to the Company's initial public offering in June 1996 were estimated at
the date of grant using the minimum value method and have a volatility factor
of zero.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net loss.......................... $(30,919) $(17,328) $(3,442)
Pro forma basic and diluted net loss per
share...................................... $ (1.16) $ (0.78) $ (0.22)
</TABLE>
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
In July 1997, the Board of Directors authorized the repricing of options to
purchase 821,300 shares of common stock effective on July 23, 1997 to the then
fair market value of $6.13 per share. Under the terms of the repricing, the
repriced options maintain the same vesting and expiration terms, except they
may not be exercised until January 9, 1998. Executive officers, consultants and
members of the Board of Directors were not eligible to participate in the
repricing.
F-21
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
A summary of the Company's stock option activity and related information for
the nine months ended September 30, 1998 and the years ended December 31 are as
follows (amounts used in 1997 have been restated to reflect the April 17, 1998
merger with WebChat):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------
1998 1997 1996 1995
---------------- ----------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA )
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 4,158 $ 4.92 4,921 $2.10 3,074 $0.13 165 $0.07
Granted............... 2,451 $20.41 4,418 $6.61 2,851 $3.98 3,438 $0.13
Exercised............. (480) $ 3.17 (1,456) $0.79 (54) $0.11 -- $ --
Canceled.............. (337) $13.81 (3,725) $4.79 (957) $1.51 (529) $0.11
----- ------ ----- -----
Outstanding--end of
period................. 5,792 $11.12 4,158 $4.92 4,914 $2.10 3,074 $0.13
===== ====== ===== =====
Exercisable at end of
period................. 1,171 $ 3.99 583 $2.63 845 $0.35 155 $0.13
Weighted average fair
value of options
granted during the
period................. $4.48 $3.79 $0.40
</TABLE>
Outstanding and Exercisable By Price Range as of December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -----------------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AS OF REMAINING AVERAGE EXERCISABLE AS OF AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
------------------------ ----------------- ---------------- -------------- ----------------- --------------
(IN THOUSANDS) (YEARS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 0.00-$ 5.00........... 2,724 7.9 $ 3.47 386 $0.51
$ 5.01-$10.00........... 1,018 7.5 $ 6.64 197 $6.77
$10.01-$15.00........... 416 9.8 $10.26 -- --
----- ---
4,158 8.0 $ 2.10 583 $2.63
===== ===
</TABLE>
10. EMPLOYEE STOCK PURCHASE PLAN
In April 1996, the Board of Directors adopted the 1996 Employee Stock Purchase
Plan (the "Purchase Plan"), which is designed to allow eligible employees of
the Company to purchase shares of common stock at semiannual intervals through
their periodic payroll deductions. An aggregate of 187,500 shares of common
stock were originally reserved for the Purchase Plan. In June 1998, the
Company's shareholders increased the number of shares reserved by 400,000 to a
total of 587,500, of which 88,866 and 44,443 had been issued through September
30, 1998 and December 31, 1997, respectively. The Purchase Plan is implemented
in a series of successive offering periods, each with a maximum duration of 24
months. Eligible employees can have up to 10% (up to a maximum of 1,000 shares
per year) of their base salary deducted that is to be used to purchase shares
of the
F-22
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
common stock on specific dates determined by the Board of Directors. The price
of common stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering period or the specified purchase date. The Company does not
recognize compensation cost related to employee purchase rights under the Plan.
To comply with the pro forma reporting requirements of SFAS No. 123,
compensation cost is estimated for the fair value of the employees' purchase
rights using the Black-Scholes model with the following assumptions for those
rights granted in 1997: a risk free interest rate of 6.0%; dividend yield of
0.0%; expected volatility factor of .87; an expected life of six months; and
for those granted in 1996: a risk free interest rate of 5.0%; dividend yield of
0.0%; expected volatility factor of .80; an expected life of six months. The
weighted average estimated fair value of the Purchase Plan shares granted in
1997 was $4.05.
11. INCOME TAXES
Due to the Company's loss position, there was no provision for income taxes for
any period presented.
As of December 31, 1997, the Company has federal and state net operating loss
carryforwards of approximately $45,000,000 and $29,500,000, respectively. The
federal net operating loss carryforwards will expire in the years 2009 through
2012, and the state net operating loss carryforwards will expire in the years
1999 through 2002. The Company has federal and state research and
experimentation credits of approximately $300,000 each, that will expire in the
years 2009 through 2012. Utilization of the net operating losses and credits
may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Deferred taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating losses.................................... $ 17,448 $ 7,500
Research credit carryforwards........................... 406 200
Accrued royalties....................................... 37 60
Other individually immaterial items..................... 1,654 340
-------- -------
Total deferred tax assets............................. 19,545 8,100
Valuation allowance..................................... (19,545) (8,100)
-------- -------
Total net deferred tax assets......................... $ -- $ --
======== =======
</TABLE>
F-23
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
The change in the valuation allowance was a net increase of approximately
$6,409,000 and $1,030,000 for the years ended December 31, 1996 and 1995,
respectively.
12. EMPLOYEE BENEFIT PLAN
In January 1996, the Company adopted a plan to provide retirement and
incidental benefits for its eligible employees, known as the Infoseek
Corporation 401(k) Plan ("The Plan"). As allowed under Section 401(k) of the
Internal Revenue Code, the Plan provides tax-deferred salary deductions for
eligible employees. Participants in the Plan may make salary deferrals of up to
20% of their annual salary, limited by the maximum dollar amount allowed by the
Internal Revenue Code. The Company, at its discretion, may elect to make
contributions to the Plan on behalf of its eligible participants. The Company
has made no such contributions to date.
13. RELATED PARTY TRANSACTIONS
Bell Atlantic, with a representative on the Company's Board of Directors and
ownership of a substantial amount of the outstanding common stock of the
Company is considered a related party. In March 1996, the Company and Bell
Atlantic entered into a one-year agreement, which provided for the Company's
display of the Big Yellow logo within the Infoseek Service. According to the
terms of the agreement, Bell Atlantic agreed to pay to the Company up to an
aggregate of $4,600,000, in monthly payments, which amount would be decreased
proportionately if the number of impressions of the Big Yellow logo were below
a specified number. In February 1997, the Company signed an amendment with Bell
Atlantic extending the term of the original agreement, dated March 1996,
through June 1998 in exchange for an additional $1,400,000, for a total of
$6,000,000, in monthly payments. The terms of conditions of the amended
agreement were substantially the same, except for elimination of certain
exclusivity and reimbursement provisions. The Company recognized revenue of
$1,298,000 and $2,116,000 for the nine months ended September 30, 1998 and
1997, respectively, and $2,820,000 and $1,882,000 in connection with this
agreement for the years ended December 31, 1997 and 1996, respectively. Amounts
receivable from and payable to such related party were insignificant at
September 30, 1998 and December 31, 1997 and 1996.
F-24
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1997 1996 1995 1998 1997
-------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Numerator:
Net Loss:............... $(26,562) $(15,938) $(3,296) $(5,694) $(21,914)
-------- -------- ------- -------- ---------
Numerator for basic and
diluted loss per share... $(26,562) $(15,938) $(3,296) $(5,694) $(21,914)
======== ======== ======= ======== =========
Weighted average of common
shares................... 26,627 14,076 1,635 30,512 26,270
Conversion of preferred
stock not included in
shares related to SEC
Staff Accounting Bulletin
98....................... -- 8,044 13,900 -- --
-------- -------- ------- -------- ---------
Denominator for basic and
diluted loss per share... 26,627 22,120 15,535 30,512 26,270
======== ======== ======= ======== =========
Basic and diluted loss per
share (pro forma in
1995).................... $ (1.00) $ (0.72) $ (0.21) $ (0.19) $ (0.83)
======== ======== ======= ======== =========
</TABLE>
15. SUBSEQUENT EVENTS (UNAUDITED)
On July 24, 1998, the Company entered into an agreement to acquire Quando, Inc.
("Quando") for approximately $17,000,000, subject to adjustment, in shares of
the Company's common stock. The Company expects to incur approximately
$1,000,000 in acquisition costs. The transaction is subject to customary
closing conditions, including shareholder approval by Quando, and is expected
to close in December 1998.
Based upon preliminary estimates of the fair value of Quando and the allocation
of the consideration paid for the assets and liabilities of Quando, the Company
will record approximately $16,900,000 in goodwill, joint ventures and other
intangibles which will be amortized on a straight-line basis over a two year
period. In addition, the Company expects to incur write-offs related to in-
process research and development, currently estimated at approximately
$4,300,000. The estimated amounts relating to goodwill and the in-process
research and development charges represent a preliminary estimate which could
materially differ from the actual results that will be experienced by the
Company as final values have not yet been established.
On November 9, 1998, the Company renewed the international agreement with
Netscape for which the Company will be one of the non-exclusive premier
providers for search and directory services in seven foreign sites for the
period of October 1, 1998 to September 30, 1999. Under the terms of the renewed
agreement, the Company will pay Netscape a one-time $120,000 nonrecurring
engineering fee with
F-25
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
additional quarterly payments being made based upon established rates for
impressions delivered by Netscape. The agreement may be terminated by either
party upon sixty days prior written notice to the other party.
On November 11, 1998, the Company received notice from Netscape of their intent
to either terminate the contract or negotiate a new agreement to afford
Infoseek with different positioning or a lower rotation percentage on the
Netscape site on pricing terms to be mutually agreed. On November 25, 1998, the
Company and Netscape renegotiated the terms of the June 1998 agreement to
provide for the purchase of 5% of Netscape's available search traffic beginning
January 11, 1999 and through the duration of the agreement which terminates May
31, 1999. Under the new agreement, the Company is charged a higher rate for
certain traffic received. The maximum payment cap is $12,500,000, less any
payments made under the prior agreement.
On November 18, 1998, the Company completed its acquisition of Starwave
Corporation ("Starwave"), a subsidiary of The Walt Disney Company ("Disney")
whereby the Company issued 25,932,681 shares of common stock in exchange for
all outstanding Starwave shares. The Company also reserved 2,205,316 shares of
common stock in connection with outstanding stock options of Starwave to be
assumed by the Company. The fair value of the Company's shares and options
issued was approximately $897,800,000.
A new holding company structure was established as a result of the acquisition.
Starwave and Infoseek Corporation, a California corporation, became wholly-
owned subsidiaries of the Infoseek Corporation, a Delaware corporation, (the
"Holding Company") which is a registered public company incorporated in
Delaware. The authorized capital stock of the Holding Company consists of
500,000,000 shares of $0.001 par value common stock and 25,000,000 shares of
$0.001 par value Preferred Stock. Disney also purchased an additional 2,642,000
unregistered shares of the Holding Company's common stock and a warrant,
subject to vesting, to purchase an additional 15,720,000 unregistered shares of
the Holding Company's common stock (the "Warrant") in exchange for
approximately $70,000,000 in cash and a $139,000,000 five-year promissory note.
The Warrant generally enables Disney to achieve a majority stake in the Company
over a three year period. The Company also committed to spend approximately
$165,000,000 to promote the GO Network, a new portal service established by the
Holding Company.
The Company expects to incur approximately $22,000,000 in acquisition costs
which will be included in the purchase price of Starwave. As of September 30,
1998, the Company had incurred approximately $2,800,000 of these direct
acquisition costs. The Company is accounting for the Starwave acquisition under
the purchase method of accounting. Based upon preliminary estimates of the fair
value of Starwave and the allocation of the consideration paid for the assets
and liabilities of Starwave, the Company expects to record approximately
$656,300,000 in goodwill and joint venture relationships which will be
amortized on a straight-line basis over a ten year period. Also, the
F-26
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
Company expects to record approximately $45,200,000 for developed technology
and assembled workforce which will be amortized on a straight-line basis over a
two-year period. In addition, the Company expects to incur write-offs related
to in-process research and development, currently estimated at $72,600,000. The
estimated amounts relating to goodwill, joint venture relationships, developed
technology, assembled workforce, and the in-process research and development
charges represent a preliminary estimate which could materially differ from the
actual results experienced by the Company as a final valuation has not been
completed.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, 1998 JUNE 30, 1998 SEPT. 30, 1998
-------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenues................. $14,453 $17,066 $19,196
Costs and expenses
Hosting, content and website
costs....................... 2,154 2,524 3,278
Research and development..... 2,130 2,667 2,635
Sales and marketing.......... 10,577 11,863 12,704
General and administrative... 1,862 2,061 3,953
------- ------- -------
Total costs and expenses... 16,723 19,115 22,570
------- ------- -------
Operating loss................. (2,270) (2,049) (3,374)
Net interest income............ 470 782 747
------- ------- -------
Net loss....................... $(1,800) $(1,267) $(2,627)
======= ======= =======
Basic and diluted net loss per
share......................... $ (0.06) $ (0.04) $ (0.08)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997 SEPT. 30, 1997 DEC. 31, 1997
-------------- ------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues.......... $ 6,240 $ 7,786 $ 8,381 $12,675
Costs and expenses
Hosting, content and
website costs........ 1,297 1,533 1,567 1,922
Research and
development.......... 1,728 2,374 1,777 2,021
Sales and marketing... 6,650 7,541 8,329 11,800
General and
administrative....... 1,470 1,825 1,947 1,800
Restructuring and
other charges........ -- 7,349 -- --
------- -------- ------- -------
Total costs and
expenses........... 11,145 20,622 13,620 17,543
------- -------- ------- -------
Operating loss.......... (4,905) (12,836) (5,239) (4,868)
Net interest income..... 400 379 287 220
------- -------- ------- -------
Net loss................ $(4,505) $(12,457) $(4,952) $(4,648)
======= ======== ======= =======
Basic and diluted net
loss per share......... $ (0.17) $ (0.47) $ (0.19) $ (0.17)
======= ======== ======= =======
</TABLE>
F-27
<PAGE>
INFOSEEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO SEPTEMBER 30, 1998 AND THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
-------------- ------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues.......... $ 1,731 $ 3,286 $ 4,007 $ 6,071
Cost and expenses
Hosting, content and
website costs.......... 690 729 827 948
Research and
development.......... 934 950 1,218 1,448
Sales and marketing... 2,757 5,566 5,219 6,913
General and
administrative....... 860 919 1,091 1,307
------- ------- ------- -------
Total costs and
expenses........... 5,241 8,164 8,355 10,616
------- ------- ------- -------
Operating loss.......... (3,510) (4,878) (4,348) (4,545)
Net interest income
(expense).............. (58) 155 652 594
------- ------- ------- -------
Net loss................ $(3,568) $(4,723) $(3,696) $(3,951)
======= ======= ======= =======
Basic and diluted net
loss per share......... $ (0.18) $ (0.25) $ (0.15) $ (0.16)
======= ======= ======= =======
</TABLE>
The 1997 quarterly amounts have been restated to reflect the April 17, 1998
merger with Webchat. The 1996 quarterly amounts have not been restated due to
WebChat amounts being insignificant.
F-28
<PAGE>
STARWAVE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP...................................... F-30
Report of KPMG Peat Marwick LLP........................................... F-31
Consolidated Balance Sheets as of October 4, 1998, September 28, 1997 and
December 31, 1996........................................................ F-32
Consolidated Statements of Operations for the Year Ended October 4, 1998,
Nine months Ended September 28, 1997 and Year Ended December 31, 1996 ... F-33
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for
the Year Ended October 4, 1998, Nine months Ended September 28, 1997 and
the Year Ended December 31, 1996......................................... F-34
Consolidated Statements of Cash Flows for the Year Ended October 4, 1998,
Nine months Ended September 28, 1997 and Year Ended December 31, 1996.... F-35
Notes to Consolidated Financial Statements................................ F-36
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Starwave Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated 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 and its subsidiaries at October 4,
1998 and September 28, 1997, and the results of their operations and their cash
flows for the year ended October 4, 1998 and the nine months ended 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 audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As described in Note 1, in April 1997, May 1998 and November 1998 the Company
completed a number of transactions which significantly changed its capital and
operating structure.
PricewaterhouseCoopers LLP
Seattle, Washington
November 18, 1998
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Starwave Corporation:
We have audited the accompanying balance sheet of Starwave Corporation as of
December 31, 1996, and the related statements of operations, shareholders'
deficit, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Seattle, Washington
February 7, 1997
F-31
<PAGE>
STARWAVE CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................ $ 1,415 $ 18,306 $ 305
Accounts receivable, net................. 165 163 2,950
Accounts receivable from related
parties................................. 897 611 --
Receivable from affiliate................ 516 1,292 --
Other receivables........................ 10 60 73
Deferred royalties, net.................. -- -- 783
Prepaid expenses and other assets........ 803 378 787
Equipment and leasehold improvements, net
(Note 3)................................ 4,629 4,323 4,815
Investment in affiliates................. 7,377 4,328
--------- --------- --------
$ 15,812 $ 29,461 $ 9,713
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
------------------------------------
Accounts payable......................... $ 1,816 $ 1,500 $ 3,277
Accrued compensation..................... 3,365 1,555 629
Accrued royalties........................ 250 500 2,087
Accrued liabilities of discontinued
operations (Note 9)..................... 347 359 519
Other accrued liabilities................ 66 118
Due to affiliates........................ 1,023 1,922 --
Deferred revenue......................... 60 11 651
Loans from shareholder (Note 4).......... -- -- 84,888
--------- --------- --------
Total liabilities.................... 6,927 5,847 92,169
--------- --------- --------
Commitments (Notes 6 and 8)
Shareholders' equity (deficit)
Common stock A, $.01 par value;
authorized 250,000 shares in 1998,
1997 and 1996; issued and outstanding
57,660 shares in 1998, 55,512 shares
in 1997 and 34,214 shares in 1996..... 576 555 342
Common stock B, $.01 par value;
authorized 80,000 shares in 1998, 1997
and 1996, issued and outstanding
39,869 shares in 1998 and 1997, and no
shares in 1996........................ 399 399 --
Additional paid-in capital............. 127,198 123,095 138
Deferred stock option compensation
expense............................... (3,599) (172) (246)
Accumulated deficit.................... (115,689) (100,263) (82,690)
--------- --------- --------
Total shareholders' equity
(deficit)........................... 8,885 23,614 (82,456)
--------- --------- --------
$ 15,812 $ 29,461 $ 9,713
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
STARWAVE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTHS ENDED YEAR ENDED
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ----------------- ------------
<S> <C> <C> <C>
Revenues............................ $ 5,266 $ 4,892 $ 8,302
-------- -------- --------
Operating expenses
Cost of online services........... 3,143 7,185 18,170
Development....................... 1,225 1,605 6,138
Sales and marketing............... 94 1,589 5,492
General and administrative........ 2,772 2,527 4,845
-------- -------- --------
Total operating expenses........ 7,234 12,906 34,645
-------- -------- --------
Operating loss...................... (1,968) (8,014) (26,343)
-------- -------- --------
Other income (expense)
Loss from affiliate--EIV.......... (4,139) (2,251) --
Loss from affiliate--AIV.......... (10,020) (5,958) --
Interest income (expense), net.... 748 (1,814) (4,675)
Other, net (Note 10).............. (47) 464 (658)
-------- -------- --------
Net other expense............... (13,458) (9,559) (5,333)
-------- -------- --------
Loss from continuing operations..... (15,426) (17,573) (31,676)
-------- -------- --------
Discontinued operations (Note 9)
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............................ $(15,426) $(17,573) $(35,965)
======== ======== ========
Basic and diluted net loss per share
from continuing operations......... $ (.16) $ (0.25) $ (0.99)
Basic and diluted net loss per share
from discontinued operations....... -- -- (0.14)
-------- -------- --------
Basic and diluted net loss per
share.............................. $ (.16) $ (0.25) $ (1.13)
======== ======== ========
Shares used in computing basic and
diluted net loss per share......... 96,475 71,691 31,958
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
STARWAVE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
OCTOBER 4, 1998, SEPTEMBER 28, 1997 AND DECEMBER 31, 1996
<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>
Balances 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................ 2,148 21 144 -- -- 165
Deferred compensation
expense related to
issuance of stock
options................ -- -- 4,232 (4,232) -- --
Forfeitures of nonvested
stock options.......... -- -- (273) 273 -- --
Amortization of deferred
stock option
compensation expense... -- -- -- 532 -- 532
Net loss................ -- -- -- -- (15,426) (15,426)
------ ---- -------- ------- --------- --------
Balance at October 4,
1998................... 97,529 $975 $127,198 $(3,599) $(115,689) $ 8,885
====== ==== ======== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
STARWAVE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTHS ENDED YEAR ENDED
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ----------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................ $(15,426) $(17,573) $(35,965)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities
Depreciation and amortization of
equipment and leasehold
improvements...................... 2,855 1,629 2,170
Equity in losses from affiliates... 14,159 8,209 --
Loss on sale of equipment.......... 21 36 90
Amortization of deferred stock
compensation expense.............. 532 74 148
Change in certain assets and
liabilities
Accounts receivable (trade) and
accounts receivable from related
parties.......................... (288) 2,176 (2,216)
Receivable from affiliate and
other receivables................ 826 (1,279) 179
Deferred royalties................ 783 (755)
Prepaid expenses and other
assets........................... (425) 572 (253)
Net assets and accrued liabilities
of discontinued operations....... (12) (160) 1,571
Accounts payable.................. 316 (1,777) 2,567
Accrued interest on loans from
shareholder...................... -- -- (286)
Accrued compensation.............. 1,810 926 356
Accrued royalties................. (250) (1,587) 2,087
Due to affiliates................. (899) 1,922 (47)
Deferred revenue.................. 49 (640) 353
Other accrued liabilities......... 66 (118) (59)
-------- -------- --------
Net cash provided by (used) in
operating activities............ 3,334 (6,807) (30,060)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold
improvements....................... (3,182) (1,336) (3,358)
Proceeds from sale of equipment..... -- -- 37
Expenses incurred on behalf of
affiliates......................... (17,208) (12,537) --
-------- -------- --------
Net cash used in investing
activities...................... (20,390) (13,873) (3,321)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loans from shareholder.. -- 10,776 33,863
Repayment of loans from
shareholders....................... -- (50,000) --
Decrease in bank overdraft.......... -- -- (191)
Proceeds from sale of stock, net.... -- 81,868 --
Funds used for stock repurchase..... -- (3,969) --
Proceeds from exercise of stock
options............................ 165 6 14
-------- -------- --------
Net cash provided by financing
activities...................... 165 38,681 33,686
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents.................... (16,891) 18,001 305
Cash and cash equivalents at
beginning of year................... 18,306 305 --
-------- -------- --------
Cash and cash equivalents at end of
year................................ $ 1,415 $ 18,306 $ 305
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for
interest............................ $ 41 $ 2,099 $ 4,889
SCHEDULE OF NONCASH FINANCING
ACTIVITIES
Equity issued to shareholder in
return for extinguishment of debt... -- $ 45,664 --
Issuance of stock options............ $ 4,232 -- --
Forfeitures of nonvested stock
options............................. $ 273 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 4, 1998, SEPTEMBER 28, 1997 AND DECEMBER 31, 1996
(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 to recapitalize its equity structure and change its 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 4). 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
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. From April 1997,
substantially all of the Company's operations were transferred to the
partnerships. Certain expenses of the partnerships are incurred by the Company
and allocated to the partnerships.
In May 1998, Disney completed the recapitalization by purchasing the remaining
outstanding shares from the primary shareholder for a majority interest in the
Company (Note 7).
The Company and it shareholders have approved a merger of the Company and
Infoseek Corporation (Infoseek) as of November 18, 1998 (Note 11).
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.
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
On April 1, 1997, SVI and DOL 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
F-36
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
infrastructure, 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 year ended October 4, 1998, contributions to the
partnership totaled $19,137, of which $11,483 was contributed by SVI during the
year and $1,023 is due to the partnership and is included in amounts due
affiliates. For the nine months ended September 28, 1997, contributions to the
partnership totaled $14,416, of which $8,660 was contributed by SVI during the
year and $1,922 was due to the partnership and is included in amounts due
affiliates. The Company considers the methodology of allocation of
contributions reasonable.
ESPN/STARWAVE PARTNERS
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
a broad consumer interest in sports-related content 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 year ended October 4, 1998, contributions to the
partnership totaled $9,559, of which $5,735 was contributed by SVI during the
year and $516 is due from the partnership and is included in amounts receivable
from affiliates. For the nine months ended September 28, 1997, contributions to
the partnership totaled $7,972, of which $5,377 was contributed by SVI during
the period and $1,203 was 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 fiscal years 1998 and 1997 are losses
from these partnerships of $14,159 and $8,209, respectively. Certain assets
transferred by the Company to the partnerships upon formation were recorded at
book value.
F-37
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information from the financial statements of the
partnerships is as follows:
<TABLE>
<CAPTION>
ESPN/STARWAVE ABC NEWS/STARWAVE
PARTNERS PARTNERS
------------------------ ------------------------
OCTOBER 4, SEPTEMBER 28, OCTOBER 4, SEPTEMBER 28,
1998 1997 1998 1997
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Current assets.......... $ 8,823 $ 4,985 $ 6,505 $ 4,256
Noncurrent assets....... 479 84 3,967 3,134
Current liabilities..... 3,906 2,333 3,574 2,930
Noncurrent liabilities.. -- -- -- --
Revenues................ 19,193 6,996 9,878 1,929
Cost of online
services............... 15,715 7,168 18,182 9,015
Net loss................ (6,899) (3,752) (16,699) (9,930)
</TABLE>
BASIS OF PRESENTATION
The consolidated 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.
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 Sunday in the last
week of September. For the purposes of the consolidated financial statements,
fiscal year 1998 ended October 4, 1998.
The following is selected financial data for the year ended October 4, 1998 and
the comparable period ended September 28, 1997:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 4, 1998 SEPTEMBER 28, 1997
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
Revenues............................... $ 5,266 $ 8,611
-------- --------
Operating expenses
Cost of online services.............. 3,143 14,309
Development.......................... 1,225 2,157
Sales and marketing.................. 94 4,209
General and administrative........... 2,772 3,983
-------- --------
Total operating expenses........... 7,234 24,658
-------- --------
Operating loss......................... (1,968) (16,047)
-------- --------
Other income (expense)
Earnings (loss) from affiliate EIV... (4,139) (2,251)
Earnings (loss) from affiliate AIV... (10,020) (5,958)
Interest income (expense), net....... 748 (3,302)
Other, net........................... (47) (142)
-------- --------
Net other expense.................. (13,458) (11,653)
-------- --------
Net loss............................... $(15,426) $(27,700)
======== ========
</TABLE>
F-38
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash 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. Estimated useful lives range from one to six years.
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 computed on a straight-line basis over the term of the agreements. In
April 1997, all significant deferred revenues were contributed to the
partnerships.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
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 to users of its online service for a specified
period. To the extent minimum guaranteed page impression deliveries are not
met, the Company defers recognition of the corresponding revenues until
guaranteed page impression delivery levels are achieved. As of October 4, 1998,
September 28, 1997 and December 31, 1996, no revenues had been deferred as a
result of these guarantees. As described above, beginning in April 1997 all
advertising and subscription revenues are recognized by the partnerships.
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 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. License and post
contract support revenues amounted to $1,779 and $401 for the periods ended
October 4, 1998 and September 28, 1997, respectively.
F-39
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During fiscal years 1998 and 1997, the Company had revenues from related
parties representing 58% and 52% of revenues, respectively. At October 4, 1998
and September 28, 1997, related party receivables represented 84% and 79%,
respectively of trade accounts receivable. The Company had no revenues or
accounts receivable from related parties as of and for the year ended December
31, 1996.
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 year ended
October 4, 1998, 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 $80, $451 and $1,203 in fiscal years 1998, 1997 and 1996,
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 cash equivalents, accounts receivable, accounts
receivable from related parties, receivable from affiliate, other receivables,
accounts payable, accrued compensation, accrued royalties and due to affiliates
approximates fair value due to 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 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.
F-40
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions 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 the disclosure provisions of
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 provisions 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 anti-dilutive.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 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 results 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 No. 133 (SFAS),
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.
F-41
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1997, Statement of Position No. 97-2 (SOP 97-2), Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue 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.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
Equipment.......................... $11,510 $ 9,879 $ 9,171
Leasehold improvements............. 1,699 826 403
------- ------- -------
13,209 10,705 9,574
Less: Accumulated depreciation and
amortization...................... (8,580) (6,382) (4,759)
------- ------- -------
Net equipment and leasehold
improvements...................... $ 4,629 $ 4,323 $ 4,815
======= ======= =======
</TABLE>
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
A current provision for income taxes has not been recorded for the year ended
October 4, 1998, 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>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
Capitalized "start-up" expenses..... $ 1,824 $ 2,635 $ 2,635
Net operating loss carry-forward.... 24,369 18,633 12,730
Other............................... 1,170 902 512
------- -------- --------
Gross deferred tax assets........... 27,363 22,170 15,877
Less: Valuation allowance........... (27,363) (22,170) (15,877)
------- -------- --------
Net deferred tax assets............. $ -- $ -- $ --
======= ======== ========
</TABLE>
F-42
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of expected income taxes at the federal statutory rate of
34% to the actual tax expense of $0 is:
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTHS ENDED YEAR ENDED
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ----------------- ------------
<S> <C> <C> <C>
Tax at statutory rate........... $(5,245) $(5,975) $(12,228)
Change in valuation allowance... 5,193 6,293 12,126
Other........................... 52 (318) 102
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>
As of October 4, 1998, the Company has approximately $70,185 of net operating
loss carry-forwards available to offset future taxable income, if any, through
2012.
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 May 1998 and November
1998 and the annual utilization of loss carry-forwards generated through those
periods 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 whereby
140,000 shares of Class A common stock are reserved 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.
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 1998,
1997 and 1996 was $5.87, $1.62 and $0.11, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted
average assumptions: fiscal years 1998, 1997 and 1996--expected dividend yield
0%; risk-free interest rate of 5.61%, 6.28% and 6.14%, respectively, and an
expected life of 4.26, 2.68 and 2.89 years, respectively.
The Company applies APB Opinion No. 25 in accounting for its 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.
In fiscal years 1998, 1997 and 1996 the Company recorded deferred compensation
relating to the issuance of stock options less than fair value of $4,232, $0
and $394, respectively. Amortization of these costs amounted to $532, $74, and
$148 for the fiscal years 1998, 1997 and 1996, respectively. Had the Company
determined compensation cost based on the fair value at the grant date for its
F-43
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
Net loss
As reported............. $(15,426) $(17,573) $(35,965)
Pro forma............... (16,595) (18,116) (36,049)
Basic and diluted net
loss per share
As reported............. (.16) (.25) (1.13)
Pro forma............... (.17) (.25) (1.13)
</TABLE>
Pro forma net loss reflects only options granted in fiscal years 1998, 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 and
net loss per share 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, 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:
Exercise price equal to fair value........... 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 granted:
Exercise price equal to fair value........... 935 3.79 8.32
Exercise price less than fair value.......... 740 2.95 2.95
Options exercised............................ (2,148) .08
Options canceled............................. (1,453) 1.24
------
Balances at October 4, 1998.................... 9,106 3.41
Options exercisable at:
December 31, 1996............................ 2,800 .025
September 28, 1997........................... 3,116 .38
October 4, 1998.............................. 3,941 1.04
</TABLE>
F-44
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At October 4, 1998, 143,447 shares remained reserved and available for grant
under the Plan.
The following table summarizes information about stock options outstanding
under the Plan at October 4, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.003 1,275 6.75 $0.003 673 $0.003
0.09 1,451 7.70 0.09 1,147 0.09
0.15-.44 945 7.84 .42 443 .42
2.27 4,182 8.52 2.27 1,678 2.27
2.95 1,013 9.09 2.95
4.47-8.81 221 9.91 7.06
9.32 2 9.73 9.32
9.85 11 9.75 9.85
9.94 6 9.74 9.94
----- -----
9,106 8.23 $ 3.41 3,941 $ 1.04
===== =====
</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 October 4, 1998, 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 39,869 shares of the Company's Class B common shares. The initial
purchase proceeds provided $31,868 in cash to the Company, and extinguished
loans from a key shareholder of $50,000 (Note 4). 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.
On May 1, 1998, Disney exercised this option and acquired all of the
outstanding Class A shares from the primary shareholder, thereby increasing its
percentage ownership of the Company's outstanding common stock from
approximately 41% to approximately 91% on a primary share basis.
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
F-45
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that date. Class A and Class B common stock issued, including stock option
information, and additional paid-in capital for all years have been restated to
reflect this split.
8. 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 October 4, 1998, future minimum rental payments under the
lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER,
----------------------
<S> <C>
1999.............................................................. $1,502
2000.............................................................. 1,206
2001.............................................................. 550
------
$3,258
======
</TABLE>
Rent expense under noncancelable operating leases amounted to $1,493, $871 and
$931 in fiscal years 1998, 1997 and 1996, respectively.
During fiscal year 1998, the Company entered into separation agreements with
certain employees. The terms of these agreements include severance payments
based on staff level and years of service, accelerated stock option vesting and
payment of post-employment insurance premiums. The termination of employees
under these separation agreements is contingent upon completion of the Infoseek
merger, and the Company's obligations under the agreements will transfer to
Infoseek at that time. Accordingly, no liability for these arrangements has
been recorded by the Company as of October 4, 1998.
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 are shown
separately in the accompanying consolidated statements of operations. Any
activity subsequent to December 31, 1996 reduced the net liability.
Accrued liabilities of discontinued operations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
Accounts payable and accrued
liabilities............................ $(347) $(359) $(500)
Accrual for expected losses during
phase-out period....................... (19)
----- ----- -----
$(347) $(359) $(519)
===== ===== =====
</TABLE>
F-46
<PAGE>
STARWAVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net revenues and expenses of the Multimedia CD-ROM segment consist of the
following:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28, DECEMBER 31,
1998 1997 1996
---------- ------------- ------------
<S> <C> <C> <C>
Net revenues......................... $-- $-- $ 664
Expenses............................. (4,934)
Accrual for expected losses during
phase-out period.................... (19)
--- --- -------
Loss from discontinued operations.... $-- $-- $(4,289)
=== === =======
</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.
11. SUBSEQUENT EVENT
On November 18, 1998, the Company's shareholders approved a merger with
Infoseek Corporation (Infoseek), a developer and retailer of Internet
technology. Under the terms of the agreement, Infoseek acquired 100% of the
Company's outstanding common stock for approximately 25,512 shares of Infoseek
common stock and assumed options outstanding under the Company's stock option
plans for an aggregate of approximately 2,626 options for Infoseek common
stock. In connection with this acquisition, the joint venture terms of the ABC
News/Starwave Partners and ESPN/Starwave Partners are extended for ten years
from the date of the acquisition.
Upon closing of the transaction, Infoseek and Starwave will become wholly owned
subsidiaries of a newly organized holding company, Infoseek Corporation
(Newco), incorporated in Delaware. Shares of Newco, a registered public
company, will trade on Nasdaq and will be held by the former shareholders of
Infoseek and Starwave.
F-47
<PAGE>
ESPN JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP...................................... F-49
ESPN/Starwave Partners Balance Sheets as of October 4, 1998 and September
28, 1997................................................................. F-50
ESPN/Starwave Partners Statements of Operations for the Year Ended October
4, 1998 and the Period from April 1, 1997 (Inception) to September 28,
1997..................................................................... F-51
ESPN/Starwave Partners Statement of Changes in Partners' Equity for the
Year Ended October 4, 1998 and the Period from April 1, 1997 (Inception)
to September 28, 1997.................................................... F-52
ESPN/Starwave Partners Statements of Cash Flows for the Year Ended October
4, 1998 and the Period from April 1, 1997 (Inception) to September 28,
1997..................................................................... F-53
ESPN/Starwave Partners Notes to Financial Statements...................... F-54
</TABLE>
F-48
<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 October 4, 1998 and September 28, 1997, and the
results of its operations and its cash flows for the year ended October 4, 1998
and 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 audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Subsequent to year-end, the Partnership completed a transaction which
significantly changed its partnership and operating structure as described in
Note 4.
PricewaterhouseCoopers LLP
Seattle, Washington
November 18, 1998
F-49
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents........................... $3,623 $1,900
Accounts receivable (net of allowance of $79 and
$71, respectively)................................. 3,244 2,555
Prepaid royalties................................... 1,956 530
------ ------
Total current assets.............................. 8,823 4,985
Property and equipment, net........................... 479 84
------ ------
Total assets...................................... $9,302 $5,069
====== ======
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities
Accounts payable.................................... $1,040 $ 506
Deferred revenue.................................... 2,866 1,718
Due to partner...................................... 109
------ ------
Total current liabilities......................... 3,906 2,333
Commitments (Note 3)
Partners' equity...................................... 5,396 2,736
------ ------
Total liabilities and partners' equity............ $9,302 $5,069
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
YEAR ENDED (INCEPTION) TO
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- --------------
<S> <C> <C>
Revenues:
Advertising revenue................................. $13,459 $ 4,868
Subscription revenue................................ 2,459 1,732
Fantasy games and other............................. 3,275 396
------- -------
Total revenues.................................... 19,193 6,996
------- -------
Operating expenses:
Cost of online services............................. 15,715 7,168
Development......................................... 1,847 515
Sales and marketing................................. 5,724 2,262
General and administrative.......................... 3,055 811
------- -------
Total operating expenses.......................... 26,341 10,756
------- -------
Interest income....................................... 249 8
------- -------
Net loss.............................................. $(6,899) $(3,752)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<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, INC. INVESTMENTS INC. PARTNERS' EQUITY
-------------- ---------------- ----------------
<S> <C> <C> <C>
Initial capital contribution
April 1, 1997 (Note 1)..... $(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........ 5,735 3,824 9,559
Net loss for the period...... (4,139) (2,760) (6,899)
------- ------- -------
Balance at October 4, 1998... $ 3,238 $ 2,158 $ 5,396
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
YEAR ENDED (INCEPTION) TO
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(6,899) $(3,752)
Adjustments to reconcile net loss to net cash
provided by operating activities
Deferred revenue from contributed assets.......... 1,484
Operating expenses allocated from partners........ 9,559 5,004
Depreciation and amortization..................... 87 3
Change in accounts receivable..................... (689) (2,555)
Change in prepaid royalties....................... (1,426) (530)
Change in accounts payable........................ 534 506
Change in deferred revenue........................ 1,148 1,718
Change in due to partner.......................... (109) 109
------- -------
Net cash provided by operating activities....... 2,205 1,987
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.................. (482) (87)
------- -------
Net increase in cash and cash equivalents........... 1,723 1,900
Cash and cash equivalents, beginning of period...... 1,900
------- -------
Cash and cash equivalents, end of period............ $ 3,623 $ 1,900
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 4, 1998 AND SEPTEMBER 28, 1997
(IN THOUSANDS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ESPN Internet Ventures (the Partnership) was formed on April 1, 1997 upon the
execution of a Joint 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 October 4, 1998
and September 28, 1997, no revenues had been deferred as a result of these
guarantees. Deferred revenues represent advance payments received by the
Partnership which 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.
F-54
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 October 4, 1998 and September
28, 1997, the Partnership had one contract for a total of $2,000 and $1,300,
respectively, which is being amortized on a straight-line basis over the
duration of the 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
Partnership will reduce the carrying amount of its prepaid royalty to its fair
value on the date such a determination is made.
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 $1,743 and $1,558 during the periods ended
October 4, 1998 and September 28, 1997, respectively.
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, and
accounts payable approximates fair value because of the short-term maturity of
these instruments.
F-55
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN 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.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 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 results 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 No. 133 (SFAS),
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 No. 97-2 (SOP 97-2), Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue 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.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- -------------
<S> <C> <C>
Computer hardware....... $569 $87
Less: Accumulated
depreciation and
amortization........... (90) (3)
---- ---
$479 $84
==== ===
</TABLE>
The Partnership shares office space and certain operating equipment with its
partners and the related rent of $0 and $88, and depreciation of $370 and $145,
respectively, was allocated to the Partnership for the year ended October 4,
1998 and the period from April 1, 1997 (inception) to September 28, 1997.
F-56
<PAGE>
ESPN/STARWAVE PARTNERS
(D/B/A ESPN INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
<CAPTION>
FISCAL YEAR ENDING
------------------
<S> <C>
1999.............................................................. $3,250
2000.............................................................. 3,000
------
$6,250
======
</TABLE>
4. SUBSEQUENT EVENT
On November 18, 1998, the parent company of SVI completed a merger with
Infoseek Corporation (Infoseek), a developer and retailer of internet
technology. As a result of this acquisition, DOL Online Investments, Inc. and
Infoseek agreed to extend the Partnerships' joint venture terms for ten years
from the date of the acquisition.
F-57
<PAGE>
ABC NEWS JOINT VENTURE INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of PricewaterhouseCoopers LLP..................................... F-59
ABC News/Starwave Partners Balance Sheets as of October 4, 1998 and
September 28, 1997...................................................... F-60
ABC News/Starwave Partners Statements of Operations for the Year Ended
October 4, 1998 and the Period from April 1, 1997 (Inception) to
September 28, 1997 ..................................................... F-61
ABC News/Starwave Partners Statement of Changes in Partners' Equity for
the Year Ended October 4, 1998 and the Period from April 1, 1997
(Inception) to September 28, 1997 ...................................... F-62
ABC News/Starwave Partners Statements of Cash Flows for the Year Ended
October 4, 1998 and the Period from April 1, 1997 (Inception) to
September 28, 1997...................................................... F-63
ABC News/Starwave Partners Notes to Financial Statements................. F-64
</TABLE>
F-58
<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 October 4, 1998 and September 28, 1997, and
the results of its operations and its cash flows for the year ended October 4,
1998 and 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 audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Subsequent to year-end, the Partnership completed a transaction which
significantly changed its partnership and operating structure as described in
Note 4.
PricewaterhouseCoopers LLP
Seattle, Washington
November 18, 1998
F-59
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents............................. $ 1,941 $ 31
Accounts receivable (net of allowance of $42 and
$10, respectively)................................. 2,936 1,368
Prepaid royalties................................... 1,628 2,857
------- ------
Total current assets.............................. 6,505 4,256
Equipment and leasehold improvements, net............. 3,967 3,134
------- ------
Total assets...................................... $10,472 $7,390
======= ======
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Current liabilities
Accounts payable.................................... $ 1,444 $2,605
Accrued compensation................................ 49 240
Deferred revenue.................................... 207 85
Other liabilities................................... 44 --
Due to partner...................................... 1,830 --
------- ------
Total current liabilities......................... 3,574 2,930
Commitments (Note 3)
Partners' equity...................................... 6,898 4,460
------- ------
Total liabilities and partners' equity............ $10,472 $7,390
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
YEAR ENDED (INCEPTION) TO
OCTOBER 4, 1998 SEPTEMBER 28, 1997
--------------- ------------------
<S> <C> <C>
Revenues:
Advertising revenues....................... $ 4,034 $ 937
Royalties.................................. 5,844 992
-------- -------
Total revenues........................... 9,878 1,929
-------- -------
Operating expenses:
Cost of online services.................... 18,182 9,015
Development................................ 1,751 532
Sales and marketing........................ 3,959 1,777
General and administrative................. 2,746 537
-------- -------
Total operating expenses................. 26,638 11,861
-------- -------
Interest income.............................. 61 2
-------- -------
Net loss..................................... $(16,699) $(9,930)
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
STARWAVE DOL ONLINE PARTNERS'
VENTURES, INC. INVESTMENTS, 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.............. 11,483 7,654 19,137
Net loss for the period............ (10,020) (6,679) (16,699)
-------- ------- --------
Balance at October 4, 1998......... $ 4,139 $ 2,759 $ 6,898
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 1997
YEAR ENDED (INCEPTION) TO
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $(16,699) $(9,930)
Adjustments to reconcile net loss to net cash
provided by operating activities
Deferred revenue from contributed assets.......... -- 26
Operating expenses allocated from partners........ 17,988 11,327
Depreciation and amortization..................... 676 273
Change in accounts receivable..................... (1,568) (1,368)
Change in prepaid royalties....................... 1,229 (2,857)
Change in accounts payable........................ (1,161) 2,605
Change in accrued compensation.................... (191) 240
Change in deferred revenue........................ 122 85
Change in other liabilities....................... 44 --
Change in due to partner.......................... 1,830 --
-------- -------
Net cash provided by operating activities....... 2,270 401
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements.. (360) (370)
-------- -------
Net increase in cash and cash equivalents........... 1,910 31
Cash and cash equivalents, beginning of period...... 31 --
-------- -------
Cash and cash equivalents, end of period............ $ 1,941 $ 31
======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Fixed assets contributed by partners................ $ 1,149 $ 3,037
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 4, 1998 AND SEPTEMBER 28, 1997
(IN THOUSANDS)
1. ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ABC News Internet Ventures (the Partnership) was formed on April 1, 1997 upon
the execution of a Joint Partnership agreement between Starwave Ventures, Inc.
(SVI) and DOL Online Investments Inc. (DOL). SVI and DOL 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.
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 October 4,
1998 and 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.
F-64
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 October 4, 1998 and 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 three-year 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
Partnership will reduce the carrying amount of its prepaid royalty to its fair
value on the date such a determination is made.
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 $886 and $1,260 for the periods ended October 4,
1998 and September 28, 1997, respectively.
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 and due from partner approximates fair value
because of the short-term maturity of these instruments.
F-65
<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.
ACCOUNTING CHANGES
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 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 results 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 No. 133 (SFAS),
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 No. 97-2 (SOP 97-2), Software Revenue
Recognition, was issued. This pronouncement outlines criteria which must be
satisfied before revenue 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.
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
OCTOBER 4, SEPTEMBER 28,
1998 1997
---------- -------------
<S> <C> <C>
Computer hardware....... $ 660 $ 348
Software................ 44 3
Furniture and fixtures.. 19 19
Leasehold improvements.. 4,193 3,037
------ ------
4,916 3,407
Less: Accumulated
depreciation and
amortization........... (949) (273)
------ ------
Equipment and leasehold
improvements, net...... $3,967 $3,134
====== ======
</TABLE>
F-66
<PAGE>
ABC NEWS/STARWAVE PARTNERS
(D/B/A ABC NEWS INTERNET VENTURES)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership shares office space and certain operating equipment with its
partners. Related rent in the amount of $12 and $29 was allocated to the
Partnership for the year ended October 4, 1998 and for the period from April 1,
1997 (inception) to September 28, 1997, respectively.
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 $750 in 1999.
4. SUBSEQUENT EVENT
On November 18, 1998, the parent company of SVI completed a merger with
Infoseek Corporation (Infoseek), a developer and retailer of internet
technology. As a result of this acquisition, DOL Online Investments, Inc. and
Infoseek agreed to extend the Partnerships' joint venture terms for ten years
from the date of the acquisition.
F-67
<PAGE>
QUANDO, INC. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP........................................... F-69
Quando, Inc. Balance Sheets as of December 31, 1997 and 1996 and September
30, 1998................................................................. F-70
Quando, Inc. Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Nine Months Ended September 30, 1997 and
1998..................................................................... F-71
Quando, Inc. Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1996 and 1997, and the Nine Months Ended
September 30, 1998....................................................... F-72
Quando, Inc. Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997, and the Nine Months Ended September 30, 1997 and
1998..................................................................... F-73
Quando, Inc. Notes to Financial Statements................................ F-74
</TABLE>
F-68
<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. As discussed in note 12 to the
financial statements, 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 also 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-69
<PAGE>
QUANDO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ SEPTEMBER 30,
1996 1997 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash................................. $ 2,935 $ 50,984 $ 75,779
Accounts receivable, net............. -- 29,241 101,190
Other current assets................. -- -- 8,432
----------- ----------- -----------
Total current assets............... 2,935 80,225 185,401
Property and equipment, net............ 51,308 42,681 91,956
Other assets........................... 3,562 3,718 3,718
----------- ----------- -----------
Total assets....................... $ 57,805 $ 126,624 $ 281,075
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable and accrued
expenses............................ $ 202,405 $ 260,908 $ 159,396
Shareholders' loans.................. 66,991 67,658 40,000
Note payable......................... -- -- 360,000
----------- ----------- -----------
Total current liabilities.......... 269,396 328,566 559,396
Convertible debt....................... -- 247,000 447,000
----------- ----------- -----------
Total liabilities.................. 269,396 575,566 1,006,396
----------- ----------- -----------
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
September 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 September 30, 1998,
respectively (liquidation
preference of $550,000)........... 410,263 526,313 526,313
Common stock, no par value;
15,000,000 shares authorized;
5,445,000, 4,445,000 and 4,445,000
shares issued and outstanding on
December 31, 1996, December 31, 1997
and September 30, 1998,
respectively........................ 160,000 160,000 160,000
Additional paid-in capital........... 6 6 5,006
Accumulated deficit.................. (1,077,435) (1,430,836) (1,712,215)
----------- ----------- -----------
Total shareholders' deficit........ (211,591) (448,942) (725,321)
----------- ----------- -----------
Total liabilities and shareholders'
deficit........................... $ 57,805 $ 126,624 $ 281,075
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
QUANDO, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net........... $ 71,186 $ 33,182 $ 255,723 $ 147,450 $ 513,713
Cost of goods sold...... 32,212 19,373 654 600 5,349
--------- --------- --------- --------- ---------
Gross margin.......... 38,974 13,809 255,069 146,850 508,364
--------- --------- --------- --------- ---------
Operating expenses:
Research and
development.......... 127,273 115,782 161,339 112,828 413,260
Sales and marketing... 400 2,000 12,000 2,901 699
General and
administrative....... 361,156 326,103 418,850 291,167 316,759
--------- --------- --------- --------- ---------
488,829 443,885 592,189 406,896 730,718
--------- --------- --------- --------- ---------
Operating loss...... (449,855) (430,076) (337,120) (260,046) (222,354)
Other income (expense):
Interest expense...... (5,737) (14,897) (26,151) (18,424) (61,410)
Other income
(expense), net....... 1,232 2,226 9,870 -- 2,385
Loss on sale of fixed
assets............... (3,743) -- -- -- --
--------- --------- --------- --------- ---------
Loss before
provision for
income taxes....... (458,103) (442,747) (353,401) (278,470) (281,379)
Provision for income
taxes.................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss.............. $(458,103) $(442,747) $(353,401) $(278,470) $(281,379)
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-71
<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)
Issuance of warrants
(unaudited)............ -- -- -- -- -- -- 5,000 -- 5,000
Net loss (unaudited).... -- -- -- -- -- -- -- (281,379) (281,379)
------- --------- ------- -------- ---------- -------- ------ ------------ ----------
Balance, September 30,
1998 (unaudited)....... 300,000 $ 295,575 880,000 $526,313 4,445,000 $160,000 $5,006 $ (1,712,215) $ (725,321)
======= ========= ======= ======== ========== ======== ====== ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
QUANDO, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 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) $(278,470) $(281,379)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 22,146 12,567 16,179 12,134 18,010
Allowance for bad
debts.............. -- -- 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) (25,094) (71,949)
Inventory......... (4,376) 16,538 -- -- --
Other assets...... 6,753 9 (156) (156) (8,432)
Accounts payable
and accrued
expenses......... 135,237 15,702 68,503 51,715 (101,512)
Other current
liabilities...... 15,953 (15,953) -- -- --
--------- --------- --------- --------- ---------
Net cash used in
operating
activities..... (292,218) (386,975) (308,116) (239,871) (445,262)
--------- --------- --------- --------- ---------
Cash flows from
investing activities:
Purchase of
equipment............ (17,277) (39,302) (7,552) (8,110) (67,285)
Proceeds from sale of
equipment............ 36,182 -- -- -- --
--------- --------- --------- --------- ---------
Net cash
provided by
(used in)
investing
activities..... 18,905 (39,302) (7,552) (8,110) (67,285)
--------- --------- --------- --------- ---------
Cash flows from
financing activities:
Proceeds from issuance
of convertible debt.. -- -- 240,000 140,000 200,000
Proceeds (payments)
from shareholder
loans, net........... 51,364 15,627 7,667 668 (27,658)
Proceeds from issuance
of preferred stock,
net.................. 175,000 410,263 116,050 125,592 --
Proceeds from sale of
warrants............. 1 -- -- -- 5,000
Proceeds from note
payable.............. -- -- -- -- 360,000
--------- --------- --------- --------- ---------
Net cash
provided by
financing
activities..... 226,365 425,890 363,717 266,260 537,342
--------- --------- --------- --------- ---------
Increase (decrease) in
cash................... (46,948) (387) 48,049 18,279 24,795
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 $ 21,214 $ 75,779
========= ========= ========= ========= =========
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, $12,197 and
$7,684,
respectively......... $ 5,737 $ 14,897 $ 26,151 $ 12,188 $ 11,487
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-73
<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 search and navigational services to customers. During 1997, the
Company's sales consisted entirely of fees charged for search and
navigational services and fees charged for custom engineering projects.
UNAUDITED QUARTERLY INFORMATION
The financial information included herein for the nine-month periods ended
September 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 consolidated 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.
F-74
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In 1997, revenue results primarily from fees for (a) directory services and
(b) engineering or other customization of directory services. Search and
navigational 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 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-
and $1,618 at December 31, 1996 and 1997, respectively.
F-75
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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.
(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>
F-76
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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.
(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.
F-77
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
F-78
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
(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 years ended December 31 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-79
<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
OPTIONS EXERCISE 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>
F-80
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Lease expense totaled $63,114, $70,765 and $80,397 in 1995, 1996 and 1997,
respectively. (See note 10)
(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.
(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 Internet products and
services that are 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 Internet market is emerging and many companies
are introducing new Internet products and services. In light of these
dependencies, it is possible that failure to successfully manage a
significant product introduction or failure of certain key suppliers to
deliver as needed could have a severe near-term impact on the Company's
growth and results of operations.
F-81
<PAGE>
QUANDO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(12)TRANSACTION SUBSEQUENT TO DECEMBER 31, 1997
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-82
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSEEK CORPORATION
STEELHEAD ACQUISITION CORP.,
QUANDO, INC.
DAVID BILLSTROM, AND
WILLIAM NEUHAUSER
(AS PRINCIPAL SHAREHOLDERS)
AND, WITH RESPECT TO ARTICLE VII ONLY,
STANTON R. KOCH
AS SHAREHOLDER REPRESENTATIVE,
AND, WITH RESPECT TO ARTICLE VII ONLY,
U.S. BANK TRUST, N.A.
AS ESCROW AGENT
DATED AS OF JULY 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I.--THE MERGER.................................................. 1
1.1 The Merger .................................................... 1
1.2 Effective Time ................................................ 2
1.3 Effect of the Merger .......................................... 2
1.4 Articles of Incorporation; Bylaws.............................. 2
1.5 Directors and Officers ........................................ 2
1.6 Certain Definitions............................................ 2
1.7 Effect of Merger on the Capital Stock of the Constituent
Corporations................................................. 5
1.8 Dissenting Shares.............................................. 7
1.9 Surrender of Certificates...................................... 7
1.10 No Further Ownership Rights in Company Capital Stock........... 9
1.11 Dissenting Shares After Payment of Fair Value.................. 9
1.12 Tax and Accounting Consequences................................ 9
1.13 Taking of Necessary Action; Further Action .................... 9
ARTICLE II.--REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 10
2.1 Organization of the Company.................................... 10
2.2 Subsidiaries .................................................. 10
2.3 Company Capital Structure...................................... 10
2.4 Authority...................................................... 11
2.5 No Conflict.................................................... 12
2.6 Consents ...................................................... 12
2.7 Company Financial Statements .................................. 12
2.8 No Undisclosed Liabilities .................................... 13
2.9 No Changes .................................................... 13
2.10 Tax Matters.................................................... 14
2.11 Restrictions on Business Activities............................ 16
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment ...................................... 16
2.13 Intellectual Property.......................................... 17
2.14 Agreements, Contracts and Commitments.......................... 20
2.15 Interested Party Transactions.................................. 21
2.16 Governmental Authorization .................................... 21
2.17 Litigation .................................................... 22
2.18 Accounts Receivable............................................ 22
2.19 Minute Books .................................................. 22
2.20 Environmental Matters.......................................... 22
2.21 Brokers' and Finders' Fees; Third Party Expenses .............. 23
2.22 Employee Matters and Benefit Plans ............................ 23
2.23 Insurance...................................................... 27
2.24 Compliance with Laws .......................................... 27
2.25 Warranties; Indemnities........................................ 27
2.26 Pooling of Interests .......................................... 27
2.27 Proxy Statement and Shareholder Information Statement.......... 27
2.28 Complete Copies of Materials .................................. 28
2.29 Representations Complete ...................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE III.--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.......... 28
3.1 Organization, Standing and Power .............................. 28
3.2 Charter and Bylaws............................................. 28
3.3 Authority...................................................... 29
3.4 Merger Shares.................................................. 29
3.5 No Conflict.................................................... 29
3.6 Consents ...................................................... 29
3.7 Proxy Statement and Shareholder Information Statement.......... 30
3.8 Other Matters.................................................. 30
ARTICLE IV.--CONDUCT PRIOR TO THE EFFECTIVE TIME........................ 31
4.1 Conduct of Business of the Company ............................ 31
4.2 No Solicitation................................................ 33
ARTICLE V.--ADDITIONAL AGREEMENTS ...................................... 34
5.1 Proxy Statement and Shareholder Information Statement.......... 34
5.2 Access to Information.......................................... 36
5.3 Confidentiality................................................ 36
5.4 Expenses ...................................................... 36
5.5 Public Disclosure.............................................. 37
5.6 Consents ...................................................... 37
5.7 FIRPTA Compliance.............................................. 37
5.8 Reasonable Efforts ............................................ 37
5.9 Notification of Certain Matters................................ 37
5.10 Additional Documents and Further Assurances.................... 37
5.11 Termination of Employment Agreements .......................... 37
5.12 Non-Disclosure Agreements...................................... 38
5.13 Employee Compensation; Relocation ............................. 38
5.14 Affiliate Agreements .......................................... 38
5.15 Tax-Free Reorganization........................................ 38
5.16 Pooling Accounting ............................................ 39
5.17 Loan .......................................................... 39
5.18 Directors' and Officers' Indemnification....................... 39
5.19 S-8 Registration .............................................. 39
ARTICLE VI.--CONDITIONS TO THE MERGER .................................. 39
6.1 Conditions to Obligations of Each Party to Effect the Merger... 39
6.2 Additional Conditions to Obligations of Company and the
Principal Shareholders ...................................... 40
6.3 Additional Conditions to the Obligations of Parent and Sub..... 41
ARTICLE VII.--SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION........................................................ 43
7.1 Survival of Representations and Warranties .................... 43
7.2 Indemnification; Escrow Arrangements .......................... 43
7.3 Escrow Agent .................................................. 47
7.4 Shareholder Representative..................................... 49
7.5 Maximum Payments; Remedy; Violation of Third Party Patent
Rights....................................................... 50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VIII.--TERMINATION, AMENDMENT AND WAIVER.......................... 50
8.1 Termination....................................................... 50
8.2 Effect of Termination............................................. 51
8.3 Amendment......................................................... 51
8.4 Extension; Waiver................................................. 51
ARTICLE IX.--GENERAL PROVISIONS .......................................... 52
9.1 Notices........................................................... 52
9.2 Interpretation ................................................... 53
9.3 Counterparts ..................................................... 53
9.4 Entire Agreement; Assignment ..................................... 53
9.5 Severability ..................................................... 54
9.6 Other Remedies ................................................... 54
9.7 Governing Law..................................................... 54
9.8 Rules of Construction............................................. 54
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of July 24, 1998 among Infoseek Corporation, a California
corporation ("Parent"), Steelhead Acquisition Corp., an Oregon corporation and
a wholly-owned subsidiary of Parent ("Sub"), Quando, Inc., an Oregon
corporation (the "Company"), David Billstrom and William Neuhauser
(collectively, the "Principal Shareholders," and individually, the "Principal
Shareholder"), U.S. Bank Trust, N.A. as Escrow Agent and, with respect to
Article VII only, Stanton R. Koch as Shareholder Representative.
RECITALS
WHEREAS, the Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Sub with and into the Company (the "Merger") and, in furtherance thereof, have
approved the Merger.
WHEREAS, pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of common stock of Parent.
WHEREAS, a portion of the shares of common stock of Parent otherwise issuable
by Parent in connection with the Merger shall be placed in escrow by Parent for
purposes of satisfying damages, losses, expenses and other similar charges
which result from breaches of the representations, warranties and covenants of
the Company and the Principal Shareholders contained herein.
WHEREAS, the parties intend that the Merger shall (i) constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii) to the extent possible, qualify for
accounting treatment as a pooling of interests.
WHEREAS, the Company and the Principal Shareholders, on the one hand, and
Parent and Sub, 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 receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of the Oregon Business Corporation Act ("Oregon Law"), Sub shall be
merged with and into the Company, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation
A-1
<PAGE>
and as a wholly-owned subsidiary of Parent. The surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days following the
approval of the Merger by the Company's Shareholders at the Company
Shareholders Meeting (as described in Section 5.1) and the satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California, unless another place or time is agreed to in writing by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing an Agreement of
Merger (or like instrument) substantially in the form attached hereto as
Exhibit A (the "Merger Agreement") with the Secretary of State of the State of
Oregon, in accordance with the applicable provisions of Oregon Law (the time of
acceptance by the Secretary of State of the State of Oregon of such filing
being referred to herein as the "Effective Time").
1.3 Effec t of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Oregon Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Articles of Incorporation of Sub shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation.
(b) The Bylaws of Sub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter
amended.
1.5 Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold the office of director of the Surviving
Corporation in accordance with the provisions of the applicable laws of the
State of Oregon and the Articles of Incorporation and Bylaws of the Surviving
Corporation until their successors are duly qualified and elected. The officers
of Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation immediately after the Effective Time, each to hold office
in accordance with the provisions of the Bylaws of the Surviving Corporation.
1.6 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Adjusted Dollar Amount" shall mean an amount equal to $17,000,000 minus:
(i) the amount by which the Estimated Net Liabilities (excluding Estimated
Third Party Expenses reflected on the Estimated Balance Sheet) exceeds $405,739
and (ii) the amount by which the Estimated Third Party Expenses exceed
$310,000.
A-2
<PAGE>
"Common Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Common Merger Consideration by (ii) the sum of (A) the total
number of shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and (B) the total number of shares of
Company Common Stock issuable upon conversion or exercise in full of all
options, warrants and other rights to acquire or receive Company Common Stock
that are outstanding immediately prior to the Effective Time (other than
preferred stock).
"Common Merger Consideration" shall mean the Merger Consideration less the
Preferred Merger Consideration.
"Company Capital Stock" shall mean shares of Company Common Stock, Company
Preferred Stock and any other capital stock of the Company (on an as converted
basis), exclusive of shares of Company Capital Stock issuable upon exercise of
Company Options.
"Company Common Stock" shall mean outstanding shares of common stock of the
Company.
"Company Options" shall mean all issued and outstanding and unexpired and
unexercised options and other rights to acquire or receive Company Capital
Stock (whether or not vested).
"Company Series A Preferred Stock" shall mean shares of Series A preferred
stock of the Company.
"Company Series B Preferred Stock" shall mean shares of Series B preferred
stock of the Company.
"Estimated Balance Sheet" shall mean the estimated unaudited balance sheet
of the Company dated the Closing Date which shall be: prepared in accordance
with GAAP (except that such unaudited balance sheet does not contain the
footnotes required by GAAP) based on reasonable assumptions certified as to
correctness by the Company and in a form reasonably satisfactory to Parent.
"Estimated Net Liabilities" shall mean the amount by which total
liabilities of the Company (excluding convertible debt and debt converted into
equity since the date of this Agreement) as determined in accordance with GAAP
("Total Liabilities") exceeds total current assets of the Company as determined
in accordance with GAAP ("Total Current Assets"), each as reflected in the
Estimated Balance Sheet.
"Estimated Third Party Expenses" shall mean Third Party Expenses (as
defined in Section 5.4) of the Company on the Closing Date as estimated by the
Company in good faith and based on reasonable assumptions.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean United States generally accepted accounting principles.
"Key Employees" shall mean those employees of the Company listed on Exhibit
B.
A-3
<PAGE>
"Knowledge" of a person shall mean the actual knowledge of the person;
knowledge of the Company shall mean the actual knowledge of an officer or
director of the Company.
"Material Adverse Effect" shall mean any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company.
"Meeting Price" shall mean the average closing sale price of the Parent
Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
the Company's Shareholders meeting at which the Merger is approved.
"Merger Consideration" shall mean that number of shares of Parent Common
Stock equal to the quotient obtained by dividing the Adjusted Dollar Amount by
the Trading Price.
"Net Liabilities" shall mean the amount equal to Total Liabilities minus
the Total Current Assets of the Company as of the Closing Date.
"Parent Common Stock" shall mean shares of the common stock, no par value
per share, of Parent.
"Preferred Merger Consideration" shall mean the sum of the Series A Merger
Consideration and the Series B Merger Consideration.
"Related Agreements" shall mean all such ancillary agreements required in
this Agreement to be executed and delivered in connection with the transactions
contemplated hereby.
"SEC" shall mean the Securities Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Series A Merger Consideration by (ii) the total number of
shares of Series A Preferred Stock issued and outstanding immediately prior to
the Effective Time.
"Series A Liquidation Preference" shall mean the product of the per share
liquidation preference of the Company's Series A Preferred Stock as provided in
the Company's Articles of Incorporation, as amended to date, multiplied by the
total number of shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time.
"Series A Merger Consideration" shall mean the Merger Consideration
determined by dividing the Series A Liquidation Preference by the Trading
Price.
"Series B Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Series B Merger Consideration by (ii) the total number of
shares of Series B Preferred Stock issued and outstanding immediately prior to
the Effective Time.
"Series B Liquidation Preference" shall mean the product of: (i) the per
share liquidation preference of the Company's Series B Preferred Stock as
provided in the Company's Articles of
A-4
<PAGE>
Incorporation, as amended to date, multiplied by (ii) the total number of
shares of Company Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Series B Merger Consideration" shall mean the Merger Consideration
determined by dividing the Series B Liquidation Preference by the Trading
Price.
"Signing Price" shall mean the average closing sale price of Parent Common
Stock as reported on the Nasdaq National Market for the ten (10) consecutive
trading days ending on the third business day prior to the date of this
Agreement.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"Trading Price" shall be equal to the Signing Price, provided, however,
that if the Meeting Price is between twenty percent (20%) to twenty-five
percent (25%) higher or lower than the Signing Price, the Trading Price shall
be equal to the Meeting Price, provided, further, that if the Meeting Price is
greater than twenty-five percent (25%) higher than the Signing Price, the
Trading Price shall be equal to one hundred twenty-five percent (125%) of the
Signing Price, and provided, further, that if the Meeting Price is greater than
twenty-five percent (25%) lower than the Signing Price, the Trading Price shall
be equal to seventy-five percent (75%) of the Signing Price.
1.7 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the Shareholders:
(i) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than any Dissenting Shares (as defined in
Section 1.8)) will be canceled and extinguished and be converted automatically
into the right to receive, upon surrender of the certificate representing such
share of Company Common Stock in the manner provided for in this Section
1.9(c), a fraction of a share of Parent Common Stock equal to the Common
Exchange Ratio.
(ii) Each share of Company Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8)) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Series A Preferred Stock in the
manner provided for in Section 1.9(c), a fraction of a share of Parent Common
Stock equal to the Series A Exchange Ratio.
(iii) Each share of Company Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8)) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Series B Preferred Stock in the
manner provided for in Section 1.9(c), a fraction of a share of Parent Common
Stock equal to the Series B Exchange Ratio.
(iv) All shares of Parent Common Stock issued in exchange for shares of
Company Capital Stock subject to Company repurchase rights or vesting schedules
shall be subject to the same repurchase rights and/or vesting schedules and
other terms as applicable to such shares of Company
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Capital Stock, with Parent succeeding to the rights of the Company thereunder
and with a proportionate adjustment to any per share repurchase price
applicable to such shares to reflect the applicable Exchange Ratio.
(b) Company Stock Options; Warrants.
(i) Assumption of Company Options. At the Effective Time, each Company
Option under the Company's 1994 Stock Option Plan (the "Option Plan") or
otherwise, whether vested or unvested, will, in connection with the Merger, be
assumed by Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions, including vesting, set forth in the Option Plan and as provided in
the respective option agreements immediately prior to the Effective Time,
except that (A) such assumed Company Option will be exercisable for that number
of whole shares of Parent 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 applicable Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (B) the per share exercise
price for the shares of Parent 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 applicable
Exchange Ratio, rounded up to the nearest whole cent.
(ii) Assumption Agreement. Promptly following the Effective Time, Parent
will issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option by Parent.
(iii) Option Status. It is the intention of the parties that Parent
Options issued by Parent following the Closing will, to the extent permitted by
applicable law, qualify as incentive stock options as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), to the extent
Company Options qualified as incentive stock options immediately prior to the
Closing.
(c) Capital Stock of Sub. Each share of common stock, no par value per
share, of Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, no par value per share, of the Surviving
Corporation. Each stock certificate of Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of
the Surviving Corporation.
(d) Adjustment to Parent Common Stock. The number of shares of Parent
Common Stock issuable hereunder shall be adjusted to reflect fully the effect
of any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the
date hereof.
(e) Fractional Shares. No fractional share of Parent Common Stock shall be
issued in the Merger. In lieu thereof, any fractional share shall be rounded up
to the nearest whole share of Parent Common Stock.
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(f) Withholding Taxes. Any cash amount payable to any Shareholder pursuant
to Section 1.7(a) shall be subject to, and reduced by, the amount of any state
or federal withholding taxes incurred (and not previously paid by or on behalf
of such Shareholder or the Company) in connection with the Merger of Company
Capital Stock upon the exercise of Company Options or upon payment of a bonus
in the form of Company Capital Stock, if any, by such Shareholder.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock issued and outstanding immediately prior to the
Effective Time that are held by a Shareholder who has exercised and perfected
appraisal rights for such shares in accordance with Oregon 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 Parent Common Stock pursuant to Section 1.7, but the holder thereof
shall only be entitled to such rights as are granted by Oregon Law.
(b) Notwithstanding the provisions of subsection 1.8(a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
shares of Parent Common Stock to which such Shareholder would otherwise be
entitled under Section 1.7(a) (less the number of shares allocable to such
Shareholder that have been deposited into the Escrow Fund on such holder's
behalf pursuant to Article VII), upon surrender of the certificate representing
such shares.
(c) The Company shall give Parent (i) prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
Oregon Law and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to any such demands or offer to settle or settle any such demands. To the
extent that the Company makes any payment or payments in respect of any
Dissenting Shares prior to the Effective Time, Parent shall be entitled to
recover under the terms of Article VII hereof the aggregate amount by which
such payment or payments exceed the aggregate consideration that otherwise
would have been payable in respect of such shares.
1.9 Surrender of Certificates.
(a) Exchange Agent. Boston Equiserve (or such other entity as selected by
Parent) shall serve as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Within three (3) business days after
the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I the shares of Parent Common Stock
issuable pursuant to Section 1.7(a) in exchange for all the outstanding shares
of Company Capital Stock; provided, however, that on behalf of the
Shareholders, pursuant to Section 7.2 hereof, Parent shall deposit into an
escrow account ten percent (10%) of the Merger Consideration otherwise issuable
to the Shareholders pursuant to Section 1.7(a) (the "Escrow Amount"). The
portion of the Escrow Amount contributed on behalf of each Shareholder shall be
in proportion to the aggregate number of Merger Consideration which such
Shareholder would otherwise be entitled to receive in the Merger by virtue of
ownership of outstanding shares of Company Capital Stock.
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(c) Exchange Procedures. On the Closing Date, the Shareholders will
surrender the certificates representing their Company Capital Stock (the
"Certificates") to the Exchange Agent for cancellation together with the
Shareholder Certificate in the form of Exhibit C hereto and a letter of
transmittal in such form and having such provisions as Parent may reasonably
request. Parent shall provide such Shareholder Certificate and letter of
transmittal to the Shareholders at least three (3) business days prior to the
Closing Date. Upon surrender of a 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 and a Shareholder Certificate, duly completed
and validly executed in accordance with the instructions thereto, the Exchange
Agent will promptly (but in no event more than five (5) business days after the
Effective Time) deliver to the holder of such Certificate in exchange therefor
a certificate representing the number of whole shares of Parent Common Stock
(less the number of shares of Parent Common Stock to be deposited in the Escrow
Fund on such holder's behalf pursuant to Section 1.9(b) and Article VII) to
which such Shareholder is entitled pursuant to Section 1.7, and the Certificate
so surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares
of Company Capital Stock will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends, to evidence only
the right to receive the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been converted pursuant
to this Article I (except as may otherwise be provided under Oregon Law with
respect to Dissenting Shares). As soon as practicable after the Effective Time
(but in no event more than five (5) business days after the Effective Time),
and subject to and in accordance with the provisions of Article VII hereof,
Parent shall cause to be distributed to the Escrow Agent (as defined in Article
VII) a certificate or certificates representing that number of shares of Parent
Common Stock equal to the Escrow Amount, which shall be registered in the name
of the Escrow Agent. Such shares shall be beneficially owned by the holder on
whose behalf such shares were deposited in the Escrow Fund and shall be
available to compensate Parent as provided in Article VII.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date after the Effective Time will be paid to any
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition to the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
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(f) Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, the number of shares of Parent Common Stock, if any, as may be
required pursuant to Section 1.7; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver a bond in such
sum as it may reasonably direct against any claim that may be made against
Parent or the Exchange Agent with respect to the certificates alleged to have
been lost, stolen or destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.9, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to be issued
in full satisfaction of all rights pertaining to such shares of Company Capital
Stock, and there shall be no further registration of transfers on the records
of the Surviving Corporation of shares of Company Capital Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.11 Dissenting Shares After Payment of Fair Value. Dissenting Shares, if
any, after payments of fair value in respect thereto have been made to
dissenting shareholders of the Company pursuant to Oregon Law and this Article
I, shall be canceled.
1.12 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall: (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) to the extent possible, qualify for accounting
treatment as a pooling of interests. Each party has consulted with its own tax
advisors and accountants with respect to the tax and accounting consequences,
respectively, of the Merger.
1.13 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to consummate the
Merger, to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Sub, the officers
and directors of the Company, Parent and Sub are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, and each
Principal Shareholder severally but not jointly hereby represents and warrants
to Parent and Sub (but only to such Principal Shareholder's Knowledge), subject
to such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section and paragraph numbers) supplied by the
Company to Parent (the "Disclosure Schedule") and dated as of the date hereof,
that on the date hereof and as of the Effective Time as though made at the
Effective Time as follows:
2.1 Organization of the Company. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oregon.
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 could have a Material Adverse Effect. The Company
has delivered a true and correct copy of its Articles of Incorporation and
Bylaws, each as amended to date, to Parent. Section 2.1 of the Disclosure
Schedule lists the directors and officers of the Company. The operations now
being conducted by the Company have not been conducted under any other name.
2.2 Subsidiaries. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint
venture or other business entity.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of authorized Common Stock and 4,000,000 shares of authorized Preferred
Stock, 300,000 of which are designated Series A Preferred Stock ("Series A
Preferred") and 880,000 of which are designated Series B Preferred Stock
("Series B Preferred"). 4,495,000 shares of Common Stock, 300,000 shares of
Series A Preferred and 880,000 shares of Series B Preferred are issued and
outstanding as of the date hereof. Each share of Series A Preferred is
convertible into 1.274080 shares of Common Stock and each share of Series B
Preferred is convertible into 1.107634 shares of Common Stock. The Company
Capital Stock is held by the persons, with the domicile addresses 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 nonassessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or 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. There are not outstanding any adjustments made or required to be made to
the conversion prices set forth in the Company's current Articles of
Incorporation. The Company has no other capital stock authorized, issued or
outstanding.
(b) Except for the Option Plan(s), the Company has never adopted or
maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has
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reserved 1,000,000 shares of Company Common Stock for issuance to employees and
consultants pursuant to the Option Plan none of which have been exercised and
533,456 shares are subject to outstanding unexercised options. Section 2.3(b)
of the Disclosure Schedule sets forth for each outstanding Company Option, the
name of the holder of such option, the domicile address of such holder, the
number of shares of Company Common Stock subject to such option, the exercise
price of such option, the vesting schedule for such option, including the
extent vested to date and whether the exercisability of such option will be
accelerated by the transactions contemplated by this Agreement, and whether
such option is intended to qualify as an incentive stock option as defined in
Section 422 of the Code. Except for the Company Options, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the
Company 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 obligating the Company 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. 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. 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 to date and whether the vesting of such shares of Company Capital Stock
will be accelerated by the transactions contemplated by this Agreement. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. There are
no voting trusts, proxies, or other agreements or understandings with respect
to the voting stock of the Company. As a result of the Merger, Parent will be
the record and sole beneficial owner of all outstanding Company Capital Stock
and all rights to acquire or receive any Company Capital Stock, whether or not
such Company Capital Stock is outstanding.
2.4 Authority. The Company has all requisite power and authority to enter
into this Agreement and the agreements delivered in connection with this
Agreement (the "Related Agreements") to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and any Related 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 no
further action is required on the part of the Company to authorize the
Agreement, any Related 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. This Agreement and the Merger have been unanimously
approved by the Board of Directors of the Company. This Agreement has been, and
any Related Agreements to which the Company is a party have been or will have
been prior to the Effective Time, duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by the other
parties hereto and thereto, constitute the 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.
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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 Related
Agreements to which it is party by the Company do not, and, the 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 acceleration of any obligation or loss of any benefit (any such
event, a "Conflict") under (i) any provision of the Articles of Incorporation
and Bylaws of the Company, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to
which the Company or any of its properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or its properties or assets; except for a Conflict under
subsection (ii) or (iii) above that would not have a Material Adverse Effect on
the Company or on the ability of the parties to consummate the Merger or the
other transactions contemplated by this Agreement.
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 court, administrative agency or commission or
other federal, state, county, local or other foreign governmental authority,
instrumentality, agency or commission ("Governmental Entity") or any third
party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company 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) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings that have been obtained or made or will be obtained or
made prior to the Effective Time, (iii) consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not have a Material Adverse Effect on the Company or on the
ability of the parties to consummate the Merger or the other transactions
contemplated by this Agreement and (iv) the filing of the Merger Agreement with
the Secretary of State of the State of Oregon.
2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule sets
forth the Company's balance sheet as of December 31, 1997 and the related
statements of income and cash flow for the twelve-month period ended December
31, 1997 and the Company's balance sheet as of June 30, 1998, and the related
statements of income and cash flow for the six months then ended (the
"Financials"). The Financials are correct in all material respects and have
been prepared in accordance with GAAP, applied on a basis consistent throughout
the periods indicated and consistent with each other (except that the
Financials do not contain all the notes that may be required by GAAP). The
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 to normal year-end
adjustments, which will not be material in amount or significance. The
Company's Balance Sheet as of June 30, 1998 shall be hereinafter referred to as
the "Current Balance Sheet."
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2.8 No Undisclosed Liabilities. The Company has no liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate (i) has not been reflected in the
Current Balance Sheet, (ii) has not arisen in the ordinary course of business
consistent with past practices since June 30, 1998 or (iii) exceed $25,000.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule, since June 30, 1998, there has not been, occurred or arisen any
(other than or contemplated by this Agreement or the Related Agreements):
(a) amendments or changes to the Articles of Incorporation or Bylaws of the
Company;
(b) capital expenditure or commitment by the Company, either individually
exceeding $25,000 or in the aggregate exceeding $100,000.
(c) destruction of, damage to or loss of any material assets, business or
customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock or any direct or
indirect redemption, purchase or other acquisition by the Company of its
Capital Stock;
(h) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(i) any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
are bound or any termination, extension, amendment or modification the terms of
any agreement, contract, covenant, instrument, lease, license or commitment to
which the Company is a party or by which it or any of its assets are bound
other than in the ordinary course of the Company's business;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company or any creation of any security interest in such
assets or properties other than in the ordinary course of the Company's
business;
(k) loan by the Company to any person or entity, incurring by the Company
of any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practice;
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(l) incurrence by the Company of any liability in excess of $25,000
individually or $100,000 in the aggregate;
(m) waiver or release of any right or claim of the Company including any
write-off or other compromise of any account receivable of the Company;
(n) the commencement or notice or threat or reasonable basis therefor of
any lawsuit or, to the Company's Knowledge, proceeding or investigation against
the Company or its affairs;
(o) notice of any claim or potential claim of ownership by any person other
than the Company of the Company Intellectual Property (as defined in Section
2.13) or of infringement by the Company of any other person's Intellectual
Property (as defined in Section 2.13);
(p) issuance or sale, or contract to issue or sell, by the Company of any
shares of its capital stock 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 in the ordinary course of
business consistent with past practice;
(q) (i) selling or entering into any license agreement with respect to the
Company Intellectual Property with any third party or (ii) buying or entering
into any license agreement with respect to the Intellectual Property of any
third party or (iii) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property (as defined in Section 2.13)
to the Company;
(r) any event or condition of any character that has had a Material Adverse
Effect on the Company;
(s) transaction by the Company except in the ordinary course of business as
conducted on that date and consistent with past practices; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, "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 a member of an affiliated,
consolidated, combined or unitary group for any period; 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.
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(b) Tax Returns and Audits.
(i) As of the Effective Time the Company will have prepared and timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns
are true and correct and have been completed in accordance with applicable law.
(ii) As of the Effective Time the Company (A) will have paid all Taxes it
is required to pay and will have withheld with respect to its employees all
federal and state income taxes, Federal Insurance Contribution Act ("FICA"),
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld,
and (B) will have accrued on the Current Balance Sheet all Taxes attributable
to the periods covered by the Current Balance Sheet and will not have incurred
any liability for Taxes for the period prior to the Effective Time other than
in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, assessed or proposed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company has been
proposed formally or informally by any Tax authority to the Company or any
representative thereof.
(vi) The Company has no liabilities for unpaid federal, state, local and
foreign Taxes which have not been accrued or reserved against in accordance
with GAAP on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has not incurred any liability for
Taxes since the date of the Current Balance Sheet other than in the ordinary
course of business.
(vii) The Company has 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.
(viii) There are (and immediately following the Effective Time there will
be) 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 relating to or attributable to Taxes other than Liens
for Taxes not yet due and payable.
(ix) The Company does not have Knowledge of any basis for the assertion
of any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company.
(x) None of the Company's assets are treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(xi) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or
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former employee of the Company that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company
as an expense under applicable law.
(xii) 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.
(xiii) The Company is not a party to any tax sharing, indemnification or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiv) The Company's tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax deductions
is accurately reflected on the Company's tax books and records.
(xv) 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.
(xvi) No adjustments relating to any Return filed by the Company have
been proposed formally or informally by any tax authority to the Company or any
representative thereof.
(c) Executive Compensation Tax. There is no contract, agreement, plan or
arrangement to which Company is a party, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, 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. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or, to the Company's Knowledge, otherwise binding upon the
Company which has or may have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. Without
limiting the foregoing, the Company has not entered into any agreement under
which the Company is restricted from selling, licensing or otherwise
distributing any of its technology or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company does not own 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, the name of the lessor, the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Current
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Balance Sheet and except for Liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material items of
equipment (the "Equipment") owned or leased by the Company and such Equipment
is, (i) adequate for the conduct of the business of the Company as currently
conducted and (ii) in acceptable operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of any
Liens, of all customer and end-user files and other customer and end-user
information it compiles relating to customers or end-users of the Company's
current and former customers or end-users (the "Customer Information"). To the
Company's Knowledge, no person other than the Company possesses any claims or
rights with respect to use of the Customer Information.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "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 mask works, mask work registrations and applications therefor;
(v) all industrial designs and any registrations and applications therefor
throughout the world; (vi) 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; (vii) all
databases and data collections and all rights therein throughout the world; and
(viii) 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, and (ix) any
similar, corresponding or equivalent rights to any of the foregoing and (x) all
documentation related to any of the foregoing.
(ii) "Company Intellectual Property" shall mean any Intellectual Property
that is owned by or exclusively licensed to the Company.
(iii) "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.
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(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, is free and clear of any
Liens. To the Company's Knowledge, the Company is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company, including the sale of any products or technology
or the provision of any services by the Company (other than with respect to
products acquired from third parties). The Company owns exclusively, and has
good title to, all copyrighted works that are Company products or other works
of authorship that the Company otherwise purports to own.
(d) To the extent that any Intellectual Property has been developed or
created by any person other than the Company for which the Company has,
directly or indirectly, paid, the Company has a written agreement with such
person with respect thereto and the Company thereby has obtained ownership of,
and is the exclusive owner of, by operation of law or by valid assignment, all
such Intellectual Property.
(e) Except as set forth in Section 2.13(e) of the Disclosure Schedule, 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.
(f) The Company Intellectual Property constitutes all the Intellectual
Property used in and/or necessary to the conduct of its business as it
currently is conducted, including, without limitation, the design, development,
manufacture, use, import and sale of the products, technology and services of
the Company (including products, technology or services currently under
development).
(g) Other than "shrink-wrap" and similar widely available commercial end-
user licenses, the contracts, licenses and agreements listed in Section 2.13(g)
of the Disclosure Schedule include all contracts, licenses and agreements to
which the Company is a party with respect to any license or assignment of
Intellectual Property. Except as listed in Section 2.13(g) of the Disclosure
Schedule, no person who has licensed Intellectual Property to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property of any person other than the Company.
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(i) (A) The operation of the business of the Company as it currently is
conducted, including but not limited to the Company's design, development, use,
import, manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company
does not infringe or misappropriate any Intellectual Property (other than
trademarks, trade names and service marks) 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. The Company
has not received any notice from any person that the operation of the business
of the Company as it currently is conducted, including but not limited to the
Company's design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property (other than trademarks, trade names and service marks) of
any person or constitutes unfair competition or trade practices under the laws
of any jurisdiction (nor is the Company aware of any basis therefor).
(B) To the Knowledge of the Company, the operation of the business of the
Company as it currently is conducted, including but not limited to the
Company's design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not infringe or misappropriate
any trademark, trade name and service mark of any person.
(j) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such 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. Except as set forth in Disclosure Schedule 2.13(j), to
the Company's Knowledge, there are no actions that must be taken by the Company
within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Intellectual Property. In each case in which
the Company has acquired any Intellectual Property rights from any person, the
Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to the Company and, to the maximum extent provided for by, and in
accordance with, applicable laws and regulations, the Company has recorded each
such assignment with the relevant governmental authorities, including the PTO,
the U.S. Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Company and
any other person with respect to Company Intellectual Property under which
there is any dispute known to the Company 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.
(l) To the Company's Knowledge, no person is infringing or misappropriating
any Company Intellectual Property.
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(m) The Company has taken all steps that are reasonably necessary to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Without limiting
the foregoing, the Company has, and enforces, a policy requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms, and
all current and former employees, consultants and contractors of the Company
have executed such an agreement.
(n) To the Company's Knowledge, after reasonable inquiry, no Company
Intellectual Property or product, technology or service of the Company is
subject to any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any manner the use, transfer or licensing thereof
by the Company or may affect the validity, use or enforceability of such
Company Intellectual Property.
(o) To the Company's Knowledge, no: (i) product, technology, service or
publication of the Company, (ii) material published or distributed by the
Company, or (iii) conduct or statement of Company constitutes obscene material,
a defamatory statement or material, false advertising or otherwise violates any
law or regulation.
(p) Except as set forth in Disclosure Schedule 2.13(p), all of the
Company's products (including products currently under development) will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.13(g), 2.13(h) or 2.14(a) of the
Disclosure Schedule, the Company is not a party to nor is it bound by:
(i) any employment or consulting agreement, contract or commitment with
an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property with fixed annual rental payments in
excess of $10,000;
(v) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person;
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(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 either
individually or $25,000 in the aggregate;
(vii) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business;
(viii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(ix) any purchase order or contract for the purchase of materials
involving in excess of $10,000 individually or $25,000 in the aggregate;
(x) any construction contracts;
(xi) any dealer, distribution, joint marketing or development agreement;
(xii) any sales representative, original equipment manufacturer, value
added reseller, remarketer or other agreement for distribution of the Company's
products or services; or
(xiii) any other agreement, contract or commitment that involves $10,000
or more or is not cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a party or by
which it is bound (collectively a "Contract"), nor is the Company aware 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 is not subject to any default thereunder by any party obligated to the
Company pursuant thereto. The Company 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 Merger or for such
Contracts to remain in effect without modification after the Closing. Following
the Effective Time, the Company will be permitted to exercise all of the
Company's rights under the Contracts without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company would otherwise be required to pay had the transactions
contemplated by this Agreement not occurred.
2.15 Interested Party Transactions. No officer, director or Shareholder of
the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells,
services, products or technology that the Company furnishes or sells, or
proposes to furnish or sell, or (ii) any interest in any entity that purchases
from or sells or furnishes to the Company any goods or services, or (iii) a
beneficial interest in any Contract; provided, that ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of
this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
accurately lists each consent, license, permit, grant or other authorization
issued to the Company by a Governmental
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Entity (i) pursuant to which the Company 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 (herein collectively called
"Company Authorizations"). The Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties or
assets.
2.17 Litigation. There is no action, suit or proceeding of any nature pending
nor has the Company received notice (oral or written) of any actions, suits or
proceedings threatened against the Company, its properties or any of its
officers or directors, nor to the Knowledge of the Company, is there any
reasonable basis therefor. There is no investigation pending or threatened
against the Company, its properties or any of its officers or directors (nor to
the Knowledge of the Company is there any reasonable basis therefor) by or
before any Governmental Entity. No Governmental Entity has at any time
challenged or questioned the legal right of the Company to conduct its
operations as presently or previously conducted.
2.18 Accounts Receivable.
(a)The Company has made available to Parent a list of all accounts
receivable of the Company ("Accounts Receivable") as of June 30, 1998, and will
provide to Parent a list of all Accounts Receivable of the Company as of the
Closing Date, along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary course of
business, are carried at values determined in accordance with GAAP consistently
applied and are collectible except to the extent of reserves therefor set forth
in the Current Balance Sheet. No person has any lien, encumbrance or other
similar right with respect to any of such Accounts Receivable and no request or
agreement for deduction or discount has been made with respect to any of such
Accounts Receivable.
2.19 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of
the Company and its shareholders or actions by written consent since the
incorporation of the Company.
2.20 Environmental Matters.
(a) Hazardous Material. The Company 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 Entity 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 properly
and safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company in, on or under
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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. The Company has not transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all 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 as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. To the Company's Knowledge, no action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending nor has the Company received notice (oral or written) of any
action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental
liability.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth in
Section 2.21 of the Disclosure Schedule, 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. Section 2.21 of the Disclosure Schedule
sets forth the principal terms and conditions of any agreement, written or
oral, with respect to such fees. Section 2.21 of the Disclosure Schedule sets
forth the Company's current reasonable estimate of all Third Party Expenses (as
defined in Section 5.4) expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.22 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.22(a)(i) below (which definition shall apply only to this
Section 2.22), for purposes of this Agreement, 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 issued thereunder;
(ii) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
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unfunded, including without limitation, each "employee benefit plan," within
the meaning of Section 3(3) of ERISA 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, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current or former employee, consultant or
director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, contract or understanding between the Company or any
Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by the Company or any Affiliate, whether
informally or formally, or with respect to which the Company or any Affiliate
will or may have any liability, for the benefit of Employees who perform
services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.22(b) contains an accurate and complete list of
each Company Employee Plan and each Employee Agreement under each Company
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and complete
copies of all documents embodying each Company Employee Plan and each Employee
Agreement including (without limitation) all amendments thereto and all related
trust documents; (ii) the most recent annual actuarial valuations, if any,
prepared for each Company Employee Plan; (iii) the three (3) most recent annual
reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Company Employee
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Plan; (iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination, opinion, notification and
advisory letters, and all applications and correspondence to or from the IRS or
the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company; (ix) all correspondence to or from any governmental
agency relating to any Company Employee Plan; (x) all COBRA forms and related
notices; (xi) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Company Employee Plan; (xii) all discrimination tests
for each Company Employee Plan for the most recent plan year; and (xiii) all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed all obligations
required to be performed by it under, is not in default or violation of, and
has no knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company 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, opinion,
notification or advisory letter from the IRS with respect to each such Plan as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any amendments
necessary to obtain a favorable determination as to the qualified status of
each such Company Employee Plan; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Company Employee Plan; (iv) there are no actions, suits or claims pending or
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Sub, the Company or any Affiliate (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the Knowledge of the Company or any Affiliates, threatened by
the IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
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(f) Multiemployer Plans. At no time has the Company or any Affiliate
contributed to or been required to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to the
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(i) Effect of Transaction.
(i) 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 Company
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, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company or
its Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement or otherwise will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code (but
without regard to clause (ii) thereof).
(j) Employment Matters. The Company: (i) is in compliance in all respects
with all applicable foreign, federal, state and local 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 and reported all amounts required by law or by agreement to
be withheld and reported with respect to 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 governed by or maintained by or on
behalf of any governmental 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). There are no pending, or to the Knowledge of
the Company, threatened or reasonably anticipated claims or actions against the
Company under any worker's compensation policy or long-term disability policy.
(k) Labor. No work stoppage or labor strike against the Company is pending,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending or
threatened or reasonably anticipated against the Company relating to any 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
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aggregate, result in any liability to the Company, Parent, Sub or any
Affiliate. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, 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.
(l) No Interference or Conflict. No shareholder, officer, employee or
consultant of the Company is obligated under any contract or agreement subject
to any judgement, decree or order of any court or administrative agency that
would interfere with such person's efforts to promote the interests of the
Company or that would interfere with the Company's business. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as presently conducted or proposed to be conducted nor any activity of
such officers, directors, employees or consultants in connection with the
carrying on of the Company's business as presently conducted or proposed to be
conducted, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now bound.
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. To
the Company's Knowledge, there is no claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid, and the Company and any covered parties
are otherwise in compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage). To the
Company's Knowledge, there is no threatened termination of, or premium increase
with respect to, any of such policies.
2.24 Compliance with Laws. The Company has complied with, is not in violation
of, and has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation.
2.25 Warranties; Indemnities. Except for the warranties and indemnities
contained in those contracts and agreements set forth in Section 2.13(h) of the
Disclosure Schedule, the Company has not given any warranties or indemnities
relating to products or technology sold or licensed or services rendered by the
Company.
2.26 Pooling of Interests. To the Knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers, affiliates or shareholders has taken any action which
would preclude the Parent's and Company's ability to account for the Merger as
a pooling of interests.
2.27 Proxy Statement and Shareholder Information Statement. The information
supplied by the Company for inclusion in the Proxy Statement or the Shareholder
Information Statement (each as defined below) will not on the date it (or any
amendment or supplement thereto) is first sent to Shareholders, at the time of
the Company Shareholders Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false
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or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading. If at any time prior to the Effective Time any event relating to
the Company or any of its respective affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment or a
supplement to the Proxy Statement or the Shareholder Information Statement, the
Company will promptly inform the Parent and Sub. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any information
supplied by Parent or Sub that is contained in any of the foregoing documents.
2.28 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been reasonably requested by Parent or its counsel.
2.29 Representations Complete. None of the representations or warranties made
by the Company (as modified by the Disclosure Schedule), nor any statement made
in any Schedule or certificate furnished by the Company pursuant to this
Agreement or furnished in or in connection with documents mailed or delivered
to the Shareholders for use in soliciting their consent to this Agreement and
the Merger contains or will contain at the Effective Time (when read together
with the Proxy Statement and Shareholder Information Statement (as amended or
supplemented) at the Effective Time), any untrue statement of a material fact,
or omits or will omit at the Effective Time (when read together with the Proxy
Statement and Shareholder Information Statement (as amended or supplemented) at
the Effective Time), to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
that on the date hereof (except as expressly provided otherwise below and
except as may be modified to appropriately reflect the Parent's planned
reorganization into a Delaware corporation or a subsidiary of a Delaware
corporation) and as of the Effective Time as though made at the Effective Time
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. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Oregon. Each of Parent and Sub 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 as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on the ability of Parent and Sub
to consummate the Merger or the other transactions contemplated hereby.
3.2 Charter and Bylaws. Parent has heretofore furnished to the Company a
complete and correct copy of its Articles of Incorporation and Bylaws, as
amended to date. Such Articles of Incorporation and Bylaws are in full force
and effect. Neither parent nor Sub is in violation of any of the provisions of
its Articles of Incorporation or Bylaws.
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3.3 Authority. Each of Parent and Sub has all requisite power and authority
to enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related 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 Parent and Sub, and no further action is required on the part of Parent or
Sub to authorize this Agreement, any Related Agreements to which it is a party
and the transactions contemplated hereby and thereby. This Agreement has been,
and any Related Agreements to which Parent or Sub is a party have been or will
have been prior to the Effective Time, duly executed and delivered by Parent
and Sub and, assuming the due authorization, execution and delivery by the
other parties hereto, constitute the valid and binding obligations of Parent
and Sub, 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 rules of law governing specific performance, injunctive relief
or other equitable remedies.
3.4 Merger Shares. The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid, non-assessable
and will be issued in compliance with all applicable federal and state
securities laws.
3.5 No Conflict. The execution and delivery of this Agreement and any Related
Agreement to which Parent or Sub is a party by Parent or Sub, as the case may
be, do not, and the 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
Conflict under (i) any provision of the Articles of Incorporation, as amended,
and Bylaws of Parent or Sub, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to
which Parent or Sub or any of their respective properties or assets are subject
and that has been filed as an exhibit to Parent's filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Sub or their respective properties or assets, except
for a Conflict under subsection (ii) or (iii) above that would not have a
Material Adverse Effect on the ability of the parties to consummate the Merger
or the other transactions contemplated by this Agreement.
3.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any third
party is required, including a party to any agreement with Parent or Sub (so as
not to trigger any Conflict) by or with respect to Parent or Sub in connection
with the execution and delivery of this Agreement and any Related Agreements to
which Parent or Sub 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, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings that
have been obtained or made or will be obtained or made prior to the Effective
Time, (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings which, if not obtained or made, would
not have a Material Adverse Effect on the Parent, Sub and Parent's other
subsidiaries taken as a whole, or on the ability of the parties to consummate
the Merger or the other
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transactions contemplated by this Agreement, and (iv) the filing of the Merger
Agreement with the Secretary of State of the State of Oregon.
3.7 Proxy Statement and Shareholder Information Statement. The information
supplied by Parent for inclusion in the Proxy Statement and Shareholder
Information Statement will not, on the date it (or any amendment or supplement
thereto) is first mailed to Shareholders, at the time of the Company
Shareholders Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading. If at any time prior to the Effective Time any event relating to
Parent, Sub or any of their respective affiliates, officers or directors should
be discovered by Parent or Sub which should be set forth in an amendment or a
supplement to the Proxy Statement or Shareholder Information Statement, Parent
or Sub will promptly inform the Company. Notwithstanding the foregoing, Parent
and Sub make no representation or warranty with respect to any information
supplied by the Company or the Shareholders that is contained in any of the
foregoing documents.
3.8 Other Matters. Sub has been formed for the sole purpose of effecting the
Merger and, except as contemplated by this Agreement, Sub has not conducted any
business activities and does not have any material liabilities or obligations.
3.9 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC (collectively, the "Parent SEC Reports"). The Parent SEC Reports
(i) at the time they were filed, complied as to form in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact require 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. Parent and Sub make no representation or warranty whatsoever
concerning the Parent SEC Reports as of any time other than the time they were
filed. None of the Parent's subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) (the "Parent Financial Statements") contained
in the Parent SEC Reports has been prepared in accordance with GAAP applied on
a consistent basis throughout the period involved (except as may be indicated
in the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be, individually or in the
aggregate, materially adverse to Parent and its subsidiaries taken as a whole.
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ARTICLE IV.
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on the Company's business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to
pay or perform other obligations when due consistent with the past practices of
the Company, and, to the extent consistent with such business, use its
reasonable best efforts consistent with past practice and policies to preserve
intact the Company's present business organizations, keep available the
services of the Company's present officers and Key Employees and preserve the
Company's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it (although the Company is
not required to continue any commercial agreements with any of its customers
other than Parent), all with the goal of preserving unimpaired the Company's
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company and any material event involving the
Company. Except as expressly contemplated by this Agreement as set forth in
Section 4.1 of the Disclosure Schedule, the Company shall not, without the
prior written consent of Parent, which consent shall not be unreasonably
withheld or delayed (provided, however, that with respect to the items (c),
(d), (m), (n), (o), (q), (s) and (u), and with respect to item (g) to the
extent the Company has issued options to purchase less than 200,000 shares of
Company Capital Stock since the date of this Agreement, and with respect to (x)
as it applies to any of the aforementioned items, if Parent does not respond
within five (5) business days of a written request (in accordance with Section
9.1) from Company for consent to an action described in such item, such consent
shall be deemed to have been given):
(a) Except in the ordinary course of business and consistent with past
practice, (i) sell or enter into any license agreement with respect to the
Company Intellectual Property with any person or entity or (ii) buy or enter
into any license agreement with respect to the Intellectual Property of any
person or entity;
(b) Transfer to any person or entity any rights to the Company Intellectual
Property;
(c) Enter into or amend: (i) any Contract with a customer, (ii) any single
Contract (or series of related Contracts) with a potential obligation of
$25,000 or more or (iii) multiple Contracts in any calendar month with
aggregate potential obligation of $100,000 or more;
(d) Amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the terms of, any of the Contracts set forth or
described in the Disclosure Schedule;
(e) Commence any litigation or settle: (i) any litigation for $25,000 or
more or (ii) any litigation relating to intellectual property rights;
(f) 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 split, combine or reclassify any of its
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capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of the capital stock of the Company or options, warrants or other
rights exercisable therefor (except for the Company's repurchase of Company
Capital Stock from its employees at the purchase price paid by such employees
for such stock);
(g) Issue, grant, deliver or sell, contract to 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 (other
than upon the exercise of currently outstanding stock options) or securities
convertible into or exchangeable for, 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 other convertible
securities;
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws or other organizational documents;
(i) Propose or discuss acquiring or 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 other than Parent, Sub or
any other Parent subsidiary, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) 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;
(k) 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;
(l) Incur liabilities in excess of $390,000 (other than amounts borrowed
under the Company Loan (defined below));
(m) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay: (i) to any director or officer
or (ii) to any other employee except payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed in the Disclosure
Schedule;
(o) Adopt any employee benefit plan, or enter into any employment contract
(other than a contract expressly providing for at-will employment), or pay or
agree to pay any special bonus or special remuneration to any director;
(p) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $25,000 (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 reflected or reserved against in the Current Balance Sheet;
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(r) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing arrangement or
agreement;
(t) Accelerate the vesting schedule of any of the outstanding Company
Options or Company Capital Stock;
(u) (i) Terminate any Key Employee, (ii) encourage any employee to resign,
(iii) hire an employee with an annual salary and bonus in excess of $60,000 or
(iv) hire an officer;
(v) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests whether or
not otherwise permitted under this Section 4.1;
(w) Take any other action inconsistent with past practice or outside the
ordinary course of business; or
(x) Agree in writing or otherwise to take, any of the actions described in
Sections 4.1(a) through (w) above;
(y) Take, or agree in writing or otherwise to take, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 No Solicitation.
(a) For purposes of this Section 4.2, the following terms shall have the
following meanings:
(i) "Acquisition Proposal" shall mean any offer or proposal (other than
an offer or proposal by Parent) contemplating or otherwise relating to any
Company Acquisition Transaction.
(ii) A party's "Associates" shall include such party's subsidiaries and
other affiliates and the respective directors, officers, employees, agents,
representatives, consultants, accountants, attorneys and advisors of such party
and its affiliates;
(iii) "Company Acquisition Transaction" shall mean any transaction not
contemplated by this Agreement involving:
(A) any sale, lease, exchange, transfer or other disposition of the
assets of the Company or any subsidiary of the Company constituting more than
50% of the consolidated assets of the Company or accounting for more than 50%
of the consolidated revenues of the Company in any one transaction or in a
series of related transactions; or
(B) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any person, group or
entity involving more than 50% of the outstanding shares of capital stock of
the Company; or
(C) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction or series of related transactions
involving the Company other
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than any transaction which results in the Shareholders of the Company before
the transaction continuing to hold at least 50% of the outstanding voting
securities of the Company after such transaction.
(iv) For purposes of this Section 4.2, "Termination Date" shall mean the
earlier of (i) December 31, 1998, (ii) the Closing Date, (iii) the date Parent
terminates this Agreement, or (iv) the date Parent terminates the commercial
agreement between Parent and Company for any reason other than the Shareholders
of the Company voting against the Merger at the Company Shareholders Meeting
(as defined below).
(b) The Company agrees that prior to and through the Termination Date, it
shall not, directly or indirectly, and shall not authorize or permit any
Associate of the Company to (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal,
(ii) furnish any information regarding the Company or any subsidiary of the
Company to any person, group or entity in connection with or in respect to any
Acquisition Proposal, (iii) continue or engage in discussions with any person,
group or entity with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent,
term sheet or similar document or any contract, commitment or other obligation
of any kind contemplating or otherwise relating to any Company Acquisition
Transaction (other than with Parent and Sub). Without limiting the generality
of the foregoing, the Company acknowledges and agrees that any violation of any
of the restrictions set forth in the preceding sentence by an Associate of the
Company shall be deemed to constitute a breach of this Section 4.2. In
addition, the Company agrees that any negotiations with respect to any of the
above activities (other than negotiations with Parent and Sub) in progress as
of the date hereof will be suspended during the period from the date hereof
through the Termination Date. In the event that the Company receives, directly
or indirectly, any Acquisition Proposal, the Company shall immediately notify
Parent thereof, including information as to the identity of the offeror or the
party making any such Acquisition Proposal and the specific terms of such
Acquisition Proposal. The Company agrees that its obligations under this
Section 4.2 are necessary and reasonable in order to protect Parent and its
business, and expressly agrees that monetary damages would be inadequate to
compensate Parent for any breach of this Section 4.2. Accordingly, the Company
agrees and acknowledges that any such violation of threatened violation will
cause irreparable injury to Parent and that, in addition to any other remedies
that may be available, in law, in equity or otherwise, Parent shall be entitled
to obtain injunctive relief against the threatened breach of this Agreement or
the continuation of any such breach, without the necessity of proving damages.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 Proxy Statement and Shareholder Information Statement.
(a) The parties hereto acknowledge and agree that the shares of Parent
Common Stock issuable to the Shareholders pursuant to Section 1.7 shall
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act. The certificates for the shares of Parent Common
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Stock to be issued in the Merger shall bear appropriate legends to identify
such privately placed shares as being restricted under the Securities Act, to
comply with applicable state securities laws and, if applicable, to notice the
restrictions on transfer of such shares. It is acknowledged and understood that
Parent is relying upon certain written representations made by the Shareholders
in the Shareholder Certificate. In order to provide for the registration of the
shares of Parent Common Stock to be issued in the Merger, the parties hereto
shall enter into a separate registration rights agreement ("Registration Rights
Agreement") in the form attached hereto as Exhibit D. As provided in the
Registration Rights Agreement, Parent shall file a Registration Statement on
Form S-3 (to provide for the registered resales of such shares).
(b) Within 30 days prior to the Company Shareholders Meeting, the Company
shall have completed, with the cooperation of Parent, a proxy statement (the
"Proxy Statement"), and Parent shall have completed, with the cooperation of
the Company, a shareholder information statement (the "Shareholder Information
Statement"). Each of Parent and the Company shall provide promptly to the other
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Proxy Statement and the
Shareholder Information Statement, or in any amendments or supplements thereto,
and to cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Proxy Statement and Shareholder Information
Statement. The Proxy Statement and the Shareholder Information Statement shall
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger. The Company will cause the Proxy Statement and
the Shareholder Information Statement to be delivered to the Shareholders, at
the earliest practicable time after such documents are completed and in no
event later than 20 days prior to the date of the Company Shareholders Meeting
(as defined below).
(c) The Company and Parent will prepare and file any other filings required
under any Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). Each of the Company and
Parent will notify the other promptly upon the receipt of any correspondence or
communications from any government officials concerning the Shareholder
Information Statement, the Proxy Statement or any Other Filing and will supply
the other with copies of all correspondence between such party or any of its
representatives, on the one hand, and any other government officials, on the
other hand, with respect to the Shareholder Information Statement, the Proxy
Statement, the Merger or any Other Filing. The Proxy Statement, the Shareholder
Information Statement and the Other Filings will comply in all material
respects with all applicable requirements of law and the rules and regulations
promulgated thereunder. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement, the Shareholder
Information Statement or any Other Filing, the Company or Parent, as the case
may be, will promptly inform the other of such occurrence and cooperate in
preparing, and mailing to the Shareholders, such amendment or supplement.
(d) The Company shall, pursuant to Oregon Law, and its Articles of
Incorporation and Bylaws, properly notice, convene and hold a shareholder's
meeting to vote on this Agreement and the transactions contemplated hereby on
October 9, 1998 (the "Company Shareholders Meeting"), provided, however, that
such date may be delayed up to sixty (60) days by Parent in the event Parent or
the Company reasonably requires additional time to complete, amend or
supplement the Proxy
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Statement or Shareholder Information Statement or to close the transactions
contemplated by the Agreement and Plan of Reorganization between the Parent,
Starwave Corporation and Disney Enterprises, Inc., as publicly announced on or
about June 18, 1998 (the "Disney Transaction"); provided, further, that the
Company Shareholders Meeting may be held on such other date as Parent and
Company mutually agree. The Company shall use its best efforts to obtain the
vote of its Shareholders sufficient to approve the Merger and this Agreement
and to enable the Closing.
5.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours and upon reasonable notice during the period prior to the
Effective Time to (a) all of the Company's properties, books, contracts,
commitments and records, (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
the Company as Parent may reasonably request and (c) all Key Employees of the
Company. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements (including by
returns and supporting documentation) promptly upon request. Parent shall, at
the Company's request, provide the Company with all documents filed by Parent
with the SEC on a nonconfidential basis prior to the Closing Date and will
respond to other reasonable requests from the Company for other specific,
relevant, nonconfidential information concerning Parent. No information or
knowledge obtained in any investigation pursuant to this Section 5.2 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.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Standstill Agreement effective as of July 10, 1998 between the Company and
Parent.
5.4 Expenses.
(a) Whether or not the Merger is consummated, except as set forth in
Section 5.4(b), all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, investment banking,
broker, 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.
(b) In the event that the Merger is consummated, Parent agrees to pay those
Third Party Expenses incurred by the Company and paid by or payable to Lisa
Gansky, the Company's legal counsel and the Company's accountants, and Parent
shall have full recourse to the Escrow Fund (as defined herein) for payment of
all Third Party Expenses incurred by the Company exceeding the Estimated Third
Party Expenses (but only to the extent the actual Third Party Expenses exceed
$310,000). The Company shall not, however, be obligated to refund or otherwise
pay any amounts into the Escrow Fund or to the Shareholders in the event that
the actual Third Party Expenses are less than the Estimated Third Party
Expenses and/or less than $310,000.
(c) In the event that the Merger is consummated, the Parent agrees to pay
the Third Party Expenses incurred by the Company in connection with the audit
of the Company's financial statements and preparation of the letter described
in Section 6.3(p) (if requested).
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5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent regarding the subject matter of this Agreement prior to
release. Any public announcement by Parent regarding the subject matter of this
Agreement shall be delivered to the Company prior to release.
5.6 Consents. The Company shall use its best efforts to obtain the consents,
waivers, assignments and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Disclosure Schedule) so as to preserve all
rights of, and benefits to, the Company thereunder.
5.7 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).
5.8 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 Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of the Company, its 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.
5.9 Notification of Certain Matters. The Company shall give prompt notice to
Parent of: (i) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which is likely to cause any representation or warranty of the
Company or the Principal Shareholders contained in this Agreement to be untrue
or inaccurate at or prior to the Effective Time and (ii) any failure of the
Company or the Principal Shareholders, 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 5.9 shall not limit or otherwise affect any remedies available to
the party receiving such notice. No disclosure by the Company pursuant to this
Section 5.9, however, shall be deemed to amend or supplement the Disclosure
Schedule or prevent or cure any misrepresentations, breach of warranty or
breach of covenant.
5.10 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.
5.11 Termination of Employment Agreements. The Company agrees to terminate
all employment agreements immediately prior to the Closing Date (other than the
employment
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agreements contemplated by this Agreement); provided, however, that all
provisions of such agreements relating to confidentiality and invention
assignment shall not be terminated and shall survive the termination of such
agreements indefinitely and provided that the Company shall not be required to
terminate any employment agreement with any at-will employee.
5.12 Non-Disclosure Agreements. Company agrees to use its best efforts to
cause all of its current employees and consultants to execute, to the extent
they have not already done so, a Non-Disclosure Agreement (with Intellectual
Property assignment provisions) in substantially the form currently used by the
Company.
5.13 Employee Compensation; Relocation. Each employee of the Company who
remains an employee of Parent after the Effective Time shall be eligible, upon
completion of Parent's standard employee background and reference check, to
receive salary and benefits (such as medical benefits, bonuses, 401(k) and
stock options) consistent with Parent's standard human resource policies. The
expected total employee compensation package to be given to each employee of
the Company after the Merger shall be substantially as described on Schedule A
hereto. In the event that Parent relocates the Company's operations to the Bay
Area within two (2) years after the Closing Date, Parent will pay the
reasonable and properly documented relocation expenses of all current employees
of the Company that relocate to the Bay Area with the Company and/or Surviving
Corporation; provided, however, that the Parent's aggregate obligation to pay
relocation expenses under this section shall not exceed $100,000.
5.14 Affiliate Agreements. Schedule 5.14 sets forth those persons who, in the
Company's reasonable judgment, are or may be "affiliates" of the Company within
the meaning of Rule 145 (each such person a "Rule 145 Affiliate") promulgated
under the Securities Act ("Rule 145"). The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall deliver or cause to be delivered to
Parent, concurrently with the execution of this Agreement (and in any case
prior to the Closing Date) from each of the Rule 145 Affiliates of the Company,
an executed Affiliate Agreement ("Affiliate Agreement") in the form attached
hereto as Exhibit E, each of which will be in full force and effect as of the
Effective Time. Parent and Sub shall be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
5.15 Tax-Free Reorganization. The parties intend to adopt this Agreement and
the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A) of
the Code by virtue of the provisions of Section 368(a)(2)(E) of the Code. The
Parent Common Stock issued in the Merger will be issued solely in exchange for
the Company Capital Stock, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the
consideration paid for the Company Capital Stock. No consideration that could
constitute "other property" within the meaning of Section 356(b) of the Code is
being transferred by Parent for the Company Capital Stock in the Merger. The
parties shall not take a position on any tax return inconsistent with this
Section 5.15. From and after the Closing, neither Parent, Sub nor the Company
shall take any action that could reasonably be expected to cause the Merger not
to be treated as a reorganization within the meaning of Section 368 of the
Code.
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5.16 Pooling Accounting. Company shall, to the extent possible, cause the
business combination to be effected by the Merger to be accounted for as a
pooling of interests. Company shall, to the extent possible, cause its
Affiliates not to take any action that would adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as
a pooling of interests.
5.17 Loan. Upon the execution of this Agreement Parent shall loan $360,000 to
the Company (the "Company Loan") in the form of a check payable to the Company.
The Company Loan shall be evidenced by a secured promissory note substantially
in the form of Exhibit H (the "Promissory Note").
5.18 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, Parent shall: (i) assume, as of the
Effective Time, all obligations of the Company under Article 7 of the Company's
Articles of Incorporation, as currently in effect, and (ii) to pay all amounts
that become due and payable under such provisions.
(b) This Section 5.18 shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Company and each indemnified
party, shall be binding, jointly and severally, on all successors and assigns
of the Surviving Corporation and Parent, and shall be enforceable by the
indemnified parties.
5.19 S-8 Registration. Not later than thirty (30) days after the Closing
Date, Parent shall prepare and file with the Securities and Exchange Commission
a registration statement on Form S-8 (or another appropriate form) registering
a number of shares of Parent Common Stock equal to the number of shares of
Parent Common Stock subject to Assumed Options. Such registration statement
shall be kept effective (and the current status of the prospectus or
prospectuses required thereby shall be maintained) at least for so long as any
Assumed Options may remain outstanding.
ARTICLE VI.
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunction 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 Merger shall be in effect, nor shall any proceeding
brought by an administration, 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
Merger, which makes the consummation of the Merger illegal.
(b) Governmental Approval. Approvals from Governmental Entities (if any)
deemed appropriate or necessary by any party to this Agreement shall have been
timely obtained.
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(c) Litigation. There shall be no bona fide action, suit, claim or
proceeding of any nature pending, or overtly threatened, against Parent, Sub,
the Company or the Principal Shareholders, their respective properties or any
of their officers, directors, arising out of, or in any way connected with, the
Merger or the other transactions contemplated by the terms of this Agreement.
(d) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger. All waiting
periods under the HSR Act relating to the transactions contemplated hereby (if
any) will have expired or terminated early.
(e) Tax Opinions. Parent and the Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
P.C. and Pillsbury Madison & Sutro LLP, respectively), in form and substance
reasonably satisfactory to them, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn; provided, however, that if counsel to
either Parent or the Company does not render such opinion, this condition shall
nonetheless be deemed to be satisfied with respect to such party if the other
party's counsel renders such opinion to such party. The parties to this
Agreement agree to make reasonable representations as requested by such counsel
for the purpose of rendering such opinions.
6.2 Additional Conditions to Obligations of Company and the Principal
Shareholders. The obligations of the Company and the Principal Shareholders to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively
by the Company:
(a) Representations, Warranties and Covenants. The representations and
warranties of Parent and Sub 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 and each of
Parent and Sub 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 it as of the Effective Time.
(b) Legal Opinion. Company shall have received a legal opinion from Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, in form and substance
reasonably satisfactory to the Company, concerning Parent's issuance of the
Parent Common Stock in the Merger.
(c) Registration Rights Agreement. The Parent shall have executed and
delivered the Registration Rights Agreement to the Shareholder Representative.
(d) Employment and Noncompetition Agreements. The Parent shall have
executed and delivered to each Key Employee his or her Employment Agreement and
all of such Employment Agreements shall be in full force and effect.
(e) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by Parent and Sub for the due authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by Parent and Sub.
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(f) Employee Offers. Parent shall have made offers of employment as set
forth in Section 5.13 and shall not have withdrawn such offers of employment.
(g) Certificate of Parent. The Company shall have been provided with a
certificate executed on behalf of Parent by a Vice President of Parent to the
effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and Sub in this
Agreement are 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; and
(ii) all covenants and obligations of this Agreement to be performed by
Parent on or before such date have been so performed in all material respects.
6.3 Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub 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) Representations, Warranties and Covenants. The representations and
warranties of the Company and the Principal Shareholders (as modified by the
Disclosure Schedule) 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 to the extent such representations and warranties have been modified by
actions of the Company not prohibited by Section 4.1) and the Company and the
Principal Shareholders 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 it as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect on the Company.
(c) Third Party Consents. Any and all consents, waivers, assignments and
approvals listed in the Disclosure Schedule shall have been obtained.
(d) Legal Opinion. Parent shall have received a legal opinion from counsel
to the Company in form and substance reasonably satisfactory to Parent.
(e) Registration Rights Agreement. Each Shareholder shall have executed
and delivered the Registration Rights Agreement to Parent.
(f) Employment and Noncompetition Agreements. Each of the Key Employees
shall each have executed and delivered to Parent their respective Employment
Agreement in the forms attached hereto as Exhibits G-1 and G-2 (the "Employment
Agreements") and all of such Employment Agreements shall be in full force and
effect. In addition, each of the Key Employees shall be an employee of the
Company on the Closing Date.
(g) Shareholder Certificate. Each Shareholder and holder of Company
Options shall have executed and delivered to Parent a Shareholder Certificate.
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(h) No Material Adverse Changes. Except as set forth in the Disclosure
Schedule, there shall not have occurred any material adverse change in the
business, assets (including intangible assets), results of operations,
liabilities (contingent or accrued) or financial condition of the Company since
the date of this Agreement.
(i) Shareholder Approval. Shareholders holding at least ninety percent
(90%) of the Company's Capital Stock shall have approved this Agreement, the
Merger and the transactions contemplated hereby and thereby, and holders of not
more than ten percent (10%) of Company Capital Stock shall continue to have a
right to exercise appraisal, dissenters or similar rights under applicable law
with respect to their Company Capital Stock by virtue of the Merger.
(j) Affiliate Agreements. Each of the persons listed in Section 5.14 of
the Disclosure Schedule shall have executed an Affiliate Agreement.
(k) Contracts. Except as set forth in paragraphs (1), (m), and (n) of this
Section 6.3 below and Schedule 6.3(k), each Contract listed in Sections 2.13(g)
and 2.14(a) of the Disclosure Schedule shall be in full force and effect and
the Company shall not have received notice of termination of any such Contract.
(l) Termination of Registration Rights and Covenants, Warrants and
Convertible Debt. All registration rights relating to the Company Capital Stock
and all covenants of the Company contained in the Series A Preferred Stock
Purchase Agreement(s) between the Company and certain investors and the Series
B Stock Purchase Agreement(s) between the Company and certain investors shall
have been terminated. All warrants and other rights to purchase Company Capital
Stock (other than assumed Company Options) shall have been exercised or
otherwise terminated and all debt of the Company convertible into Company
Capital Stock shall have been converted. Parent shall have received evidence
that as of the Effective Time each unexercised Company warrant shall have been
exercised or terminated and all convertible securities (debt or equity) shall
have been exercised or converted into Company Common Stock to the satisfaction
of Parent.
(m) Termination of Employment Agreements. All employment agreements
between the Company and any other person shall have been terminated as
contemplated in Section 5.11.
(n) Closing Balance Sheet. Parent shall have received from the Company at
least three business days prior to the Closing Date the Estimated Balance
Sheet.
(o) Estimated Third Party Expenses. Parent shall have received from the
Company at least three business days prior to the Closing Date a detailed
schedule of the Estimated Third Party Expenses paid or payable by the Company
certified as to correctness by the Company and the Principal Shareholders and
in a form reasonably satisfactory to Parent.
(p) Opinion of Accountants. If Parent determines that it is appropriate to
characterize the Merger as a pooling of interests, Parent and the Company shall
have received a letter from Ernst & Young LLP, dated within two (2) business
days prior to the Closing Date, regarding its concurrence with Parent's and the
Company's managements' conclusions as to the appropriateness of pooling of
interest accounting for the Merger under Accounting Principles Board Opinion
No. 16, if the Merger is consummated in accordance with this Agreement.
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(q) Certificate of the Company. Parent shall have been provided with a
certificate executed on behalf of the Company by its Chief Executive Officer
and its Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company and the
Principal Shareholders in this Agreement are 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;
(ii) all covenants and obligations of this Agreement to be performed by
the Company on or before such date have been so performed in all material
respects; and
(iii) the provisions set forth in Sections 6.3(b), (c), (h), (i), (k),
(l) and (m) have been satisfied.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All of the Company's and
Shareholder's representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger and
continue until the earlier of: (a) the date which is the date of the auditor's
report for the first audit of Parent's financial statements after the Closing
Date or (b) the date which is one year following the Closing Date (the
"Expiration Date"). All of Parent's and Sub's representations and warranties
contained herein or in any instrument delivered pursuant to this Agreement
shall survive for one (1) year following the Closing.
7.2 Indemnification; Escrow Arrangements.
(a) Indemnification. Each Shareholder jointly and severally agrees to
indemnify and hold Parent, Sub and their officers, directors and affiliates
(the "Indemnified Parties") harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation (hereinafter individually a "Loss" and
collectively "Losses") incurred by the Indemnified Parties directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company a certificate of any officer of the Company delivered
pursuant to this Agreement, or a Shareholder Certificate, (ii) any failure by
the Company or a Shareholder to perform or comply with any covenant contained
in this Agreement, (iii) any dispute between the Company and the individual
named in Section 2.9(n) of the Disclosure Schedule, (iv) the Net Liabilities
exceeding the greater of the Estimated Net Liabilities or $405,739, or (v) the
Third Party Expenses incurred by the Company exceeding the greater of the
Estimated Third Party Expenses or $310,000; provided, however, that, except as
set forth in Sections 7.2(b) and 7.5, the aggregate amount for which the
Shareholders are required to indemnify the Indemnified Parties shall not exceed
the amount deposited in the Escrow Fund (as defined below). The Escrow Fund
shall be available to compensate the Indemnified Parties for any such Losses.
The Shareholders shall not have any right of contribution from the Company with
respect to any Loss claimed by Parent after the Effective Time. Nothing herein
shall limit the liability of the Company or either of the Principal
Shareholders for any breach of any representation, warranty or covenant if the
Merger is not consummated.
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(b) Principal Shareholder's Indemnification Cap. In addition to the amounts
contained in the Escrow Fund, but only to the extent certain Losses (as
specified below) have not been satisfied by the Escrow Fund, each of the
Principal Shareholders shall severally but not jointly indemnify the
Indemnified Parties during the Escrow Period for Losses incurred directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company relating to Capital Structure (Section 2.3), Tax
Matters (Section 2.10) and Intellectual Property (Section 2.13) or such
Principal Shareholder's Affiliate Agreement, (ii) any dispute between the
Company and the individual named in Section 2.9(n) of the Disclosure Schedule,
up to an amount equal to ten percent (10%) of their respective portions of the
Merger Consideration (the "Principal Shareholders' Indemnification Cap"). At
the election of each individual Principal Shareholder, such indemnity may be
paid in cash or Parent Common Stock, which shall be valued at the Trading
Price.
(c) Escrow Fund. As partial security for the indemnity provided for in
Section 7.2(a) and by virtue of this Agreement, the Shareholders will be deemed
to have received and deposited with the Escrow Agent (as defined below) the
Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the
Effective Time with respect to the Escrow Amount) without any act of any
Shareholder. As soon as practicable after the Effective Time, the Escrow
Amount, without any act of any Shareholder, will be deposited with U.S. Bank
Trust, N.A. (or other institution acceptable to Parent and the Shareholder
Representative (as defined in Section 7.4) as Escrow Agent (the "Escrow
Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth herein. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Effective Time, and such
later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. The portion of the Escrow Amount contributed on behalf of
each Shareholder shall be in proportion to the aggregate Parent Common Stock
which such holder would otherwise be entitled under Section 1.7.
(d) Escrow Period; Distribution upon Termination of Escrow Periods. Subject
to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Sunnyvale, California local time on the Expiration Date (the "Escrow Period");
provided, however, that the Escrow Period shall not terminate with respect to
any amount which, in reasonable judgement of Parent, is necessary to satisfy
any unsatisfied claims specified in any Officer's Certificate (as defined
below) delivered to the Escrow Agent prior to termination of such Escrow Period
with respect to facts and circumstances existing prior to the termination of
such Escrow Period. As soon as all such claims have been resolved, the Escrow
Agent shall deliver to the Shareholders the remaining portion of the Escrow
Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the
Shareholders pursuant to this Section 7.2 shall be made in proportion to their
respective original contributions to the Escrow Fund.
(e) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
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(ii) Any shares of Parent Common Stock or other equity securities issued
or distributed by Parent (including shares issued upon a stock split) ("New
Shares") in respect of Parent Common Stock in the Escrow Fund which have not
been released from the Escrow Fund shall be added to the Escrow Fund and become
a part thereof. New Shares issued in respect of shares of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the record holders thereof. Cash dividends on
Parent Common Stock shall not be added to the Escrow Fund but shall be
distributed to the record holders thereof.
(iii) Each Shareholder shall have voting rights and the right to
distributions of cash dividends with respect to the shares of Parent Common
Stock contributed to the Escrow Fund by such Shareholder (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent Common
Stock). As the record holder of such shares, the Escrow Agent shall vote such
shares in accordance with the instructions of the Shareholders having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Shareholders.
(f) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent (an
"Officer's Certificate"): (A) stating that Parent has paid or properly accrued
or, with respect to third-party claims of which Parent, the Company or the
Surviving Corporation has received notice, reasonably anticipates that it will
have to pay or accrue Losses, 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, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to
which such item is related, the Escrow Agent shall, subject to the provisions
of Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly
as practicable, shares of Parent Common Stock held in the Escrow Fund with a
value equal to such Losses; provided, however, that in the event of a third
party claim that is the subject of the demand on the Escrow Fund, no shares
shall be delivered out of the Escrow Fund until the claim is settled or
adjudicated.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund as indemnity
pursuant to Section 7.2(f)(i) hereof, the shares of Parent Common Stock shall
be valued at the Trading Price.
(g) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Parent of
any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent
shall have received written authorization from the Shareholder Representative
to make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of shares of Parent Common Stock from the
Escrow Fund in accordance with Section 7.2(d) hereof; provided, however, that
no such payment or delivery may be made if the Shareholder Representative shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30) day period.
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(h) Resolution of Conflicts; Arbitration.
(i) In case the Shareholder Representative shall object in writing to any
claim or claims made in any Officer's Certificate, the Shareholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Representative may demand arbitration of the
matter 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 Parent and the
Shareholder Representative. In the event that within forty-five (45) days after
submission of any dispute to arbitration, Parent and the Shareholder
Representative cannot mutually agree on one arbitrator, Parent and the
Shareholder Representative 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 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.
(i) Third-Party Claims. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Shareholder Representative of such claim, and the
Shareholders shall be entitled, at their expense, to participate in any defense
of such claim. Parent may not settle any such claim without the consent of the
Shareholder Representative, which consent shall not be unreasonably withheld or
delayed. In the event that the Shareholder Representative has consented to any
such settlement, the Shareholders
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shall have no power or authority to object under any provision of this Article
VII to the amount of any claim by Parent against the Escrow Fund with respect
to such settlement.
7.3 Escrow Agent.
(a) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any additional
written escrow instructions which the Escrow Agent may receive after the date
of this Agreement which are signed by an officer of Parent and the Shareholder
Representative, and may rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed to be genuine and to have
been signed or presented by the proper party or parties. The Escrow Agent shall
not be liable for any act done or omitted hereunder as Escrow Agent while
acting in good faith and in the exercise of reasonable judgment, and any act
done or omitted pursuant to the advice of counsel shall be conclusive evidence
of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law or of the arbitrator(s)
appointed pursuant to Schedule 7.3(a)(ii), and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court or of the
arbitrator(s) appointed pursuant to Schedule 7.3(a)(ii). In case the Escrow
Agent obeys or complies with any such order, judgment or decree of any court or
of the arbitration panel appointed by Schedule 7.3(a)(ii), the Escrow Agent
shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith
believe to be genuine, nor will the Escrow Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
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(vi) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and shares of Parent Common Stock and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, the Escrow Agent may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage. Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and shares of Parent Common Stock
held in escrow, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action and which the
parties jointly and severally agree to pay. Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all obligations
and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold Escrow Agent harmless against any
and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any Litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. Upon appointment of a successor escrow
agent, the Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(b) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the standard fee schedule
of the Escrow Agent. It is understood that the fees and usual charges agreed
upon for services of the Escrow Agent shall be considered compensation for
ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any Litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or Litigation.
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(c) Consequential Damages. In no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
(d) Successor Escrow Agents. Any corporation into which the Escrow Agent
in its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
(a) In the event that the Merger is approved, effective upon such vote,
and without further act of any Shareholder, Stanton R. Koch shall be appointed
as agent and attorney-in-fact (the "Shareholder Representative") for each
Shareholder, for and on behalf of the Shareholders, to give and receive notices
and communications, to authorize delivery to Parent of shares of Parent Common
Stock from the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Shareholder Representative for the
accomplishment of the foregoing. Such agency may be changed by the Shareholders
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided, however, that the Shareholder Representative may not be
removed unless holders of a majority in interest in the Escrow Fund agree to
such removal and to the identity of the substituted agent. Any vacancy in the
position of Shareholder Representative may be filled by approval of the holders
of a majority in interest in the Escrow Fund. No bond shall be required of the
Shareholder Representative, and the Shareholder Representative shall not
receive compensation for his or her services. Notices or communications to or
from the Shareholder Representative shall constitute notice to or from each of
the Shareholders.
(b) The Shareholder Representative shall not be liable for any act done or
omitted hereunder as Shareholder Representative while acting without gross
negligence, bad faith and willful misconduct. The Shareholders on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall severally indemnify
the Shareholder Representative and hold the Shareholder Representative harmless
against any loss, liability or expense incurred without gross negligence, bad
faith or willful misconduct on the part of the Shareholder Representative and
arising out of or in connection with the acceptance or administration of the
Shareholder Representative's duties hereunder, including the reasonable fees
and expenses of any legal counsel retained by the Shareholder Representative.
(c) A decision, act, consent or instruction of the Shareholder
Representative shall constitute a decision of all Shareholders for whom a
portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such
Shareholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Shareholder Representative as being the
decision, act, consent or instruction of each and every such Shareholder. The
Escrow Agent and Parent are hereby relieved from any liability to
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any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Shareholder Representative.
7.5 Maximum Payments; Remedy; Violation of Third Party Patent Rights. Except
as otherwise provided in this Section 7.5, from and after the Effective Time
this Article VII shall provide the sole and exclusive remedy for any and all
damages or other liability sustained or incurred by the Indemnified Parties or
their successors and assigns as the result of any breach of any representation,
warranty or covenant contained in this Agreement or any claim of negligent
misrepresentation against the Company or the Principal Shareholders in
connection with this Agreement or the Merger. Notwithstanding anything to the
contrary herein, the existence of this Article VII and of the rights and
restrictions set forth herein do not limit any (i) equitable remedies or (ii)
any type of statutory or common law remedy (i.e., not based on any indemnity
right provided in this Article VII) with respect to any knowing (meaning actual
knowledge) or intentional breaches of the representations and warranties or
covenants of the Company or the Principal Shareholders contained in this
Agreement or a certificate of any officer of the Company delivered pursuant to
this Agreement, or of any Shareholder contained in a Shareholder Certificate or
in the event of fraud, provided such remedy may only be pursued against the
person who committed or authorized such knowing (meaning actual knowledge) or
intentional breaches of such representations, warranties or covenants. No
Shareholder shall have any right to contribution from the Company for any claim
made by Parent after the Effective Time. Notwithstanding anything to the
contrary in this Article VII, in the event that an Indemnified Party incurs
Losses as a result of a claim that the Company Intellectual Property violated a
third party's patent rights, only 75% of such Losses shall be subject to
recovery pursuant to the escrow and indemnification provisions of Section 7.2
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if 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) 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 Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by Parent or the Company if (i) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or (ii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity that would make consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity, which would: (i) prohibit Parent's or Sub's
ownership or operation of any portion of the business of
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the Company or (ii) compel Parent or the Company to dispose of or hold separate
all or a portion of the business or assets of the Company or Parent as a result
of the Merger;
(e) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) calendar days after
written notice to the Company; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
(f) by the Company if a majority of the Shareholders of the Company vote
against the Merger at the Company Shareholders Meeting;
(g) by Parent or Sub if a majority of the Shareholders of the Company vote
against the Merger at the Company Shareholders Meeting; or
(h) by Parent or Sub if an event having a Material Adverse Effect on the
Company shall have occurred after the date of this Agreement.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
any Principal Shareholder, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; provided further that the provisions
of Sections 4.2, 5.3, 5.4, 5.5, Article IX and this Section 8.2 shall remain in
full force and effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company and the Shareholder Representative, 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.
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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 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 Parent or Sub, to:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Andrew Newton, Esq., Leslie Wright and Eric Bochner
(with separate copies in separate envelopes to each)
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: Aaron J. Alter, Esq
Telephone No.: (650) 493-9300
Facsimile No.: (650) 496-7556
(b) if to the Company, to
Quando, Inc.
520 NW Davis Street
Portland, Oregon 97209-1987
Attention: David Billstrom
Telephone No.: (503) [225-1988]
Facsimile No.: (503) [225-1987]
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, California 94304
Attention: Jorge del Calvo
Telephone No.: (650) 233-4500
Facsimile No.: (650) 233-4545
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(c) if to the Principal Shareholders, to:
David Billstrom
3205 NE 21st Avenue
Portland, OR 97212
Telephone No.:503/970-8816
Facsimile No.:503/225-1987
William Neuhauser
3105 SE Clinton
Portland, OR 97202
Telephone No.: 503/235-1143
Facsimile No.: 503/225-1987
(d) if to the Shareholder Representative, to:
Stanton R. Koch
3411 East Mercer Street
Seattle, WA 98112
Telephone No.: 206/323-7358
Facsimile No.: 206/323-1418
(e) if to the Escrow Agent, to:
U.S. Bank Trust N.A.
One California Street, 4th Floor
San Francisco, CA 94111
Attn:
Telephone No.: 415/273-4532
Facsimile No.: 415/273-4593
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.
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
Disclosure Schedule, and the documents and instruments and other agreements
among the parties hereto referenced herein: (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) except as specifically provided
herein, are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be
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assigned (other than by operation of law), except that Parent and Sub may
assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates (including any successor to Parent
resulting from its planned reorganization into a Delaware corporation or a
subsidiary of a Delaware corporation).
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. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Santa Clara County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction, venue and such process.
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.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal Shareholders, the
Shareholder Representatives and the Escrow Agent have caused this Agreement to
be signed, all as of the date first written above.
INFOSEEK CORPORATION
QUANDO, INC.
By___________________________________
By___________________________________
Name:
Name:
Title:
Title:
STEELHEAD ACQUISITION CORP.
PRINCIPAL SHAREHOLDERS
By___________________________________
_____________________________________
Name: David Billstrom
Title:
_____________________________________
William Neuhauser
SHAREHOLDER REPRESENTATIVE
(AS TO THE PROVISIONS OF ARTICLE VII ONLY)ESCROW AGENT (AS TO THE PROVISIONS
OF ARTICLE VII ONLY)
(AS TO THE PROVISIONS OF ARTICLE VII
_____________________________________ ONLY)
Name:
By___________________________________
Name:
Title:
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 1 (the "Amendment" to the Agreement and Plan of
Reorganization dated as of July 24, 1998 (the "Reorganization Agreement") by
and among Infoseek Corporation, a Delaware corporation ("Parent"), Steelhead
Acquisition Corp., an Oregon corporation and a wholly-owned subsidiary of
Parent ("Sub"), Quando, Inc., an Oregon corporation (the "Company"), David
Billstrom and William Neuhauser (individually, a "Principal Shareholder" and
collectively, the "Principal Shareholders"), and, with respect to Article VII
only, U.S. Bank Trust, N.A. as Escrow Agent (the "Escrow Agent"), and Stanton
R. Koch (the "Shareholder Representative") is effective as of December 7, 1998
by and among Parent, Sub, the Company, the Principal Shareholders, the Escrow
Agent and the Shareholder Representative.
RECITALS
A. Infoseek Corporation, a California corporation ("Infoseek California"),
Sub, the Company, the Principal Shareholders, the Escrow Agent and the
Shareholder Representative entered into the Reorganization Agreement providing
for the merger of Sub with and into the Company.
B. Infoseek California assigned all of its rights and delegated all of its
responsibilities to Parent prior to the date hereof pursuant to that certain
Assignment and Assumption Agreement dated December 4, 1998 (the "Assignment
Agreement").
C. Parent, Sub, the Company and the Principal Shareholders desire to make
certain amendments to the Reorganization Agreement as set forth in this
Amendment.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
A. The Reorganization Agreement shall be amended as follows:
1. The parties acknowledge that the Reorganization Agreement has been
assigned to and assumed by Parent pursuant to the Assignment Agreement. All
references to Parent in the Reorganization Agreement shall refer to Infoseek
California prior to the date of the Assignment Agreement and to Parent on and
after the date of the Assignment Agreement.
2. The fourth Recital of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"WHEREAS, the parties intend that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
3. The definition of "Adjusted Dollar Amount" under Section 1.6 of the
Reorganization Agreement is hereby amended and restated in full to read as
follows:
"Adjusted Dollar Amount" shall mean an amount equal to $17,310,000 minus:
(i) the amount by which the Estimated Net Liabilities (excluding Estimated
Third Party Expenses reflected
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on the Estimated Balance Sheet) exceeds $405,739 and (ii) the amount by which
the Estimated Third Party Expenses (excluding those Estimated Third Party
Expenses described in Section 5.4(d)) exceed $50,000."
4. The definition of "Meeting Price" under Section 1.6 of the
Reorganization Agreement is hereby amended and restated in full to read as
follows:
"Meeting Price" shall mean the average closing sale price of the Parent
Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
the filing of the Registration Statement on Form S-4; provided, however, that
if the Registration Statement on Form S-4 receives full or partial review by
the SEC, the Meeting Price shall mean the average closing sale price of the
Parent Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
effectiveness of the Registration Statement on Form S-4."
5. Section 1.6 of the Reorganization Agreement is hereby amended to include
the following new definition:
"Registration Statement on Form S-4" shall mean the Registration
Statement on Form S-4 to be filed by Parent with the SEC pursuant to Section
5.1(a) hereto.
6. The definition of "SEC" under Section 1.6 of the Reorganization
Agreement is hereby amended and restated in full to read as follows:
"SEC" shall mean the United States Securities and Exchange Commission."
7. Section 1.12 of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code and shall be accounted for under the purchase method of
accounting under GAAP. Each party has consulted with its own tax advisors and
accountants with respect to the tax and accounting consequences, respectively,
of the Merger."
8. Section 2.26 of the Reorganization Agreement is hereby deleted and
replaced with the words "Intentionally Omitted."
9. The first sentence of Section 2.27 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
The information supplied by the Company for inclusion in the Registration
Statement on Form S-4 and the Proxy Statement (as defined in Section 5.1 below)
or Shareholder Information Statement (as defined in Section 5.1), as the case
may be, will not on the date it (or any amendment or supplement thereto) is
declared effective by the SEC, the date it is first sent to Company's
shareholders, at the time of the Company Shareholders Meeting, if any, and at
the Effective Time, contain any statement which, at such time and in the light
of the circumstances under which it is made, is false or misleading with
respect to any material fact, or will omit to state any material fact necessary
in order to make the statements therein not false or misleading."
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10. The first sentence of Section 3.1 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware."
11. The first sentence of Section 3.2 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"Parent has heretofore furnished to the Company a complete and correct
copy of its Certificate of Incorporation and Bylaws, each as amended to date."
12. The first sentence of Section 3.7 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"The information supplied by Parent for inclusion in the Registration
Statement on Form S-4 and the Proxy Statement or Shareholder Information
Statement, as the case may be, will not, on the date it (or any amendment or
supplement thereto) is declared effective by the SEC, the date it is first
mailed to Company's shareholders, at the time of the Company Shareholders
Meeting, if any, and at the Effective Time, contain any statement which, at
such time and in the light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein not false
or misleading."
13. Section 4.1(g) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Except for the issuance of no more than 160,000 shares of the Company
Common Stock in full payment of certain fees owing to Lisa Gansky, issue,
grant, deliver or sell, contract to 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 (other than upon the exercise of
currently outstanding stock options) or securities convertible into or
exchangeable for, 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 other convertible securities;"
14. Section 4.1(q) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Except for the issuance of no more than 160,000 shares of the Company
Common Stock in full payment of certain fees owing to Lisa Gansky, pay,
discharge or satisfy, in an amount in excess of $10,000 (in any one case) or
$25,000 (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 reflected or reserved against in the Current Balance Sheet;"
15. Section 4.1(v) of the Reorganization Agreement is hereby deleted and
replaced with the words "Intentionally Omitted."
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16. Section 5.1 is hereby amended and restated in full to read as follows:
"Registration Statement; Preparation of Shareholder Solicitation
Materials; Shareholder Consent or Meeting.
(a) As soon as practicable after the date of this Agreement, Parent and
the Company shall jointly prepare and cause to be filed with the SEC
preliminary shareholder solicitation materials, which shall be in the form of a
shareholder information statement (the "Shareholder Information Statement") or
a proxy statement (the "Proxy Statement"), as determined jointly by Parent and
the Company, for the solicitation of approval of the shareholders of the
Company of this Agreement, the Merger and the transactions contemplated hereby.
Parent shall also prepare and cause to be filed with the SEC the Registration
Statement on Form S-4, in which the Shareholder Information Statement or Proxy
Statement, as the case may be, will be included as a prospectus, with respect
to those shares of
Parent Common Stock issuable in the Merger. Each of Parent and the Company
shall provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Shareholder Information Statement or Proxy Statement, as the case may be,
or in any amendments or supplements thereto, and to cause its counsel and
auditors to cooperate with the other's counsel and auditors in the preparation
of the Shareholder Information Statement or Proxy Statement, as the case may
be. The Shareholder Information Statement or Proxy Statement, as the case may
be, shall include information regarding the Company, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors
of the Company in favor of the Merger. Each of Parent and the Company shall use
all reasonable efforts to cause the Registration Statement on Form S-4 and the
Shareholder Information Statement or Proxy Statement, as the case may be, 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, to have the
Registration Statement on Form S-4 declared effective under the Securities Act
as promptly as practicable after it is filed with the SEC and to cause the
Shareholder Information Statement or Proxy Statement, as the case may be, to be
mailed to the Company's shareholders as promptly as practicable after the
Registration Statement on Form S-4 is declared effective under the Securities
Act. If any event relating to Parent or the Company occurs, or if Parent or the
Company becomes aware of any information, that should be disclosed in an
amendment or supplement to the Registration Statement on Form S-4 or the
Shareholder Information Statement or Proxy Statement, as the case may be, then
Parent 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 Company's
shareholders.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock
to be issued in the Merger: (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 Capital Stock who is receiving shares of
registered Parent 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 the Parent shall not,
pursuant to the foregoing, be required (I) to qualify to do business as a
foreign corporation in any jurisdiction in which it is not currently qualified
or (II) to file a general consent to
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service of process in any jurisdiction with respect to matters unrelated to the
issuance of Parent Common Stock pursuant hereto.
(c) The Company shall, pursuant to Oregon Law, and its Articles of
Incorporation and Bylaws, properly notice, convene and hold a shareholders'
meeting to vote on this Agreement and the transactions contemplated hereby on
or about December 21, 1998 (the "Company Shareholders Meeting"), provided,
however, that such date may be delayed up to forty-eight (48) days by Parent in
the event Parent or the Company reasonably required additional time to obtain
the effectiveness of, amend or supplement the Registration Statement on Form S-
4, or to close the transactions contemplated by this Agreement; provided,
further, that the Company Shareholders Meeting may be held on such other date
as Parent and the Company may mutually agree; and, provided, further, that in
the event that the Company receives the written consent of the holders of 100%
of the outstanding shares of Company Capital Stock on or before two business
days prior to the proposed date of the
Company Shareholder Meeting (as such date may be delayed pursuant to this
Section 5.1(c)), the Company Shareholders Meeting need not be held."
17. Section 5.4(a) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Whether or not the Merger is consummated, except as set forth in
Sections 5.4(b), (c) and (d), all fees and expenses incurred in connection with
the Merger including, without limitation, all legal, accounting, investment
banking, broker, financial advisory, consulting and fees paid to Lisa Gansky in
excess of $310,000 and all other fees 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."
18. Section 5.4(b) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"In the event that the Merger is consummated, Parent agrees to pay those
Third Party Expenses incurred by the Company and paid by or payable to Lisa
Gansky, the Company's legal counsel and the Company's accountants, and Parent
shall have full recourse to the Escrow Fund (as defined herein) for payment of
all Third Party Expenses (except for those Third Party Expenses described in
Section 5.4(d)) incurred by the Company exceeding the greater of (i) the
Estimated Third Party Expenses (other than those Third Party Expenses described
in Section 5.4(d)) and (ii) $50,000. The Company shall not, however, be
obligated to refund or otherwise pay any amounts into the Escrow Fund or to the
Company's shareholders in the event that the actual Third Party Expenses (not
including those Third Party Expenses described in Section 5.4(d)) are less than
the greater of (i) the Estimated Third Party Expenses (except for those Third
Party Expenses described in Section 5.4(d)) and (ii) $50,000."
19. Section 5.4 of the Reorganization Agreement is hereby amended to
include subsection (d), as follows:
"(d) In the event that the Merger is consummated, the Parent agrees to
pay up to $100,000 of the legal and accounting fees actually incurred (as
supported by proper documentation)
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by the Company in negotiating and executing the Amendment to the Reorganization
Agreement, and in the preparation and filing of the Registration Statement on
Form S-4.
20. The third sentence of Section 5.13 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"In the event that Parent relocates the Company's operations to the
Seattle, Washington Area within two (2) years after the Closing Date, Parent
will pay the reasonable and properly documented relocation expenses of all
current employees of the Company that relocate to the Seattle, Washington Area
with the Company and/or Surviving Corporation; provided, however, that the
Parent's aggregate obligation to pay relocation expenses under this section
shall not exceed $100,000."
21. Section 5.16 of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Purchase Accounting. The combination to be effected by the Merger shall
be accounted for under the purchase method of accounting."
22. Section 6.2 of the Reorganization Agreement shall be amended to remove
subsection (c), and to replace such subsection with the words "Intentionally
Omitted."
23. Section 6.3 of the Reorganization Agreement shall be amended to remove
subsections (e), (g) and (p), and to replace such subsections with the words
"Intentionally Omitted."
24. The first sentence of Section 7.1 of the Reorganization Agreement shall
be amended and restated in full to read as follows:
"All of the Company's and Principal Shareholders' representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue until June 30, 1999 (the
"Expiration Date")."
25. The first sentence of Section 7.2(a) of the Reorganization Agreement
shall be amended and restated in full to read as follows:
"Each Shareholder jointly and severally agrees to indemnify and hold
Parent, Sub and their officers, directors and affiliates (the "Indemnified
Parties") harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation (hereinafter individually a "Loss" and collectively
"Losses") incurred by the Indemnified Parties directly or indirectly as a
result of: (i) any inaccuracy or breach of a representation or warranty of the
Company a certificate of any officer of the Company delivered pursuant to this
Agreement, or a Shareholder Certificate, (ii) any failure by the Company or a
Shareholder to perform or comply with any covenant contained in this Agreement,
(iii) any dispute between the Company and the individual named in Section
2.9(n) of the Disclosure Schedule, (iv) the Net Liabilities exceeding the
greater of the Estimated Net Liabilities or $405,739, or (v) the Third Party
Expenses (excluding those Third Party Expenses described in Section 5.4(d))
incurred by the Company exceeding the greater of the Estimated Third Party
Expenses (excluding those Estimated Third Party Expenses described in Section
5.4(d)) or $50,000; provided, however, that,
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except as set forth in Sections 7.2(b) and 7.5, the aggregate amount for which
the Shareholders are required to indemnify the Indemnified Parties shall not
exceed the amount deposited in the Escrow Fund (as defined below)."
26. Section 8.1(b) is hereby amended to delete "December 31, 1998" and
replace it with "February 28, 1999."
27. Footnote "*" on Exhibit A--Compensation Table is hereby amended and
restated as follows.
"Annual Rate schedule reflects Bay Area based employee annual rate; such
rates may be adjusted to reflect Parent's standard ratio between the Bay Area
and the Seattle Area, but not by more than 15%."
28. Exhibit C--Form of Shareholder Certificate shall be deleted in full. In
addition, all references to the Shareholder Certificates and to the execution
and delivery of the Shareholder Certificates are hereby deleted in their
entirety.
29. Exhibit D--Form of Registration Rights Agreement of the Reorganization
Agreement shall be deleted in full.
B. This Amendment shall be governed by California law and may be executed in
counterparts each of which shall be deemed an original and all of which shall
constitute one instrument.
C. Except as expressly amended by this Amendment, all provisions of the
Reorganization Agreement shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
referred to above.
<TABLE>
<S> <C>
INFOSEEK CORPORATION QUANDO, INC.
a Delaware corporation an Oregon corporation
By: _______________________________________ By: _________________________________________
Harry Motro, Chief Executive Officer David Billstrom, Chief Executive Officer
and President and President
STEELHEAD ACQUISITION CORP. PRINCIPAL SHAREHOLDERS
an Oregon corporation
By: _______________________________________ _____________________________________________
Andrew E. Newton, Vice President David Billstrom
_____________________________________________
William Neuhauser
SHAREHOLDER REPRESENTATIVE ESCROW AGENT
(as to the provisions of Article VII only) (as to the provisions of Article VII only)
___________________________________________ By: _________________________________________
Stanton R. Koch
Name: _______________________________________
Title: ______________________________________
</TABLE>
[Signature Page to Amendment No. 1 to Agreement and Plan of Reorganization]
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ANNEX B
DISSENTERS' RIGHTS
OREGON BUSINESS CORPORATION LAW
CHAPTER 60
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
60.551 DEFINITIONS FOR 60.551 TO 60.594.C As used in ORS 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or a nominee as the record shareholder.
(2) "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.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under ORS 60.554 and who exercises that right when and in the
manner required by ORS 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation 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.
(5) "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 loan or, if none, at a rate that is fair and
equitable under all the circumstances.
(6) "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.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
60.554 RIGHT TO DISSENT.-- (1) Subject to subsection (2) of this section, 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
acts:
(a) Consummation of a plan of merger to which the corporation is a party
if shareholder approval is required for the merger by ORS 60.487 or the
articles of incorporation and the shareholder is entitled to vote on the
merger or if the corporation is a subsidiary that is merged with its parent
under ORS 60.491;
(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;
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(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; or
(B) 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
ORS 60.141; 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.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under ORS 60.551 to 60.594 may not challenge the corporate
action creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any class
or series if the shares of the class or series were registered on a national
securities exchange or quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System as a National Market System issue on
the record date for the meeting of shareholders at which the corporate action
described in subsection (1) of this section is to be approved or on the date a
copy or summary of the plan of merger is mailed to shareholders under ORS
60.491, unless the articles of incorporation otherwise provide.
60.557 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 regarding which the shareholder dissents and the
shareholder'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.
PROCEDURE FOR EXERCISE OF RIGHTS
60.561 NOTICE OF DISSENTERS' RIGHTS.-- (1) If proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under ORS 60.551 to 60.594 and be
accompanied by a copy of ORS 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under ORS 60.554 is taken
without a vote of shareholders, the corporation shall notify in writing all
shareholders entitled to assert dissenters'
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rights that the action was taken and send the shareholders entitled to assert
dissenters' rights the dissenters' notice described in ORS 60.567.
60.564 NOTICE OF INTENT TO DEMAND PAYMENT.--(1) lf proposed corporate action
creating dissenters' rights under ORS 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
shall 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 effectuated and shall 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.
60.567 DISSENTERS' NOTICE.--(1) If proposed corporate action creating
dissenters' rights under ORS 60.554 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of ORS 60.564.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares be deposited;
(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 of the terms of the proposed corporate action to news media or to
shareholders 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.
This date may not be fewer than 30 nor more than 60 days after the date the
subsection (1) of this section notice is delivered; and
(e) Be accompanied by a copy of ORS 60.551 to 60.594.
60.571 DUTY TO DEMAND PAYMENT.--(1) A shareholder sent a dissenters' notice
described in ORS 60.567 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 ORS 60.567(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 shares
under subsection (1) of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(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.
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60.574 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 taken or the restrictions released under
ORS 60.581.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
60.577 PAYMENT.--(1) Except as provided in ORS 60.584, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with ORS 60.571, 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 16 months before the date of payment, an income statement for
that year and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of 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 ORS
60.587; and
(e) A copy of ORS 60.551 to 60.594.
60.581 FAILURE TO TAKE ACTION.--(1) If the corporation does not take the
proposed action within 60 days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under ORS 60.567 and repeat the payment demand procedure.
60.584 AFTER-ACQUIRED SHARES.--(1) A corporation may elect to withhold
payment required by ORS 60.577 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 such
demand. The corporation shall send with its offer a statement of its estimate
of 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 ORS
60.587.
60.587 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--(l) 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
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dissenter's estimate, less any payment under ORS 60.577 or reject the
corporation's offer under ORS 60.584 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 ORS 60.577 or offered
under ORS 60.584 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 ORS 60.577 within 60 days
after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertified shares within 60 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 30 days after the corporation made
or offered payment for the dissenter's shares.
JUDICIAL APPRAISAL OF SHARES
60.591 COURT ACTION.--(1) If a demand for payment under ORS 60.587 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand under ORS 60.587 and petition the court under
subsection (2) of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of the
country where a corporation's principal office is located, or if the principal
office is not in this state, where the corporation's 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 country 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. 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 jurisdiction of the circuit 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
recommend decision on the question of fair value. The appraisers have the
powers described in the court order appointing them, or in any amendment to the
order. The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment
for:
(a) 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
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(b) The fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under ORS
60.584.
60.594 COURT COSTS AND COUNSEL FEES.--(1) The court in an appraisal
proceeding commenced under ORS 60.591 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 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 ORS 60.587.
(2) The court may also assess the fees and expenses of counsel and experts of
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 ORS 60.561 to 60.587; 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 this chapter.
(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 counsel reasonable fees to be paid out of the amount awarded the
dissenters who were benefited.
B-6
<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
<TABLE>
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(a) Exhibits
2.1 Agreement and Plan of Reorganization, dated July 24, 1998, by
and among Infoseek Corporation, a California corporation,
Steelhead Acquisition Corp., an Oregon corporation, Quando,
Inc., an Oregon corporation, David Billstrom and William
Neuhauser, and with respect to Article VII only, Stanton R.
Koch and U.S. Bank Trust, N.A. (the "Reorganization
Agreement").
2.2 Amendment No. 1 to Reorganization Agreement, dated December 7,
1998.
2.3 Form of Plan of Merger by and among the Registrant, Steelhead
Acquisition Corp., an Oregon corporation, and Quando, Inc., an
Oregon corporation.
2.4 Form of Employment and Non-Competition Agreement with David
Billstrom and William Neuhauser.
3.1(1) Amended and Restated Certificate of Incorporation of the
Registrant.
</TABLE>
II-1
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<TABLE>
<C> <S>
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Stock Certificate of the Registrant.
4.2(2) Third Amended and Restated Investors' Rights Agreement dated April
19, 1996 among the Registrant and the investors and founders named
therein.
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 Pillsbury Madison & Sutro LLP.
10.1(2) Infoseek Corporation Stock Option Plan, as amended on March 20,
1996, subject to qualification by the State of California.
10.2(2) Form of Offer Letter among the Registrant and its officers.
10.3(1) Form of Indemnification Agreement entered into between the
Registrant and its directors and officers.
10.4(2) Founders Agreement dated February 1, 1994 among the Registrant and
the founders named therein, as amended June 30, 1994.
10.5(2) Employee Stock Purchase Agreement dated March 9, 1996 between the
Registrant and John Nauman.
10.6 Assignment and Assumption of Lease, dated May 12, 1998, by and
between Infoseek California and 280, Inc., a California
corporation.
10.7(2) Standard Form of Office Lease dated April 1996 between the
Registrant and Richfield Investment Company.
10.8(2) Software Development and Licensing Master Agreement dated July 8,
1994, as amended on February 13, 1995 and April 24, 1995, between
the Registrant and Applied Computing Systems Institute of
Massachusetts, Inc.
10.9(2) Internet Services and Products Master Agreement dated May 22, 1995
between the Registrant and BBN Planet Corporation.
10.10(2) Net Search Program--Premier Provider Agreement between the
Registrant and Netscape Communications Corporation dated March 22,
1996, as amended on that date.
10.11(3) Premier Provider Service Agreement between the Registrant and
Netscape Communications Corporation dated March 17, 1997.
10.12(2) Software License and Distribution Agreement between the Registrant
and Personal Library Software, Inc. dated June 17, 1994.
10.13(2) XSoft/Infoseek Software Distribution and License Agreement--
Lexicons, dated March 31, 1996 between the Registrant and XSoft, a
division of XEROX Corporation.
10.14(2) Customer Support Program Agreement for Infoseek among the
Registrant and SunService Corporation dated January 1, 1996.
10.15(2) Purchase Orders dated March 21, 1996, February 1, 1996, December 1,
1995, October 25, 1995, October 6, 1995 between the Registrant and
Sun Microsystems, Inc.
10.16(2) Form Consulting Services Agreement among the Registrant and its
consultants.
10.17(2) Joint Marketing Agreement dated effective April 15, 1996 between
the Registrant and Sun Microsystems Inc.
10.18(2) Online Service Agreement dated February 28, 1995 between the
Registrant and Reuters NewMedia, Inc., as amended January 4, 1996
and April 19, 1996.
10.19(3) Amendment No. 3 to Online Service Agreement between the Registrant
and Reuters NewMedia, Inc., dated October 30, 1996.
10.20(3) Fourth Amendment to the On-Line Directory Agreement between the
Registrant and Reuters NewMedia, Inc., dated August 30, 1996.
10.21(4) Office lease dated March 4, 1997 between the Registrant and Limar
Realty Corp. #8.
10.22(3) Amendment No. 1 to XSoft/Infoseek Software Distribution and License
Agreement, between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
10.23(3) Amendment No. 2 to XSoft/Infoseek Software Distribution and License
Agreement, between the Registrant and XSoft, a division of XEROX
Corporation, dated December 16, 1996.
</TABLE>
II-2
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<TABLE>
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10.24(2) Memorandum of Understanding between the Registrant and IDG
Communications Inc. dated April 22, 1996.
10.25(5) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated March 31, 1997.
10.26(2) Amendment No. 3 to Software Development and Licensing Master
Agreement between the Registrant and Applied Computing Systems
Institute of Massachusetts, Inc. dated March 18, 1996.
10.27(6) Amendment No. 1 and 2 to Office Lease dated March 4, 1997 between
the Registrant and Limar Realty Corp.
10.28(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").
10.29(1) Common Stock and Warrant Purchase Agreement by and between the
Registrant and The Walt Disney Company, a Delaware corporation.
10.30(1) Registrant Common Stock Warrant.
10.31(1) Form of The Walt Disney Company Promissory Note.
10.32(1) Form of Registrant's Directors' and Officers' Indemnification
Agreement.
10.33(1) Form of Registration Rights Agreement by and among the Registrant,
DEI and The Walt Disney Company.
10.34(1) Form of Tax Sharing Agreement by and among the Registrant and The
Walt Disney Company.
10.35(1) Governance Agreement by and among the Registrant, The Walt Disney
Company and DEI.
10.36(1) License Agreement by and between DEI and Infoseek California.
10.37(1) Licensing and Services Option Agreement by and between DEI and
Infoseek California.
10.38(1) Product Management Agreement by and between DEI and Infoseek
California.
10.39(1) Promotional Service Agreement by and between American Broadcasting
Companies, Inc. and Infoseek California.
10.40(1) Representation Agreement by and among ESPN/Starwave Partners, a New
York General Partnership ("ESPN Partners"), Starwave and the
Registrant.
10.41(1) Representation Agreement by and among ABC/Starwave Partners, a New
York General Partnership ("ABC News Partners"), Starwave and the
Registrant.
10.42(1) Preferred Shares Rights Agreement by and between the Registrant 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).
10.43(1) Amended and Restated ESPN/Starwave Partnership Agreement by and
between ESPN Online Investments, Inc. and Starwave Ventures, a
Washington corporation ("Starwave Partner").
10.44(1) Amended and Restated ESPN/Starwave Management and Services
Agreement by and between ESPN Enterprises Inc., a Delaware
corporation, Starwave and ESPN Starwave Partners.
10.45(1) Amended and Restated ABC News/Starwave Partnership Agreement by and
between DOL Online Investments, Inc., a California corporation, and
Starwave Partner.
10.46(1) Amended and Restated ABC News/Starwave Management and Services
Agreement by and between ABC, Inc., a Delaware corporation,
Starwave and ABC News Partners.
10.47(1) Employment Agreement by and between Starwave and Patrick J.
Naughton.
10.48(1) First Offer Letter Agreement between Disney and Steven T. Kirsch.
10.49(7) Starwave Corporation Revised 1992 Combined Incentive and
Nonqualified Stock Option Plan, Amended and Restated as of March 7,
1995.
10.50(7) Starwave Corporation 1997 Nonqualified Stock Option Plan.
10.51(8) Amended and Restated Infoseek Corporation 1996 Stock Option/Stock
Issuance Plan.
10.52(8) Amended and Restated Infoseek Corporation Employee Stock Purchase
Plan.
10.53(8) Infoseek Corporation 1998 Employee and Acquisition Nonqualified
Stock Option Plan.
10.54(9) Amended and Restated WebChat Communications, Inc. 1997 Stock Option
Plan.
10.55 Quando, Inc. Secured Promissory Note, dated July 24, 1998.
</TABLE>
II-3
<PAGE>
10.56 Agreement of Lease, dated February 20, 1998, by and between Sixth &
Virginia Properties, a Washington General Partnership, and Starwave
Corporation, a Washington corporation.
10.57 Lease Agreement, dated March 4, 1992, between Vulcan Northwest,
Inc., a Washington corporation (later assigned to Starwave
Corporation, a Washington corporation) and Sunset Office Limited
Partnership, a Washington limited partnership (later assigned to
Obayashi Corporation, a Japan corporation), as amended December 1,
1998.
16.1(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 PricewaterhouseCoopers LLP / Starwave.
23.3 Consent of PricewaterhouseCoopers LLP / ESPN / Starwave Partners.
23.4 Consent of PricewaterhouseCoopers LLP / ABC / Starwave Partners.
23.5 Consent of KPMG Peat Marwick LLP / Starwave.
23.6 Consent of KPMG Peat Marwick LLP / Quando, Inc.
23.7 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibits 5.1 and 8.1).
24.1 Power of Attorney (see Page II-7).
99.1 Quando, Inc. Form of Proxy.
99.2 Quando, Inc. Form of Written Consent.
99.3 Schedule of Valuation and Qualifying Accounts.
(b) Financial Statement Schedules
Valuation and Qualifying Accounts for the Nine Months Ended September 30,
1998 (unaudited) and the Years Ended December 31, 1995, 1996 and 1997 (see
Exhibit 99.3).
- --------
(1) Incorporated by reference to the Registrant's Registration Statement Form
S-4 (File No. 333-65635) declared effective October 14, 1998.
(2) Incorporated by reference to the Registrant's Registration Statement Form
S-1, as amended, (File No. 333-04142) declared effective June 11, 1996.
(3) Incorporated by reference to the Registrant's Form S-3, as amended, (File
No. 333-45087) declared effective February 12, 1998.
(4) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1997.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
(7) Incorporated by reference to the Registrant's Form S-8 (File No.
333-67507) declared effective November 18, 1998.
(8) Incorporated by reference to the Registrant's Form S-8 (File No.
333-67517) declared effective November 18, 1998.
(9) Incorporated by reference to the Registrant's Form S-8 (File No.
333-67519) declared effective November 18, 1998.
II-4
<PAGE>
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 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
II-5
<PAGE>
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 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-6
<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 7TH DAY
OF DECEMBER, 1998.
Infoseek Corporation
a Delaware corporation
/s/ Harry M. Motro
By: _________________________________
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Harry M. Motro President, Chief Executive December 7, 1998
______________________________________ Officer (Principal
HARRY M. MOTRO Executive Officer) and
Director
/s/ Leslie E. Wright Senior Vice President, December 7, 1998
______________________________________ Chief Operating Officer
LESLIE E. WRIGHT and Chief Financial
Officer (Principal
Accounting Officer)
/s/ Steven T. Kirsch Chairman of the Board of December 7, 1998
______________________________________ Directors
STEVEN T. KIRSCH
/s/ Steven Bornstein Director December 7, 1998
______________________________________
STEVEN BORNSTEIN
/s/ Robert Iger Director December 7, 1998
______________________________________
ROBERT IGER
/s/ Matthew J. Stover Director December 7, 1998
______________________________________
MATTHEW J. STOVER
</TABLE>
II-7
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<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jake Winebaum Director December 7, 1998
______________________________________
JAKE WINEBAUM
/s/ John E. Zeisler Director December 7, 1998
______________________________________
JOHN E. ZEISLER
Director
______________________________________
L. WILLIAM KRAUSE
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
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<C> <S> <C>
2.1 Agreement and Plan of Reorganization, dated July 24,
1998, by and among Infoseek Corporation, a California
corporation, Steelhead Acquisition Corp., an Oregon
corporation, Quando, Inc., an Oregon corporation,
David Billstrom and William Neuhauser, and with
respect to Article VII only, Stanton R. Koch and U.S.
Bank Trust, N.A. (the "Reorganization Agreement").
2.2 Amendment No. 1 to Reorganization Agreement, dated
December 7, 1998.
2.3 Form of Plan of Merger by and among the Registrant,
Steelhead Acquisition Corp., an Oregon corporation,
and Quando, Inc., an Oregon corporation.
2.4 Form of Employment and Non-Competition Agreement with
David Billstrom and William Neuhauser.
3.1(1) Amended and Restated Certificate of Incorporation of
the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Stock Certificate of the Registrant.
4.2(2) Third Amended and Restated Investors' Rights Agreement
dated April 19, 1996 among the Registrant and the
investors and founders named therein.
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 Pillsbury Madison & Sutro LLP.
10.1(2) Infoseek Corporation Stock Option Plan, as amended on
March 20, 1996, subject to qualification by the State
of California.
10.2(2) Form of Offer Letter among the Registrant and its
officers.
10.3(1) Form of Indemnification Agreement entered into between
the Registrant and its directors and officers.
10.4(2) Founders Agreement dated February 1, 1994 among the
Registrant and the founders named therein, as amended
June 30, 1994.
10.5(2) Employee Stock Purchase Agreement dated March 9, 1996
between the Registrant and John Nauman.
10.6 Assignment and Assumption of Lease, dated May 12,
1998, by and between Infoseek California and 280,
Inc., a California corporation.
10.7(2) Standard Form of Office Lease dated April 1996 between
the Registrant and Richfield Investment Company.
10.8(2) Software Development and Licensing Master Agreement
dated July 8, 1994, as amended on February 13, 1995
and April 24, 1995, between the Registrant and Applied
Computing Systems Institute of Massachusetts, Inc.
10.9(2) Internet Services and Products Master Agreement dated
May 22, 1995 between the Registrant and BBN Planet
Corporation.
10.10(2) Net Search Program--Premier Provider Agreement between
the Registrant and Netscape Communications Corporation
dated March 22, 1996, as amended on that date.
10.11(3) Premier Provider Service Agreement between the
Registrant and Netscape Communications Corporation
dated March 17, 1997.
10.12(2) Software License and Distribution Agreement between
the Registrant and Personal Library Software, Inc.
dated June 17, 1994.
10.13(2) XSoft/Infoseek Software Distribution and License
Agreement--Lexicons, dated March 31, 1996 between the
Registrant and XSoft, a division of XEROX Corporation.
10.14(2) Customer Support Program Agreement for Infoseek among
the Registrant and SunService Corporation dated
January 1, 1996.
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
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<C> <S> <C>
10.15(2) Purchase Orders dated March 21, 1996, February 1,
1996, December 1, 1995, October 25, 1995, October 6,
1995 between the Registrant and Sun Microsystems, Inc.
10.16(2) Form Consulting Services Agreement among the
Registrant and its consultants.
10.17(2) Joint Marketing Agreement dated effective April 15,
1996 between the Registrant and Sun Microsystems Inc.
10.18(2) Online Service Agreement dated February 28, 1995
between the Registrant and Reuters NewMedia, Inc., as
amended January 4, 1996 and April 19, 1996.
10.19(3) Amendment No. 3 to Online Service Agreement between
the Registrant and Reuters NewMedia, Inc., dated
October 30, 1996.
10.20(3) Fourth Amendment to the On-Line Directory Agreement
between the Registrant and Reuters NewMedia, Inc.,
dated August 30, 1996.
10.21(4) Office lease dated March 4, 1997 between the
Registrant and Limar Realty Corp. #8.
10.22(3) Amendment No. 1 to XSoft/Infoseek Software
Distribution and License Agreement, between the
Registrant and XSoft, a division of XEROX Corporation,
dated December 16, 1996.
10.23(3) Amendment No. 2 to XSoft/Infoseek Software
Distribution and License Agreement, between the
Registrant and XSoft, a division of XEROX Corporation,
dated December 16, 1996.
10.24(2) Memorandum of Understanding between the Registrant and
IDG Communications Inc. dated April 22, 1996.
10.25(5) Loan and Security Agreement between the Registrant and
Silicon Valley Bank dated March 31, 1997.
10.26(2) Amendment No. 3 to Software Development and Licensing
Master Agreement between the Registrant and Applied
Computing Systems Institute of Massachusetts, Inc.
dated March 18, 1996.
10.27(6) Amendment No. 1 and 2 to Office Lease dated March 4,
1997 between the Registrant and Limar Realty Corp.
10.28(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").
10.29(1) Common Stock and Warrant Purchase Agreement by and
between the Registrant and The Walt Disney Company, a
Delaware corporation.
10.30(1) Registrant Common Stock Warrant.
10.31(1) Form of The Walt Disney Company Promissory Note.
10.32(1) Form of Registrant's Directors' and Officers'
Indemnification Agreement.
10.33(1) Form of Registration Rights Agreement by and among the
Registrant, DEI and The Walt Disney Company.
10.34(1) Form of Tax Sharing Agreement by and among the
Registrant and The Walt Disney Company.
10.35(1) Governance Agreement by and among the Registrant, The
Walt Disney Company and DEI.
10.36(1) License Agreement by and between DEI and Infoseek
California.
10.37(1) Licensing and Services Option Agreement by and between
DEI and Infoseek California.
10.38(1) Product Management Agreement by and between DEI and
Infoseek California.
</TABLE>
<PAGE>
EXHIBIT INDEX--(CONTINUED)
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <S> <C>
10.39(1) Promotional Service Agreement by and between American
Broadcasting Companies, Inc. and Infoseek California.
10.40(1) Representation Agreement by and among ESPN/Starwave
Partners, a New York General Partnership ("ESPN
Partners"), Starwave and the Registrant.
10.41(1) Representation Agreement by and among ABC/Starwave
Partners, a New York General Partnership ("ABC News
Partners"), Starwave and the Registrant.
10.42(1) Preferred Shares Rights Agreement by and between the
Registrant 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).
10.43(1) Amended and Restated ESPN/Starwave Partnership
Agreement by and between ESPN Online Investments, Inc.
and Starwave Ventures, a Washington corporation
("Starwave Partner").
10.44(1) Amended and Restated ESPN/Starwave Management and
Services Agreement by and between ESPN Enterprises
Inc., a Delaware corporation, Starwave and ESPN
Starwave Partners.
10.45(1) Amended and Restated ABC News/Starwave Partnership
Agreement by and between DOL Online Investments, Inc.,
a California corporation, and Starwave Partner.
10.46(1) Amended and Restated ABC News/Starwave Management and
Services Agreement by and between ABC, Inc., a
Delaware corporation, Starwave and ABC News Partners.
10.47(1) Employment Agreement by and between Starwave and
Patrick J. Naughton.
10.48(1) First Offer Letter Agreement between Disney and Steven
T. Kirsch.
10.49(7) Starwave Corporation Revised 1992 Combined Incentive
and Nonqualified Stock Option Plan, Amended and
Restated as of March 7, 1995.
10.50(7) Starwave Corporation 1997 Nonqualified Stock Option
Plan.
10.51(8) Amended and Restated Infoseek Corporation 1996 Stock
Option/Stock Issuance Plan.
10.52(8) Amended and Restated Infoseek Corporation Employee
Stock Purchase Plan.
10.53(8) Infoseek Corporation 1998 Employee and Acquisition
Nonqualified Stock Option Plan.
10.54(9) Amended and Restated WebChat Communications, Inc. 1997
Stock Option Plan.
10.55 Quando, Inc. Secured Promissory Note, dated July 24,
1998.
10.56 Agreement of Lease, dated February 20, 1998, by and
between Sixth & Virginia Properties, a Washington
General Partnership, and Starwave Corporation, a
Washington corporation.
10.57 Lease Agreement, dated March 4, 1992, between Vulcan
Northwest, Inc., a Washington corporation (later
assigned to Starwave Corporation, a Washington
corporation) and Sunset Office Limited Partnership, a
Washington limited partnership (later assigned to
Obayashi Corporation, a Japan corporation), as amended
December 1, 1998.
16.1(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 PricewaterhouseCoopers LLP / Starwave.
23.3 Consent of PricewaterhouseCoopers LLP / ESPN /
Starwave Partners.
23.4 Consent of PricewaterhouseCoopers LLP / ABC / Starwave
Partners.
23.5 Consent of KPMG Peat Marwick LLP / Starwave.
23.6 Consent of KPMG Peat Marwick LLP / Quando, Inc.
23.7 Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibits 5.1 and
8.1).
</TABLE>
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EXHIBIT INDEX--(CONTINUED)
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
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24.1 Power of Attorney (see Page II-7).
99.1 Quando, Inc. Form of Proxy.
99.2 Quando, Inc. Form of Written Consent.
99.3 Schedule of Valuation and Qualifying Accounts.
</TABLE>
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(1) Incorporated by reference to the Registrant's Registration Statement Form
S-4 (File No. 333-65635) declared effective October 14, 1998.
(2) Incorporated by reference to the Registrant's Registration Statement Form
S-1, as amended, (File No. 333-04142) declared effective June 11, 1996.
(3) Incorporated by reference to the Registrant's Form S-3, as amended, (File
No. 333-45087) declared effective February 12, 1998.
(4) Incorporated by reference to the Registrant's Form 10-K for the year ended
December 31, 1997.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1997.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997.
(7) Incorporated by reference to the Registrant's Form S-8 (File No. 333-
67507) declared effective November 18, 1998.
(8) Incorporated by reference to the Registrant's Form S-8 (File No. 333-
67517) declared effective November 18, 1998.
(9) Incorporated by reference to the Registrant's Form S-8 (File No. 333-
67519) declared effective November 18, 1998.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSEEK CORPORATION
STEELHEAD ACQUISITION CORP.,
QUANDO, INC.
DAVID BILLSTROM, AND
WILLIAM NEUHAUSER
(AS PRINCIPAL SHAREHOLDERS)
AND, WITH RESPECT TO ARTICLE VII ONLY,
STANTON R. KOCH
AS SHAREHOLDER REPRESENTATIVE,
AND, WITH RESPECT TO ARTICLE VII ONLY,
U.S. BANK TRUST, N.A.
AS ESCROW AGENT
DATED AS OF JULY 24, 1998
<PAGE>
TABLE OF CONTENTS
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ARTICLE I.--THE MERGER.................................................. 1
1.1 The Merger .................................................... 1
1.2 Effective Time ................................................ 2
1.3 Effect of the Merger .......................................... 2
1.4 Articles of Incorporation; Bylaws.............................. 2
1.5 Directors and Officers ........................................ 2
1.6 Certain Definitions............................................ 2
1.7 Effect of Merger on the Capital Stock of the Constituent
Corporations.................................................. 5
1.8 Dissenting Shares.............................................. 7
1.9 Surrender of Certificates...................................... 7
1.10 No Further Ownership Rights in Company Capital Stock........... 9
1.11 Dissenting Shares After Payment of Fair Value.................. 9
1.12 Tax and Accounting Consequences................................ 9
1.13 Taking of Necessary Action; Further Action .................... 9
ARTICLE II.--REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 10
2.1 Organization of the Company.................................... 10
2.2 Subsidiaries .................................................. 10
2.3 Company Capital Structure...................................... 10
2.4 Authority...................................................... 11
2.5 No Conflict.................................................... 12
2.6 Consents ...................................................... 12
2.7 Company Financial Statements .................................. 12
2.8 No Undisclosed Liabilities .................................... 13
2.9 No Changes .................................................... 13
2.10 Tax Matters.................................................... 14
2.11 Restrictions on Business Activities............................ 16
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment ....................................... 16
2.13 Intellectual Property.......................................... 17
2.14 Agreements, Contracts and Commitments.......................... 20
2.15 Interested Party Transactions.................................. 21
2.16 Governmental Authorization .................................... 21
2.17 Litigation .................................................... 22
2.18 Accounts Receivable............................................ 22
2.19 Minute Books .................................................. 22
2.20 Environmental Matters.......................................... 22
2.21 Brokers' and Finders' Fees; Third Party Expenses .............. 23
2.22 Employee Matters and Benefit Plans ............................ 23
2.23 Insurance...................................................... 27
2.24 Compliance with Laws .......................................... 27
2.25 Warranties; Indemnities........................................ 27
2.26 Pooling of Interests .......................................... 27
2.27 Proxy Statement and Shareholder Information Statement.......... 27
2.28 Complete Copies of Materials .................................. 28
2.29 Representations Complete ...................................... 28
</TABLE>
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ARTICLE III.--REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.......... 28
3.1 Organization, Standing and Power .............................. 28
3.2 Charter and Bylaws............................................. 28
3.3 Authority...................................................... 29
3.4 Merger Shares.................................................. 29
3.5 No Conflict.................................................... 29
3.6 Consents ...................................................... 29
3.7 Proxy Statement and Shareholder Information Statement.......... 30
3.8 Other Matters.................................................. 30
ARTICLE IV.--CONDUCT PRIOR TO THE EFFECTIVE TIME........................ 31
4.1 Conduct of Business of the Company ............................ 31
4.2 No Solicitation................................................ 33
ARTICLE V.--ADDITIONAL AGREEMENTS ...................................... 34
5.1 Proxy Statement and Shareholder Information Statement.......... 34
5.2 Access to Information.......................................... 36
5.3 Confidentiality................................................ 36
5.4 Expenses ...................................................... 36
5.5 Public Disclosure.............................................. 37
5.6 Consents ...................................................... 37
5.7 FIRPTA Compliance.............................................. 37
5.8 Reasonable Efforts ............................................ 37
5.9 Notification of Certain Matters................................ 37
5.10 Additional Documents and Further Assurances.................... 37
5.11 Termination of Employment Agreements .......................... 37
5.12 Non-Disclosure Agreements...................................... 38
5.13 Employee Compensation; Relocation ............................. 38
5.14 Affiliate Agreements .......................................... 38
5.15 Tax-Free Reorganization........................................ 38
5.16 Pooling Accounting ............................................ 39
5.17 Loan .......................................................... 39
5.18 Directors' and Officers' Indemnification....................... 39
5.19 S-8 Registration .............................................. 39
ARTICLE VI.--CONDITIONS TO THE MERGER .................................. 39
6.1 Conditions to Obligations of Each Party to Effect the Merger... 39
6.1 Additional Conditions to Obligations of Company and the
Principal Shareholders ....................................... 40
6.3 Additional Conditions to the Obligations of Parent and Sub..... 41
ARTICLE VII.--SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION....................................................... 43
7.1 Survival of Representations and Warranties .................... 43
7.2 Indemnification; Escrow Arrangements .......................... 43
7.3 Escrow Agent .................................................. 47
7.4 Shareholder Representative..................................... 49
7.5 Maximum Payments; Remedy; Violation of Third Party Patent
Rights........................................................ 50
</TABLE>
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ARTICLE VIII.--TERMINATION, AMENDMENT AND WAIVER.......................... 50
8.1 Termination....................................................... 50
8.2 Effect of Termination............................................. 51
8.3 Amendment......................................................... 51
8.4 Extension; Waiver................................................. 51
ARTICLE IX.--GENERAL PROVISIONS .......................................... 52
9.1 Notices........................................................... 52
9.2 Interpretation ................................................... 53
9.3 Counterparts ..................................................... 53
9.4 Entire Agreement; Assignment ..................................... 53
9.5 Severability ..................................................... 54
9.6 Other Remedies ................................................... 54
9.7 Governing Law..................................................... 54
9.8 Rules of Construction............................................. 54
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of July 24, 1998 among Infoseek Corporation, a California
corporation ("Parent"), Steelhead Acquisition Corp., an Oregon corporation and
a wholly-owned subsidiary of Parent ("Sub"), Quando, Inc., an Oregon
corporation (the "Company"), David Billstrom and William Neuhauser
(collectively, the "Principal Shareholders," and individually, the "Principal
Shareholder"), U.S. Bank Trust, N.A. as Escrow Agent and, with respect to
Article VII only, Stanton R. Koch as Shareholder Representative.
RECITALS
WHEREAS, the Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Sub with and into the Company (the "Merger") and, in furtherance thereof, have
approved the Merger.
WHEREAS, pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of common stock of Parent.
WHEREAS, a portion of the shares of common stock of Parent otherwise
issuable by Parent in connection with the Merger shall be placed in escrow by
Parent for purposes of satisfying damages, losses, expenses and other similar
charges which result from breaches of the representations, warranties and
covenants of the Company and the Principal Shareholders contained herein.
WHEREAS, the parties intend that the Merger shall (i) constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii) to the extent possible, qualify for
accounting treatment as a pooling of interests.
WHEREAS, the Company and the Principal Shareholders, on the one hand, and
Parent and Sub, 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 receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of the Oregon Business Corporation Act ("Oregon Law"), Sub shall be
merged with and into the Company, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation
A-1
<PAGE>
and as a wholly-owned subsidiary of Parent. The surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days following
the approval of the Merger by the Company's Shareholders at the Company
Shareholders Meeting (as described in Section 5.1) and the satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California, unless another place or time is agreed to in writing by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing an Agreement of
Merger (or like instrument) substantially in the form attached hereto as
Exhibit A (the "Merger Agreement") with the Secretary of State of the State of
Oregon, in accordance with the applicable provisions of Oregon Law (the time
of acceptance by the Secretary of State of the State of Oregon of such filing
being referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Oregon Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Articles of Incorporation of Sub shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation.
(b) The Bylaws of Sub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter
amended.
1.5 Directors and Officers. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation immediately
after the Effective Time, each to hold the office of director of the Surviving
Corporation in accordance with the provisions of the applicable laws of the
State of Oregon and the Articles of Incorporation and Bylaws of the Surviving
Corporation until their successors are duly qualified and elected. The
officers of Sub immediately prior to the Effective Time shall be the officers
of the Surviving Corporation immediately after the Effective Time, each to
hold office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
1.6 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Adjusted Dollar Amount" shall mean an amount equal to $17,000,000 minus:
(i) the amount by which the Estimated Net Liabilities (excluding Estimated
Third Party Expenses reflected on the Estimated Balance Sheet) exceeds
$405,739 and (ii) the amount by which the Estimated Third Party Expenses
exceed $310,000.
2
<PAGE>
"Common Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Common Merger Consideration by (ii) the sum of (A) the total
number of shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and (B) the total number of shares of
Company Common Stock issuable upon conversion or exercise in full of all
options, warrants and other rights to acquire or receive Company Common Stock
that are outstanding immediately prior to the Effective Time (other than
preferred stock).
"Common Merger Consideration" shall mean the Merger Consideration less the
Preferred Merger Consideration.
"Company Capital Stock" shall mean shares of Company Common Stock, Company
Preferred Stock and any other capital stock of the Company (on an as converted
basis), exclusive of shares of Company Capital Stock issuable upon exercise of
Company Options.
"Company Common Stock" shall mean outstanding shares of common stock of
the Company.
"Company Options" shall mean all issued and outstanding and unexpired and
unexercised options and other rights to acquire or receive Company Capital
Stock (whether or not vested).
"Company Series A Preferred Stock" shall mean shares of Series A preferred
stock of the Company.
"Company Series B Preferred Stock" shall mean shares of Series B preferred
stock of the Company.
"Estimated Balance Sheet" shall mean the estimated unaudited balance sheet
of the Company dated the Closing Date which shall be: prepared in accordance
with GAAP (except that such unaudited balance sheet does not contain the
footnotes required by GAAP) based on reasonable assumptions certified as to
correctness by the Company and in a form reasonably satisfactory to Parent.
"Estimated Net Liabilities" shall mean the amount by which total
liabilities of the Company (excluding convertible debt and debt converted into
equity since the date of this Agreement) as determined in accordance with GAAP
("Total Liabilities") exceeds total current assets of the Company as
determined in accordance with GAAP ("Total Current Assets"), each as reflected
in the Estimated Balance Sheet.
"Estimated Third Party Expenses" shall mean Third Party Expenses (as
defined in Section 5.4) of the Company on the Closing Date as estimated by the
Company in good faith and based on reasonable assumptions.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean United States generally accepted accounting principles.
"Key Employees" shall mean those employees of the Company listed on
Exhibit B.
3
<PAGE>
"Knowledge" of a person shall mean the actual knowledge of the person;
knowledge of the Company shall mean the actual knowledge of an officer or
director of the Company.
"Material Adverse Effect" shall mean any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company.
"Meeting Price" shall mean the average closing sale price of the Parent
Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
the Company's Shareholders meeting at which the Merger is approved.
"Merger Consideration" shall mean that number of shares of Parent Common
Stock equal to the quotient obtained by dividing the Adjusted Dollar Amount by
the Trading Price.
"Net Liabilities" shall mean the amount equal to Total Liabilities minus
the Total Current Assets of the Company as of the Closing Date.
"Parent Common Stock" shall mean shares of the common stock, no par value
per share, of Parent.
"Preferred Merger Consideration" shall mean the sum of the Series A Merger
Consideration and the Series B Merger Consideration.
"Related Agreements" shall mean all such ancillary agreements required in
this Agreement to be executed and delivered in connection with the
transactions contemplated hereby.
"SEC" shall mean the Securities Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Series A Merger Consideration by (ii) the total number of
shares of Series A Preferred Stock issued and outstanding immediately prior to
the Effective Time.
"Series A Liquidation Preference" shall mean the product of the per share
liquidation preference of the Company's Series A Preferred Stock as provided
in the Company's Articles of Incorporation, as amended to date, multiplied by
the total number of shares of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time.
"Series A Merger Consideration" shall mean the Merger Consideration
determined by dividing the Series A Liquidation Preference by the Trading
Price.
"Series B Exchange Ratio" shall be equal to the quotient obtained by
dividing: (i) the Series B Merger Consideration by (ii) the total number of
shares of Series B Preferred Stock issued and outstanding immediately prior to
the Effective Time.
"Series B Liquidation Preference" shall mean the product of: (i) the per
share liquidation preference of the Company's Series B Preferred Stock as
provided in the Company's Articles of
4
<PAGE>
Incorporation, as amended to date, multiplied by (ii) the total number of
shares of Company Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time.
"Series B Merger Consideration" shall mean the Merger Consideration
determined by dividing the Series B Liquidation Preference by the Trading
Price.
"Signing Price" shall mean the average closing sale price of Parent Common
Stock as reported on the Nasdaq National Market for the ten (10) consecutive
trading days ending on the third business day prior to the date of this
Agreement.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"Trading Price" shall be equal to the Signing Price, provided, however,
that if the Meeting Price is between twenty percent (20%) to twenty-five
percent (25%) higher or lower than the Signing Price, the Trading Price shall
be equal to the Meeting Price, provided, further, that if the Meeting Price is
greater than twenty-five percent (25%) higher than the Signing Price, the
Trading Price shall be equal to one hundred twenty-five percent (125%) of the
Signing Price, and provided, further, that if the Meeting Price is greater
than twenty-five percent (25%) lower than the Signing Price, the Trading Price
shall be equal to seventy-five percent (75%) of the Signing Price.
1.7 Effect of Merger on the Capital Stock of the Constituent Corporations.
(a) Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the Shareholders:
(i) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares (as
defined in Section 1.8)) will be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Common Stock in the manner provided for in
this Section 1.9(c), a fraction of a share of Parent Common Stock equal to the
Common Exchange Ratio.
(ii) Each share of Company Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8)) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Series A Preferred Stock in the
manner provided for in Section 1.9(c), a fraction of a share of Parent Common
Stock equal to the Series A Exchange Ratio.
(iii) Each share of Company Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8)) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Series B Preferred Stock in the
manner provided for in Section 1.9(c), a fraction of a share of Parent Common
Stock equal to the Series B Exchange Ratio.
(iv) All shares of Parent Common Stock issued in exchange for shares of
Company Capital Stock subject to Company repurchase rights or vesting
schedules shall be subject to the same repurchase rights and/or vesting
schedules and other terms as applicable to such shares of Company
5
<PAGE>
Capital Stock, with Parent succeeding to the rights of the Company thereunder
and with a proportionate adjustment to any per share repurchase price
applicable to such shares to reflect the applicable Exchange Ratio.
(b) Company Stock Options; Warrants.
(i) Assumption of Company Options. At the Effective Time, each Company
Option under the Company's 1994 Stock Option Plan (the "Option Plan") or
otherwise, whether vested or unvested, will, in connection with the Merger, be
assumed by Parent. Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions, including vesting, set forth in the Option Plan and as provided in
the respective option agreements immediately prior to the Effective Time,
except that (A) such assumed Company Option will be exercisable for that
number of whole shares of Parent 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 applicable Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (B) the per share exercise
price for the shares of Parent 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 applicable
Exchange Ratio, rounded up to the nearest whole cent.
(ii) Assumption Agreement. Promptly following the Effective Time, Parent
will issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option by Parent.
(iii) Option Status. It is the intention of the parties that Parent
Options issued by Parent following the Closing will, to the extent permitted
by applicable law, qualify as incentive stock options as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), to the
extent Company Options qualified as incentive stock options immediately prior
to the Closing.
(c) Capital Stock of Sub. Each share of common stock, no par value per
share, of Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, no par value per share, of the Surviving
Corporation. Each stock certificate of Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of
the Surviving Corporation.
(d) Adjustment to Parent Common Stock. The number of shares of Parent
Common Stock issuable hereunder shall be adjusted to reflect fully the effect
of any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after the
date hereof.
(e) Fractional Shares. No fractional share of Parent Common Stock shall be
issued in the Merger. In lieu thereof, any fractional share shall be rounded
up to the nearest whole share of Parent Common Stock.
6
<PAGE>
(f) Withholding Taxes. Any cash amount payable to any Shareholder pursuant
to Section 1.7(a) shall be subject to, and reduced by, the amount of any state
or federal withholding taxes incurred (and not previously paid by or on behalf
of such Shareholder or the Company) in connection with the Merger of Company
Capital Stock upon the exercise of Company Options or upon payment of a bonus
in the form of Company Capital Stock, if any, by such Shareholder.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock issued and outstanding immediately prior to
the Effective Time that are held by a Shareholder who has exercised and
perfected appraisal rights for such shares in accordance with Oregon 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 Parent Common Stock pursuant to Section 1.7, but
the holder thereof shall only be entitled to such rights as are granted by
Oregon Law.
(b) Notwithstanding the provisions of subsection 1.8(a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
shares of Parent Common Stock to which such Shareholder would otherwise be
entitled under Section 1.7(a) (less the number of shares allocable to such
Shareholder that have been deposited into the Escrow Fund on such holder's
behalf pursuant to Article VII), upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
Oregon Law and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to any such demands or offer to settle or settle any such demands. To the
extent that the Company makes any payment or payments in respect of any
Dissenting Shares prior to the Effective Time, Parent shall be entitled to
recover under the terms of Article VII hereof the aggregate amount by which
such payment or payments exceed the aggregate consideration that otherwise
would have been payable in respect of such shares.
1.9 Surrender of Certificates.
(a) Exchange Agent. Boston Equiserve (or such other entity as selected by
Parent) shall serve as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Within three (3) business days after
the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I the shares of Parent Common Stock
issuable pursuant to Section 1.7(a) in exchange for all the outstanding shares
of Company Capital Stock; provided, however, that on behalf of the
Shareholders, pursuant to Section 7.2 hereof, Parent shall deposit into an
escrow account ten percent (10%) of the Merger Consideration otherwise
issuable to the Shareholders pursuant to Section 1.7(a) (the "Escrow Amount").
The portion of the Escrow Amount contributed on behalf of each Shareholder
shall be in proportion to the aggregate number of Merger Consideration which
such Shareholder would otherwise be entitled to receive in the Merger by
virtue of ownership of outstanding shares of Company Capital Stock.
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<PAGE>
(c) Exchange Procedures. On the Closing Date, the Shareholders will
surrender the certificates representing their Company Capital Stock (the
"Certificates") to the Exchange Agent for cancellation together with the
Shareholder Certificate in the form of Exhibit C hereto and a letter of
transmittal in such form and having such provisions as Parent may reasonably
request. Parent shall provide such Shareholder Certificate and letter of
transmittal to the Shareholders at least three (3) business days prior to the
Closing Date. Upon surrender of a 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 and a Shareholder Certificate, duly completed
and validly executed in accordance with the instructions thereto, the Exchange
Agent will promptly (but in no event more than five (5) business days after
the Effective Time) deliver to the holder of such Certificate in exchange
therefor a certificate representing the number of whole shares of Parent
Common Stock (less the number of shares of Parent Common Stock to be deposited
in the Escrow Fund on such holder's behalf pursuant to Section 1.9(b) and
Article VII) to which such Shareholder is entitled pursuant to Section 1.7,
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence only the right to receive the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock shall have
been converted pursuant to this Article I (except as may otherwise be provided
under Oregon Law with respect to Dissenting Shares). As soon as practicable
after the Effective Time (but in no event more than five (5) business days
after the Effective Time), and subject to and in accordance with the
provisions of Article VII hereof, Parent shall cause to be distributed to the
Escrow Agent (as defined in Article VII) a certificate or certificates
representing that number of shares of Parent Common Stock equal to the Escrow
Amount, which shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holder on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article VII.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date after the Effective Time will be paid to any
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition to the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares
of Parent Common Stock in any name other than that of the registered holder of
the certificate surrendered, or established to the satisfaction of Parent or
any agent designated by it that such tax has been paid or is not payable.
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(f) Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, the number of shares of Parent Common Stock, if any, as may be
required pursuant to Section 1.7; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver a bond in such
sum as it may reasonably direct against any claim that may be made against
Parent or the Exchange Agent with respect to the certificates alleged to have
been lost, stolen or destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.9, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
be issued in full satisfaction of all rights pertaining to such shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
I.
1.11 Dissenting Shares After Payment of Fair Value. Dissenting Shares, if
any, after payments of fair value in respect thereto have been made to
dissenting shareholders of the Company pursuant to Oregon Law and this Article
I, shall be canceled.
1.12 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall: (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) to the extent possible, qualify for
accounting treatment as a pooling of interests. Each party has consulted with
its own tax advisors and accountants with respect to the tax and accounting
consequences, respectively, of the Merger.
1.13 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to consummate the
Merger, to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Sub, the officers
and directors of the Company, Parent and Sub are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, and each
Principal Shareholder severally but not jointly hereby represents and warrants
to Parent and Sub (but only to such Principal Shareholder's Knowledge),
subject to such exceptions as are specifically disclosed in the disclosure
schedule (referencing the appropriate section and paragraph numbers) supplied
by the Company to Parent (the "Disclosure Schedule") and dated as of the date
hereof, that on the date hereof and as of the Effective Time as though made at
the Effective Time as follows:
2.1 Organization of the Company. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oregon.
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 could have a Material Adverse Effect. The
Company has delivered a true and correct copy of its Articles of Incorporation
and Bylaws, each as amended to date, to Parent. Section 2.1 of the Disclosure
Schedule lists the directors and officers of the Company. The operations now
being conducted by the Company have not been conducted under any other name.
2.2 Subsidiaries. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint
venture or other business entity.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of authorized Common Stock and 4,000,000 shares of authorized Preferred
Stock, 300,000 of which are designated Series A Preferred Stock ("Series A
Preferred") and 880,000 of which are designated Series B Preferred Stock
("Series B Preferred"). 4,495,000 shares of Common Stock, 300,000 shares of
Series A Preferred and 880,000 shares of Series B Preferred are issued and
outstanding as of the date hereof. Each share of Series A Preferred is
convertible into 1.274080 shares of Common Stock and each share of Series B
Preferred is convertible into 1.107634 shares of Common Stock. The Company
Capital Stock is held by the persons, with the domicile addresses 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 nonassessable and not subject to preemptive rights
created by statute, the Articles of Incorporation or 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. There are not outstanding any adjustments made or
required to be made to the conversion prices set forth in the Company's
current Articles of Incorporation. The Company has no other capital stock
authorized, issued or outstanding.
(b) Except for the Option Plan(s), the Company has never adopted or
maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has
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reserved 1,000,000 shares of Company Common Stock for issuance to employees
and consultants pursuant to the Option Plan none of which have been exercised
and 533,456 shares are subject to outstanding unexercised options. Section
2.3(b) of the Disclosure Schedule sets forth for each outstanding Company
Option, the name of the holder of such option, the domicile address of such
holder, the number of shares of Company Common Stock subject to such option,
the exercise price of such option, the vesting schedule for such option,
including the extent vested to date and whether the exercisability of such
option will be accelerated by the transactions contemplated by this Agreement,
and whether such option is intended to qualify as an incentive stock option as
defined in Section 422 of the Code. Except for the Company Options, there are
no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company 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 obligating the Company 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. 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. 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 to date and whether the vesting of such shares of
Company Capital Stock will be accelerated by the transactions contemplated by
this Agreement. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or other similar rights with respect to
the Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company. As a result of
the Merger, Parent will be the record and sole beneficial owner of all
outstanding Company Capital Stock and all rights to acquire or receive any
Company Capital Stock, whether or not such Company Capital Stock is
outstanding.
2.4 Authority. The Company has all requisite power and authority to enter
into this Agreement and the agreements delivered in connection with this
Agreement (the "Related Agreements") to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution and delivery
of this Agreement and any Related 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 no further action is required on the part of the Company to authorize the
Agreement, any Related 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. This Agreement and the Merger have been
unanimously approved by the Board of Directors of the Company. This Agreement
has been, and any Related Agreements to which the Company is a party have been
or will have been prior to the Effective Time, duly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by the
other parties hereto and thereto, constitute the 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.
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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 Related
Agreements to which it is party by the Company do not, and, the 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 acceleration of any obligation or loss of any benefit (any
such event, a "Conflict") under (i) any provision of the Articles of
Incorporation and Bylaws of the Company, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which the Company or any of its properties or assets are subject,
or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets; except for a
Conflict under subsection (ii) or (iii) above that would not have a Material
Adverse Effect on the Company or on the ability of the parties to consummate
the Merger or the other transactions contemplated by this Agreement.
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 court, administrative agency or commission or
other federal, state, county, local or other foreign governmental authority,
instrumentality, agency or commission ("Governmental Entity") or any third
party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company 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) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings that have been obtained or made or will be obtained
or made prior to the Effective Time, (iii) consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Material Adverse Effect on the Company or
on the ability of the parties to consummate the Merger or the other
transactions contemplated by this Agreement and (iv) the filing of the Merger
Agreement with the Secretary of State of the State of Oregon.
2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule sets
forth the Company's balance sheet as of December 31, 1997 and the related
statements of income and cash flow for the twelve-month period ended December
31, 1997 and the Company's balance sheet as of June 30, 1998, and the related
statements of income and cash flow for the six months then ended (the
"Financials"). The Financials are correct in all material respects and have
been prepared in accordance with GAAP, applied on a basis consistent
throughout the periods indicated and consistent with each other (except that
the Financials do not contain all the notes that may be required by GAAP). The
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
to normal year-end adjustments, which will not be material in amount or
significance. The Company's Balance Sheet as of June 30, 1998 shall be
hereinafter referred to as the "Current Balance Sheet."
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2.8 No Undisclosed Liabilities. The Company has no liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
which individually or in the aggregate (i) has not been reflected in the
Current Balance Sheet, (ii) has not arisen in the ordinary course of business
consistent with past practices since June 30, 1998 or (iii) exceed $25,000.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule, since June 30, 1998, there has not been, occurred or arisen any
(other than or contemplated by this Agreement or the Related Agreements):
(a) amendments or changes to the Articles of Incorporation or Bylaws of the
Company;
(b) capital expenditure or commitment by the Company, either individually
exceeding $25,000 or in the aggregate exceeding $100,000.
(c) destruction of, damage to or loss of any material assets, business or
customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock or any direct or
indirect redemption, purchase or other acquisition by the Company of its
Capital Stock;
(h) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(i) any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
are bound or any termination, extension, amendment or modification the terms
of any agreement, contract, covenant, instrument, lease, license or commitment
to which the Company is a party or by which it or any of its assets are bound
other than in the ordinary course of the Company's business;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company or any creation of any security interest in such
assets or properties other than in the ordinary course of the Company's
business;
(k) loan by the Company to any person or entity, incurring by the Company
of any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practice;
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(l) incurrence by the Company of any liability in excess of $25,000
individually or $100,000 in the aggregate;
(m) waiver or release of any right or claim of the Company including any
write-off or other compromise of any account receivable of the Company;
(n) the commencement or notice or threat or reasonable basis therefor of
any lawsuit or, to the Company's Knowledge, proceeding or investigation
against the Company or its affairs;
(o) notice of any claim or potential claim of ownership by any person other
than the Company of the Company Intellectual Property (as defined in Section
2.13) or of infringement by the Company of any other person's Intellectual
Property (as defined in Section 2.13);
(p) issuance or sale, or contract to issue or sell, by the Company of any
shares of its capital stock 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 in the ordinary course of
business consistent with past practice;
(q) (i) selling or entering into any license agreement with respect to the
Company Intellectual Property with any third party or (ii) buying or entering
into any license agreement with respect to the Intellectual Property of any
third party or (iii) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property (as defined in
Section 2.13) to the Company;
(r) any event or condition of any character that has had a Material Adverse
Effect on the Company;
(s) transaction by the Company except in the ordinary course of business as
conducted on that date and consistent with past practices; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, "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 a member of an
affiliated, consolidated, combined or unitary group for any period; 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.
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(b) Tax Returns and Audits.
(i) As of the Effective Time the Company will have prepared and timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
concerning or attributable to the Company or its operations and such Returns
are true and correct and have been completed in accordance with applicable
law.
(ii) As of the Effective Time the Company (A) will have paid all Taxes
it is required to pay and will have withheld with respect to its employees all
federal and state income taxes, Federal Insurance Contribution Act ("FICA"),
Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld,
and (B) will have accrued on the Current Balance Sheet all Taxes attributable
to the periods covered by the Current Balance Sheet and will not have incurred
any liability for Taxes for the period prior to the Effective Time other than
in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of any Tax nor
is there any Tax deficiency outstanding, assessed or proposed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company has been
proposed formally or informally by any Tax authority to the Company or any
representative thereof.
(vi) The Company has no liabilities for unpaid federal, state, local and
foreign Taxes which have not been accrued or reserved against in accordance
with GAAP on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has not incurred any liability for
Taxes since the date of the Current Balance Sheet other than in the ordinary
course of business.
(vii) The Company has 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.
(viii) There are (and immediately following the Effective Time there
will be) 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 relating to or attributable to Taxes
other than Liens for Taxes not yet due and payable.
(ix) The Company does not have Knowledge of any basis for the assertion
of any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company.
(x) None of the Company's assets are treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(xi) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or
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former employee of the Company that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company
as an expense under applicable law.
(xii) 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.
(xiii) The Company is not a party to any tax sharing, indemnification or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiv) The Company's tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax deductions
is accurately reflected on the Company's tax books and records.
(xv) 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.
(xvi) No adjustments relating to any Return filed by the Company have
been proposed formally or informally by any tax authority to the Company or
any representative thereof.
(c) Executive Compensation Tax. There is no contract, agreement, plan or
arrangement to which Company is a party, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, 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. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or, to the Company's Knowledge, otherwise binding upon the
Company which has or may have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. Without
limiting the foregoing, the Company has not entered into any agreement under
which the Company is restricted from selling, licensing or otherwise
distributing any of its technology or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company does not own 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, the name of the lessor, the
date of the lease and each amendment thereto and, with respect to any current
lease, the aggregate annual rental and/or other fees payable under any such
lease. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Current
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Balance Sheet and except for Liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material items of
equipment (the "Equipment") owned or leased by the Company and such Equipment
is, (i) adequate for the conduct of the business of the Company as currently
conducted and (ii) in acceptable operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of any
Liens, of all customer and end-user files and other customer and end-user
information it compiles relating to customers or end-users of the Company's
current and former customers or end-users (the "Customer Information"). To the
Company's Knowledge, no person other than the Company possesses any claims or
rights with respect to use of the Customer Information.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "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 mask works, mask work registrations and applications
therefor; (v) all industrial designs and any registrations and applications
therefor throughout the world; (vi) 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; (vii) all databases and data collections and all rights therein
throughout the world; and (viii) 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, and (ix) any similar, corresponding or equivalent rights to any
of the foregoing and (x) all documentation related to any of the foregoing.
(ii) "Company Intellectual Property" shall mean any Intellectual
Property that is owned by or exclusively licensed to the Company.
(iii) "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.
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(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, is free and clear of any
Liens. To the Company's Knowledge, the Company is the exclusive owner of all
trademarks and trade names used in connection with the operation or conduct of
the business of the Company, including the sale of any products or technology
or the provision of any services by the Company (other than with respect to
products acquired from third parties). The Company owns exclusively, and has
good title to, all copyrighted works that are Company products or other works
of authorship that the Company otherwise purports to own.
(d) To the extent that any Intellectual Property has been developed or
created by any person other than the Company for which the Company has,
directly or indirectly, paid, the Company has a written agreement with such
person with respect thereto and the Company thereby has obtained ownership of,
and is the exclusive owner of, by operation of law or by valid assignment, all
such Intellectual Property.
(e) Except as set forth in Section 2.13(e) of the Disclosure Schedule, 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.
(f) The Company Intellectual Property constitutes all the Intellectual
Property used in and/or necessary to the conduct of its business as it
currently is conducted, including, without limitation, the design,
development, manufacture, use, import and sale of the products, technology and
services of the Company (including products, technology or services currently
under development).
(g) Other than "shrink-wrap" and similar widely available commercial end-
user licenses, the contracts, licenses and agreements listed in Section
2.13(g) of the Disclosure Schedule include all contracts, licenses and
agreements to which the Company is a party with respect to any license or
assignment of Intellectual Property. Except as listed in Section 2.13(g) of
the Disclosure Schedule, no person who has licensed Intellectual Property to
the Company has ownership rights or license rights to improvements made by the
Company in such Intellectual Property which has been licensed to the Company.
(h) Section 2.13(h) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with
respect to the infringement or misappropriation by the Company or such other
person of the Intellectual Property of any person other than the Company.
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(i) (A) The operation of the business of the Company as it currently is
conducted, including but not limited to the Company's design, development,
use, import, manufacture and sale of the products, technology or services
(including products, technology or services currently under development) of
the Company does not infringe or misappropriate any Intellectual Property
(other than trademarks, trade names and service marks) 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. The Company has not received any notice from any person that the
operation of the business of the Company as it currently is conducted,
including but not limited to the Company's design, development, use, import,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company
infringes or misappropriates the Intellectual Property (other than trademarks,
trade names and service marks) of any person or constitutes unfair competition
or trade practices under the laws of any jurisdiction (nor is the Company
aware of any basis therefor).
(B) To the Knowledge of the Company, the operation of the business of
the Company as it currently is conducted, including but not limited to the
Company's design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not infringe or
misappropriate any trademark, trade name and service mark of any person.
(j) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such 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. Except as set forth in Disclosure Schedule
2.13(j), to the Company's Knowledge, there are no actions that must be taken
by the Company within sixty (60) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or renewing any Company Intellectual Property. In
each case in which the Company has acquired any Intellectual Property rights
from any person, the Company has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect to such
Intellectual Property) to the Company and, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents
in any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Company and
any other person with respect to Company Intellectual Property under which
there is any dispute known to the Company 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.
(l) To the Company's Knowledge, no person is infringing or misappropriating
any Company Intellectual Property.
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(m) The Company has taken all steps that are reasonably necessary to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Without limiting
the foregoing, the Company has, and enforces, a policy requiring each
employee, consultant and contractor to execute proprietary information,
confidentiality and assignment agreements substantially in the Company's
standard forms, and all current and former employees, consultants and
contractors of the Company have executed such an agreement.
(n) To the Company's Knowledge, after reasonable inquiry, no Company
Intellectual Property or product, technology or service of the Company is
subject to any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any manner the use, transfer or licensing
thereof by the Company or may affect the validity, use or enforceability of
such Company Intellectual Property.
(o) To the Company's Knowledge, no: (i) product, technology, service or
publication of the Company, (ii) material published or distributed by the
Company, or (iii) conduct or statement of Company constitutes obscene
material, a defamatory statement or material, false advertising or otherwise
violates any law or regulation.
(p) Except as set forth in Disclosure Schedule 2.13(p), all of the
Company's products (including products currently under development) will
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as
the products record, store, process, calculate and present calendar dates on
or before December 31, 1999, or calculate any information dependent on or
relating to such dates.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.13(g), 2.13(h) or 2.14(a) of the
Disclosure Schedule, the Company is not a party to nor is it bound by:
(i) any employment or consulting agreement, contract or commitment with
an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property with fixed annual rental payments in
excess of $10,000;
(v) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person;
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(vi) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 either
individually or $25,000 in the aggregate;
(vii) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside
the ordinary course of the Company's business;
(viii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(ix) any purchase order or contract for the purchase of materials
involving in excess of $10,000 individually or $25,000 in the aggregate;
(x) any construction contracts;
(xi) any dealer, distribution, joint marketing or development agreement;
(xii) any sales representative, original equipment manufacturer, value
added reseller, remarketer or other agreement for distribution of the
Company's products or services; or
(xiii) any other agreement, contract or commitment that involves $10,000
or more or is not cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract,
covenant, instrument, lease, license or commitment to which the Company is a
party or by which it is bound (collectively a "Contract"), nor is the Company
aware 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 is not subject to any default thereunder by any party
obligated to the Company pursuant thereto. The Company 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 Merger or for such Contracts to remain in effect without modification
after the Closing. Following the Effective Time, the Company will be permitted
to exercise all of the Company's rights under the Contracts without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay had
the transactions contemplated by this Agreement not occurred.
2.15 Interested Party Transactions. No officer, director or Shareholder of
the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells,
services, products or technology that the Company furnishes or sells, or
proposes to furnish or sell, or (ii) any interest in any entity that purchases
from or sells or furnishes to the Company any goods or services, or (iii) a
beneficial interest in any Contract; provided, that ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of
this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
accurately lists each consent, license, permit, grant or other authorization
issued to the Company by a Governmental
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Entity (i) pursuant to which the Company 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 (herein
collectively called "Company Authorizations"). The Company Authorizations are
in full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business or hold any interest in
its properties or assets.
2.17 Litigation. There is no action, suit or proceeding of any nature
pending nor has the Company received notice (oral or written) of any actions,
suits or proceedings threatened against the Company, its properties or any of
its officers or directors, nor to the Knowledge of the Company, is there any
reasonable basis therefor. There is no investigation pending or threatened
against the Company, its properties or any of its officers or directors (nor
to the Knowledge of the Company is there any reasonable basis therefor) by or
before any Governmental Entity. No Governmental Entity has at any time
challenged or questioned the legal right of the Company to conduct its
operations as presently or previously conducted.
2.18 Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company ("Accounts Receivable") as of June 30, 1998, and
will provide to Parent a list of all Accounts Receivable of the Company as of
the Closing Date, along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary course of
business, are carried at values determined in accordance with GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet. No person has any lien,
encumbrance or other similar right with respect to any of such Accounts
Receivable and no request or agreement for deduction or discount has been made
with respect to any of such Accounts Receivable.
2.19 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of
the Company and its shareholders or actions by written consent since the
incorporation of the Company.
2.20 Environmental Matters.
(a) Hazardous Material. The Company 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 Entity 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 properly and safely maintained. No Hazardous
Materials are present as a result of the deliberate actions of the Company in,
on or under
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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. The Company has not transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all 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 as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. To the Company's Knowledge, no action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending nor has the Company received notice (oral or written) of any
action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is
not aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental
liability.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
in Section 2.21 of the Disclosure Schedule, 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. Section 2.21 of the
Disclosure Schedule sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees. Section 2.21 of the
Disclosure Schedule sets forth the Company's current reasonable estimate of
all Third Party Expenses (as defined in Section 5.4) expected to be incurred
by the Company in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated
hereby.
2.22 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.22(a)(i) below (which definition shall apply only to this
Section 2.22), for purposes of this Agreement, 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 issued thereunder;
(ii) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock
or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
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unfunded, including without limitation, each "employee benefit plan," within
the meaning of Section 3(3) of ERISA 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, or with respect to which the
Company or any Affiliate has or may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "Employee" shall mean any current or former employee, consultant or
director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, contract or understanding between the Company or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by the Company or any Affiliate, whether
informally or formally, or with respect to which the Company or any Affiliate
will or may have any liability, for the benefit of Employees who perform
services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.22(b) contains an accurate and complete list of
each Company Employee Plan and each Employee Agreement under each Company
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment to establish any new Company Employee Plan or Employee Agreement,
to modify any Company Employee Plan or Employee Agreement (except to the
extent required by law or to conform any such Company Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement),
or to enter into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and complete
copies of all documents embodying each Company Employee Plan and each Employee
Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee
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Plan; (iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination, opinion, notification and
advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company Employee Plan
and any proposed Company Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any liability to the Company; (ix) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (x) all COBRA forms
and related notices; (xi) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan; (xii) all
discrimination tests for each Company Employee Plan for the most recent plan
year; and (xiii) all registration statements, annual reports (Form 11-K and
all attachments thereto) and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed all obligations
required to be performed by it under, is not in default or violation of, and
has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company 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, opinion,
notification or advisory letter from the IRS with respect to each such Plan as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any amendments
necessary to obtain a favorable determination as to the qualified status of
each such Company Employee Plan; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Company Employee Plan; (iv) there are no actions, suits or claims pending or
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company
Employee Plan; (v) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Parent, Sub, the Company or any Affiliate (other than
ordinary administration expenses); (vi) there are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
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(f) Multiemployer Plans. At no time has the Company or any Affiliate
contributed to or been required to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for
any reason, except as may be required by COBRA or other applicable statute,
and the Company has never represented, promised or contracted (whether in oral
or written form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to the
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(i) Effect of Transaction.
(i) 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 Company
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, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company or
its Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement or otherwise will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code (but
without regard to clause (ii) thereof).
(j) Employment Matters. The Company: (i) is in compliance in all respects
with all applicable foreign, federal, state and local 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 and reported all amounts required by law or by agreement to
be withheld and reported with respect to 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 governed by or maintained by
or on behalf of any governmental 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). There are no pending, or to the
Knowledge of the Company, threatened or reasonably anticipated claims or
actions against the Company under any worker's compensation policy or long-
term disability policy.
(k) Labor. No work stoppage or labor strike against the Company is pending,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending or
threatened or reasonably anticipated against the Company relating to any
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
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aggregate, result in any liability to the Company, Parent, Sub or any
Affiliate. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, 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.
(l) No Interference or Conflict. No shareholder, officer, employee or
consultant of the Company is obligated under any contract or agreement subject
to any judgement, decree or order of any court or administrative agency that
would interfere with such person's efforts to promote the interests of the
Company or that would interfere with the Company's business. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as presently conducted or proposed to be conducted nor any activity
of such officers, directors, employees or consultants in connection with the
carrying on of the Company's business as presently conducted or proposed to be
conducted, will conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract or agreement
under which any of such officers, directors, employees or consultants is now
bound.
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. To
the Company's Knowledge, there is no claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid, and the Company and any covered
parties are otherwise in compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). To the Company's Knowledge, there is no threatened termination of,
or premium increase with respect to, any of such policies.
2.24 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation.
2.25 Warranties; Indemnities. Except for the warranties and indemnities
contained in those contracts and agreements set forth in Section 2.13(h) of
the Disclosure Schedule, the Company has not given any warranties or
indemnities relating to products or technology sold or licensed or services
rendered by the Company.
2.26 Pooling of Interests. To the Knowledge of the Company, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers, affiliates or shareholders has taken any action which
would preclude the Parent's and Company's ability to account for the Merger as
a pooling of interests.
2.27 Proxy Statement and Shareholder Information Statement. The information
supplied by the Company for inclusion in the Proxy Statement or the
Shareholder Information Statement (each as defined below) will not on the date
it (or any amendment or supplement thereto) is first sent to Shareholders, at
the time of the Company Shareholders Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false
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or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading. If at any time prior to the Effective Time any event relating to
the Company or any of its respective affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment or a
supplement to the Proxy Statement or the Shareholder Information Statement,
the Company will promptly inform the Parent and Sub. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Sub that is contained in any of the
foregoing documents.
2.28 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same)
that has been reasonably requested by Parent or its counsel.
2.29 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Disclosure Schedule), nor any
statement made in any Schedule or certificate furnished by the Company
pursuant to this Agreement or furnished in or in connection with documents
mailed or delivered to the Shareholders for use in soliciting their consent to
this Agreement and the Merger contains or will contain at the Effective Time
(when read together with the Proxy Statement and Shareholder Information
Statement (as amended or supplemented) at the Effective Time), any untrue
statement of a material fact, or omits or will omit at the Effective Time
(when read together with the Proxy Statement and Shareholder Information
Statement (as amended or supplemented) at the Effective Time), to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company
that on the date hereof (except as expressly provided otherwise below and
except as may be modified to appropriately reflect the Parent's planned
reorganization into a Delaware corporation or a subsidiary of a Delaware
corporation) and as of the Effective Time as though made at the Effective Time
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. Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oregon. Each of Parent and Sub
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 as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on the ability of Parent
and Sub to consummate the Merger or the other transactions contemplated
hereby.
3.2 Charter and Bylaws. Parent has heretofore furnished to the Company a
complete and correct copy of its Articles of Incorporation and Bylaws, as
amended to date. Such Articles of Incorporation and Bylaws are in full force
and effect. Neither parent nor Sub is in violation of any of the provisions of
its Articles of Incorporation or Bylaws.
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3.3 Authority. Each of Parent and Sub has all requisite power and authority
to enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related 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 Parent and Sub, and no further action is required on the part of
Parent or Sub to authorize this Agreement, any Related Agreements to which it
is a party and the transactions contemplated hereby and thereby. This
Agreement has been, and any Related Agreements to which Parent or Sub is a
party have been or will have been prior to the Effective Time, duly executed
and delivered by Parent and Sub and, assuming the due authorization, execution
and delivery by the other parties hereto, constitute the valid and binding
obligations of Parent and Sub, 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 rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.4 Merger Shares. The shares of Parent Common Stock to be issued pursuant
to the Merger will be duly authorized, validly issued, fully paid, non-
assessable and will be issued in compliance with all applicable federal and
state securities laws.
3.5 No Conflict. The execution and delivery of this Agreement and any
Related Agreement to which Parent or Sub is a party by Parent or Sub, as the
case may be, do not, and the 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 Conflict under (i) any provision of the Articles of Incorporation, as
amended, and Bylaws of Parent or Sub, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which Parent or Sub or any of their respective properties or assets
are subject and that has been filed as an exhibit to Parent's filings under
the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Sub or their respective
properties or assets, except for a Conflict under subsection (ii) or (iii)
above that would not have a Material Adverse Effect on the ability of the
parties to consummate the Merger or the other transactions contemplated by
this Agreement.
3.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any third
party is required, including a party to any agreement with Parent or Sub (so
as not to trigger any Conflict) by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which Parent or Sub 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, (ii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings that have been obtained or made or will be obtained
or made prior to the Effective Time, (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Material Adverse Effect on the Parent, Sub
and Parent's other subsidiaries taken as a whole, or on the ability of the
parties to consummate the Merger or the other
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transactions contemplated by this Agreement, and (iv) the filing of the Merger
Agreement with the Secretary of State of the State of Oregon.
3.7 Proxy Statement and Shareholder Information Statement. The information
supplied by Parent for inclusion in the Proxy Statement and Shareholder
Information Statement will not, on the date it (or any amendment or supplement
thereto) is first mailed to Shareholders, at the time of the Company
Shareholders Meeting and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein not false
or misleading. If at any time prior to the Effective Time any event relating
to Parent, Sub or any of their respective affiliates, officers or directors
should be discovered by Parent or Sub which should be set forth in an
amendment or a supplement to the Proxy Statement or Shareholder Information
Statement, Parent or Sub will promptly inform the Company. Notwithstanding the
foregoing, Parent and Sub make no representation or warranty with respect to
any information supplied by the Company or the Shareholders that is contained
in any of the foregoing documents.
3.8 Other Matters. Sub has been formed for the sole purpose of effecting the
Merger and, except as contemplated by this Agreement, Sub has not conducted
any business activities and does not have any material liabilities or
obligations.
3.9 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC (collectively, the "Parent SEC Reports"). The Parent SEC
Reports (i) at the time they were filed, complied as to form in all material
respects with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or omit
to state a material fact require 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. Parent and Sub make no representation or warranty
whatsoever concerning the Parent SEC Reports as of any time other than the
time they were filed. None of the Parent's subsidiaries is required to file
any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) (the "Parent Financial Statements") contained
in the Parent SEC Reports has been prepared in accordance with GAAP applied on
a consistent basis throughout the period involved (except as may be indicated
in the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be, individually or in the
aggregate, materially adverse to Parent and its subsidiaries taken as a whole.
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ARTICLE IV.
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on the Company's business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to
pay or perform other obligations when due consistent with the past practices
of the Company, and, to the extent consistent with such business, use its
reasonable best efforts consistent with past practice and policies to preserve
intact the Company's present business organizations, keep available the
services of the Company's present officers and Key Employees and preserve the
Company's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it (although the Company
is not required to continue any commercial agreements with any of its
customers other than Parent), all with the goal of preserving unimpaired the
Company's goodwill and ongoing businesses at the Effective Time. The Company
shall promptly notify Parent of any event or occurrence or emergency not in
the ordinary course of business of the Company and any material event
involving the Company. Except as expressly contemplated by this Agreement as
set forth in Section 4.1 of the Disclosure Schedule, the Company shall not,
without the prior written consent of Parent, which consent shall not be
unreasonably withheld or delayed (provided, however, that with respect to the
items (c), (d), (m), (n), (o), (q), (s) and (u), and with respect to item (g)
to the extent the Company has issued options to purchase less than 200,000
shares of Company Capital Stock since the date of this Agreement, and with
respect to (x) as it applies to any of the aforementioned items, if Parent
does not respond within five (5) business days of a written request (in
accordance with Section 9.1) from Company for consent to an action described
in such item, such consent shall be deemed to have been given):
(a) Except in the ordinary course of business and consistent with past
practice, (i) sell or enter into any license agreement with respect to the
Company Intellectual Property with any person or entity or (ii) buy or enter
into any license agreement with respect to the Intellectual Property of any
person or entity;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
(c) Enter into or amend: (i) any Contract with a customer, (ii) any single
Contract (or series of related Contracts) with a potential obligation of
$25,000 or more or (iii) multiple Contracts in any calendar month with
aggregate potential obligation of $100,000 or more;
(d) Amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the terms of, any of the Contracts set forth or
described in the Disclosure Schedule;
(e) Commence any litigation or settle: (i) any litigation for $25,000 or
more or (ii) any litigation relating to intellectual property rights;
(f) 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 split, combine or reclassify any of its
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capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of the capital stock of the Company or options, warrants or other
rights exercisable therefor (except for the Company's repurchase of Company
Capital Stock from its employees at the purchase price paid by such employees
for such stock);
(g) Issue, grant, deliver or sell, contract to 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 (other
than upon the exercise of currently outstanding stock options) or securities
convertible into or exchangeable for, 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 other convertible
securities;
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws or other organizational documents;
(i) Propose or discuss acquiring or 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 other than Parent, Sub or
any other Parent subsidiary, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) 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;
(k) 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;
(l) Incur liabilities in excess of $390,000 (other than amounts borrowed
under the Company Loan (defined below));
(m) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement;
(n) Grant any severance or termination pay: (i) to any director or officer
or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(o) Adopt any employee benefit plan, or enter into any employment contract
(other than a contract expressly providing for at-will employment), or pay or
agree to pay any special bonus or special remuneration to any director;
(p) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than
in the ordinary course of business;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any
one case) or $25,000 (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 reflected or reserved against in the Current Balance Sheet;
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(r) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing arrangement or
agreement;
(t) Accelerate the vesting schedule of any of the outstanding Company
Options or Company Capital Stock;
(u) (i) Terminate any Key Employee, (ii) encourage any employee to resign,
(iii) hire an employee with an annual salary and bonus in excess of $60,000 or
(iv) hire an officer;
(v) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests whether
or not otherwise permitted under this Section 4.1;
(w) Take any other action inconsistent with past practice or outside the
ordinary course of business; or
(x) Agree in writing or otherwise to take, any of the actions described in
Sections 4.1(a) through (w) above;
(y) Take, or agree in writing or otherwise to take, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 No Solicitation.
(a) For purposes of this Section 4.2, the following terms shall have the
following meanings:
(i) "Acquisition Proposal" shall mean any offer or proposal (other than
an offer or proposal by Parent) contemplating or otherwise relating to any
Company Acquisition Transaction.
(ii) A party's "Associates" shall include such party's subsidiaries and
other affiliates and the respective directors, officers, employees, agents,
representatives, consultants, accountants, attorneys and advisors of such
party and its affiliates;
(iii) "Company Acquisition Transaction" shall mean any transaction not
contemplated by this Agreement involving:
(A) any sale, lease, exchange, transfer or other disposition of the
assets of the Company or any subsidiary of the Company constituting more than
50% of the consolidated assets of the Company or accounting for more than 50%
of the consolidated revenues of the Company in any one transaction or in a
series of related transactions; or
(B) any offer to purchase, tender offer, exchange offer or any similar
transaction or series of related transactions made by any person, group or
entity involving more than 50% of the outstanding shares of capital stock of
the Company; or
(C) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction or series of related transactions
involving the Company other
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than any transaction which results in the Shareholders of the Company before
the transaction continuing to hold at least 50% of the outstanding voting
securities of the Company after such transaction.
(iv) For purposes of this Section 4.2, "Termination Date" shall mean the
earlier of (i) December 31, 1998, (ii) the Closing Date, (iii) the date Parent
terminates this Agreement, or (iv) the date Parent terminates the commercial
agreement between Parent and Company for any reason other than the
Shareholders of the Company voting against the Merger at the Company
Shareholders Meeting (as defined below).
(b) The Company agrees that prior to and through the Termination Date, it
shall not, directly or indirectly, and shall not authorize or permit any
Associate of the Company to (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal,
(ii) furnish any information regarding the Company or any subsidiary of the
Company to any person, group or entity in connection with or in respect to any
Acquisition Proposal, (iii) continue or engage in discussions with any person,
group or entity with respect to any Acquisition Proposal, (iv) approve,
endorse or recommend any Acquisition Proposal or (v) enter into any letter of
intent, term sheet or similar document or any contract, commitment or other
obligation of any kind contemplating or otherwise relating to any Company
Acquisition Transaction (other than with Parent and Sub). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by an
Associate of the Company shall be deemed to constitute a breach of this
Section 4.2. In addition, the Company agrees that any negotiations with
respect to any of the above activities (other than negotiations with Parent
and Sub) in progress as of the date hereof will be suspended during the period
from the date hereof through the Termination Date. In the event that the
Company receives, directly or indirectly, any Acquisition Proposal, the
Company shall immediately notify Parent thereof, including information as to
the identity of the offeror or the party making any such Acquisition Proposal
and the specific terms of such Acquisition Proposal. The Company agrees that
its obligations under this Section 4.2 are necessary and reasonable in order
to protect Parent and its business, and expressly agrees that monetary damages
would be inadequate to compensate Parent for any breach of this Section 4.2.
Accordingly, the Company agrees and acknowledges that any such violation of
threatened violation will cause irreparable injury to Parent and that, in
addition to any other remedies that may be available, in law, in equity or
otherwise, Parent shall be entitled to obtain injunctive relief against the
threatened breach of this Agreement or the continuation of any such breach,
without the necessity of proving damages.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 Proxy Statement and Shareholder Information Statement.
(a) The parties hereto acknowledge and agree that the shares of Parent
Common Stock issuable to the Shareholders pursuant to Section 1.7 shall
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act. The certificates for the shares of Parent Common
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Stock to be issued in the Merger shall bear appropriate legends to identify
such privately placed shares as being restricted under the Securities Act, to
comply with applicable state securities laws and, if applicable, to notice the
restrictions on transfer of such shares. It is acknowledged and understood
that Parent is relying upon certain written representations made by the
Shareholders in the Shareholder Certificate. In order to provide for the
registration of the shares of Parent Common Stock to be issued in the Merger,
the parties hereto shall enter into a separate registration rights agreement
("Registration Rights Agreement") in the form attached hereto as Exhibit D. As
provided in the Registration Rights Agreement, Parent shall file a
Registration Statement on Form S-3 (to provide for the registered resales of
such shares).
(b) Within 30 days prior to the Company Shareholders Meeting, the Company
shall have completed, with the cooperation of Parent, a proxy statement (the
"Proxy Statement"), and Parent shall have completed, with the cooperation of
the Company, a shareholder information statement (the "Shareholder Information
Statement"). Each of Parent and the Company shall provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Proxy Statement and the
Shareholder Information Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Proxy Statement and Shareholder
Information Statement. The Proxy Statement and the Shareholder Information
Statement shall include information regarding the Company, the terms of the
Merger and this Agreement and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger. The Company will cause the
Proxy Statement and the Shareholder Information Statement to be delivered to
the Shareholders, at the earliest practicable time after such documents are
completed and in no event later than 20 days prior to the date of the Company
Shareholders Meeting (as defined below).
(c) The Company and Parent will prepare and file any other filings
required under any Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). Each of the Company and
Parent will notify the other promptly upon the receipt of any correspondence
or communications from any government officials concerning the Shareholder
Information Statement, the Proxy Statement or any Other Filing and will supply
the other with copies of all correspondence between such party or any of its
representatives, on the one hand, and any other government officials, on the
other hand, with respect to the Shareholder Information Statement, the Proxy
Statement, the Merger or any Other Filing. The Proxy Statement, the
Shareholder Information Statement and the Other Filings will comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy Statement,
the Shareholder Information Statement or any Other Filing, the Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in preparing, and mailing to the Shareholders, such amendment or
supplement.
(d) The Company shall, pursuant to Oregon Law, and its Articles of
Incorporation and Bylaws, properly notice, convene and hold a shareholder's
meeting to vote on this Agreement and the transactions contemplated hereby on
October 9, 1998 (the "Company Shareholders Meeting"), provided, however, that
such date may be delayed up to sixty (60) days by Parent in the event Parent
or the Company reasonably requires additional time to complete, amend or
supplement the Proxy
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Statement or Shareholder Information Statement or to close the transactions
contemplated by the Agreement and Plan of Reorganization between the Parent,
Starwave Corporation and Disney Enterprises, Inc., as publicly announced on or
about June 18, 1998 (the "Disney Transaction"); provided, further, that the
Company Shareholders Meeting may be held on such other date as Parent and
Company mutually agree. The Company shall use its best efforts to obtain the
vote of its Shareholders sufficient to approve the Merger and this Agreement
and to enable the Closing.
5.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during
normal business hours and upon reasonable notice during the period prior to
the Effective Time to (a) all of the Company's properties, books, contracts,
commitments and records, (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law)
of the Company as Parent may reasonably request and (c) all Key Employees of
the Company. The Company agrees to provide to Parent and its accountants,
counsel and other representatives copies of internal financial statements
(including by returns and supporting documentation) promptly upon request.
Parent shall, at the Company's request, provide the Company with all documents
filed by Parent with the SEC on a nonconfidential basis prior to the Closing
Date and will respond to other reasonable requests from the Company for other
specific, relevant, nonconfidential information concerning Parent. No
information or knowledge obtained in any investigation pursuant to this
Section 5.2 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.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Standstill Agreement effective as of July 10, 1998 between the Company and
Parent.
5.4 Expenses.
(a) Whether or not the Merger is consummated, except as set forth in
Section 5.4(b), all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, investment banking,
broker, 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.
(b) In the event that the Merger is consummated, Parent agrees to pay
those Third Party Expenses incurred by the Company and paid by or payable to
Lisa Gansky, the Company's legal counsel and the Company's accountants, and
Parent shall have full recourse to the Escrow Fund (as defined herein) for
payment of all Third Party Expenses incurred by the Company exceeding the
Estimated Third Party Expenses (but only to the extent the actual Third Party
Expenses exceed $310,000). The Company shall not, however, be obligated to
refund or otherwise pay any amounts into the Escrow Fund or to the
Shareholders in the event that the actual Third Party Expenses are less than
the Estimated Third Party Expenses and/or less than $310,000.
(c) In the event that the Merger is consummated, the Parent agrees to pay
the Third Party Expenses incurred by the Company in connection with the audit
of the Company's financial statements and preparation of the letter described
in Section 6.3(p) (if requested).
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5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of
the subject matter of this Agreement shall be made by any party hereto unless
approved by Parent regarding the subject matter of this Agreement prior to
release. Any public announcement by Parent regarding the subject matter of
this Agreement shall be delivered to the Company prior to release.
5.6 Consents. The Company shall use its best efforts to obtain the consents,
waivers, assignments and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Disclosure Schedule) so as to preserve all
rights of, and benefits to, the Company thereunder.
5.7 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).
5.8 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 Parent shall not be required to
agree to any divestiture by Parent or the Company or any of Parent's
subsidiaries or affiliates of shares of capital stock or of any business,
assets or property of Parent or its subsidiaries or affiliates or of the
Company, its 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.
5.9 Notification of Certain Matters. The Company shall give prompt notice to
Parent of: (i) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which is likely to cause any representation or warranty of
the Company or the Principal Shareholders contained in this Agreement to be
untrue or inaccurate at or prior to the Effective Time and (ii) any failure of
the Company or the Principal Shareholders, 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 5.9 shall not limit or otherwise affect any remedies
available to the party receiving such notice. No disclosure by the Company
pursuant to this Section 5.9, however, shall be deemed to amend or supplement
the Disclosure Schedule or prevent or cure any misrepresentations, breach of
warranty or breach of covenant.
5.10 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.
5.11 Termination of Employment Agreements. The Company agrees to terminate
all employment agreements immediately prior to the Closing Date (other than
the employment
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agreements contemplated by this Agreement); provided, however, that all
provisions of such agreements relating to confidentiality and invention
assignment shall not be terminated and shall survive the termination of such
agreements indefinitely and provided that the Company shall not be required to
terminate any employment agreement with any at-will employee.
5.12 Non-Disclosure Agreements. Company agrees to use its best efforts to
cause all of its current employees and consultants to execute, to the extent
they have not already done so, a Non-Disclosure Agreement (with Intellectual
Property assignment provisions) in substantially the form currently used by
the Company.
5.13 Employee Compensation; Relocation. Each employee of the Company who
remains an employee of Parent after the Effective Time shall be eligible, upon
completion of Parent's standard employee background and reference check, to
receive salary and benefits (such as medical benefits, bonuses, 401(k) and
stock options) consistent with Parent's standard human resource policies. The
expected total employee compensation package to be given to each employee of
the Company after the Merger shall be substantially as described on Schedule A
hereto. In the event that Parent relocates the Company's operations to the Bay
Area within two (2) years after the Closing Date, Parent will pay the
reasonable and properly documented relocation expenses of all current
employees of the Company that relocate to the Bay Area with the Company and/or
Surviving Corporation; provided, however, that the Parent's aggregate
obligation to pay relocation expenses under this section shall not exceed
$100,000.
5.14 Affiliate Agreements. Schedule 5.14 sets forth those persons who, in
the Company's reasonable judgment, are or may be "affiliates" of the Company
within the meaning of Rule 145 (each such person a "Rule 145 Affiliate")
promulgated under the Securities Act ("Rule 145"). The Company shall provide
Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement (and in
any case prior to the Closing Date) from each of the Rule 145 Affiliates of
the Company, an executed Affiliate Agreement ("Affiliate Agreement") in the
form attached hereto as Exhibit E, each of which will be in full force and
effect as of the Effective Time. Parent and Sub shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to
be received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for Parent
Common Stock, consistent with the terms of such Affiliate Agreements.
5.15 Tax-Free Reorganization. The parties intend to adopt this Agreement and
the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A) of
the Code by virtue of the provisions of Section 368(a)(2)(E) of the Code. The
Parent Common Stock issued in the Merger will be issued solely in exchange for
the Company Capital Stock, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the
consideration paid for the Company Capital Stock. No consideration that could
constitute "other property" within the meaning of Section 356(b) of the Code
is being transferred by Parent for the Company Capital Stock in the Merger.
The parties shall not take a position on any tax return inconsistent with this
Section 5.15. From and after the Closing, neither Parent, Sub nor the Company
shall take any action that could reasonably be expected to cause the Merger
not to be treated as a reorganization within the meaning of Section 368 of the
Code.
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5.16 Pooling Accounting. Company shall, to the extent possible, cause the
business combination to be effected by the Merger to be accounted for as a
pooling of interests. Company shall, to the extent possible, cause its
Affiliates not to take any action that would adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as
a pooling of interests.
5.17 Loan. Upon the execution of this Agreement Parent shall loan $360,000
to the Company (the "Company Loan") in the form of a check payable to the
Company. The Company Loan shall be evidenced by a secured promissory note
substantially in the form of Exhibit H (the "Promissory Note").
5.18 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, Parent shall: (i) assume, as of
the Effective Time, all obligations of the Company under Article 7 of the
Company's Articles of Incorporation, as currently in effect, and (ii) to pay
all amounts that become due and payable under such provisions.
(b) This Section 5.18 shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Company and each indemnified
party, shall be binding, jointly and severally, on all successors and assigns
of the Surviving Corporation and Parent, and shall be enforceable by the
indemnified parties.
5.19 S-8 Registration. Not later than thirty (30) days after the Closing
Date, Parent shall prepare and file with the Securities and Exchange
Commission a registration statement on Form S-8 (or another appropriate form)
registering a number of shares of Parent Common Stock equal to the number of
shares of Parent Common Stock subject to Assumed Options. Such registration
statement shall be kept effective (and the current status of the prospectus or
prospectuses required thereby shall be maintained) at least for so long as any
Assumed Options may remain outstanding.
ARTICLE VI.
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunction 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 Merger shall be in effect, nor shall any proceeding
brought by an administration, 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 Merger, which makes the consummation of the Merger illegal.
(b) Governmental Approval. Approvals from Governmental Entities (if any)
deemed appropriate or necessary by any party to this Agreement shall have been
timely obtained.
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(c) Litigation. There shall be no bona fide action, suit, claim or
proceeding of any nature pending, or overtly threatened, against Parent, Sub,
the Company or the Principal Shareholders, their respective properties or any
of their officers, directors, arising out of, or in any way connected with,
the Merger or the other transactions contemplated by the terms of this
Agreement.
(d) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger. All waiting
periods under the HSR Act relating to the transactions contemplated hereby (if
any) will have expired or terminated early.
(e) Tax Opinions. Parent and the Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
P.C. and Pillsbury Madison & Sutro LLP, respectively), in form and substance
reasonably satisfactory to them, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn; provided, however, that if counsel to
either Parent or the Company does not render such opinion, this condition
shall nonetheless be deemed to be satisfied with respect to such party if the
other party's counsel renders such opinion to such party. The parties to this
Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
6.2 Additional Conditions to Obligations of Company and the Principal
Shareholders. The obligations of the Company and the Principal Shareholders to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each
of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations and
warranties of Parent and Sub 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 and each of
Parent and Sub 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 it as of the Effective Time.
(b) Legal Opinion. Company shall have received a legal opinion from
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, in form and
substance reasonably satisfactory to the Company, concerning Parent's issuance
of the Parent Common Stock in the Merger.
(c) Registration Rights Agreement. The Parent shall have executed and
delivered the Registration Rights Agreement to the Shareholder Representative.
(d) Employment and Noncompetition Agreements. The Parent shall have
executed and delivered to each Key Employee his or her Employment Agreement
and all of such Employment Agreements shall be in full force and effect.
(e) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to
be made, by Parent and Sub for the due authorization, execution and delivery
of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Sub.
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(f) Employee Offers. Parent shall have made offers of employment as set
forth in Section 5.13 and shall not have withdrawn such offers of employment.
(g) Certificate of Parent. The Company shall have been provided with a
certificate executed on behalf of Parent by a Vice President of Parent to the
effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and Sub in this
Agreement are 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; and
(ii) all covenants and obligations of this Agreement to be performed by
Parent on or before such date have been so performed in all material respects.
6.3 Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub 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) Representations, Warranties and Covenants. The representations and
warranties of the Company and the Principal Shareholders (as modified by the
Disclosure Schedule) 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 to the extent such representations and warranties have been modified
by actions of the Company not prohibited by Section 4.1) and the Company and
the Principal Shareholders 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 it as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect on the Company.
(c) Third Party Consents. Any and all consents, waivers, assignments and
approvals listed in the Disclosure Schedule shall have been obtained.
(d) Legal Opinion. Parent shall have received a legal opinion from
counsel to the Company in form and substance reasonably satisfactory to
Parent.
(e) Registration Rights Agreement. Each Shareholder shall have executed
and delivered the Registration Rights Agreement to Parent.
(f) Employment and Noncompetition Agreements. Each of the Key Employees
shall each have executed and delivered to Parent their respective Employment
Agreement in the forms attached hereto as Exhibits G-1 and G-2 (the
"Employment Agreements") and all of such Employment Agreements shall be in
full force and effect. In addition, each of the Key Employees shall be an
employee of the Company on the Closing Date.
(g) Shareholder Certificate. Each Shareholder and holder of Company
Options shall have executed and delivered to Parent a Shareholder Certificate.
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(h) No Material Adverse Changes. Except as set forth in the Disclosure
Schedule, there shall not have occurred any material adverse change in the
business, assets (including intangible assets), results of operations,
liabilities (contingent or accrued) or financial condition of the Company
since the date of this Agreement.
(i) Shareholder Approval. Shareholders holding at least ninety percent
(90%) of the Company's Capital Stock shall have approved this Agreement, the
Merger and the transactions contemplated hereby and thereby, and holders of
not more than ten percent (10%) of Company Capital Stock shall continue to
have a right to exercise appraisal, dissenters or similar rights under
applicable law with respect to their Company Capital Stock by virtue of the
Merger.
(j) Affiliate Agreements. Each of the persons listed in Section 5.14 of
the Disclosure Schedule shall have executed an Affiliate Agreement.
(k) Contracts. Except as set forth in paragraphs (1), (m), and (n) of
this Section 6.3 below and Schedule 6.3(k), each Contract listed in Sections
2.13(g) and 2.14(a) of the Disclosure Schedule shall be in full force and
effect and the Company shall not have received notice of termination of any
such Contract.
(l) Termination of Registration Rights and Covenants, Warrants and
Convertible Debt. All registration rights relating to the Company Capital
Stock and all covenants of the Company contained in the Series A Preferred
Stock Purchase Agreement(s) between the Company and certain investors and the
Series B Stock Purchase Agreement(s) between the Company and certain investors
shall have been terminated. All warrants and other rights to purchase Company
Capital Stock (other than assumed Company Options) shall have been exercised
or otherwise terminated and all debt of the Company convertible into Company
Capital Stock shall have been converted. Parent shall have received evidence
that as of the Effective Time each unexercised Company warrant shall have been
exercised or terminated and all convertible securities (debt or equity) shall
have been exercised or converted into Company Common Stock to the satisfaction
of Parent.
(m) Termination of Employment Agreements. All employment agreements
between the Company and any other person shall have been terminated as
contemplated in Section 5.11.
(n) Closing Balance Sheet. Parent shall have received from the Company at
least three business days prior to the Closing Date the Estimated Balance
Sheet.
(o) Estimated Third Party Expenses. Parent shall have received from the
Company at least three business days prior to the Closing Date a detailed
schedule of the Estimated Third Party Expenses paid or payable by the Company
certified as to correctness by the Company and the Principal Shareholders and
in a form reasonably satisfactory to Parent.
(p) Opinion of Accountants. If Parent determines that it is appropriate
to characterize the Merger as a pooling of interests, Parent and the Company
shall have received a letter from Ernst & Young LLP, dated within two (2)
business days prior to the Closing Date, regarding its concurrence with
Parent's and the Company's managements' conclusions as to the appropriateness
of pooling of interest accounting for the Merger under Accounting Principles
Board Opinion No. 16, if the Merger is consummated in accordance with this
Agreement.
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(q) Certificate of the Company. Parent shall have been provided with a
certificate executed on behalf of the Company by its Chief Executive Officer
and its Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company and the
Principal Shareholders in this Agreement are 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;
(ii) all covenants and obligations of this Agreement to be performed by
the Company on or before such date have been so performed in all material
respects; and
(iii) the provisions set forth in Sections 6.3(b), (c), (h), (i), (k),
(l) and (m) have been satisfied.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All of the Company's and
Shareholder's representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger and
continue until the earlier of: (a) the date which is the date of the auditor's
report for the first audit of Parent's financial statements after the Closing
Date or (b) the date which is one year following the Closing Date (the
"Expiration Date"). All of Parent's and Sub's representations and warranties
contained herein or in any instrument delivered pursuant to this Agreement
shall survive for one (1) year following the Closing.
7.2 Indemnification; Escrow Arrangements.
(a) Indemnification. Each Shareholder jointly and severally agrees to
indemnify and hold Parent, Sub and their officers, directors and affiliates
(the "Indemnified Parties") harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses of investigation (hereinafter individually a "Loss" and
collectively "Losses") incurred by the Indemnified Parties directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company a certificate of any officer of the Company delivered
pursuant to this Agreement, or a Shareholder Certificate, (ii) any failure by
the Company or a Shareholder to perform or comply with any covenant contained
in this Agreement, (iii) any dispute between the Company and the individual
named in Section 2.9(n) of the Disclosure Schedule, (iv) the Net Liabilities
exceeding the greater of the Estimated Net Liabilities or $405,739, or (v) the
Third Party Expenses incurred by the Company exceeding the greater of the
Estimated Third Party Expenses or $310,000; provided, however, that, except as
set forth in Sections 7.2(b) and 7.5, the aggregate amount for which the
Shareholders are required to indemnify the Indemnified Parties shall not
exceed the amount deposited in the Escrow Fund (as defined below). The Escrow
Fund shall be available to compensate the Indemnified Parties for any such
Losses. The Shareholders shall not have any right of contribution from the
Company with respect to any Loss claimed by Parent after the Effective Time.
Nothing herein shall limit the liability of the Company or either of the
Principal Shareholders for any breach of any representation, warranty or
covenant if the Merger is not consummated.
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(b) Principal Shareholder's Indemnification Cap. In addition to the
amounts contained in the Escrow Fund, but only to the extent certain Losses
(as specified below) have not been satisfied by the Escrow Fund, each of the
Principal Shareholders shall severally but not jointly indemnify the
Indemnified Parties during the Escrow Period for Losses incurred directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company relating to Capital Structure (Section 2.3), Tax
Matters (Section 2.10) and Intellectual Property (Section 2.13) or such
Principal Shareholder's Affiliate Agreement, (ii) any dispute between the
Company and the individual named in Section 2.9(n) of the Disclosure Schedule,
up to an amount equal to ten percent (10%) of their respective portions of the
Merger Consideration (the "Principal Shareholders' Indemnification Cap"). At
the election of each individual Principal Shareholder, such indemnity may be
paid in cash or Parent Common Stock, which shall be valued at the Trading
Price.
(c) Escrow Fund. As partial security for the indemnity provided for in
Section 7.2(a) and by virtue of this Agreement, the Shareholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the
Effective Time with respect to the Escrow Amount) without any act of any
Shareholder. As soon as practicable after the Effective Time, the Escrow
Amount, without any act of any Shareholder, will be deposited with U.S. Bank
Trust, N.A. (or other institution acceptable to Parent and the Shareholder
Representative (as defined in Section 7.4) as Escrow Agent (the "Escrow
Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth herein. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Effective Time, and such
later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. The portion of the Escrow Amount contributed on behalf of
each Shareholder shall be in proportion to the aggregate Parent Common Stock
which such holder would otherwise be entitled under Section 1.7.
(d) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., Sunnyvale, California local time on the Expiration Date (the "Escrow
Period"); provided, however, that the Escrow Period shall not terminate with
respect to any amount which, in reasonable judgement of Parent, is necessary
to satisfy any unsatisfied claims specified in any Officer's Certificate (as
defined below) delivered to the Escrow Agent prior to termination of such
Escrow Period with respect to facts and circumstances existing prior to the
termination of such Escrow Period. As soon as all such claims have been
resolved, the Escrow Agent shall deliver to the Shareholders the remaining
portion of the Escrow Fund not required to satisfy such claims. Deliveries of
Escrow Amounts to the Shareholders pursuant to this Section 7.2 shall be made
in proportion to their respective original contributions to the Escrow Fund.
(e) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with
the terms of this Agreement and not as the property of Parent and shall hold
and dispose of the Escrow Fund only in accordance with the terms hereof.
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(ii) Any shares of Parent Common Stock or other equity securities issued
or distributed by Parent (including shares issued upon a stock split) ("New
Shares") in respect of Parent Common Stock in the Escrow Fund which have not
been released from the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. New Shares issued in respect of shares of Parent Common
Stock which have been released from the Escrow Fund shall not be added to the
Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but
shall be distributed to the record holders thereof.
(iii) Each Shareholder shall have voting rights and the right to
distributions of cash dividends with respect to the shares of Parent Common
Stock contributed to the Escrow Fund by such Shareholder (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent Common
Stock). As the record holder of such shares, the Escrow Agent shall vote such
shares in accordance with the instructions of the Shareholders having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Shareholders.
(f) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent (an
"Officer's Certificate"): (A) stating that Parent has paid or properly accrued
or, with respect to third-party claims of which Parent, the Company or the
Surviving Corporation has received notice, reasonably anticipates that it will
have to pay or accrue Losses, 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, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, the Escrow Agent shall, subject to the
provisions of Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund,
as promptly as practicable, shares of Parent Common Stock held in the Escrow
Fund with a value equal to such Losses; provided, however, that in the event
of a third party claim that is the subject of the demand on the Escrow Fund,
no shares shall be delivered out of the Escrow Fund until the claim is settled
or adjudicated.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund as indemnity
pursuant to Section 7.2(f)(i) hereof, the shares of Parent Common Stock shall
be valued at the Trading Price.
(g) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Parent of
any Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent
shall have received written authorization from the Shareholder Representative
to make such delivery. After the expiration of such thirty (30) day period,
the Escrow Agent shall make delivery of shares of Parent Common Stock from the
Escrow Fund in accordance with Section 7.2(d) hereof; provided, however, that
no such payment or delivery may be made if the Shareholder Representative
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
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(h) Resolution of Conflicts; Arbitration.
(i) In case the Shareholder Representative shall object in writing to
any claim or claims made in any Officer's Certificate, the Shareholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Representative may demand arbitration of the
matter 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 Parent and the
Shareholder Representative. In the event that within forty-five (45) days
after submission of any dispute to arbitration, Parent and the Shareholder
Representative cannot mutually agree on one arbitrator, Parent and the
Shareholder Representative 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 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.
(i) Third-Party Claims. In the event Parent becomes aware of a third-
party claim which Parent believes may result in a demand against the Escrow
Fund, Parent shall notify the Shareholder Representative of such claim, and
the Shareholders shall be entitled, at their expense, to participate in any
defense of such claim. Parent may not settle any such claim without the
consent of the Shareholder Representative, which consent shall not be
unreasonably withheld or delayed. In the event that the Shareholder
Representative has consented to any such settlement, the Shareholders
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shall have no power or authority to object under any provision of this Article
VII to the amount of any claim by Parent against the Escrow Fund with respect
to such settlement.
7.3 Escrow Agent.
(a) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive
after the date of this Agreement which are signed by an officer of Parent and
the Shareholder Representative, and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law or of the arbitrator(s)
appointed pursuant to Schedule 7.3(a)(ii), and is hereby expressly authorized
to comply with and obey orders, judgments or decrees of any court or of the
arbitrator(s) appointed pursuant to Schedule 7.3(a)(ii). In case the Escrow
Agent obeys or complies with any such order, judgment or decree of any court
or of the arbitration panel appointed by Schedule 7.3(a)(ii), the Escrow Agent
shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found
to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith
believe to be genuine, nor will the Escrow Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement
and shall be fully protected in any act taken, suffered, or permitted by
him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
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(vi) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and shares of Parent Common Stock and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, the Escrow Agent may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage. Furthermore, the Escrow Agent may at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon
initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold Escrow Agent harmless against any
and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any Litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. Upon appointment of a
successor escrow agent, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(b) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the standard fee schedule
of the Escrow Agent. It is understood that the fees and usual charges agreed
upon for services of the Escrow Agent shall be considered compensation for
ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow
Agent renders any service not provided for in this Agreement, or if the
parties request a substantial modification of its terms, or if any controversy
arises, or if the Escrow Agent is made a party to, or intervenes in, any
Litigation pertaining to the Escrow Fund or its subject matter, the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, including allocated costs of in-
house counsel, and expenses occasioned by such default, delay, controversy or
Litigation.
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(c) Consequential Damages. In no event shall the Escrow Agent be liable
for special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
(d) Successor Escrow Agents. Any corporation into which the Escrow Agent
in its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
(a) In the event that the Merger is approved, effective upon such vote,
and without further act of any Shareholder, Stanton R. Koch shall be appointed
as agent and attorney-in-fact (the "Shareholder Representative") for each
Shareholder, for and on behalf of the Shareholders, to give and receive
notices and communications, to authorize delivery to Parent of shares of
Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent,
to object to such deliveries, to agree to, negotiate, enter into settlements
and compromises of, and demand arbitration and comply with orders of courts
and awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholder Representative for
the accomplishment of the foregoing. Such agency may be changed by the
Shareholders from time to time upon not less than thirty (30) days prior
written notice to Parent; provided, however, that the Shareholder
Representative may not be removed unless holders of a majority in interest in
the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Shareholder Representative may be filled
by approval of the holders of a majority in interest in the Escrow Fund. No
bond shall be required of the Shareholder Representative, and the Shareholder
Representative shall not receive compensation for his or her services. Notices
or communications to or from the Shareholder Representative shall constitute
notice to or from each of the Shareholders.
(b) The Shareholder Representative shall not be liable for any act done
or omitted hereunder as Shareholder Representative while acting without gross
negligence, bad faith and willful misconduct. The Shareholders on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall severally indemnify
the Shareholder Representative and hold the Shareholder Representative
harmless against any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of the Shareholder Representative's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative.
(c) A decision, act, consent or instruction of the Shareholder
Representative shall constitute a decision of all Shareholders for whom a
portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such
Shareholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Shareholder Representative as being the
decision, act, consent or instruction of each and every such Shareholder. The
Escrow Agent and Parent are hereby relieved from any liability to
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any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Shareholder Representative.
7.5 Maximum Payments; Remedy; Violation of Third Party Patent Rights. Except
as otherwise provided in this Section 7.5, from and after the Effective Time
this Article VII shall provide the sole and exclus ive remedy for any and all
damages or other liability sustained or incurred by the Indemnified Parties or
their successors and assigns as the result of any breach of any
representation, warranty or covenant contained in this Agreement or any claim
of negligent misrepresentation against the Company or the Principal
Shareholders in connection with this Agreement or the Merger. Notwithstanding
anything to the contrary herein, the existence of this Article VII and of the
rights and restrictions set forth herein do not limit any (i) equitable
remedies or (ii) any type of statutory or common law remedy (i.e., not based
on any indemnity right provided in this Article VII) with respect to any
knowing (meaning actual knowledge) or intentional breaches of the
representations and warranties or covenants of the Company or the Principal
Shareholders contained in this Agreement or a certificate of any officer of
the Company delivered pursuant to this Agreement, or of any Shareholder
contained in a Shareholder Certificate or in the event of fraud, provided such
remedy may only be pursued against the person who committed or authorized such
knowing (meaning actual knowledge) or intentional breaches of such
representations, warranties or covenants. No Shareholder shall have any right
to contribution from the Company for any claim made by Parent after the
Effective Time. Notwithstanding anything to the contrary in this Article VII,
in the event that an Indemnified Party incurs Losses as a result of a claim
that the Company Intellectual Property violated a third party's patent rights,
only 75% of such Losses shall be subject to recovery pursuant to the escrow
and indemnification provisions of Section 7.2
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if 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) 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 Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by Parent or the Company if (i) there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or (ii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity that would make consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity, which would: (i) prohibit Parent's or Sub's
ownership or operation of any portion of the business of
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the Company or (ii) compel Parent or the Company to dispose of or hold
separate all or a portion of the business or assets of the Company or Parent
as a result of the Merger;
(e) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) calendar days after
written notice to the Company; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
(f) by the Company if a majority of the Shareholders of the Company vote
against the Merger at the Company Shareholders Meeting;
(g) by Parent or Sub if a majority of the Shareholders of the Company
vote against the Merger at the Company Shareholders Meeting; or
(h) by Parent or Sub if an event having a Material Adverse Effect on the
Company shall have occurred after the date of this Agreement.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
any Principal Shareholder, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; provided further that the provisions
of Sections 4.2, 5.3, 5.4, 5.5, Article IX and this Section 8.2 shall remain
in full force and effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company and the Shareholder Representative, 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.
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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 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 Parent or Sub, to:
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Andrew Newton, Esq., Leslie Wright and Eric Bochner
(with separate copies in separate envelopes to each)
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: Aaron J. Alter, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 496-7556
(b) if to the Company, to
Quando, Inc.
520 NW Davis Street
Portland, Oregon 97209-1987
Attention: David Billstrom
Telephone No.: (503) [225-1988]
Facsimile No.: (503) [225-1987]
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, California 94304
Attention: Jorge del Calvo
Telephone No.: (650) 233-4500
Facsimile No.: (650) 233-4545
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(c) if to the Principal Shareholders, to:
David Billstrom
3205 NE 21st Avenue
Portland, OR 97212
Telephone No.:503/970-8816
Facsimile No.:503/225-1987
William Neuhauser
3105 SE Clinton
Portland, OR 97202
Telephone No.: 503/235-1143
Facsimile No.: 503/225-1987
(d) if to the Shareholder Representative, to:
Stanton R. Koch
3411 East Mercer Street
Seattle, WA 98112
Telephone No.: 206/323-7358
Facsimile No.: 206/323-1418
(e) if to the Escrow Agent, to:
U.S. Bank Trust N.A.
One California Street, 4th Floor
San Francisco, CA 94111
Attn:
Telephone No.: 415/273-4532
Facsimile No.: 415/273-4593
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.
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
Disclosure Schedule, and the documents and instruments and other agreements
among the parties hereto referenced herein: (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) except as
specifically provided herein, are not intended to confer upon any other person
any rights or remedies hereunder; and (c) shall not be
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assigned (other than by operation of law), except that Parent and Sub may
assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates (including any successor to Parent
resulting from its planned reorganization into a Delaware corporation or a
subsidiary of a Delaware corporation).
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. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Santa Clara County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead
any objection which they might otherwise have to such jurisdiction, venue and
such process.
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.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal Shareholders,
the Shareholder Representatives and the Escrow Agent have caused this
Agreement to be signed, all as of the date first written above.
INFOSEEK CORPORATION QUANDO, INC.
By___________________________________ By___________________________________
Name: Name:
Title: Title:
STEELHEAD ACQUISITION CORP. PRINCIPAL SHAREHOLDERS
By___________________________________
Name: _____________________________________
David Billstrom
Title:
_____________________________________
William Neuhauser
SHAREHOLDER REPRESENTATIVE ESCROW AGENT (AS TO THE PROVISIONS
(AS TO THE PROVISIONS OF OF ARTICLE VII ONLY)
ARTICLE VII ONLY) (AS TO THE PROVISIONS OF ARTICLE VII
ONLY)
_____________________________________ By___________________________________
Name
Name:
Title:
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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EXHIBIT 2.2
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 1 (the "Amendment" to the Agreement and Plan of
Reorganization dated as of July 24, 1998 (the "Reorganization Agreement") by
and among Infoseek Corporation, a Delaware corporation ("Parent"), Steelhead
Acquisition Corp., an Oregon corporation and a wholly-owned subsidiary of
Parent ("Sub"), Quando, Inc., an Oregon corporation (the "Company"), David
Billstrom and William Neuhauser (individually, a "Principal Shareholder" and
collectively, the "Principal Shareholders"), and, with respect to Article VII
only, U.S. Bank Trust, N.A. as Escrow Agent (the "Escrow Agent"), and Stanton
R. Koch (the "Shareholder Representative") is effective as of December 7, 1998
by and among Parent, Sub, the Company, the Principal Shareholders, the Escrow
Agent and the Shareholder Representative.
RECITALS
A. Infoseek Corporation, a California corporation ("Infoseek California"),
Sub, the Company, the Principal Shareholders, the Escrow Agent and the
Shareholder Representative entered into the Reorganization Agreement providing
for the merger of Sub with and into the Company.
B. Infoseek California assigned all of its rights and delegated all of its
responsibilities to Parent prior to the date hereof pursuant to that certain
Assignment and Assumption Agreement dated December 4, 1998 (the "Assignment
Agreement").
C. Parent, Sub, the Company and the Principal Shareholders desire to make
certain amendments to the Reorganization Agreement as set forth in this
Amendment.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
A. The Reorganization Agreement shall be amended as follows:
1. The parties acknowledge that the Reorganization Agreement has been
assigned to and assumed by Parent pursuant to the Assignment Agreement. All
references to Parent in the Reorganization Agreement shall refer to Infoseek
California prior to the date of the Assignment Agreement and to Parent on and
after the date of the Assignment Agreement.
2. The fourth Recital of the Reorganization Agreement is hereby amended
and restated in full to read as follows:
"WHEREAS, the parties intend that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
3. The definition of "Adjusted Dollar Amount" under Section 1.6 of the
Reorganization Agreement is hereby amended and restated in full to read as
follows:
"Adjusted Dollar Amount" shall mean an amount equal to $17,310,000
minus: (i) the amount by which the Estimated Net Liabilities (excluding
Estimated Third Party Expenses reflected
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on the Estimated Balance Sheet) exceeds $405,739 and (ii) the amount by which
the Estimated Third Party Expenses (excluding those Estimated Third Party
Expenses described in Section 5.4(d)) exceed $50,000."
4. The definition of "Meeting Price" under Section 1.6 of the
Reorganization Agreement is hereby amended and restated in full to read as
follows:
"Meeting Price" shall mean the average closing sale price of the Parent
Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
the filing of the Registration Statement on Form S-4; provided, however, that
if the Registration Statement on Form S-4 receives full or partial review by
the SEC, the Meeting Price shall mean the average closing sale price of the
Parent Common Stock as reported on the Nasdaq National Market for the ten (10)
consecutive trading days ending on the third business day prior to the date of
effectiveness of the Registration Statement on Form S-4."
5. Section 1.6 of the Reorganization Agreement is hereby amended to
include the following new definition:
"Registration Statement on Form S-4" shall mean the Registration
Statement on Form S-4 to be filed by Parent with the SEC pursuant to Section
5.1(a) hereto.
6. The definition of "SEC" under Section 1.6 of the Reorganization
Agreement is hereby amended and restated in full to read as follows:
"SEC" shall mean the United States Securities and Exchange Commission."
7. Section 1.12 of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code and shall be accounted for under the purchase method
of accounting under GAAP. Each party has consulted with its own tax advisors
and accountants with respect to the tax and accounting consequences,
respectively, of the Merger."
8. Section 2.26 of the Reorganization Agreement is hereby deleted and
replaced with the words "Intentionally Omitted."
9. The first sentence of Section 2.27 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
The information supplied by the Company for inclusion in the
Registration Statement on Form S-4 and the Proxy Statement (as defined in
Section 5.1 below) or Shareholder Information Statement (as defined in Section
5.1), as the case may be, will not on the date it (or any amendment or
supplement thereto) is declared effective by the SEC, the date it is first
sent to Company's shareholders, at the time of the Company Shareholders
Meeting, if any, and at the Effective Time, contain any statement which, at
such time and in the light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein not false
or misleading."
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10. The first sentence of Section 3.1 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware."
11. The first sentence of Section 3.2 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"Parent has heretofore furnished to the Company a complete and correct
copy of its Certificate of Incorporation and Bylaws, each as amended to date."
12. The first sentence of Section 3.7 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"The information supplied by Parent for inclusion in the Registration
Statement on Form S-4 and the Proxy Statement or Shareholder Information
Statement, as the case may be, will not, on the date it (or any amendment or
supplement thereto) is declared effective by the SEC, the date it is first
mailed to Company's shareholders, at the time of the Company Shareholders
Meeting, if any, and at the Effective Time, contain any statement which, at
such time and in the light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or will omit to state
any material fact necessary in order to make the statements therein not false
or misleading."
13. Section 4.1(g) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Except for the issuance of no more than 160,000 shares of the Company
Common Stock in full payment of certain fees owing to Lisa Gansky, issue,
grant, deliver or sell, contract to 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 (other than upon the
exercise of currently outstanding stock options) or securities convertible
into or exchangeable for, 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 other convertible securities;"
14. Section 4.1(q) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Except for the issuance of no more than 160,000 shares of the Company
Common Stock in full payment of certain fees owing to Lisa Gansky, pay,
discharge or satisfy, in an amount in excess of $10,000 (in any one case) or
$25,000 (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 reflected or reserved against in the Current Balance Sheet;"
15. Section 4.1(v) of the Reorganization Agreement is hereby deleted and
replaced with the words "Intentionally Omitted."
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16. Section 5.1 is hereby amended and restated in full to read as follows:
"Registration Statement; Preparation of Shareholder Solicitation
Materials; Shareholder Consent or Meeting.
(a) As soon as practicable after the date of this Agreement, Parent and
the Company shall jointly prepare and cause to be filed with the SEC
preliminary shareholder solicitation materials, which shall be in the form of
a shareholder information statement (the "Shareholder Information Statement")
or a proxy statement (the "Proxy Statement"), as determined jointly by Parent
and the Company, for the solicitation of approval of the shareholders of the
Company of this Agreement, the Merger and the transactions contemplated
hereby. Parent shall also prepare and cause to be filed with the SEC the
Registration Statement on Form S-4, in which the Shareholder Information
Statement or Proxy Statement, as the case may be, will be included as a
prospectus, with respect to those shares of
Parent Common Stock issuable in the Merger. Each of Parent and the Company
shall provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion
in the Shareholder Information Statement or Proxy Statement, as the case may
be, or in any amendments or supplements thereto, and to cause its counsel and
auditors to cooperate with the other's counsel and auditors in the preparation
of the Shareholder Information Statement or Proxy Statement, as the case may
be. The Shareholder Information Statement or Proxy Statement, as the case may
be, shall include information regarding the Company, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors
of the Company in favor of the Merger. Each of Parent and the Company shall
use all reasonable efforts to cause the Registration Statement on Form S-4 and
the Shareholder Information Statement or Proxy Statement, as the case may be,
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, to have the
Registration Statement on Form S-4 declared effective under the Securities Act
as promptly as practicable after it is filed with the SEC and to cause the
Shareholder Information Statement or Proxy Statement, as the case may be, to
be mailed to the Company's shareholders as promptly as practicable after the
Registration Statement on Form S-4 is declared effective under the Securities
Act. If any event relating to Parent or the Company occurs, or if Parent or
the Company becomes aware of any information, that should be disclosed in an
amendment or supplement to the Registration Statement on Form S-4 or the
Shareholder Information Statement or Proxy Statement, as the case may be, then
Parent 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 Company's
shareholders.
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common Stock
to be issued in the Merger: (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 Capital Stock who is receiving shares of
registered Parent 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 the Parent shall not,
pursuant to the foregoing, be required (I) to qualify to do business as a
foreign corporation in any jurisdiction in which it is not currently qualified
or (II) to file a general consent to
4
<PAGE>
service of process in any jurisdiction with respect to matters unrelated to
the issuance of Parent Common Stock pursuant hereto.
(c) The Company shall, pursuant to Oregon Law, and its Articles of
Incorporation and Bylaws, properly notice, convene and hold a shareholders'
meeting to vote on this Agreement and the transactions contemplated hereby on
or about December 21, 1998 (the "Company Shareholders Meeting"), provided,
however, that such date may be delayed up to forty-eight (48) days by Parent
in the event Parent or the Company reasonably required additional time to
obtain the effectiveness of, amend or supplement the Registration Statement on
Form S-4, or to close the transactions contemplated by this Agreement;
provided, further, that the Company Shareholders Meeting may be held on such
other date as Parent and the Company may mutually agree; and, provided,
further, that in the event that the Company receives the written consent of
the holders of 100% of the outstanding shares of Company Capital Stock on or
before two business days prior to the proposed date of the
Company Shareholder Meeting (as such date may be delayed pursuant to this
Section 5.1(c)), the Company Shareholders Meeting need not be held."
17. Section 5.4(a) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Whether or not the Merger is consummated, except as set forth in
Sections 5.4(b), (c) and (d), all fees and expenses incurred in connection
with the Merger including, without limitation, all legal, accounting,
investment banking, broker, financial advisory, consulting and fees paid to
Lisa Gansky in excess of $310,000 and all other fees 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."
18. Section 5.4(b) of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"In the event that the Merger is consummated, Parent agrees to pay those
Third Party Expenses incurred by the Company and paid by or payable to Lisa
Gansky, the Company's legal counsel and the Company's accountants, and Parent
shall have full recourse to the Escrow Fund (as defined herein) for payment of
all Third Party Expenses (except for those Third Party Expenses described in
Section 5.4(d)) incurred by the Company exceeding the greater of (i) the
Estimated Third Party Expenses (other than those Third Party Expenses
described in Section 5.4(d)) and (ii) $50,000. The Company shall not, however,
be obligated to refund or otherwise pay any amounts into the Escrow Fund or to
the Company's shareholders in the event that the actual Third Party Expenses
(not including those Third Party Expenses described in Section 5.4(d)) are
less than the greater of (i) the Estimated Third Party Expenses (except for
those Third Party Expenses described in Section 5.4(d)) and (ii) $50,000."
19. Section 5.4 of the Reorganization Agreement is hereby amended to
include subsection (d), as follows:
"(d) In the event that the Merger is consummated, the Parent agrees to
pay up to $100,000 of the legal and accounting fees actually incurred (as
supported by proper documentation)
5
<PAGE>
by the Company in negotiating and executing the Amendment to the
Reorganization Agreement, and in the preparation and filing of the
Registration Statement on Form S-4.
20. The third sentence of Section 5.13 of the Reorganization Agreement is
hereby amended and restated in full to read as follows:
"In the event that Parent relocates the Company's operations to the
Seattle, Washington Area within two (2) years after the Closing Date, Parent
will pay the reasonable and properly documented relocation expenses of all
current employees of the Company that relocate to the Seattle, Washington Area
with the Company and/or Surviving Corporation; provided, however, that the
Parent's aggregate obligation to pay relocation expenses under this section
shall not exceed $100,000."
21. Section 5.16 of the Reorganization Agreement is hereby amended and
restated in full to read as follows:
"Purchase Accounting. The combination to be effected by the Merger shall
be accounted for under the purchase method of accounting."
22. Section 6.2 of the Reorganization Agreement shall be amended to remove
subsection (c), and to replace such subsection with the words "Intentionally
Omitted."
23. Section 6.3 of the Reorganization Agreement shall be amended to remove
subsections (e), (g) and (p), and to replace such subsections with the words
"Intentionally Omitted."
24. The first sentence of Section 7.1 of the Reorganization Agreement
shall be amended and restated in full to read as follows:
"All of the Company's and Principal Shareholders' representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue until June 30, 1999 (the
"Expiration Date")."
25. The first sentence of Section 7.2(a) of the Reorganization Agreement
shall be amended and restated in full to read as follows:
"Each Shareholder jointly and severally agrees to indemnify and hold
Parent, Sub and their officers, directors and affiliates (the "Indemnified
Parties") harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation (hereinafter individually a "Loss" and collectively
"Losses") incurred by the Indemnified Parties directly or indirectly as a
result of: (i) any inaccuracy or breach of a representation or warranty of the
Company a certificate of any officer of the Company delivered pursuant to this
Agreement, or a Shareholder Certificate, (ii) any failure by the Company or a
Shareholder to perform or comply with any covenant contained in this
Agreement, (iii) any dispute between the Company and the individual named in
Section 2.9(n) of the Disclosure Schedule, (iv) the Net Liabilities exceeding
the greater of the Estimated Net Liabilities or $405,739, or (v) the Third
Party Expenses (excluding those Third Party Expenses described in Section
5.4(d)) incurred by the Company exceeding the greater of the Estimated Third
Party Expenses (excluding those Estimated Third Party Expenses described in
Section 5.4(d)) or $50,000; provided, however, that,
6
<PAGE>
except as set forth in Sections 7.2(b) and 7.5, the aggregate amount for which
the Shareholders are required to indemnify the Indemnified Parties shall not
exceed the amount deposited in the Escrow Fund (as defined below)."
26. Section 8.1(b) is hereby amended to delete "December 31, 1998" and
replace it with "February 28, 1999."
27. Footnote "*" on Exhibit A--Compensation Table is hereby amended and
restated as follows.
"Annual Rate schedule reflects Bay Area based employee annual rate; such
rates may be adjusted to reflect Parent's standard ratio between the Bay Area
and the Seattle Area, but not by more than 15%."
28. Exhibit C--Form of Shareholder Certificate shall be deleted in full.
In addition, all references to the Shareholder Certificates and to the
execution and delivery of the Shareholder Certificates are hereby deleted in
their entirety.
29. Exhibit D--Form of Registration Rights Agreement of the Reorganization
Agreement shall be deleted in full.
B. This Amendment shall be governed by California law and may be executed in
counterparts each of which shall be deemed an original and all of which shall
constitute one instrument.
C. Except as expressly amended by this Amendment, all provisions of the
Reorganization Agreement shall remain in full force and effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
referred to above.
<TABLE>
<S> <C>
INFOSEEK CORPORATION QUANDO, INC.
a Delaware corporation an Oregon corporation
By: _______________________________________ By: _________________________________________
Harry Motro, Chief Executive Officer David Billstrom, Chief Executive Officer
and President and President
STEELHEAD ACQUISITION CORP. PRINCIPAL SHAREHOLDERS
an Oregon corporation
By: _______________________________________ _____________________________________________
Andrew E. Newton, Vice President David Billstrom
_____________________________________________
William Neuhauser
SHAREHOLDER REPRESENTATIVE ESCROW AGENT
(as to the provisions of Article VII only) (as to the provisions of Article VII only)
___________________________________________ By: _________________________________________
Stanton R. Koch
Name: _______________________________________
Title: ______________________________________
</TABLE>
[Signature Page to Amendment No. 1 to Agreement and Plan of Reorganization]
8
<PAGE>
EXHIBIT 2.3
FORM OF PLAN OF MERGER
This PLAN OF MERGER (this "Plan of Merger") is made and entered into as of
--------------
____________, 1998 by and among Infoseek Corporation, a California corporation
("Parent"), Steelhead Acquisition Corp., an Oregon corporation and a wholly-
------
owned subsidiary of Parent ("Sub"), and Quando, Inc., a Oregon corporation (the
---
"Company"). Sub and the Company are sometimes referred to herein as the
-------
"Constituent Corporations."
- -------------------------
WITNESSETH
WHEREAS, Parent, Sub and the Company are parties to that certain Agreement
and Plan of Reorganization of even date herewith (the "Reorganization
--------------
Agreement") by and among Parent, Sub, the Company, David Billstrom, William
- ---------
Neuhauser, U.S. Bank Trust, N.A., as Escrow Agent and, with respect to Article
VII thereof only, Stanton R. Koch, as Shareholder Representative, under which
Parent has agreed to acquire the Company pursuant to the merger of Sub with and
into the Company (the "Merger") all on the terms and conditions set forth
------
therein and herein.
WHEREAS, the terms and conditions of the Reorganization Agreement provide
that the parties thereto shall effect the Merger by entering into this Plan of
Merger and filing the same with the Secretary of State of the State of Oregon.
WHEREAS, the respective board of directors and shareholders of each of the
Constituent Corporations have adopted resolutions approving the terms and
conditions set forth in this Plan of Merger and in the Reorganization Agreement,
the performance of the terms and conditions hereof and thereof, and the
consummation of the transactions contemplated hereby and thereby.
NOW THEREFORE, in consideration of the foregoing premises and the premises
set forth in the Reorganization Agreement, the mutual covenants and agreements
contained herein and therein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and accepted, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger.
----------
(a) The Merger. At the Effective Time (as defined in Section 1.1(b)
---------- --------------
hereof) and subject to and upon the terms and conditions of this Plan of Merger
and the applicable provisions of the Oregon Business Corporation Act ("Oregon
------
Law"), Sub shall be merged with and into the Company, the separate corporate
- ---
existence of Sub shall cease and the Company shall continue as the surviving
<PAGE>
corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
---------------------
(b) Effective Time of the Merger. Unless this Plan of Merger is
----------------------------
earlier terminated pursuant to the terms of Article IV hereof, the Merger shall
----------
be effected by the filing of Articles of Merger, in the form attached hereto as
Exhibit A (the "Articles of Merger"), with the Secretary of State of the State
- --------- ------------------
of Oregon in accordance with the applicable provisions of Oregon Law. The
Merger shall become effective at the time the Articles of Merger are filed with
the Secretary of State of the State of Oregon, which time shall be
contemporaneous with the closing of the transactions contemplated by the
Reorganization Agreement (the "Closing," as defined in the Reorganization
-------
Agreement). The time and date of acceptance by the Secretary of State of the
State of Oregon of such filing shall be referred to herein as the "Effective
---------
Time."
- ----
(c) Effect of the Merger. At the Effective Time, the effect of the
--------------------
Merger shall be as provided in the applicable provisions of Oregon Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
ARTICLE II
CONVERSION AND ISSUANCE OF SHARES
2.1 Conversion of Shares.
--------------------
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Sub, the Company or any shareholders of the
Constituent Corporations:
(i) Sub Common Stock. Each share of common stock, no par value
----------------
per share, of Sub ("Sub Common Stock") issued and outstanding immediately prior
----------------
to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value per
share, of the Surviving Corporation. Each stock certificate of Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(ii) Company Treasury Stock. Each share of Common Stock of the
----------------------
Company ("Company Common Stock") issued and outstanding immediately prior to the
--------------------
Effective Time that is owned directly or indirectly by the Company shall be
canceled and no stock of Parent or other consideration shall be delivered in
exchange therefor.
(iii) Company Common Stock. Each share of Company Common Stock
--------------------
issued and outstanding immediately prior to the Effective Time (other than
shares of Company Common Stock held by shareholders of the Company exercising
their dissenters' rights under Oregon Law) that is not owned directly or
indirectly by the Company will be canceled and extinguished and be converted
-2-
<PAGE>
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Common Stock in the manner provided for in
this Section 2.2 hereof, a fraction of a share of Common Stock, no par value per
-----------
share, of Parent ("Parent Common Stock") equal to [_______________________].
-------------------
(iv) Company Series A Preferred Stock. Each share of Series A
--------------------------------
Preferred Stock of the Company ("Company Series A Preferred Stock") issued and
--------------------------------
outstanding immediately prior to the Effective Time (other than shares of
Company Series A Preferred Stock held by shareholders of the Company exercising
their dissenters' rights under Oregon Law) will be canceled and extinguished and
be converted automatically into the right to receive, upon surrender of the
certificate representing such share of Series A Preferred Stock in the manner
provided for in Section 2.2 hereof, a fraction of a share of Parent Common Stock
-----------
equal to [________________________].
(v) Company Series B Preferred Stock. Each share of Series B
--------------------------------
Preferred Stock of the Company ("Company Series B Preferred Stock") issued and
--------------------------------
outstanding immediately prior to the Effective Time (other than shares of
Company Series B Preferred Stock held by shareholders of the Company exercising
their dissenters' rights under Oregon Law) will be canceled and extinguished and
be converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Series B Preferred Stock in the
manner provided for in Section 2.2 hereof, a fraction of a share of Parent
-----------
Common Stock equal to [______________________].
(b) Fractional Shares. No fractional share of Parent Common Stock
-----------------
shall be issued in the Merger. In lieu thereof, any fractional share shall be
rounded up to the nearest whole share of Parent Common Stock.
(c) Share Restrictions. All shares of Parent Common Stock issued in
------------------
exchange for shares of Company Capital Stock subject to Company repurchase
rights or vesting schedules shall be subject to the same repurchase rights
and/or vesting schedules and other terms as applicable to such shares of Company
Capital Stock, with Parent succeeding to the rights of the Company thereunder
and with a proportionate adjustment to any per share repurchase price applicable
to such shares to reflect the applicable Exchange Ratio.
2.2 Surrender of Certificates; Issuance of Shares.
---------------------------------------------
(a) Surrender of Sub Common Stock. At the Closing, each certificate
-----------------------------
representing shares of Sub Common Stock shall be canceled and, simultaneously
with such cancellation, a new certificate shall be issued by Sub representing
the number of shares of the Surviving Corporation into which the Sub Common
Stock formerly represented by the surrendered certificate shall have been
converted in connection with the Merger pursuant to Section 2.1(a) hereof.
--------------
-3-
<PAGE>
(b) Surrender of Company Capital Stock.
----------------------------------
(i) At the Closing, the Shareholders shall surrender the
certificates representing their Company Capital Stock (the "Certificates") to
------------
[Boston Equiserve], as Exchange Agent for the Merger (the "Exchange Agent"), for
--------------
cancellation together with a Shareholder Certificate and a letter of transmittal
in such form and having such provisions as Parent may reasonably request. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such
Shareholder Certificate and letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the Exchange Agent shall
promptly (but in no event more than five (5) business days after the Effective
Time) deliver to the holder of such Certificate in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock (less
the number of shares of Parent Common Stock to be deposited in the Escrow Fund
on such holder's behalf pursuant to Section 2.2(b)(ii) hereof) to which such
-----------------
Shareholder is entitled pursuant to Sections 2.1(a)(iii)-(v) hereof, as
------------------------
applicable, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence only the right to receive the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock shall have
been converted pursuant to Section 2.1 hereof (except as may otherwise be
-----------
provided under Oregon Law with respect to Dissenting Shares).
(ii) As soon as practicable after the Effective Time (but in no
event more than five (5) business days after the Effective Time), and subject to
and in accordance with the provisions of Article VII of the Reorganization
Agreement, Parent shall cause to be distributed to the Escrow Agent designated
in the Reorganization Agreement a certificate or certificates representing
[__________________________] shares of Parent Common Stock, which shall be
registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holder on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII of
the Reorganization Agreement.
(c) No Further Ownership Rights in Company Capital Stock. All shares
----------------------------------------------------
of Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to be
issued in full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Capital Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
----------
(d) Distributions with Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
any holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
-4-
<PAGE>
Certificate shall surrender such Certificate in accordance with the terms of
Section 2.2(b) hereof. Subject to applicable law, following surrender of any
- --------------
such Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition to the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, the number of shares of Parent Common Stock, if any, as
may be required pursuant to Section 2.1 hereof; provided, however, that Parent
-----------
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificates to deliver a
bond in such sum as it may reasonably direct against any claim that may be made
against Parent or the Exchange Agent with respect to the certificates alleged to
have been lost, stolen or destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this
------------
Section 2.2, neither the Exchange Agent, the Surviving Corporation nor any other
- -----------
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Capital Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(h) Dissenting Shares After Payment of Fair Value. Certificates
---------------------------------------------
representing shares held by shareholders of the Company exercising their
dissenters' rights under Oregon Law, if any, after payment of fair value in
respect thereto have been made in respect thereof pursuant to Oregon Law and the
terms of the Reorganization Agreement, shall be canceled.
-5-
<PAGE>
ARTICLE III
ARTICLES OF INCORPORATION AND BYLAWS,
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 Articles of Incorporation and Bylaws.
------------------------------------
(a) At the Effective Time, the Articles of Incorporation of Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Articles of Incorporation.
(b) At the Effective Time, the Bylaws of Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by law, the Articles of
Incorporation of Sub and such Bylaws.
3.2 Directors and Officers. The directors of Sub immediately prior
----------------------
to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of a director of
the Surviving Corporation in accordance with the provisions of the applicable
laws of the State of Oregon and the Articles of Incorporation and Bylaws of the
Surviving Corporation until their successors are duly qualified and elected.
The officers of Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation immediately after the Effective Time, each
to hold office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
ARTICLE IV
TERMINATION
4.1 Termination by Mutual Agreement. Notwithstanding the approval of
-------------------------------
this Plan of Merger by the shareholders of the Company and Sub, this Plan of
Merger may be terminated at any time prior to the Effective Time by mutual
agreement of the respective boards of directors of the Company and Sub.
4.2 Termination of Reorganization Agreement. Notwithstanding the
---------------------------------------
approval of this Plan of Merger by the shareholders of the Company and Sub, this
Plan of Merger shall terminate forthwith in the event that the Reorganization
Agreement shall be terminated in accordance with the terms as therein provided.
4.3 Effects of Termination. In the event of the termination of this
----------------------
Plan of Merger, this Plan of Merger shall forthwith become void and there shall
be no liability on the part of Parent, Sub or the Company, or any of their
respective officers or directors, except to the extent otherwise provided in the
Reorganization Agreement.
-6-
<PAGE>
ARTICLE V
GENERAL PROVISIONS
5.1 Taking of Necessary Action; Further Action. If, at any time
------------------------------------------
after the Effective Time, any further action is necessary or desirable to
consummate the Merger, to carry out the purposes of this Plan of Merger and to
vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Company and
Sub, the officers and directors of the Company, Parent and Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
5.2 Amendment. This Plan of Merger may be amended prior to the
---------
Effective Time by the parties hereto, by any action taken by their respective
boards of directors, at any time before or after approval of the Merger by the
shareholders of the Company and Sub but, after any such approval, no amendment
shall be made which by law requires the further approval of the shareholders of
the Company or Sub without obtaining such further approval. This Plan of Merger
may not be amended except by an instrument in writing signed on behalf of each
of Parent, the Company and Sub.
5.3 Counterparts. This Plan of Merger may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4 Governing Law. This Plan of Merger shall be governed in all
-------------
respects, including validity, interpretation and effect by the laws of the State
of Oregon without giving effect to conflict of laws principles.
[Remainder of Page Intentionally Left Blank]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan of Merger as
of the date first above written.
INFOSEEK CORPORATION
By:_____________________________________
Name:
Title:
STEELHEAD ACQUISITION CORP.
By:_____________________________________
Name:
Title:
QUANDO, INC.
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT 2.4
FORM OF
EMPLOYMENT AND NON-COMPETITION AGREEMENT
[DAVID BILLSTROM / WILLIAM NEUHAUSER]
This EMPLOYMENT AND NON-COMPETITION AGREEMENT ("AGREEMENT") is made and
entered into as of _______________, 1998, by and between Infoseek Corporation, a
California corporation ("INFOSEEK"), Quando, Inc., an Oregon corporation (the
"COMPANY"), and ________________________ ("EMPLOYEE").
RECITALS
WHEREAS, Employee is an employee of the Company.
WHEREAS, Infoseek, Steelhead Acquisition Corp., an Oregon corporation and a
wholly-owned subsidiary of Infoseek, and the Company have entered into an
Agreement and Plan of Reorganization dated as of July 24, 1998 (the
"REORGANIZATION AGREEMENT").
WHEREAS, pursuant to the Reorganization Agreement, the Company will become
a subsidiary of Infoseek.
WHEREAS, Infoseek, the Company and the Employee desire to enter into this
Agreement to provide for Employee's employment with the Company following the
Merger contemplated by the Reorganization Agreement.
WHEREAS, as a result of and in connection with the Merger, the duties,
responsibilities and nature of Employee's employment with the Company will
undergo a bona fide change.
NOW THEREFORE, in consideration of the foregoing premises, the terms and
conditions 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. Effectiveness. This Agreement is being entered in connection with the
-------------
Reorganization Agreement and all capitalized terms used but not defined herein
shall have the meaning ascribed to them in the Reorganization Agreement.
Employee's employment under this Agreement shall become effective as of the
Effective Time of the Merger. In the event that the Reorganization Agreement is
terminated prior to the Effective Time of the Merger, this Agreement shall
terminate and be of no further force and effect.
2. Employment.
----------
(a) Duties. The Company initially shall employ Employee, and Employee
------
initially shall serve as, the Company's ________________, subject at all times
and in all cases and respects to the ultimate control and direction of the
Company. In such capacity, Employee shall perform all such
<PAGE>
services, accept all such responsibilities and discharge all such duties and
responsibilities as are consistent with the responsibilities of such office(s),
and such other services, responsibilities and duties as are commensurate with
his position and as may be assigned to or required of him from time to time by
the Company. The Employee shall perform such services, accept such
responsibilities and discharge such duties within the policies and guidelines
established from time to time by the Company, subject at all times and in all
cases and respects to the ultimate control and direction of the Company. The
Company shall have the right to review and revise such services,
responsibilities and duties at any time and from time to time during the Term in
any and all respects, provided that any revised services, responsibilities and
duties, taken as a whole, continue to reflect the knowledge, skill and
experience of Employee. Such services shall be primarily performed in the
Company's offices in the Portland Area or Infoseek's offices in the Bay Area,
although the Employee shall travel to other locations as necessary and
consistent with his position with the Company.
(b) Exclusive Employment. At all times during the Term, the Employee
--------------------
shall devote substantially all of his business time, attention and energies to
the performance, fulfillment and satisfaction of his duties and responsibilities
to the Company under this Agreement, and shall not undertake or be engaged in
any other activities, whether or not pursued for gain, profit or other pecuniary
advantage, which could materially impair his ability to perform, fulfill and
satisfy his duties and responsibilities to the Company under this Agreement, in
any case without the prior written consent of Infoseek which consent will not be
unreasonably withheld.
(c) Affirmation of Fiduciary Responsibilities. At all times during
-----------------------------------------
the Term, the Employee shall perform, satisfy, fulfill and carry out his duties
and responsibilities to the Company under this Agreement with fidelity and
loyalty, in a diligent manner, to the best of his ability, experience and
talent, and in a manner consistent with his fiduciary responsibilities to the
Company.
3. Compensation.
------------
(a) Base Salary and Incentive Compensation. Employee's initial
--------------------------------------
monthly base salary during the Term shall be $__________ ("BASE SALARY"),
payable in accordance with Infoseek's standard payroll practices. During and
after the Term, Employee's total cash compensation shall be subject to review
and adjustment, from time to time, in accordance with Infoseek policies (as
applied on a basis that is consistent with that applied to other Infoseek
employees having similar responsibilities); provided, however, that Employee's
-------- -------
Base Salary shall not be reduced without his consent. Unless otherwise
specified herein, Infoseek shall make such deductions, withholdings and other
payments from all sums payable pursuant to this Agreement which Employee
requests or that are required by law for taxes and other charges.
(b) Bonuses. On each of the dates that are six months and twelve
-------
months following the Closing Date, if the Employee remains an employee of the
Company on such dates, Infoseek shall pay Employee a continuation bonus equal to
five percent (5%) of Employee's annual Base Salary. In addition, Employee will
participate in Infoseek's MBO plan on terms consistent with those afforded to
other employees with similar responsibilities.
(c) Stock Options. Employee shall receive, as of the Closing Date,
-------------
options ("NEW STOCK OPTIONS") to acquire ___________ shares of Infoseek Common
Stock, at an exercise price equal
-2-
<PAGE>
to the closing price of Infoseek's Common Stock on that date. One fourth of
such shares shall vest one year after the date of the Reorganization Agreement,
and an additional 1/48th of such shares shall vest each month during the three
years thereafter. All other terms governing such options shall be set out in
Infoseek's standard Option Agreement and Stock Option Plan.
(d) Benefits Plans. Employee will be entitled to participate in or
--------------
receive benefits under Infoseek's employee benefit plans and policies in effect
from time to time in which Employee is eligible to participate, subject to the
applicable terms and conditions of the particular benefit plan. Infoseek and/or
the Company may change, amend, modify or terminate to the extent legally
allowable, any benefit plan from time to time and without prior notice. To the
extent Infoseek benefits are affected by seniority (i.e. length of service),
Employee shall be credited for time served at the Company, to the fullest extent
permitted by law and consistent with Infoseek's current benefit plans. As set
forth in the Reorganization Agreement, Employee shall be entitled to the
reasonable reimbursement of the relocation expenses of Employee and his
immediate family.
4. Term; Termination; Severance Payments.
-------------------------------------
(a) Term. Unless otherwise terminated as hereinafter provided, the
----
term of Employee's employment under this Agreement (the "TERM") shall commence
upon the Closing Date as defined in the Reorganization Agreement and shall
continue until and terminate on the date that is the two year anniversary of the
Closing Date. Upon expiration of the Term, Employee shall be an "at will"
employee of the Company, subject to such policies, benefits and practices and
procedures that are then applicable with respect to an at will employee of
Infoseek (the "INFOSEEK POLICIES"). Notwithstanding the foregoing, Infoseek may
terminate Employee during the Term for Cause (as defined below).
(b) Cause. As used in this Agreement, "CAUSE" shall mean:
-----
(i) Employee's personally engaging in or knowingly authorizing
conduct that he reasonably should know or that he intends to be materially
injurious to the Company or its employees;
(ii) Employee's being convicted of a felony under the laws of the
United States or any State, or committing a material act of dishonesty or
fraud against, or the material misappropriation of property belonging to,
the Company;
(iii) Employee's repeated unreasonable failure or refusal to
perform material duties of his or her position after written notice of such
failure to perform and such failure shall not have been cured by Employee
by the tenth (10th) business day after notice by Infoseek to Employee of
such failure;
(iv) Employee's knowingly and intentionally breaching in any
material respect the terms of this Agreement or the Confidentiality and
Intellectual Property Agreement (as defined below); provided that, except
for those breaches which, by their nature, are incurable, such breach shall
not have been cured by Employee by the tenth (10th) business day after
notice by Infoseek to Employee of such breach; or
-3-
<PAGE>
(v) Employee's commencement of employment with another employer
while he is an employee of the Company.
(c) Termination and Severance Benefits.
----------------------------------
(i) Termination for Cause or Resignation. If Employee's employment
------------------------------------
is terminated for Cause or if Employee resigns his employment voluntarily,
Employee will be entitled to receive the severance payments provided for in
Section 4(c)(iv) below (if any). No other compensation or payments will be
provided to Employee for the periods following the date when such termination of
employment is effective.
(ii) Termination without Cause; Constructive Termination. If
---------------------------------------------------
Employee's employment is terminated by the Company without Cause, or if Employee
is Constructively Terminated (as defined below), Employee will be entitled to
receive the severance payments provided for in Section 4(c)(iv) below (if any)
and all New Stock Options shall vest immediately, to the extent not already
vested, upon such termination. No other compensation or payments will be made
pursuant to the Agreement other than those to which Employee is entitled through
the Employee's last day of active service or under the applicable Infoseek
Policies and benefit plans. For purposes of this Section 4(c)(ii), the term
"CONSTRUCTIVELY TERMINATED" shall be deemed to mean (i) a reduction of
Employee's Base Salary, (ii) Employee's refusal to relocate to a facility or
location which is located outside of the Portland area or the San Francisco Bay
Area, or (iii) an alteration during the Term of the services to be performed by,
and the responsibilities and duties assigned to, Employee under this Agreement
if such services, responsibilities and duties, taken as a whole, materially fail
to reflect the knowledge, skill and experience of Employee, provided in each
case that Employee has resigned in writing from his position with the Company
within thirty (30) calendar days of the commencement of his Constructive
Termination.
(iii) Death or Disability. If Employee's employment terminates
-------------------
as a result of Employee's death or disability, Employee (or Employee's estate),
shall be entitled to the severance payments provided for in Section 4(c)(iv)
below (if any) and all New Stock Options shall vest immediately, to the extent
not already vested, upon such termination. No other compensation or payments
will be made other than those to which Employee is entitled through the
Employee's last day of active service or under the applicable Infoseek Policies
and benefit plans.
(iv) Severance Payments. In the event Employee's employment
-----------------
with the Company is terminated for any reason prior to the date that is one (1)
year following the Closing Date (the "ANNIVERSARY DATE"), Employee shall
continue to receive his monthly Base Salary under this Agreement until such
date.
(v) Covenant of Infoseek. Infoseek covenants to cause to be paid
--------------------
or to pay the monetary amounts and to cause to be performed or to perform the
other obligations herein to be paid or performed by the Company. Such covenant
shall not be affected by a dissolution, liquidation, or winding-up of any
subsidiary of Infoseek that may employ Employee.
5. Confidentiality and Intellectual Property Agreement. Concurrently
---------------------------------------------------
with the execution of this Agreement, Employee and Infoseek will execute a
Confidentiality and Intellectual Property
-4-
<PAGE>
Agreement in the form attached hereto as Appendix 1 (the "CONFIDENTIALITY AND
----------
INTELLECTUAL PROPERTY AGREEMENT").
6. Covenant Not to Compete.
-----------------------
(a) Definitions. As used in this Agreement, the terms:
-----------
(i) "RESTRICTED BUSINESS" shall mean any business related to the
design, development, marketing or implementation of hardware or software
applications or other products that: (i) use "robots," "spiders" or similar
technology with similar functionality in connection with the Internet, or (ii)
normalize data or information on or for the Internet.
(ii) "RESTRICTED TERRITORY" shall mean the larger of: (A) all of
the countries of the world or (B) if (A) is found unenforceable, the countries
in which the Infoseek service is available during the term of the non-compete
obligations specified in this Section 6.
(b) Non-Compete. In consideration of: (i) the several Agreements made
-----------
by Infoseek with Employee in and pursuant to the Reorganization Agreement, (ii)
the payment by Infoseek to Employee of the Merger Consideration, (iii)
Infoseek's willingness to enter into the Reorganization Agreement, and (iv) the
consideration payable to Employee hereunder, Employee agrees that until: (A) the
two (2) year anniversary of the Closing Date or (B) in the event that the period
set forth in clause (A) is determined to be unenforceable by a court of
competent jurisdiction, the maximum period allowable, Employee will not,
directly or indirectly, engage in (whether as an officer, employee, consultant,
director, proprietor, partner, consultant or otherwise), or have any ownership
interest in, or participate in the financing, operation, management or control
of, any person, firm, corporation or business that engages in a Restricted
Business in a Restricted Territory. It is agreed that ownership of no more than
two percent (2%) of the outstanding voting stock of a publicly-traded or
privately-held corporation shall not constitute a violation of this section. It
is further agreed that the foregoing consideration is not intended to constitute
liquidated damages for a violation of this section.
(c) Non-Solicit. Employee agrees that until the expiration of the non-
-----------
compete obligations specified above in subsection (b), Employee shall not:
(i) act as an employee, agent, advisor or consultant of any
competitor of Infoseek, the Company, or any of their respective affiliates, in
each case as existing on the date of Employee's termination (the "TERMINATION
DATE");
(ii) take any action to, or do anything reasonably intended to,
divert business from Infoseek, the Company, or any of their respective
subsidiaries, or influence or attempt to influence any retailer, dealer, vendor,
supplier, customer or potential customer of Infoseek, the Company or any of
their respective subsidiaries, in each case as existing on the Termination Date,
to cease doing business with Infoseek, the Company, or any of their respective
subsidiaries, as the case may be, or to alter its business relationship with
Infoseek, the Company, or any of their respective subsidiaries, in each case as
existing on the Termination Date; or
-5-
<PAGE>
(iii) recruit, attempt to hire, solicit, or assist others in
recruiting or hiring, any person who is an employee of Infoseek, the Company, or
any of their respective subsidiaries, in each case as of the Termination Date,
or induce or attempt to induce any such employee to terminate his or her
employment with Infoseek, the Company, or any of their respective subsidiaries.
(d) REMEDIES. THE EMPLOYEE HEREBY RECOGNIZES AND ACKNOWLEDGES THAT A
--------
MATERIAL VIOLATION OF THE TERMS AND PROVISIONS OF THIS SECTION 6 WOULD CAUSE
IRREPARABLE INJURY TO INFOSEEK, THE COMPANY, OR ANY OF THEIR RESPECTIVE
AFFILIATES, AS THE CASE MAY BE, FOR WHICH INFOSEEK, THE COMPANY, OR ANY OF THEIR
RESPECTIVE AFFILIATES, WOULD HAVE NO ADEQUATE REMEDY AT LAW. ACCORDINGLY, IN
THE EVENT THAT THE EMPLOYEE SHALL FAIL TO MATERIALLY COMPLY WITH THE TERMS AND
PROVISIONS OF THIS SECTION 6 IN ANY RESPECT, AND THE EMPLOYEE HAS BEEN GIVEN
NOTICE OF SUCH VIOLATION AND AN OPPORTUNITY TO CURE SUCH VIOLATION, INFOSEEK,
THE COMPANY, OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, SHALL BE ENTITLED TO
PRELIMINARY AND OTHER INJUNCTIVE RELIEF AND TO SPECIFIC PERFORMANCE OF THE TERMS
AND PROVISIONS HEREOF. IN FURTHERANCE AND NOT IN LIMITATION OF THE FOREGOING,
THE EMPLOYEE HEREBY WAIVES ANY CLAIM OR DEFENSE RELATING TO ANY VIOLATION OR
BREACH BY THE EMPLOYEE OF THE TERMS AND PROVISIONS OF THIS SECTION 6 THAT
INFOSEEK, THE COMPANY, OR ANY OF THEIR RESPECTIVE AFFILIATES, HAS AN ADEQUATE
REMEDY AT LAW OR THAT MONEY DAMAGES WOULD PROVIDE AN ADEQUATE REMEDY FOR SUCH
VIOLATION OR BREACH.
(e) Severability. The parties intend that the covenants contained in the
------------
preceding paragraphs shall be construed as a series of separate covenants, one
for each county, city, state and other political subdivision of each country in
the Restricted Territory. Except for geographic coverage, each separate covenant
shall be deemed identical in terms to the covenant contained in the preceding
paragraphs. If, in any judicial proceeding, a court shall refuse to enforce any
of the separate covenants (or any part thereof) deemed included in said
paragraphs, then such unenforceable covenant (or such part) shall be deemed
eliminated from this Agreement for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced by such court. It is the intent of the parties that the
covenants set forth herein be enforced to the maximum degree permitted by
applicable law.
7. Representations of Employee. Employee represents that:
---------------------------
(a) Employee: (i) is familiar with the covenants not to compete and not
to solicit set forth in this Agreement, (ii) is fully aware of his obligations
hereunder and (iii) is receiving specified, bargained-for consideration for his
covenants not to compete and not to solicit.
(b) Execution of this Agreement and the Nondisclosure Agreement, and
performance of Employee's obligations hereunder and thereunder, will not
conflict with, or result in a violation of or breach of and any other agreement
to which Employee is a party or any judgment, order or decree to which Employee
is subject.
-6-
<PAGE>
8. (a) Successors and Assigns. Infoseek or its affiliates may assume
----------------------
the liabilities and obligations, and succeed to the rights and interests, of the
Company under this Agreement at any time and without limitation. In addition to
the foregoing, any successor to the Company (whether direct or indirect and
whether by purchase, lease, merger, consolidation, liquidation or otherwise), or
to all or substantially all of the Company's business and/or assets, shall
assume the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of
such succession. For all purposes of and under this Agreement, the term
"COMPANY" shall include Infoseek in the event that Infoseek shall assume the
liabilities and obligations, and succeed to the rights and interests, of the
Company under this Agreement pursuant to and in accordance with this Section, or
any successor to the Company's business and/or assets which executes and
delivers the assumption agreement required by this Section, or which otherwise
becomes bound by the terms of this Agreement by operation of law. Any such
assumption and/or succession under this Section shall not be deemed to be a
termination of the Employee's employment hereunder.
(b) The terms of this Agreement and all rights of the Executive
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successor, heirs,
distributees, devisees or legatees.
9. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
understanding of the parties with respect to the subject matter hereof, and
supersedes any other written or oral negotiations, agreements, understandings,
representations or practices concerning such subject matter hereof (including
without limitation any employment agreement or offer letter extended by the
Company at any time).
10. Notices. Any notice, report or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be deemed given on
the date of delivery if delivered, or five days after mailing, if mailed first-
class mail, postage prepaid, return receipt requested, or delivered to a
nationwide overnight delivery service charges prepaid, return receipt requested,
to the following addresses:
(a) If to Infoseek: Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Attention: Andrew E. Newton, Esq.
(b) If to the Company: Quando, Inc.
520 NW Davis Street
Portland, Oregon 97209-3620
Attention: David Billstrom
(c) If to Employee: To the address for notice set forth on
the signature page hereto or to such
other address as any party hereto may
hereafter designate by notice given as
herein provided.
-7-
<PAGE>
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of California without giving effect to principles
regarding conflict of laws. Any action or proceeding brought by any party
against another arising out of or related to this Agreement shall be brought in
a state or federal court of competent subject matter jurisdiction located within
Santa Clara County in the State of California, and each of the parties to this
Agreement consents to the personal jurisdiction of those courts.
12. Amendments. This Agreement shall not be changed or modified in whole
----------
or in part except by an instrument in writing signed by Infoseek, the Company
and Employee, nor shall any covenant or provision of this Agreement be waived
except by an instrument in writing signed by the party against whom enforcement
of such waiver is sought.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
14. Effect of Headings. The section headings herein are for convenience
------------------
only and shall not effect the construction or interpretation of the Agreement.
15. Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to either party upon any breach or default of the other
party hereto shall impair any such right, power or remedy of such non-defaulting
party, nor shall it be construed to be a waiver of any such breach or default or
an acquiescence therein, or of any similar breach or default thereafter
occurring; nor shall any waiver of a breach or default be deemed to be a waiver
of any other breach or default.
16. Rules of Construction. Employee, the Company and Infoseek each
---------------------
acknowledge that they have been represented by, or had an opportunity to consult
with, competent 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 any agreement will be construed
against the party drafting such agreement.
[The remainder of this page intentionally left blank]
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment and
Noncompetition Agreement as of the date first written above.
INFOSEEK CORPORATION EMPLOYEE:
By:____________________________ __________________________________
Name: Name:
Title:
Employee's Address for Notice:
__________________________________
__________________________________
__________________________________
QUANDO, INC.
By:____________________________
Name:
Title:
[SIGNATURE PAGE TO EMPLOYMENT AND NON-COMPETITION AGREEMENT]
<PAGE>
APPENDIX 1
----------
CONFIDENTIALITY AND INTELLECTUAL PROPERTY AGREEMENT
<PAGE>
EXHIBIT 5.1
[Letterhead of Wilson Sonsini Goodrich & Rosati]
December 7, 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
December 8, 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 Quando, Inc., an Oregon
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/prospectus 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]
December 7, 1998
Infoseek Corporation
1399 Moffett Park Drive
Sunnyvale, California 94089
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.1(e) of the
Agreement and Plan of Reorganization (the "Agreement"), dated as of July 24,
1998 (and amended as of December 7, 1998), among Infoseek Corporation, a
Delaware corporation ("Infoseek"), Steelhead Acquisition Corp., an Oregon
corporation, ("Merger Sub"), and Quando, Inc., an Oregon corporation ("Quando"),
and certain shareholders of Quando. Pursuant to the Agreement, Merger Sub will
merge with and into Quando, Inc. and Quando will become a wholly-owned
subsidiary of Infoseek. Except as otherwise provided, capitalized terms used but
not defined herein shall have the meanings set forth in the Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to Infoseek in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules attached thereto):
1. The Agreement;
2. Those certain tax representation letters delivered to us by Infoseek
containing certain representations of Infoseek, Merger Sub and Quando (the "Tax
Representation Letters"); and
3. Such other instruments and documents related to the formation,
organization and operation of Infoseek, Merger Sub and Quando and related to the
consummation of the Merger and the other transactions contemplated by the
Agreement as we have deemed necessary or appropriate.
<PAGE>
Infoseek Corporation
December 7, 1998
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to by
Infoseek, Merger Sub and Quando, their managements, employees, officers,
directors and shareholders in connection with the Merger, including, but not
limited to, those set forth in the Agreement (including the exhibits thereto)
and the Tax Representation Letters are true and accurate at all relevant times;
3. All covenants contained in the Agreement (including exhibits thereto)
and the Tax Representation Letters are performed without waiver or breach of any
material provision thereof;
4. The Merger will be reported by the parties to the Agreement on their
respective federal income tax returns in a manner consistent with the opinion
set forth below; and
5. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the Agreement
(and without any waiver, breach or amendment of any of the provisions thereof)
and the statements set forth in the Tax Representation Letters are true and
correct as of the Effective Time, then for federal income tax purposes, the
Merger will be treated as a reorganization within the meaning of Section 368(a)
of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or any other transactions
contemplated by the Agreement. You have not requested, and we do not express,
an opinion concerning any other tax consequences of the Merger or any other
transactions contemplated by the Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions
<PAGE>
Infoseek Corporation
December 7, 1998
Page 3
contemplated by the Agreement except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement, or as to any other transaction whatsoever,
including the Merger, if all of the transactions described in the Agreement are
not consummated in accordance with the terms of the Agreement and without waiver
of any material provision thereof. To the extent that any of the
representations, warranties, statements and assumptions material to our opinion
and upon which we have relied are not accurate and complete in all material
respects at all relevant times, our opinion would be adversely affected and
should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is intended for the benefit of Infoseek and may not be relied
upon or utilized for any other purpose or by any other person and may not be
made available to any other person without our prior written consent.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Proxy Statement Prospectus included herein.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 8.2
December 7, 1998
Quando, Inc.
520 NW Davis Street
Portland, OR 97209
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (the
"Registration Statement") being filed by Infoseek Corporation, a Delaware
corporation ("Infoseek"), with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of shares of Infoseek's common stock to be issued incident to the merger
described in the Registration Statement (the "Merger") of Steelhead Acquisition
Corp., an Oregon corporation wholly owned by Infoseek, with and into Quando,
Inc., an Oregon corporation, in our opinion the discussion under the caption
"The Merger and Related Transactions - Certain Federal Income Tax
Considerations" in the Registration Statement sets forth the material United
States federal income tax considerations generally applicable to the Merger.
We hereby consent to the filing of this opinion as Exhibit 8.2 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Proxy Statement/Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
EXHIBIT 10.6
ASSIGNMENT AND ASSUMPTION OF LEASE
----------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Agreement") is made as of this
12th day of May, 1998 by and between Infoseek Corporation, a California
corporation ("Infoseek") and 280, Inc., a California corporation ("280").
RECITALS
--------
A. 280, as tenant, is a party to the lease dated as of May 1, 1996 with
Hamm's Building Associates ("Landlord"), as landlord, for Suite 300 located
at 1550 Bryant Street, San Francisco, California 94103, consisting of
approximately 8,264 rentable square feet, and an Expansion Agreement for an
additional approximate 4,247 rentable square feet on the third floor (the
"Expansion Space", and collectively, the "Lease"), pursuant to which the
landlord thereunder has undertaken to lease to the tenant thereunder office
space located at 1550 Bryant, City of San Francisco, County of San
Francisco, California, which property is more particularly described in the
Lease and Expansion Agreement attached hereto as Exhibit A (the
"Premises").
B. 280 and Infoseek are parties to that certain Asset Purchase Agreement
dated as of May 12, 1998 (the "Asset Purchase Agreement"), whereby Infoseek
has agreed to purchase from 280 certain of 280's assets.
C. In connection with the closing of the transactions contemplated by the
Asset Purchase Agreement, 280 desires to assign its interest in the Lease
to Infoseek, and Infoseek desires to assume 280's interest in the Lease.
D. Section 15 of the Lease provides that the tenant thereunder may assign
this Lease or sublet the Premises with the consent of Landlord, subject,
however, to the terms and conditions set forth in said Section 15.
NOW, THEREFORE, for and in consideration of the foregoing premises, the
Lease, the Asset Purchase Agreement and the mutual covenants and agreements set
forth herein, Infoseek, 280 and Landlord agree as follows:
1. ASSIGNMENT. 280 hereby assigns, transfers and conveys to Infoseek, and
-----------
Infoseek hereby accepts, as of the Effective Date (as hereinafter defined in
paragraph 2), all of 280's right, title and interest in, under and to the Lease
and the Premises. Also effective as of the Effective Date, Infoseek accepts this
assignment and assumes and agrees to keep, perform and fulfill, as a direct
obligation to Landlord and for the benefit of 280, all of the terms, covenants,
conditions and obligations required to be kept, performed and fulfilled by the
"Tenant" under the Lease from and after the Effective Date, including, without
limitation, the making of all payments due to or payable on behalf of, Landlord
under the Lease which may become due and payable on or after the Effective Date
and the performance of all repair, maintenance and restoration of such Tenant
with respect to the
<PAGE>
Premises from and after the Effective Date. Infoseek will finish the flooring
and the walls in the Expansion Space comparable to Suite 300, to Infoseek's and
the Landlord's satisfaction.
2. EFFECTIVE DATE OF ASSIGNMENT. The assignment in this agreement shall take
-----------------------------
effect on May 12, 1998, ("Effective Date") and 280 shall give possession of the
Premises to Infoseek on that date.
3. SECURITY DEPOSIT. 280 and Infoseek acknowledge that Landlord currently
-----------------
holds a security deposit to be applied in accordance with the provisions of the
Lease. Without limiting the generality of Section 1 of this Agreement, 280
hereby assigns to Infoseek, as of the Effective Date, all of 280's rights to
such security deposit. From and after the Effective Date, such security deposit
shall be held by Landlord for the benefit of Infoseek, subject to the provisions
of the Lease.
4. RELEASE AND INDEMNIFICATION. Infoseek agrees to release 280 from any and
----------------------------
all claims, demands or causes of action whatsoever or whensoever arising out of
or in connection with the Lease, arising after the date of this Agreement and
pertaining to acts, omissions or neglect of Infoseek occurring after the date of
this Agreement. Infoseek agrees to defend, indemnify and hold 280 harmless from
any and all claims, demands, liabilities, costs and expenses, including
reasonable attorneys' fees, arising from or based upon any alleged act, omission
or negligence of Infoseek or its contractors, concessionaires, licensees,
agents, servants, invitees, employees or anyone else for whom Infoseek may be
responsible after the date of this Agreement. In the event that 280 shall be
made a party to any litigation by reason of any such claim, Infoseek shall
indemnify 280 against and hold 280 harmless from such litigation and shall pay
all costs, expenses and reasonable attorneys' fees incurred or paid by Infoseek
in connection with such litigation.
280 shall defend, indemnify and hold Infoseek harmless from any and all
claims, demands, liabilities, costs and expenses, including reasonable
attorneys' fees, arising from or in connection with the Lease and from or based
upon any alleged act, omission or negligence of 280 or its contractors,
concessionaires, licensees, agents, servants, invitees, employees or anyone else
for whom 280 may be responsible occurring before the date of this Agreement.
5. MISCELLANEOUS. Infoseek and 280 shall execute and deliver such additional
--------------
documents and take such additional actions as either may be reasonably request
to carry out the purposes of this Agreement. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, successors and assigns. If either party brings an action or legal
proceeding with respect to this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and costs. All captions
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement. This Agreement may be executed in one
or more counterparts, each of which shall be an original, but all of which,
taken together, shall constitute one and the same Agreement. If any one or more
of the provisions of this Agreement shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
6. GOVERNING LAW. This Agreement will be governed in all respects by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be
<PAGE>
performed entirely within California. Any action or proceeding brought by any
party against another arising out of or related to this Agreement shall be
brought in a state or federal court of competent subject matter jurisdiction
located within Santa Clara County, California, and each of the parties to this
Agreement consents to the personal jurisdiction of those courts.
IN WITNESS WHEREOF, Infoseek, 280 and Landlord have executed this Agreement
as of the day and year first above written.
280: INFOSEEK:
280, INC., INFOSEEK CORPORATION,
a California corporation a California corporation
By: /s/ Michael Baum By: /s/ Harry Motro
------------------------------- ----------------------------
Name: Michael Baum Name: Harry Motro
----------------------------- --------------------------
Title: CEO Title: CEO
---------------------------- -------------------------
Landlord hereby consents to the above Assignment, provided its Effective
Date is in the month of May, 1998, and the May 1998 rental due is received
immediately. Landlord will complete the painting and electrical work in the
Expansion Space, per the Lease.
HAMM'S BUILDING ASSOCIATES
a California Limited Partnership
By:/s/ Rublin Glickman
-----------------------------------
Rublin Glickman, General Partner
Date: May 12, 1998
---------------------------------
3
<PAGE>
EXHIBIT A
---------
THE HAMM'S BUILDING
-------------------
OFFICE LEASE
1550 BRYANT STREET
SAN FRANCISCO, CALIFORNIA
*************
HAMM'S BUILDING ASSOCIATES
--LANDLORD--
280 INC.
--TENANT--
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
EXHIBIT A. BASIC LEASE INFORMATION................................... 1
RECITALS.............................................................. 3
SECTION 1. DEFINITIONS............................................... 3
SECTION 2. PREMISES.................................................. 6
SECTION 3. TERM; CONDITION OF PREMISES............................... 6
SECTION 4. RENTAL.................................................... 6
SECTION 5. ESCALATION RENT........................................... 7
SECTION 6. USE....................................................... 8
SECTION 7. SERVICES.................................................. 8
SECTION 8. ALTERATIONS............................................... 9
SECTION 9. REPAIRS; LANDLORD'S RESERVATION OF RIGHTS................. 9
SECTION 10. DAMAGE OR DESTRUCTION..................................... 10
SECTION 11. SUBROGATION............................................... 10
SECTION 12. INSURANCE................................................. 11
SECTION 13. INDEMNIFICATION........................................... 11
SECTION 14. COMPLIANCE WITH LEGAL REQUIREMENTS........................ 11
SECTION 15. ASSIGNMENT AND SUBLETTING................................. 11
SECTION 16. RULES..................................................... 12
SECTION 17. ENTRY BY LANDLORD......................................... 12
SECTION 18. EVENTS OF DEFAULT......................................... 13
SECTION 19. TERMINATION UPON DEFAULT.................................. 14
SECTION 20. ATTORNEY FEES............................................. 14
SECTION 21. EMINENT DOMAIN............................................ 14
SECTION 22. ESTOPPEL CERTIFICATE...................................... 15
SECTION 23. HOLDING OVER.............................................. 15
SECTION 24. SECURITY DEPOSIT.......................................... 15
SECTION 25. LANDLORD'S LIABILITY...................................... 16
SECTION 26. BROKERS................................................... 16
SECTION 27. SMOKING................................................... 16
SECTION 28. ENTIRE AGREEMENT.......................................... 16
SECTION 29. ILLEGALITY OR UNENFORCEABILITY OF PORTION OF LEASE........ 16
SECTION 30. GOVERNING LAW............................................. 16
SECTION 31. PARKING................................................... 17
SECTION 32. OPTION TO EXPAND.......................................... 17
SECTION 33. QUIET ENJOYMENT........................................... 17
SECTION 34. RIGHT OF FIRST REFUSAL.................................... 17
SECTION 35. TEMPORARY OCCUPANCY....................................... 17
SECTION 36. AUTOMATIC SUBORDINATION................................... 17
SECTION 37. EXHIBITS.................................................. 18
Exhibit B. Description of the Premises............................... 19
Exhibit C. Rules..................................................... 20
Exhibit D............................................................ 24
Exhibit E............................................................ 28
</TABLE>
<PAGE>
EXHIBIT A. BASIC LEASE INFORMATION
Date: May 1, 1996
Landlord: HAMM'S BUILDING ASSOCIATES
Tenant: 280 INC.
Premises: That portion of the 3rd floor designated
on the attached floor plan labeled Exhibit
B, Suite 300.
Rentable Area of Premises: Approximately 8,264 rentable square feet
(to be measured per BOMA Standards prior
to tenant's occupancy)
Commencement Date: Upon Landlord's substantial completion of
Tenant Improvements.
Termination Date: 5 years from Commencement Date.
Base Rent (annually): Months RSF Rental Rate
------------------------------------
1-12 8,264 14.04 PRSFPY
13-24 8,264 14.04 PRSFPY
25-36 8,264 14.60 PRSFPY
37-48 8,264 15.19 PRSFPY
49-60 8,264 15.79 PRSFPY
(PRSFPY - per rentable square foot per year)
Base Year: Calendar 1996
Security Deposit: Tenant shall pay a Security Deposit of
$10,900.00 and First Month's Rent of
$9,668.88 upon execution of this lease.
Tenants Percentage Share of 5.61%
Operating Expenses and Property
Tax Escalations
Tenant's Broker BT Commercial
100 Pine Street, Suite 500
San Francisco, CA 94111
Tenant's Address for Notice: 280 INC.
1550 Bryant Street, Suite 300
San Francisco, CA 94103
Attn.: Michael Baum
1
<PAGE>
Landlord's Address for Notice: Hamm's Building Associates
c/o Rubin Glickman
1550 Bryant Street, Suite 600
San Francisco, CA 94103
Exhibits: Exhibit A. Basic Lease Information
Exhibit B. Description of Premises
Exhibit C. Rules
Exhibit D. Construction Rider
Exhibit E. Construction Documents
Landlord: Tenant:
HAMM'S BUILDING ASSOCIATES. 280 INC.,
a California Limited Partnership a California Corporation
By RHGA, Inc., General Partner
By: /s/ Rubin Glickman By: /s/ Michael Baum
------------------------------ -------------------------------------
Rubin Glickman, President Michael Baum
2
<PAGE>
This Lease ("Lease") dated as of May 1, 1996, is entered into between
HAMM'S BUILDING ASSOCIATES, a California Limited Partnership ("Landlord"), and
280 INC. ("Tenant").
RECITALS
A. Landlord is the owner of real property ("Real Property") located at
1550 Bryant, San Francisco and the building ("Building") located on it. The Real
Property and the Building are collectively the "Property."
B. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord the Premises (as defined below) for the term and subject to the terms,
covenants, agreements, and conditions in this Lease.
For good and valuable consideration the receipt and adequacy of which are
acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS.
As used in this Lease, the following terms shall have the meanings
specified in this Section 1.
ALTERATIONS is defined in Section 8.
BASE OPERATING EXPENSES means the Operating Expenses paid or incurred by
Landlord in the Base Year.
BASE PROPERTY TAXES means the amount of Property Taxes for the tax year
ending June 30 of the Base Year.
BASE RENT means the Base Rent as set forth in the Basic Lease Information.
BASIC LEASE INFORMATION is attached to and incorporated in this Lease as
Exhibit A.
BUILDING means the building constructed on the Real Property known as 1550
Bryant Street, San Francisco, California, commonly known as the Hamm's Building,
any property interest in the area of The Hamm's Building and all other
improvements on or appurtenances to the Real Property or the streets abutting
the Real Property. The Building includes, but is not limited to, an office
building with twelve (12) floors of office space and an open air parking lot
located as shown on the attached site plan.
COMMENCEMENT DATE means the Commencement Date as set forth in the Basic
Lease Information.
3
<PAGE>
COMMON AREA means the total area on a floor consisting of rest rooms,
janitor, telephone and electrical closets, mechanical areas, public corridors
providing access to tenant space, public stairs, elevator shafts and pipe
shafts, together with their enclosing walls.
DEPOSIT is defined in Section 24.
ESCALATION RENT is defined in Section 4(a).
EVENT OF DEFAULT is defined in Section 18.
LANDLORD is defined in the preamble.
LEGAL REQUIREMENTS is defined in Section 14.
LEASE is defined in the preamble.
TENANT is defined in the preamble.
TENANT'S PERCENTAGE SHARE means the percentage figure specified as Tenant's
Percentage Share in the Basic Lease Information. Tenant's Percentage Share has
been obtained by dividing the net rentable area of the Premises, as specified in
the Basic Lease Information, by the total net rentable area of the Building,
which is 160,029 square feet, and multiplying that quotient by one hundred
(100). In the event the rentable area of the Premises is increased or decreased
by the addition to or deletion from the Premises of any office space, Tenant's
percentage share shall be appropriately adjusted. For the purposes of Section 4,
Tenant's Percentage Share shall be based on the number of days during the
calendar year in which this change occurs.
OPERATING EXPENSES means (a) all reasonable costs of management,
operation and maintenance of the Building determined by generally accepted
------------------
accounting principles, including without limitation, wages, salaries and payroll
- ---------------------
burden of employees excluding employees above the rank of Building Manager,
property management fees and other related compensation: janitorial,
maintenance, security and other services: Building office rent or rental value
for a building office as small as reasonably practical to operate the building:
power, water, waste disposal and other utilities; materials and supplies;
maintenance and repairs (including the repair and replacement of glass and the
roof covering or membrane); permit and license costs; insurance premiums and the
deductible portion of any insured loss under Landlord's insurance; accounting,
legal or other professional fees of independent service providers who are not
employees of Landlord incurred in connection with operating the Building and the
calculation of Operating Expenses and Property Taxes; and (b) the cost of any
capital improvements made to the Building by Landlord after the Base Year that
(i) are made in the reasonable expectation of reducing other Operating Expenses,
or (ii) are required under any governmental law or regulation that was not
applicable to the Building at the time it was constructed, the cost to be
amortized over the useful life of the capital improvements, together with
------------------------------------------------
interest on the unamortized balance at the rate equal to that paid by Landlord
on funds borrowed for the purpose of constructing or installing those capital
improvements. Operating expenses shall not include: property taxes; depreciation
on the Building other than depreciation on exterior window draperies, if any,
provided by Landlord, costs
4
<PAGE>
of tenant improvements; real estate brokers' commissions; interest; and capital
items other than those referred to in clause (b). Actual Operating Expenses for
both the Base year and each subsequent calendar year will be adjusted to equal
Landlord's reasonable estimate of Operating Expenses had ninety-five (95)
percent of the building been occupied.
PREMISES means the portion of the Building located on the floor or floors
specified in the Basic Lease Information which is cross-hatched on the Floor
plan or plans attached to this Lease as Exhibit B.
PROPERTY is defined in Recital A of this Lease.
PROPERTY TAXES means all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind,
imposed on or by reason of the ownership or use of the Property; governmental
charges, fees or assessments for police, fire or other governmental services;
service payments in lieu of taxes and taxes and assessments of every kind levied
in addition to, in lieu of or in substitution for existing or additional real or
personal property taxes on the Property; and all real estate tax consultant
expenses and attorney fees of consultants and attorneys who are not employees of
Landlord incurred for the purpose of maintaining an equitable assessed valuation
of the Building or contesting the validity of any taxes, assessments or charges
described above.
REAL PROPERTY is defined in Recital A of this Lease.
RENTABLE AREA means the rentable area of the premises specified on the
Basic Lease Information. If any office space is added to or deleted from the
Premises, the rentable area of the space added or deleted shall mean: (a) as to
an entire floor added to or deleted from the Premises, all areas within outside
permanent Building walls, measured to the inside glass surface of outside
permanent Building walls, including rest rooms, janitor, telephone, and
electrical closets; allocated mechanical areas and columns and projections
necessary to the Building, but excluding public stairs, elevator shafts, and
pipe shafts, together with their enclosing walls; (b) as to a portion of a floor
added to or deleted from the Premises, the aggregate of the usable area of the
portion of the floor added to or deleted from the Premises, plus the result
obtained by multiplying the area of the Common Area on this floor by a fraction,
the numerator of which is the aggregate of the usable area of the portion of the
floor added to or deleted from the Premises and the denominator of which is the
usable area of all tenant space on the floor.
TERM is defined in Section 3 of this Lease.
TERMINATION DATE means the Termination Date in the Basic Lease
Information.
USABLE AREA means all floor area in a tenant space, measured to the inside
glass surface of outer Building walls, to the office side of corridors and other
permanent partitions, and to the center of partitions that separate the tenant
space from adjoining tenant spaces, without deduction for columns and
projections necessary to the Building.
5
<PAGE>
SECTION 2. PREMISES.
Landlord leases to Tenant, and Tenant leases from Landlord the
Premises (as set forth in the Basic Lease Information) for the term and subject
to the terms, covenants, agreements, and conditions set forth in this Lease.
SECTION 3. TERM; CONDITION OF PREMISES.
The term ("Term") of this Lease shall commence on the Commencement
Date (as set forth in the Basic Lease Information) and, unless sooner terminated
as later provided, shall end on the Termination Date (as set forth on the Basic
Lease Information). Unless otherwise agreed by Landlord and Tenant in this
Lease, Landlord shall deliver the Premises to Tenant on the Commencement Date in
their then existing condition with no alterations being made by Landlord. If
Landlord has undertaken in this Lease to make any alterations to the Premises
before the Commencement Date and the alterations are completed before that
date, and if Tenant desires to take occupancy in advance of that date, Landlord
shall deliver the Premises to Tenant at that time in advance of a date that will
be mutually approved by Landlord and Tenant and, notwithstanding anything to the
contrary contained in this Lease, the Term of the Lease shall commence on
delivery. If Landlord, for any reason, cannot deliver the Premises to Tenant on
the Commencement Date, this Lease shall not be void or voidable, except as
otherwise provided in Exhibit D nor shall Landlord be liable to Tenant for any
loss or damage resulting from nondelivery, but in that event rental shall be
waived for the period between the Commencement Date and the time when Landlord
delivers the Premises to Tenant. No delay in delivery of the Premises shall
extend the Term of this Lease.
SECTION 4. RENTAL.
(a) Tenant shall pay to Landlord throughout the Term as rental for
the Premises the Base Rent, subject to the following adjustments:
(i) The rental payable during each calendar year subsequent to
the Base Year shall be the Base Rent, increased by Tenant's Percentage Share of
the total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in that year over the Base Operating Expenses, and also increased by
Tenant's Percentage Share of the total dollar increase, if any, in Property
Taxes paid by Landlord in that year over the Base Property Taxes. The increased
rental due pursuant to this Section 4(a)(i) is the Escalation Rent.
(b) Monthly Rental shall be paid to Landlord, in advance, on or
before the first day of the Term of this lease and on or before the first day of
each successive calendar month during the Term of this Lease. In the event the
Term of this Lease commences on a day other than the first day of a calendar
month or ends on a day other than the last day of a calendar month, the monthly
rental for the first and last fractional months of the Term of this Lease shall
be appropriately prorated.
(c) All sums of money due to Landlord under this Lease, not
specifically characterized as rental, shall constitute additional rent and shall
be due within thirty (30) days after receipt by Tenant of a billing. If any sum
is not paid when due, it shall be collectible as additional rent with the next
installment of rental falling due.
6
<PAGE>
(d) Tenant acknowledges that late payment of rent and other sums due under
this Lease after the expiration of any applicable cure period under Section
18(a) will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be difficult to ascertain. These costs include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by the terms of any trust deed covering the Premises.
Accordingly, if any installment of rent or any other sums due from Tenant are
not received when due, or if a cure period is applicable under Section 18(a),
prior to the expiration of the cure period, Tenant shall pay to Landlord a late
charge equal to ten percent (10%) of the overdue amount. The parties agree that
the late charge represents a fair and reasonable estimate of the costs Landlord
will incur because of late payment. Acceptance of the late charge by Landlord
shall not constitute a waiver of Tenant's default for the overdue amount, nor
prevent Landlord from exercising the other rights and remedies granted under
this Lease.
xxxx [Initials of landlord] xxxx [Initials of Tenant]
- ---- ----
(e) Any amount due to Landlord other than monthly rental, if not paid
within five (5) days following the due date will bear interest from the due date
until paid at the rate of ten percent (10%) per year or, if a higher rate is
legally permissible, at the highest rate legally permitted. However, interest
shall not be payable on late charges incurred by Tenant nor on any amounts on
which late charges are paid by Tenant to the extent this interest would cause
the total interest to be in excess of that legally permitted. Payment of
interest shall not excuse or cure any default by Tenant.
(f) All payments due shall be paid to Landlord, without deduction or
offset, in lawful money of the United States of America at Landlord's address
for notices under this Lease or to another person or at another place as
Landlord may designate by notice to Tenant. If Tenant pays by check and the
check is returned for non-sufficient funds more than once, upon request of the
Landlord, the Tenant shall make future payments by cashiers check.
SECTION 5. ESCALATION RENT.
Escalation Rent shall be paid monthly on an estimated basis, with
subsequent annual reconciliation, in accordance with the following procedures:
(a) No later than fifteen (15) days prior to the end of the Base Year and
no later than fifteen (15) days prior to the end of each subsequent calendar
year, or as soon after that time as practicable, Landlord shall give Tenant
notice of Landlord's estimate of any Escalation Rent due under Section 4(a) for
the ensuing calendar year. On or before the first day of each month during the
ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the
estimated Escalation Rent. If Landlord fails to give notice as required in this
Section, Tenant shall continue to pay on the basis of the prior year's estimate
until the month after that notice is given. If at any time it appears to
Landlord that the Escalation Rent for the current calendar year will vary from
the estimate, Landlord may, by notice to Tenant, revise the estimate for that
year, and subsequent payments by Tenant for that year shall be based on the
revised estimate.
(b) Within ninety (90) days after the close of each calendar year, or as
soon after the ninety (90) day period as practicable, Landlord shall deliver to
Tenant a statement of the actual Escalation Rent for that calendar year showing
Operation Expenses and Property Taxes on the basis of which the actual
Escalation Rent was determined. At Tenant's request, Landlord shall provide
Tenant reasonable supporting detail underlying the calculations of Operating
Expenses and
7
<PAGE>
Property Taxes. If Landlord's statement discloses that Tenant owes an amount
that is less than the estimated payments for the calendar year previously made
by Tenant, landlord shall credit the excess first against any sums then owed by
Tenant, and then against the next payments of rental due. If Landlord's
statement discloses that Tenant owes an amount that is more than the estimated
payments for the calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of the statement.
(c) Landlord shall maintain at all times during the term of this Lease, at
the office of Landlord in the Building or such other office as Landlord may
designate full, complete and accurate books of account and records prepared in
accordance with generally accepted accounting principles with respect to
Escalation Rent, and shall retain such books and records, as well as contracts,
bills, vouchers, and checks, and such other documents as are reasonably
necessary to properly audit the Escalation Rent. Upon reasonable notice from
Tenant, Landlord shall make available for Tenant's inspection (or inspection
performed by Tenant's accountant and/or consultants) at Landlord's office in the
Building, during normal business hours, Landlord's books and records relating to
the Escalation Rent for the previous calender year. If Tenant's inspection
reveals that Tenant was overcharged for escalation rent, the amount of the
overcharge shall be promptly refunded to Tenant.
(d) The amount of Escalation Rent for any fractional year in the Term
shall be appropriately prorated. The proration of Operating Expenses for the
calendar year in which termination occurs shall be calculated on the basis of a
fraction of the Operating Expenses for that entire calendar year, the proration
of Property Taxes for the calender year in which termination occurs shall be
calculated on the basis of a fraction of the Property Taxes for that entire
calender year, but shall exclude any Property Taxes attributable to any increase
in the assessed valuation of the Building occurring after termination. The
termination of this Lease shall not affect the obligations of the parties
pursuant to Section 5(b) to be performed after the termination.
SECTION 6. USE.
The Premises shall be used for general office purposes and software
development. Tenant shall not do or permit to be done on the Premises, nor bring
or keep or permit to be brought or kept in the Premises, anything (a) which is
prohibited by or in conflict with any law, ordinance, or governmental rule or,
(b) which is prohibited by the standard form of fire insurance policy or, (c)
which will increase the existing rate of or affect fire or other insurance on
the Building or its contents or cause a cancellation of any insurance policy
covering the Building or any part of it or its contents. Tenant shall not use or
store in the Premises any hazardous or toxic substances, with the sole exception
of reasonably necessary substances that are kept in reasonably necessary
quantities for normal office operations, provided that their use and storage are
in accordance with applicable laws. Tenant shall not do or permit anything to be
done on the Premises that will obstruct or interfere with the rights of other
tenants of the Building, or injure or annoy them, or use or allow the Premises
to be used for any unlawful purposes, nor shall Tenant cause, maintain, or
permit any nuisance or waste on or about the Premises.
SECTION 7. SERVICES.
(a) Landlord shall maintain the public and Common Areas of the Building,
including lobbies, stairs, elevators, corridors, rest rooms, all exterior
landscaping, windows, the mechanical, plumbing, and electrical equipment serving
the Building, and the structure itself, in reasonably good order and condition
so as to meet the reasonable needs of Tenant, except for damage, excluding
normal wear and tear, caused by the Tenant. Damage caused by Tenant, other than
8
<PAGE>
normal wear and tear by Tenant, shall be repaired by Landlord at Tenant's
expense. The standard of maintenance shall be equal to that of other office
buildings of a similar class in San Francisco, California.
(b) Landlord shall furnish (i) electricity for lighting and the operation
of office machines, (ii) heat and air conditioning, to the extent reasonably
required for the comfortable occupancy by Tenant in Tenant's use of the Premises
during the period from 7:00 a.m. to 7:00 p.m. on weekdays, except holidays, or a
shorter period as may be prescribed by applicable policies or regulations
adopted by any utility or governmental agency, (iii) elevator service,
(iv) lighting replacement, for building standard lights, (v) rest room supplies,
(vi) window washing with reasonable frequency, (vii) water for the rest rooms
and kitchen areas, and (viii) security guard services and daily janitor services
during the times and in the manner that these services are customarily furnished
in comparable office buildings in the area. Landlord may establish reasonable
measures to conserve energy and water, including but not limited to automatic
light shut off after hours and efficient lighting forms, so long as these
measures do not unreasonably interfere with Tenant's use of the Premises. Tenant
shall pay for the cost of utility and janitorial services with its premises.
(c) Landlord shall not be in default under this Lease, nor be liable for
any damages resulting from, nor shall the required rental be abated because of
(i) any reasonably necessary installation, use, or interruption of use of any
equipment in connection with furnishing the previously listed services, (ii)
failure to furnish or delay in furnishing these services, when failure or delay
is caused by accident or improvements to the Premises or to the Building, or
(iii) the limitation, curtailment rationing, or restrictions on use of water,
electricity, gas, or any other form of energy serving the Premises or the
Building. Landlord shall use reasonable efforts to diligently remedy
interruptions in the furnishing of these services.
SECTION 8. ALTERATIONS.
Tenant shall not make or allow any alterations, additions, or improvements
to the Premises or any part of the Premises, except for pre-occupancy tenant
improvements ("Alterations") as evidenced by Exhibit E ("Construction
Documents"), without Landlord's prior consent, which shall not be unreasonably
withheld. The installation of furnishings, fixtures, equipment, or decorative
improvements, none of which shall affect Building systems or the structure of
the Building, and the repainting or recarpeting of the Premises, shall not
constitute Alterations. All Alterations shall immediately become Landlord's
property and, at the end of the Term, shall remain on the Premises without
compensation to Tenant, unless Landlord elects by notice to Tenant at the time
of installation to have Tenant remove any Alterations that are peculiar to
Tenant's use of the Premises and are not normally required or used by other
tenants. In this event, Tenant shall bear the cost of restoring the Premises to
their condition prior to the installment of the Alterations.
SECTION 9. REPAIRS: LANDLORD'S RESERVATION OF RIGHTS.
(a) Tenant accepts the Premises as being in the condition in which
Landlord is obligated to deliver the Premises, subject to the tenant
improvements, if any, that Landlord has agreed to make. At all times during the
term of this Lease and at Tenant's sole cost, Tenant shall keep the Premises in
good condition and repair, ordinary wear and tear and damage to the Premises by
fire, earthquake, or act of God or the elements are excepted. Tenant waives all
rights to make repairs at the expense of Landlord or instead to vacate the
Premises, and Tenant further waives the provisions of Civil Code (SS) 1932(1),
1941 and 1942 with respect to Landlord's obligations under
9
<PAGE>
this Lease. At the end of the term of this Lease, Tenant shall surrender to
Landlord the Premises and all Alterations that are to remain in the Premises in
the same condition as when received; ordinary wear and tear and damage by fire,
earthquake, or act of God or the elements are excepted. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate
or paint the Premises or any part of them, except as specifically set forth in
Exhibit E. Landlord has made no representations respecting the condition of the
Premises or the Building, except as specifically set forth in this Lease.
(b) Landlord reserves the right, at any time and from time to time,
without the same constituting an actual or constructive eviction, but provided
that Landlord does not unreasonably interfere with Tenant's use and occupancy of
the building, to (i) make alterations, additions, repairs, improvements to or
in, or to decrease the size of area of all or any part of the Building, the
fixtures and equipment therein, the heating, ventilation, air-conditioning,
plumbing, electrical, fire protection, life safety, security and all mechanical
systems of the building ("Building Systems"), the common areas and all other
parts of the Building; (ii) to change the arrangement and/or location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets and other public parts of the Building and to create additional rentable
areas through use or enclosure of common areas; (iii) to change the Building's
name or street address or to change the room number or numbers of the Premises;
(iv) to install, affix and maintain any and all signs on the exterior and
interior of the Building.
SECTION 10. DAMAGE OR DESTRUCTION.
(a) In the event the Premises or any portion of the Building necessary for
Tenant's occupancy are damaged by fire, earthquake, act of God, the elements, or
other casualty, within thirty (30) days after that event, Landlord shall notify
Tenant of the estimated time, in Landlord's reasonable judgment, required for
repair or restoration. If the estimated time is thirty (30) days or less after
the commencement of the physical work and ninety (90) days or less after the
casualty event, Landlord shall proceed promptly and diligently to adjust the
loss with applicable insurers, to secure all required governmental permits and
approvals, and to repair or restore the Premises or the portion of the Building
necessary for Tenant's occupancy. This Lease shall remain in full force, except
that for the time unusable, Tenant shall receive a rental abatement for that
part of the Premises rendered unusable in the conduct of Tenant's business.
(b) If the estimated time for repair or restoration is in excess of thirty
(30) days after the commencement of the physical work or ninety (90) days after
the casualty event, Tenant or Landlord may elect to terminate this Lease as of
the date of the casualty event by giving notice to the other party within
fifteen (15) days following receipt of Landlord's notice of the estimated time
for repair.
SECTION 11. SUBROGATION.
Landlord and Tenant shall each obtain from their respective insurers
under all policies of fire, theft, public liability, worker's compensation, and
other insurance maintained during the term of this Lease covering the Building,
or any portion of it, or operations in it, a waiver of all rights of subrogation
that the insurer of one party might have against the other party. Landlord and
Tenant shall each indemnify the other against any loss or expense, including
reasonable attorney fees, resulting from the failure to obtain this waiver.
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SECTION 12. INSURANCE.
Tenant, at its expense, shall maintain in full force during the Term of
this Lease, a policy or policies of public liability and property damage
insurance insuring against all liability subject to standard ISO CGL policy
exclusions of Tenant and its representatives, agents and visitors for personal
or bodily injury or property damage arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property. Such policy or
policies subject to standard ISO CGL policy exclusions shall further insure the
indemnification obligations of Tenant under this Lease. Each policy of insurance
required under this Lease shall be in a form, in an account, and with an insurer
reasonably acceptable to Landlord, but no event less than $1,000,000 combined
single limit and shall require at least ten (10) days' written notice to
Landlord prior to any termination of the policy. Each policy of liability
insurance shall name the Landlord and its property managers as additional
insured and provide that it is primary, and not contributing with, any policy
carried by landlord covering the same loss. Tenant shall provide to Landlord,
upon request, evidence that the insurance required to be carried by Tenant is in
full force and effect and the premiums have been paid.
SECTION 13. INDEMNIFICATION.
(a) Tenant and Landlord each waives all claims against the other party for
damage to any property or injury or death of any person on the Premises arising
at any time and from any cause other than the sole negligence or willful
misconduct of the other party's employees, agents, or contractors. Tenant and
Landlord each shall hold the other party harmless from and defend the other
party against all claims, liability, damage, or loss arising out of any injury
or death of any person or damage to or destruction of property attributable to
the action or inaction of the indemnifying party, except that caused by the sole
negligence or willful misconduct the other party or its agents, contractors, or
employees. Tenant and Landlord each shall also hold the other party harmless
from any liability, cost, or expense arising from the indemnifying party's use
or storage on the property of any hazardous or toxic substance. These indemnity
obligations shall include reasonable attorney fees, investigation costs, and all
other reasonable costs incurred by the indemnified party from the first notice
that any claim or demand is to be made or may be made. The provisions of this
Section shall survive the termination of this Lease for any event occurring
prior to the termination.
SECTION 14. COMPLIANCE WITH LEGAL REQUIREMENTS.
At Tenant's sole cost, Tenant shall promptly comply with all laws and government
rules now or later in force; with the requirements of any board of fire
underwriters or other similar body now or in the future constituted; with any
direction or occupancy certificate issued by public officers ("Legal
Requirements"), insofar as they relate to the use, or occupancy of the Premises.
Excluded are (a) structural changes or changes to the electrical, mechanical, or
plumbing systems of the Building, except to the extent necessitated by Tenant's
acts or by improvements made for Tenant (other than the tenant improvements to
be made pursuant to this Lease by Landlord, (b) alterations or improvements to
the Building as a whole or the Premises of tenants generally that are not by law
the tenants' responsibility with which to comply and (e) work necessitated by
defects in the construction of the Building. Landlord shall comply in a timely
manner with all Legal Requirements that are not Tenant's responsibility under
this Section to the extent noncompliance would adversely affect Tenant's use or
occupancy of the Premises.
SECTION 15. ASSIGNMENT AND SUBLETTING.
(a) Except as otherwise expressly permitted by this Lease. Tenant shall
not without the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed, assign or
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hypothecate this Lease or any interest in this Lease, sublet the Premises or
any part of them, or license the use of the Premises by any party other than
Tenant. Neither this Lease nor any interest in this Lease shall be assignable
without the consent of Landlord, which shall not be unreasonably withheld or
delayed. Any of the previous acts without consent shall be void and shall, at
the option of Landlord, constitute a default under this Lease. Landlord shall
respond to Tenant's request for sublease within fifteen (15) days of receiving a
written request from Tenant and receipt of documentation regarding description
and financial condition of proposed Tenant and other necessary information as
required by Landlord.
(b) No sublessee shall have a right to further sublet without Landlord's
prior consent, which may not be unreasonably withheld, and any assignment by a
sublessee of the sublease shall be subject to Landlord's prior consent in the
same manner as if Tenant were entering into a new sublease.
(c) In the case of an assignment or subletting, any sums or economic
consideration received by Tenant as a result of the assignment or subletting
shall be paid to Landlord after first deducting (i) in the case of a sublet,
the rental due under this Lease, prorated to reflect only rental allocable to
the sublet portion of the Premises, (ii) any tenant improvements paid for by
tenant, and (iii) the cost of any real estate commissions, reasonable attorney
fees, or other third party professional services paid by Tenant in connection
with the assignment or subletting.
(d) Regardless of Landlord's consent, no subletting or assignment shall
release or alter Tenant's obligation or primary liability to pay the rental and
perform all other obligations under this Lease. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee or successor of Tenant in
the performance of any of the terms of this Lease, after notice of default to
Tenant pursuant to Section 18 and the expiration of any applicable cure period,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against the assignee or successor.
(e) If Tenant assigns this Lease, sublets the Premises, or requests the
consent of Landlord to any assignment, subletting, hypothecation, or other
action requiring Landlord's consent under this Lease, Tenant shall pay
Landlord's reasonable attorney fees incurred in connection with the action, not
to exceed nine hundred ($900.00) dollars.
SECTION 16. RULES.
Tenant shall comply with the rules attached to and incorporated in this
Lease as Exhibit C, and after notice, with all reasonable modifications and
additions to these rules, from time to time promulgated in writing by Landlord.
Landlord shall not be responsible to Tenant for the nonperformance of any of
these rules by any other tenant or occupant of the Building, but Landlord shall
take reasonable steps to enforce any rules, the nonperformance of which by other
tenants materially and adversely affects Tenant in the use of the Premises.
However, if any rule conflicts with any term, covenant, or condition of this
Lease, this Lease shall prevail. In addition, no rule, or any subsequent
amendments to it adopted by Landlord shall alter, reduce, or adversely affect
any of Tenant's rights or enlarge Tenant's obligations under this Lease.
SECTION 17. ENTRY BY LANDLORD.
Landlord may enter the Premises at reasonable hours with notice to Tenant
to (a) inspect the Premises; (b) exhibit the Premises to prospective purchasers,
lenders, or tenants; (c) determine whether Tenant is complying with all
obligations under this Lease; (d) supply janitorial service and
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any other services to be provided by Landlord under this Lease; (c) post notices
of nonresponsibility; and (f) make repairs or perform maintenance required of
Landlord by this Lease, make repairs to any adjoining space or utility services,
or make repairs, alterations, or improvements to any other portion of the
Building. However, all this work shall be done as promptly as reasonably
possible and cause as little interference to Tenant as reasonably possible.
Subject to Landlord's undertakings in the previous sentence, Tenant waives any
damage claims for inconvenience to or interference with Tenant's business or
loss of occupancy or quiet enjoyment of the Premises caused by Landlord's entry.
At all times Landlord shall have a key with which to unlock the doors on the
Premises, excluding Tenant's vaults, safes and similar areas designated as
secure areas in writing by Tenant in advance. In an emergency, Landlord shall
have the right to use any means that Landlord deems proper to open Tenant's
doors and enter the Premises. Entry to the Premises by Landlord in an emergency
shall not be construed as a forcible or unlawful entry, a detainer, or an actual
or constructive eviction of Tenant.
SECTION 18. EVENTS OF DEFAULT.
The following events shall constitute events of default under this Lease
(each an Event of Default):
(a) failure by Tenant to pay when due any rent or other sum payable under
this Lease and the continuation of the failure for ten (10) or more days after
notice of the default from Landlord;
(b) failure to make payments of rent when due under this Lease three (3)
or more times during any twelve (12) month period during the term of this
Lease;
(c) a default by Tenant in the performance of any of the terms, covenants,
agreements, or conditions in this Lease, other than a default by Tenant in the
payment when due of any rent or other sum payable under this Lease, and the
continuation of the default beyond fifteen (15) days after notice by Landlord
or, if the default is curable and would require more than fifteen (15) days to
remedy, beyond the time reasonably necessary for cure, provided, however, that
if Tenant has defaulted in the performance of the same obligation two (2) or
more times in twelve (12) months and notice of the default has been given by
Landlord in each instance, no notice shall be required after this until the
expiration of twelve (12) months without any default by Tenant;
(d) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud
of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of proceedings of any kind by or against Tenant under the Federal
Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act,
unless Tenant is discharged from voluntary proceedings within ninety (90) days;
(e) the appointment of a receiver for a substantial part of Tenant's
assets;
(f) the abandonment of the Premises; and
(g) the levy upon this Lease or any estate of Tenant under this Lease by
attachment or execution and failure to have the attachment or execution vacated
within sixty (60) days.
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SECTION 19. TERMINATION UPON DEFAULT.
On occurrence of any Event of Default by Tenant, Landlord may, in addition
to any other rights and remedies given here or by law, terminate this Lease and
exercise remedies relating to it without further notice or demand in accordance
with the following provisions:
(a) So long as the Event of Default remains uncured, Landlord shall have
the right to give notice of termination to Tenant, and on the date specified in
this notice, this Lease shall terminate.
(b) If this Lease is terminated, Landlord may, by judicial process, reenter
the Premises, remove all persons and property, and repossess and enjoy the
Premises, all without prejudice to other remedies that Landlord may have because
of Tenant's default or the termination.
(c) If this Lease is terminated by Landlord, Landlord shall have all of the
rights and remedies of a landlord provided by Civil Code (S) 1951.2, in addition
to any other rights and remedies Landlord may have. The damages which Landlord
may recover shall include, without limitation (i) the worth at the time of award
of the unpaid rent which had been carried at the time of termination; (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of the award exceeds the
amount of the rental loss that Tenant proves could have been reasonably avoided;
(iii) the worth at the time of award computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%) of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of rental loss that Tenant
proves could be reasonably avoided; (iv) all reasonable legal expenses and other
related costs incurred by Landlord following Tenant's default; (v) all
reasonable costs incurred by Landlord in restoring the Premises to good order
and condition to relet the Premises; and (vi) all reasonable costs, including
without limitation, any brokerage commissions incurred by Landlord in reletting
the Premises. The remedies provided in this Lease are in addition to any other
remedies available to Landlord at law, in equity, by statute, or otherwise.
(d) Event though Tenant has breached this Lease and abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession and Landlord may enforce all rights and remedies
under this Lease, including the right to recover the rental as it becomes due
under this Lease. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver upon initiative of landlord to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession.
SECTION 20. ATTORNEY FEES.
If, as a result of a breach or default under this Lease, Landlord uses an
attorney to secure compliance with Lease provisions to recover damages, to
terminate this Lease, or to evict Tenant, Tenant shall reimburse Landlord, on
demand, for all reasonable attorney fees and expenses incurred by Landlord;
provided that, if Tenant becomes the prevailing party in any legal action
brought by Landlord, Tenant shall be entitled to recover reasonable attorney
fees and expenses incurred by Tenant and need not reimburse Landlord for any
attorney fees and expenses incurred by Landlord.
SECTION 21. EMINENT DOMAIN.
If all or any part of the Premises are taken through eminent domain, this Lease
shall terminate for the part taken as of the date of taking. For a partial
taking, either Landlord or Tenant shall have the right to terminate this Lease
for the balance of the Premises by notice to the other within thirty
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(30) days after the taking. However, Tenant's right to terminate arises only if
the portion of the Premises taken substantially handicaps, impedes, or impairs
Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to all compensation, damages, income, rent, awards,
or any interest that may be paid in connection with the taking, except for any
portion specifically awarded to Tenant for moving expenses, trade fixtures,
equipment, and any leasehold improvements in the Premises to the extent of the
then unamortized value of these improvements for the remaining term of the
Lease as determined in the award. However, Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise, other
than for prepaid rent. In the event of a partial taking of the Premises that
does not result in a termination of this Lease, the subsequent monthly rental
shall be equitably reduced.
SECTION 22. ESTOPPEL CERTIFICATE.
At any time with at least fifteen (15) days' prior notice by Landlord,
Tenant shall execute, acknowledge, and deliver to Landlord a certificate in a
form satisfactory to Landlord certifying: (a) that this Lease is unmodified and
in full force or, if there have been modifications, that this Lease is in full
force, as modified, together with the date and nature of each modification. (b)
the amount of the Base Rent, most recent Escalation Rent, if any, and the date
to which the rent has been paid, (c) that no notice has been received by Tenant
of any default that has not been xxxx, except defaults specified in the
certificate, (d) that no default of Landlord is claimed by Tenant, except
defaults specified in the certificate, and (e) other matters as may be
reasonably requested by Landlord. Any certificate may be relied on by
prospective purchasers, mortgagees, or beneficiaries under any deed of trust on
the Building or any part of it.
SECTION 23. HOLDING OVER.
(a) If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month-to-month on the terms specified in this Lease, except those
pertaining to term, option to extend, but at a monthly rental negotiable between
the Parties, payable in advance on or before the first day of each month. Each
party shall give the other notice of intention to terminate the tenancy at least
one (1) month prior to the date of termination of a monthly tenancy
(b) If, over Landlord's objection, Tenant holds possession of the Premises
after expiration of the term of this Lease or expiration of the holdover
tenancy. Tenant shall be deemed to be a tenant-at-sufferance and, without
limiting the liability of Tenant for unauthorized occupancy of the Premises,
Tenant shall indemnify Landlord and any replacement tenant for the Premises for
any damages or loss suffered by either Landlord or the replacement tenant
resulting from Tenant's failure to vacate the Premises in a timely manner. The
monthly rental shall be at one hundred and fifty percent (150%) of the then
prevailing monthly rental paid by tenant.
SECTION 24. SECURITY DEPOSIT.
Tenant has deposited with Landlord the sum specified in the Basic Lease
Information (Deposit). The Deposit shall be held by Landlord as security for the
faithful performance by Tenant of all provisions of this Lease. If Tenant fails
to pay rent or other sums due under this Lease or defaults with respect to any
provision of this Lease, Landlord may use, apply, or retain all or any portion
of the Deposit for the payment of rent or other sums in default, for the payment
of any other sums to which Landlord may become obligated because of Tenant's
default, or to compensate Landlord for any loss or damage that Landlord may
suffer because of the Tenant's actions. If Landlord uses or applies the Deposit,
Tenant shall, within ten (10) days after demand,
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deposit cash with Landlord in an amount sufficient to restore the Deposit to the
full amount, and Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep the Deposit separate from
Landlord's general accounts. If Tenant performs all of Tenant's obligations
under this Lease, the Deposit or the amount not applied by Landlord shall be
returned, without interest, to Tenant or at Landlord's option, to the last
assignee, if any, of Tenant's interest under this Lease at the expiration of the
Term and after Tenant has vacated the Premises. No trust relationship is created
between Landlord and Tenant with respect to the Deposit.
SECTION 25. LANDLORD'S LIABILITY.
Notwithstanding any other term or provision of this Lease, the liability of
the Landlord for its obligations under this lease is limited solely to
Landlord's interest in the Property as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's
stockholders, directors, officers or partners on account of any of the
Landlord's actions or obligations under this Lease. In addition, in the event of
the conveyance of title to the Building or the Project, then from and after the
date of such conveyance, Landlord shall be relieved of all liability with
respect to Landlord's obligations to be performed under this Lease.
SECTION 26. BROKERS.
Tenant warrants and represents to Landlord that in the negotiating or
making of this Lease neither Tenant nor anyone acting on its behalf has dealt
with any real estate broker or finder who might be entitled to a fee or
commission for this Lease other than the Broker identified in Exhibit A: Basic
Lease information, whose commission is to be paid by Landlord. Tenant agrees to
indemnify and hold Landlord harmless from any claim or claims, including costs
expenses and attorney's fees incurred by Landlord, asserted by any other broker
or finder for a commission based upon any dealings with or statements made by
Tenant or its representatives.
SECTION 27. SMOKING.
Smoking in the offices is prohibited.
SECTION 28. ENTIRE AGREEMENT.
There are no oral agreements between Landlord and Tenant affecting this
Lease, and this Lease supersedes and cancels all previous negotiations,
arrangements, brochures, agreements, and understandings between Landlord and
Tenant or displayed by Landlord to Tenant with respect to the subject matter of
this Lease. There are no representations between Landlord and Tenant other than
those contained in this Lease. All implied warranties, including implied
warranties of merchantability and fitness, are excluded.
SECTION 29. ILLEGALITY OR UNENFORCEABILITY OF PORTION OF LEASE.
If any provision of this Lease is determined to be illegal or
unenforceable, this determination shall not affect any other provision of this
Lease, and all other provisions shall remain in full force and effect.
SECTION 30. GOVERNING LAW.
This Lease shall be governed by and construed pursuant to law of the State
of California.
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SECTION 31. PARKING.
Tenant shall have the option to rent two (2) reserved parking spaces in Lot
A and two (2) in Lot B from Landlord for the duration of this Lease at the
prevailing building rate. Tenant shall be allowed its pro-rata share of parking
permits for Lot B so long as spaces are available.
SECTION 32. OPTION TO EXPAND.
Tenant shall have the option to expand into the adjacent premises, as shown in
Exhibit B anytime during the initial eighteen (18) months of the lease term. The
terms and conditions of the lease for the expansion space shall remain the same
as the original lease, and the tenant improvement contribution and rental rate
shall run parallel to the terms, subject to rental adjustments, as set forth in
the original lease.
SECTION 33. QUIET ENJOYMENT.
Landlord agrees to and shall in the commencement of this Lease place Tenant in
quiet possession of the premises and shall secure it in the quiet possession
thereof against all persons lawfully claiming the same during the lease term.
SECTION 34. RIGHT OF FIRST REFUSAL.
Tenant shall have a one (1) time right of first refusal to lease the adjacent
premises or any part thereof, as designated on Exhibit B, during the first
thirty-six (36) months of the lease term. Landlord shall provide Tenant with an
executed letter of intent which shall set forth a) the term of the lease, b)
the rent to be paid and c) the tenant improvement allowance from Landlord.
Tenant shall have ten (10) days from the date of receipt of this notice within
which to provide Landlord with written notice of either acceptance or rejection.
In the event notice is not received within ten (10) days, it shall be deemed
that Tenant rejects this right of first refusal.
SECTION 35. TEMPORARY OCCUPANCY.
Tenant shall be allowed the use of temporary space in the building of at least
three thousand (3,000) rentable square feet. The rental rate shall be Three
Thousand Dollars ($3,000.00) per month, fully serviced, until such time as
Landlord delivers the third floor premises to Tenant Substantially Complete.
SECTION 36. AUTOMATIC SUBORDINATION.
This lease is subject and subordinate to
(a) The lien of any mortgages, deeds of trust, or other encumbrances of
the Building and real Property;
(b) All present and future ground or underlying leases of the Building and
real Property now or hereafter in force against the Building and real Property;
(c) All renewals, extensions, modifications, consolidations, and
replacements of the items described in subparagraphs (a) - (b): and
(d) All advances made or hereafter to be made on the security of the
Encumbrances.
Despite any other provision of this Section 36, any Encumbrance holder or lessor
may elect that this lease shall be senior to and have priority over that
Encumbrance or Underlying Lease whether this lease is dated before or after the
date of the Encumbrance or Underlying Lease.
Tenant covenants and agrees to attorn to the transferee of Landlord's interest
in the Real Property by foreclosure, deed in lieu of foreclosure, exercise of
any remedy provided in any Encumbrance or Underlying Lease, or operation of law
(without any deductions or setoffs), if requested to do so by
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the transferee, and to recognize the transferee as the lessor under this Lease,
provided Transferee agrees to Tenant's quiet possession. The transferee shall
not be liable for:
(a) Any acts, omissions, or defaults of Landlord that occurred before the
sale or conveyance or
(b) the return of any security deposit expect for deposits actually paid
to the transferee.
SECTION 37. EXHIBITS.
The exhibits specified in the Basic Lease Information are attached to this
Lease and by this reference made a part of it.
The parties have executed this Lease as of the date first set forth above.
Landlord: Tenant:
HAMM'S BUILDING ASSOCIATES, a 280 INC., a California Corporation
California Limited Partnership
by: RHGA, Inc., General Partner
By: /s/ Rubin Glickman By /s/ Michael Baum
------------------------------- --------------------------------
Rubin Glickman, President Michael Baum
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Exhibit B. Description of the Premises
[Floor Plan Omitted]
<PAGE>
EXHIBIT C. RULES
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators, and stairways of the Building shall not be obstructed by
any of the tenants or used for any purpose other than for ingress to and egress
from their respective Premises. The halls, passages, exits, entrances, shopping
malls, elevators, escalators, and stairways are not for the general public, and
Landlord shall in all cases retain the right to control and prevent access to
them by all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation, and interests of the Building
and its tenants. However, nothing here shall be construed to prevent access to
persons with whom any tenant normally deals in the ordinary course of business,
unless these persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go on the roof of the Building.
2. A sign, placard, picture, name advertisement, or notice visible from
the exterior of any tenant's Premises shall not be inscribed, painted, affixed,
or otherwise displayed by any tenant on any part of the Building without the
prior written consent of Landlord. Landlord will adopt and furnish to tenants
general guidelines relating to signs inside the Building on the office floors.
Each tenant shall conform to these guidelines, but may request approval of
Landlord for modifications, which will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed, or
inscribed at the expense of the tenant by a person approved by Landlord, which
will not be unreasonably withheld. Material visible from outside the Building
will not be permitted.
3. The Premises of each tenant shall not be used for the storage of
merchandise held for sale to the general public or for lodging. No cooking
shall be done or permitted by any tenant on the Premises, except that (a) each
tenant may establish and operate a lunchroom facility for use by tenant's
employees, and (b) each tenant may use and install food and beverage vending
machines and Underwriter's Laboratory approved microwave ovens and equipment for
brewing coffee, tea, hot chocolate, and similar beverages, provided that
adequate provisions are made for venting and control of odors and all facilities
and equipment are in accordance with all applicable federal, state, and city
laws, codes, ordinances, rules, and regulations.
4. No tenant shall employ and person other than Landlord's janitorial
service for cleaning the Premises, unless otherwise approved by Landlord. No
person other than those approved by Landlord shall be permitted to enter the
Building to clean it. No tenant shall cause any unnecessary labor because of
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
9.30 p.m. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms.
5. Landlord will furnish each tenant, free of charge, two keys to each
door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. No tenant shall have any keys made. No tenant shall alter
any lock or install a new or additional lock or any bolt on any door of the
premises without the prior consent of Landlord which will not be unreasonably
withheld. The tenant shall in each case furnish Landlord with a key for any
lock. Each tenant, upon the termination of the tenancy, shall deliver to
Landlord all keys to doors in the Building that have been furnished to the
tenant.
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6. The freight elevator shall be available for use by all tenants in the
Building, subject to reasonable scheduling as Landlord deems appropriate. The
persons employed to move equipment in or out of the Building must be acceptable
to Landlord. Landlord shall have the right to prescribe the weight, size and
position of all equipment, materials, furniture, or other property brought into
the Building. Heavy objects shall, if considered necessary by Landlord, stand on
wood strips of a thickness necessary to properly distribute the weight. Landlord
will not be responsible for loss of or damage to any property from any cause,
and all damage done to the Building by moving or maintaining property shall be
repaired at the expense of the tenant.
7. No tenant shall use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible fluid or material other than
limited quantities reasonably necessary for the operation or maintenance of
office equipment, and may not, without Landlord's prior approval, use any method
of heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep any foul, noxious, or hazardous gas or substance in the
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building
because of noise, odors, or vibrations, or interfere in any way with other
tenants or those having business in the Building. No pets shall be kept in the
Premises.
8. Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and
legal holidays any person who does not present a proper access card or other
identification as a tenant or an employee of a tenant, or who does not otherwise
present proper authorization by a tenant for access to the premises. Each tenant
shall be responsible for all persons for whom it authorizes access and shall be
liable to Landlord for all acts of these persons. Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the Building of any person. In the case of invasion, mob, riot, public
excitement, or other circumstances rendering an action advisable in Landlord's
opinion, Landlord reserves the right to prevent access to the Building during
the continuance of the circumstance by any action Landlord deems appropriate.
10. A directory of the Building will be provided to display the name and
location of tenants, their subtenants, and a reasonable number of the principal
officers and employees of tenants, and Landlord reserves the right to exclude
any other names. Any additional name that a tenant desires to have added to the
directory shall be subject to Landlord's approval and may be subject to a
charge.
11. No curtains, draperies, blinds, shutters, shades, screens, or other
coverings, hangings, or decorations shall be attached to, hung, or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, these items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages,
and other products or services shall be subject to reasonable regulations as may
be adopted by Landlord.
13. Each tenant shall see that the doors of the premises are closed and
locked and that all water faucets or apparatus, cooking facilities, and office
equipment, excluding office equipment
21
<PAGE>
required to be operative at all times, are shut off before the tenant or
employees leave the Premises at night, so as to prevent waste or damage. For any
default or carelessness in this regard the tenant shall be responsible for any
damage sustained by other tenants or occupants of the Building or Landlord. On
multiple-tenancy floors, tenants shall keep the doors to the Building corridors
closed at all times except for ingress and egress.
14. The toilets, urinals, wash bowls, and other rest room facilities shall
not be used for any purpose other than that for which they were constructed. No
foreign substance of any kind shall be thrown in them, and the expense of any
breakage, stoppage, or damage resulting from the violation of this rule shall be
borne by the tenant who, or whose employees or invitees, have caused it.
15. Except with the prior consent of Landlord, no tenant shall sell, or
permit the sale at retail of newspapers, magazines, periodicals, theater
tickets, or any other goods or merchandise to the general public in the
Premises, nor shall any tenant carry on, permit, or allow any employee or other
person to carry on the business of stenography, typewriting, or any similar
business in or from the Premises for the service or accommodation of occupants
of any other portion of the Building, nor shall the Premises of any tenant be
used for manufacturing of any kind, or any business or activity other than that
specifically provided for in the tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building.
17. No motorcycles or motor scooters shall be parked or stored anywhere in
the Building other than the garage of the Building, and no bicycles may be
parked or stored anywhere in the Building other than in facilities provided in
the garage or the Common Area of the Building.
18. Hand trucks or other material handling equipment, except those
equipped with rubber tires and side guards, may not be used in any portion of
the Building unless approved by Landlord.
19. Each tenant shall store refuse within that tenant's premises. No
material of a nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of refuse in the city of San
Francisco without being in violation of any law or ordinance governing this
disposal shall be placed in the refuse boxes or receptacles. All refuse disposal
shall be made only through entryways and elevators provided for these purposes
and at the times Landlord shall designate.
20. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the Building is prohibited, and each tenant shall
cooperate to prevent this type of occurrence.
21. Smoking of cigarettes, cigars, pipes, or any other form of tobacco is
prohibited in the Building. Tenant shall not permit its employees, guest or
invitees to smoke in any portion of the Building or Premises.
22. The requirements of the tenants will be attended to only on
application by telephone or in person at the office of the Building. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
22
<PAGE>
23. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant, so long as Tenant's use of the Premises is
not adversely affected by the waiver, and no waiver by Landlord shall be
construed as a waiver of the Rules in favor of any other tenant, nor prevent
Landlord from later enforcing any of the Rules against any of the tenants of the
Building.
24. These Rules are in addition to, and shall not be construed to modify
or amend, in whole or in part, the terms, covenants, agreements, and conditions
of any lease of Premises in the Building.
25. Landlord reserves the right to make other reasonable rules as Landlord
judges may be needed for the safety, care, and cleanliness of the Building, and
for the preservation of good order, provided that Tenant's use and occupancy of
the Premises shall not be adversely affected by other rules.
23
<PAGE>
EXHIBIT D
CONSTRUCTION RIDER
------------------
1. TENANT IMPROVEMENTS
-------------------
Landlord shall, with reasonable diligence through a contractor selected by
Landlord construct and install in the Premises the improvements and fixtures
provided for on the attached Exhibit E ("Construction Documents"). Improvements
consisting of the type and amount of work and materials described on Exhibit E
attached to this Construction Rider and referred to herein as "Building Standard
Tenant Improvements." All Tenant Improvements in addition to or in substitution
for or modification of the Building Standard Tenant Improvements are referred to
herein as "Above-Standard Tenant Improvements." In the event that Landlord is
required to make significant alterations to the Building (other than to the
Premises) as a condition of obtaining a building permit to construct the Tenant
Improvements, Landlord at its option may terminate this Lease and be relieved of
any further obligation hereunder other than the return of the security deposit
and any prepaid rent. Landlord shall have thirty (30) days from receipt of a
building permit to notify Tenant of said termination, if any.
2. PLANS
-----
Landlord will retain Keith Hooks as the space planner/architect for the
Premises ("Space Planner") who will prepare Construction Documents for the
Premises.
Additional interior decorating services and advice on the furnishings and
decoration of the Premises, such as the selection of fixtures, furnishings,
design of millwork or other Above Standard Tenant Improvements required by
Tenant, shall be provided by Tenant at its expense, but shall be subject to the
reasonable approval of Landlord.
3. CONSTRUCTION
------------
Upon Landlord's receipt of the Construction Documents by the Space Planner,
Landlord shall use best efforts to cause the Tenant Improvements to be
Substantially Completed on or prior to the Scheduled Commencement Date. The term
"Substantially Complete" or "Substantial Completion" as used in the Lease or
this Agreement shall mean; (1) the shell and core of the Building are complete
and in compliance with all applicable laws, statutes, codes, rules and
regulations (collectively, "Laws" and all of the Building's heating,
ventilating, air-conditioning ("HVAC"), and plumbing, life safety, telephone
cable, mechanical and/or electrical Systems (collectively, "Building Systems")
are operational to the extent necessary to service the Premises; (2) Landlord
has sufficiently completed all work required to be performed by Landlord in
accordance with this Construction Rider (except for finishing details, minor
omissions, decorations and mechanical adjustments of the type normally found on
an architectural "punch list" and minor punch list items the completion of which
will not interfere with Tenant's ability to conduct Tenant's normal business
operations in the Premises) such that Tenant can conduct normal business
operations from the Premises; and (3) Landlord has obtained a certificate of
occupancy for the Building, or a temporary certificate of occupancy for that
portion of the building that includes all of the Premises, or its equivalent.
24
<PAGE>
Following Substantial Completion of the Tenant Improvements and within
thirty (30) days after Tenant takes possession of the Premises, Landlord and
Tenant shall inspect the Premises and jointly prepare a "punch list" of agreed
items of construction remaining to be completed. Landlord shall complete the
items set forth in the punch list as soon as reasonably possible. Tenant shall
cooperate with and accommodate Landlord and its workers in completing the items
on the punch list.
The Tenant Improvements shall be limited to the Building Standard Tenant
improvements, and only additional alterations or improvements to the Premises
desired by Tenant shall be made after the commencement of the term of the Lease
and shall be subject to the provisions of Section 8 "Alterations" of the Lease.
4. COST OF TENANT IMPROVEMENTS
---------------------------
Landlord shall contribute Twenty Five Dollars ($25,00) per rentable square foot
towards the cost of the Tenant Improvements (The "TENANT IMPROVEMENT ALLOWANCE")
from existing "As Is" condition. The Tenant Improvement cost to be paid from the
Tenant Improvement Allowance, shall include but not be limited to:
(a) All costs of permit, architecture, engineering, plans and
specifications for the Tenant Improvements.
(b) All costs of obtaining building permits and other necessary
authorizations for the City of San Francisco.
(c) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises.
(d) Cost of Construction Management Services (not to exceed $10,000,00).
(e) The cost of installing a separate meter for utilities.
Tenant shall be responsible for all costs of design, construction and related
costs, in excess of Landlord's initial Tenant Improvement Allowance ("Tenant's
Construction Costs").
5. CHANGES
-------
If Tenant requests any change, addition in or to any Construction Documents
("Changes"), Landlord shall cause the architect and contractor to prepare
additional Plans and estimates implementing such Change. As soon as practicable
after the completion of such additional plans and estimates, the Landlord shall
provide Tenant with the estimated cost of the Changes. Within three (3) working
days after receipt of such cost estimate, Tenant shall notify Landlord in
writing whether Tenant approves the Change.
If Tenant approves the Change, Landlord shall proceed with the Change and Tenant
shall be liable for any Additional Cost resulting from the Change including
architectural costs, permit and related fees, and all costs of construction
related to said change. If Tenant fails to approve the Change within such three
(3) day period, construction of the Tenant Improvements shall proceed as
provided in accordance with the original Construction Documents.
6. DELAYS
------
Tenant shall be responsible for, and shall pay to Landlord, any and all
costs and expenses incurred by Landlord in connection with any delay in the
commencement or completion of any
25
<PAGE>
Tenant improvements and any additional cost caused by (i) Tenant's failure to
approve any space plan or Construction Documents within the time periods
herein, (ii) any delays in obtaining any items or materials constituting part
of the Above Standard Tenant Improvements requested by Tenant, or (iii) any
other delay requested or caused by Tenant ("Tenant Delay"). The term "Landlord
Delay" as used in this Agreement, or the Addendum shall mean any delay in the
completion of the Tenant Improvements which is due to any act or omission of
Landlord (wrongful, negligent or otherwise), its agents or contractors
(including acts or omissions while acting as agent or contractor for Tenant).
The term Landlord Delay shall include, but shall not be limited to any; (1)
delay in the giving of authorizations or approvals by Landlord; (2) delay
attributable to the acts or failures to act, whether willful, negligent or
otherwise, of Landlord, its agents or contractors, where such acts or failures
to act delay the completion of the Tenant Improvements; and (3) delay
attributable to Landlord's failure to allow Tenant sufficient access to the
Building and/or Premises during the move-in period to move into the Premises
over one (1) weekend. In no event shall Tenants remedies or entitlements for the
occurrence of a Landlord Delay be abated, deferred, diminished or rendered
inoperative because of a prior, concurrent, or subsequent delay resulting from
any action or inaction of Tenant. No Landlord Delay shall be deemed to have
occurred unless and until Tenant has given written notice to Landlord specifying
the action or inaction which Tenant contends constitutes a Landlord Delay. If
such action or inaction is not cured within five (5) business days after
Landlord's receipt of such notice, then a Landlord Delay, as set forth in such
notice, shall be deemed to have occurred commencing as of the date Landlord
received such notice and continuing for the number of days the Substantial
Completion of the Premises was in fact delayed as a direct result of such action
or inaction.
Notwithstanding the Commencement Date provided in the Leasae, Tenant's
obligation for the payment of rent thereunder shall not commence until Landlord
has substantially completed all work to be performed by Landlord as set forth
herein; provided, however, that
(a) if Landlord is delayed in Substantially Completing the Tenant
Improvements solely as a result of Tenant Delay, then the abatement of rent
provided for herein shall continue only until the date on which Landlord would
have Substantially Completed the Tenant Improvements but for such delays
(b) in the event Landlord is unable to tender possession of the
Premises, Substantially Complete, to Tenant on the Scheduled Commencement Date
due to Force Majeure Delay or Landlord Delay, The Commencement Date, and the
commencement of the abatement of rent afforded Tenant, shall be postponed until
the date upon which Landlord shall tender possession of the Premises with the
Tenant improvements Substantially Complete to Tenant Additionally, to the extent
that Landlord is unable to so tender possession due to Landlord Delay, Tenant
shall receive one (1) additional day of rental abatement for each such day of
Landlord Delay.
7. COMMENCEMENT OF TERM
--------------------
Upon Substantial Completion of the Tenant Improvements, Landlord shall
deliver possession of the Premises to Tenant. If Landlord has not Substantially
Completed the Tenant Improvements and tendered possession of the Premises to
Tenant on or before the Scheduled Commencement Date specified in Section 3 xxxx
Condition of Premises" of the Lease, or if Landlord, using its best efforts, is
unable for any other reason to deliver possession of the Premises to Tenant on
or before such date, neither Landlord nor its representatives shall be liable to
Tenant for any damage resulting from the delay in completing such construction
obligations and/or
26
<PAGE>
delivering possession to Tenant and the Lease shall remain in full force and
effect unless and until it is terminated under the express provisions of this
Paragraph. In such event the Commencement Date shall be the actual date of
delivery of possession of the Substantially Completed Premises to Tenant,
provided, however, that if and to the extent that any delays in the Commencement
Date are attributable to (1) delays by Tenant to submitting information to the
Space Planner or in approving Construction Documents, (ii) any delays in
obtaining any items or materials constructing part of the Above Standard Tenant
Improvements requested by Tenant, or (iii) any other early requested by or
caused by Tenant Delay, then the term of the lease shall commence and the
Commencement Date shall be deemed to have occurred on the date which Landlord
would have Substantially Completed the Premises and tendered the premises to
Tenant but for such Tenant Delay.
8. ACCESS TO PREMISES
------------------
Landlord, at its discretion, may allow Tenant or Tenant's Representatives
to enter the Premises prior to the Commencement Date to permit Tenant to make
the Premises ready for its use and occupancy, provided, however, that prior to
such entry of the Premises, Tenant shall provide evidence reasonably
satisfactory to Landlord that Tenant's insurance, as described in Section 12-
"Insurance," shall be in effect as of the time of such entry. Such permission
may be revoked at any time upon twenty-four (24) hours notice, and Tenant or its
Representatives shall not interfere with Landlord or Landlord's contractor in
completing the Tenant Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry of the Premises by Tenant
or its Representatives.
9. OWNERSHIP OF TENANT IMPROVEMENTS
--------------------------------
All Tenant Improvements, whether Building Standard or Above Standard and
whether installed by Landlord or Tenant, shall become a part of the Premises,
shall be the Property of Landlord and shall be surrendered by Tenant with the
Premises, without any compensation to Tenant, at the expiration or termination
of the Lease in accordance with Section -8- "Alterations" of the Lease.
[Initials of Landlord]__ __ [Initials of Tenant]__ __
27
<PAGE>
EXHIBIT A
EXPANSION AGREEMENT
This Expansion Agreement will incorporate the terms and conditions of the Lease
executed by 280 Inc., a California Corporation and Hamm's Building Association,
a California Limited Partnership on May 1st, 1996 and where the terms and
conditions differ, the Expansion Addendum will prevail.
LANDLORD: Hamm's Building
TENANT: 280 Inc.
PREMISES: That portion of the third floor
designated on the attached floor plan.
RENTABLE AREA
OF PREMISES: Approximately 4,247.
COMMENCEMENT DATE: Upon Landlord's substantial completion
of Tenant improvements.
TERMINATION DATE: September 17, 2001.
RENT: a. $5833.11 per month which includes
$0.12 /square foot per month to reflect
utility usage and the sum of $354.48 per
month to reflect amortization of $14,152
of Tenant Improvement Cost.
b. As of September 17, 1998, the above
rent shall be increased by 4% per annum
until lease expiration.
SECURITY DEPOSIT: Tenant shall pay a security deposit of
$5,833.11 and first months rent of
$5,833.11 upon occupancy of the subject
space.
TENANT PERCENTAGE OF
OPERATING EXPENSES AND
PROPERTY TAX ESCALATIONS: 3.76
CONSTRUCTION RIDER: Tenant shall be allowed the sum of
$124,128 towards the cost of
improvements from existing "AS IS"
condition. In the event any changes are
made either by yourself or the City of
San Francisco or additional costs are
<PAGE>
incurred, you shall be responsible for that
difference to be paid at time of occupancy,
CONSTRUCTION: Tenant and Landlord have executed and
approved plans and specifications which will
built in accordance with those documents. The
Construction Rider attached to the Lease of
May 1st, 1996 shall be amended by this
Expansion Amendment.
PARKING; Tenant shall be allowed one additional
parking space in Lot A at the prevailing
rate.
HAMM'S BUILDING ASSOCIATES, a 280 INC., a California
California Limited Partnership Corporation
By: RHGA, Inc., General Partner
BY: /s/ Rubin Glickman By: /s/ Michael Baum
------------------ ----------------
Rubin Glickman Michael Baum
<PAGE>
EXHIBIT 10.55
$360,000.00 July 24, 1998
Sunnyvale, California
SECURED PROMISSORY NOTE
("NOTE")
Quando, Inc., an Oregon corporation (the "COMPANY"), for value received,
promises to pay to the order of Infoseek Corporation, a California corporation
(the "LENDER") the principal sum of $360,000.00, plus interest thereon from the
date hereof until paid. Interest shall accrue on unpaid principal at the rate
of six percent (6%) per annum. All principal and interest shall be due and
payable on March 31, 1999, (the "DUE DATE"). Payment of principal and interest
shall be made in lawful money of the United States to the holder of this Note at
the Company's principal offices in Sunnyvale, California or, at the option of
the Lender, at such other place in the United States as such Lender shall have
designated to the Company in writing.
The following is a statement of the other terms and conditions to
which this Note is subject and to which the Lender, by the acceptance of this
Note, agrees:
1. Payment; Prepayment
-------------------
All payments under this Note, including prepayments, will be applied first
to the payment of expenses due under this Note, second to interest accrued on
this Note and third, if the amount of prepayment exceeds the amount of all such
expenses and accrued interest, to the payment of the principal amount. The
Company shall have the right to prepay without penalty, in whole or in part, the
unpaid principal and interest due on this Note as of the date of such
prepayment, provided that the Company gives notice to Lender at least three (3)
days in advance of such prepayment.
2. Security
--------
The performance of the obligations of the Company under this Note
are secured by a security interest in the Company's assets as described in
Schedule A attached hereto. The Company shall deliver to the Lender,
- ----------
contemporaneously with the Company's execution of this Note, an executed
financing statement on Form UCC-1 to enable the Lender to perfect such lien.
3. Events of Default
-----------------
3.1 If one or more of the following events (herein called
"EVENTS OF DEFAULT") shall have occurred and be continuing, that is to say:
<PAGE>
(a) if default shall be made in the due and punctual payment of
the principal and/or accrued interest of this Note when and as the same shall
become due and payable, whether at maturity, by acceleration or otherwise;
(b) if the Agreement and Plan of Reorganization, dated July 24,
1998, between the Lender, the Company and certain other parties (the
"REORGANIZATION AGREEMENT") is terminated for any reason other than failure of
the parties thereto to consummate the transactions contemplated thereby by
December 31, 1998;
(c) if the Company shall default beyond any period of grace
provided with respect thereto in the payment of principal of or interest on any
obligation in respect of borrowed money when due, whether by acceleration or
otherwise, and shall be continuing for five (5) business days following written
notice to the Company; or if the Company shall default in the performance or
observance of any other agreement, term or condition contained in such
obligation or in any agreement under which any such obligation is created, if
the effect of any such default is to cause or permit the holder or holders of
such obligations (or a trustee on behalf of such holder or holders) to cause
such obligation to become due prior to the date of its stated maturity, unless
such holder or holders or trustee shall have waived such default after its
occurrence or unless such holder or holders or trustee shall have failed to give
any notice required to create a default thereunder;
(d) if the Company shall:
(i) admit in writing its inability to pay its debts
generally as they become due ;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt;
(vi) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States
of America or any state, district or territory
thereof;
(e) if a court of competent jurisdiction or any other
governmental body or agency shall enter an order, judgment, or decree
appointing, without the consent of the Company or a receiver of the Company of
the whole or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Company under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any State, district or territory thereof, and
-2-
<PAGE>
such order, judgment or decree shall not be vacated or set aside or stayed
within 60 days from the date of entry thereof;
(f) if, under the provisions of any other law, any court of
competent jurisdiction or any other governmental body or agency shall assume
custody or control of the Company or of the whole or any substantial part of the
property of the Company and such custody or control shall not be terminated or
stayed within sixty (60) days from the date of assumption of such custody or
control;
(g) upon the thirtieth (30th) business day following the
rendering of a final judgment for the payment of money in excess of $50,000 by a
court of record against the Company and provided that the Company shall not have
discharged the same or provided for its discharge in accordance with its terms,
or shall not have procured a stay of execution thereon within 30 days from the
date of entry thereof and within the period during which execution of such
judgment shall have been stayed, appealed therefrom, and caused the execution
thereof to be stayed during such appeal;
(h) if the Company shall merge with or into, or effect a sale of
all or substantially all of its assets to, another corporation or other entity
or person, or if a majority in voting interest of the capital stock of the
Company shall be acquired by another corporation or other entity or person in a
single transaction or a series of related transactions; or
(i) if the Company shall effect a sale or issuance of additional
equity securities or other interests in the Company, or securities convertible
into or exercisable or exchange for equity securities or other interests in the
Company, other than pursuant to the terms of a stock option plan or other equity
incentive or bonus plan adopted by the Company.
3.2 In case any one or more of the Events of Default specified in Section
3.1 hereof shall have occurred and be continuing, the Lender may proceed, upon
sixty (60) days advance notice to the Company, to protect and enforce its rights
either by suit in equity and/or by action at law, whether for the specific
performance of any covenant or agreement contained in this Note or in aid of the
exercise of any power granted in this Note, or the Lender may proceed to enforce
the payment of all sums due under this Note or to enforce any other legal or
equitable right of the Lender.
3.3 No remedy herein conferred upon the Lender is intended to be exclusive
of any other remedy and each and every such remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
3.4 No course of dealing between the Company and the Lender or any delay
on the part of the Lender in exercising any rights hereunder shall operate as a
waiver of any rights of the Lender.
3.5 Upon the failure of the Company to pay any amount of principal or
interest hereunder when due as set forth in the first paragraph hereof, the
Lender shall be entitled to exercise all rights and remedies available to it.
-3-
<PAGE>
3.6 Any payment of principal that is not made when due, by acceleration or
otherwise, shall bear interest after the due date until paid at an annual rate
which equals the maximum legal rate allowed by law. Notwithstanding anything to
the contrary in this Note, no rate of interest required under this Note shall
exceed the maximum legal rate permitted under applicable law, and if such rate
is found to exceed the maximum legal rate, the Company shall be required to pay
only the maximum legal rate.
4. Waiver and Amendment
--------------------
The Company waives presentment for payment, protest, notice of
protest, nonpayment or dishonor and all other notices or demands relative to
this Note. Any provision of this Note, including without limitation the Due
Date and the rate of interest may be amended or modified by written agreement of
the Company and the holder of this Note, provided that this Note may only be
discharged with the consent of the Lender.
5. Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery at the
respective addresses of the parties as set forth in the Reorganization Agreement
or on the register maintained by Company. Any party hereto may by notice so
given change its address for future notice hereunder. Notice shall conclusively
be deemed to have been given when received.
6. Expenses. If action is instituted to collect this Note, Company
--------
promises to pay all costs and expenses, including, without limitation,
reasonable attorneys' fees and costs, incurred in connection with such action.
7. Governing Law. This Note and all actions arising out of or in
-------------
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California, or of any other state.
[Remainder of Page Intentionally Left Blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name this 4th day of July, 1998.
COMPANY:
QUANDO, INC.
By /s/ David Billstrom
-----------------------------
Name:David Billstrom
Title:CEO & PRESIDENT
<PAGE>
Schedule A
----------
All personal and fixture property of every kind and nature including
without limitation all motorcycle parts and accessories, furniture, fixtures,
equipment, raw materials, inventory, goods, accounts, contract rights, rights to
the payment of money, insurance refund claims and all other insurance claims and
proceeds, tort claims, chattel paper, documents, instruments (including
certificated securities), deposit accounts and all general intangibles
including, without limitation, all uncertificated securities, securities
entitlements, investment property, financial assets, tax refund claims, pension
fund overfunded amounts, fraudulent conveyance and preference claims, license
fees, patents, patent applications, trademarks, trademark applications, trade
names, copyrights, copyright applications, rights to sue and recover for past
infringement of patents, trademarks and copyrights, computer programs, computer
software, engineering drawings, service marks, mask works, customer lists,
goodwill, and all licenses, permits, agreements of any kind or nature pursuant
to which the Company possesses, uses or has authority to possess or use property
(whether tangible or intangible) of others or possess, use or have authority to
possess or use property (whether tangible or intangible) of the Company, and all
recorded data of any kind or nature, regardless of the medium of recording
including, without limitation, all software, writings, plans, specifications and
schematics; all of the foregoing, wherever located, whether now owned or
hereafter acquired or arising, and all proceeds and products thereof.
-6-
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EXHIBIT 10.56
Agreement of Lease
This Agreement of Lease (the "Lease"), dated as of the 20th day of February,
1998, is by and between SIXTH & VIRGINIA PROPERTIES, a Washington General
Partnership, hereinafter called "Owner," and Starwave Corporation, a Washington
Corporation, hereinafter called "Tenant."
1 NONSTANDARD PROVISIONS
The following constitute the nonstandard provisions of this Lease:
A. FLOORS OF THE WESTIN BUILDING ON WHICH PREMISES ARE LOCATED:
34th (Suite 3425) and 9th (Suite 912) (collectively, the
"Premises")
B. AGREED FLOOR AREA OF PREMISES:
Approximately Three Thousand Two Hundred Two (3,201) square feet on
the 34th floor and approximately One Thousand Five Hundred Forty Nine
(1,549) square feet on the 9th floor both of which include an
allowance for core and/or common areas used by Tenant (the "Total
Agreed Floor Area"). The 34th floor Premises is comprised of 2,838
usable square feet and the 9th floor Premises is comprised of 1,354
useable square feet. Monthly Base Rent, as defined below, is based on
the Total Agreed Floor Area.
C. LEASE TERM:
This Lease shall commence on the 1st day of March, 1998, and
terminate on the 30th day of November, 2000.
D. MONTHLY BASE RENT:
March 1, 1998 - October 31, 1999: $ 9,502.00 per month
November 1, 1999 - November 30, 2000: $10,569.00 per month
E. RENT PER DAY during any occupancy prior to commencement of Lease Term:
None
F. REIMBURSEMENT TO OWNER FOR SPECIAL IMPROVEMENTS:
Tenant shall take the Premises "as is." Tenant shall remove any
existing improvements and install and supply any new improvements to
the Premises at Tenant's cost. All such improvements shall be
completed in accordance with drawings prepared at Tenant's cost and
approved in advance by Owner, which approval shall not be unreasonably
withheld, conditioned or delayed. In the event Tenant elects to
contract with Owner to install and supply improvements to the
Premises, Tenant shall reimburse Owner for all work within ten (10)
days of invoice.
G. USE PERMITTED ON PREMISES:
On the 34th floor, General Office Use and Internet Communication
Operation Center, On the 9th floor, Internet Communication Facility,
General Office Use and Internet Communication Operations Center
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H. TENANT'S AND OWNER'S ADDRESSES FOR NOTICES:
If to Tenant:
------------
Starwave Corporation
The Westin Building, Suite 3425
2001 Sixth Avenue
Seattle, WA 98121
Attn: Vice President of Web Operations
With copy to:
------------
Starwave Corporation
13810 SE Eastgate Way, Suite 400
Bellevue WA 98005
Attn: Legal Department
If to Owner:
-----------
Sixth & Virginia Properties
The Westin Building, Suite 300
2001 Sixth Avenue
Seattle, WA 98121
Attn: Building Manager
I. TENANT'S BILLING ADDRESS IF OTHER THAN PREMISES:
Starwave Corporation
13810 SE Eastgate Way, Suite 400
Bellevue WA 98005
Attn: Accounts Payable
J. PARKING:
During the Lease Term, Owner shall provide Tenant with unreserved
parking spaces, including an appropriate pro-rata share of "carpool"
stalls, for four (4) automobiles in The Westin Building Garage.
Additionally, subject to month to month availability as determined by
Owner, Owner may provide Tenant with up to twelve (12) additional
parking spaces. Parking spaces shall be provided from 7:00 a.m. to
6:00 p.m. Monday through Friday (the "Normal Parking Hours"), and as
otherwise available outside of Normal Parking Hours. Tenant
acknowledges that parking spaces may not always be available outside
of Normal Parking Hours.
Tenant shall pay in advance the monthly charge established by Owner for
said parking spaces, on the same date that monthly rent is due hereunder.
If Tenant fails to pay such charges when due, Owner may (i) immediately
cease to provide the parking spaces for which Tenant has failed to pay, or
(ii) continue to provide the parking spaces and require that Tenant pay the
monthly parking charge, with interest at 12% per annum, from the date due.
Tenant may discontinue future use and payment for any parking space upon
written notice to Owner. Tenant shall not be entitled to any rebate for
discontinued use of any parking space prior to the end of the month. Upon
initial occupancy of Garage, the charge for each parking space shall be One
Hundred Seventy Dollars ($ 170.00) per month (including tax). From time to
time during this Lease, the charge for parking spaces may be increased to
the then-prevailing rate for similar parking services in the immediate
area.
Owner shall maintain the right to pass on to Tenant all applicable
parking taxes. Parking taxes shall not include real estate taxes for
the Garage or any federal income tax.
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K. RELOCATION OF PREMISES:
Owner shall have the right to relocate Tenant from the 34th Floor
Premises in the Building only on the following terms and conditions:
1) The floor area of the replacement premises shall be approximately
the same as the floor area of the 34th Floor Premises. Monthly
Base Rent and Tenant's share of the annual rent adjustment, if
any, shall be adjusted to reflect the Total Agreed Floor Area of
the replacement premises;
2) Owner shall reimburse Tenant within ten (10) days of Tenant's
demand for all reasonable expenses incurred in connection with
the relocation, including, but not limited to, the cost of
putting the replacement premises in similar condition as the then
condition of the 34th Floor Premises, moving, signage, telephone
& computer equipment relocation and the provision of reasonable
quantities of new stationery;
3) Owner shall give Tenant at least one hundred eighty (180) days
written notice of relocation; and
4) The replacement premises will consist of all contiguous space and
will have comparable views and other comparable amenities as
existing in the Premises.
The provisions of this Article shall not apply to the 9th floor
Premises.
L. SECURITY DEPOSIT:
Concurrently with the execution of this Lease, Tenant shall deliver to
Owner a deposit equal to Ten Thousand Five Hundred Sixty Nine Dollars ($
10,569.00 ) as security for the performance by Tenant of every covenant and
condition to be performed by Tenant under this Lease. Upon payment of the
said deposit, Owner shall deliver to Tenant a written receipt therefor. The
deposit may be commingled with other funds of Owner, and Tenant shall not
be entitled to interest thereon. If Tenant shall default with respect to
any covenant or condition of this Lease, including but not limited to the
payment of Base Monthly Rent, additional rent or parking charges, and such
default is not cured after ten (10) days written notice as provided in
Article 14, Owner may, but shall not be required to, apply the whole or any
part of the deposit to the payment of any sum in default, and any other
reasonable amounts which Owner may be required to spend by reason of
Tenant's default. In the event Owner so applies all or any part of the
deposit, Tenant shall replenish the amount so applied within ten (10) days
of Owner's written demand. Should Tenant comply with all of the covenants
and conditions of this Lease, the deposit shall be returned to Tenant (or,
at the option of Owner, to the last assignee of Tenant's interest in this
Lease) at the expiration of the Lease Term. If the Owner assigns its
interest in this Lease, Owner shall not be relieved of its obligations to
Tenant hereunder until the security deposit is transferred to Owner's
assignee.
M. SIGNAGE:
Owner shall, at its own cost, provide signage to Tenant according to
building standards at Four (4) separate locations:
1) Main Lobby Directory - Sixth Avenue;
2) Third Floor Lobby Directory- Skybridge entrance from Garage;
3) Elevator Lobby Directory on 9th Floor; and
4) Elevator Lobby Directory on 34th Floor.
Tenant may, at Tenant's sole expense, and upon Owner's written approval,
which approval shall not be unreasonably withheld, conditioned or delayed,
affix building standard signage adjacent to the doors of the Premises. No
other signage shall be allowed.
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N. HOLDING OVER:
If Tenant shall continue its occupancy of the Premises after the expiration
of the Lease Term, the occupancy shall not be deemed to extend or renew the
term of this Lease, and such occupancy shall constitute a tenancy from
month to month, subject to all of the terms of this Lease, except the term,
and except that the Monthly Base Rent for each month of continued occupancy
shall be 150% of the Monthly Base Rent for the last full month of the Lease
Term. Tenant shall also be liable for Owner's incidental and consequential
damages sustained by virtue of Tenant's holding over.
O. SQUARE FOOTAGE ADJUSTMENT:
Owner and Tenant agree that reasonable attempts have been made to determine
the correct square footage of the Premises. Owner grants Tenant the option
to remeasure and challenge the square footage calculations set forth in
Article 1(b) hereof at Tenant's expense. If Tenant's square footage
calculations differ from the calculations set forth in Article 1(b), Owner
will remeasure at Owner's expense to determine which calculations are
correct. Owner and Tenant agree that any challenge to the square footage
calculations must be completed within one month of the commencement date of
this Lease. After that time, Owner and Tenant each agree to waive any and
all rights, claims, or liabilities against the other pertaining in any way
to the calculation of the square footage of the Premises, or the amount of
rents and other costs in this Lease as they relate to the square footage of
the Premises.
P. MEET-ME ROOM ACCESS
Tenant may have the privilege to use in common with other Building tenants
the 19th floor Meet-Me Room (the "Meet-Me Room") and associated wiring
systems, as determined by Owner in its sole discretion. Owner shall
supervise the maintenance of the Meet-Me Room by tenant-users. Tenant
agrees to abide by all written regulations for use of the Meet-Me Room
established jointly by Owner and tenant-users and provided to Tenant,
including, but not limited to the "Survival Manual for Communications
Companies in the Westin Building, the present version of which has been
provided to Tenant and is attached hereto as Exhibit "D" and made a part
hereof. Tenant acknowledges the Survival Manual may change from time to
time and Tenant agrees to abide by the most current version thereof. If
Tenant violates any such regulation and fails to cure the same immediately
upon Owner's demand (or within any reasonable cure period established by
Owner in its sole discretion) Owner may withdraw Tenant's privilege to use
the Meet-Me Room. Tenant understands and agrees that Meet-Me Room access is
a privilege and not a right, and that Owner's right to exclude Tenant from
Meet-Me Room access as stated herein is absolute and not subject to RCW
59.12 et. seq.
Owner shall not be liable for damages, nor shall the rental herein reserved
be abated, for Owner's failure to provide Meet-Me Room access, functions
and services, when such failure or delay is caused by an event of "Force
Majeur" (as defined in Article 30), or by the making of necessary repairs
to the Premises or Building (provided that Owner has used reasonable
efforts not to interfere with or interrupt the conduct of Tenant's business
at the Premises), nor shall the temporary failure to furnish any of such
services due to such events be construed as an eviction of Tenant or
relieve Tenant from the duty of observing and performing any of the
provisions of this Lease.
In the event Tenant requests and is allowed Meet-Me Room privileges, Tenant
shall pay a one-time usage fee of Five Hundred Dollars ($500.00) no later
than Thirty (30) days following the date Tenant commences its use of the
Meet-Me-Room. For each DSX panel or DS3 module placed in the room, Tenant
shall pay a one-time fee of Three hundred sixty eight dollars ($368.00) per
DSX and/or one hundred eighty four dollars ($184.00) per DS3 module and a
recurring monthly charge of $50.00 per Panel installed within the room.
4
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Q. CABLING RIGHT OF WAY
Owner grants to Tenant, at no additional cost to Tenant, the right to
install cable from the Premises to the "Meet Me Room" on the 19th floor
(subject to Owner's authorization for Meet-Me-Room privileges as set forth
in Article 1(p) above). Additionally, Tenant may install cable, subject to
reasonable monthly recurring charges as established by Owner from time to
time for all other cable run by other tenants throughout the Building,
between: (i) each Premises; (ii) each Premises and any other space occupied
by Tenant in the Westin Building; and (iii) each Premises and any other
space occupied by Tenant in the Westin Building and the Building roof. Such
additional cable installation shall be at Tenant's expense and subject to
the provisions set forth in the "Survival Manual for Communication
Companies in The Westin Building". Such installation must be coordinated
with and approved by The Westin Building Engineer, which approval shall not
be unreasonably withheld, conditioned or delayed. Notwithstanding the
foregoing, Tenant shall have the right, at no additional cost to Tenant, to
run a cable bundle approximately one (1) inch in diameter: (i) between the
9th floor Premises and the premises subleased by Tenant from North WestNet
on the 9th floor; and (ii) between the 9th floor Premises or such sublet
premises and the 34th floor Premises.
R. HVAC (HEATING, VENTILATING, AND AIR CONDITIONING)
Owner grants Tenant the right to install, at Tenant's sole cost, its own
HVAC equipment in either or both Premises. This equipment shall be
considered Tenant's trade fixture. The Owner shall provide Tenant with a
HVAC configuration that provides at least the same degree and extent of
redundancy currently (as of the commencement date of the Lease term)
provided Tenant for its Network Operating Center within the North WestNet
space on the 9th floor; as depicted in the Exhibit E attached hereto (the
"Redundant Configuration"). Tenant's HVAC equipment shall be connected in a
manner approved by the Building Engineer, which approval shall not be
unreasonably withheld, conditioned or delayed. Owner represents and
warrants to Tenant that at all times during the Lease Term, or any
extension thereof pursuant to Article 1(u), Owner shall have available for
Tenant's heating and ventilation needs at the Premises no less than thirty
(30) tons of Redundant HVAC cooling capacity. Tenant shall be entitled to
connect to such capacity in stages from time to time during the Lease Term,
but shall not be required to use the entire thirty (30) tons of cooling
capacity.
Owner shall not be liable for damages, nor shall the rental herein reserved
be abated, for Owner's failure to furnish or delay in furnishing HVAC
cooling, when such failure or delay is caused by an event of Force Majeur
(as defined in Article 30) or by the making of necessary repairs to the
Premises or Building (provided that Owner has used reasonable efforts not
to interfere with or interrupt the conduct of Tenant's business at the
Premises), nor shall the temporary failure to furnish any of such services
due to such events be construed as an eviction of Tenant or relieve Tenant
from the duty of observing and performing any of the provisions of this
Lease.
Tenant shall pay to Owner within ten (10) days of completion of any HVAC
connection a sum equal to Five hundred dollars ($500.00) per new ton of
connected load. In addition, Tenant shall pay within ten (10) days of
invoice a quarterly fee for Tenant's pro rata, per ton share of the costs
charged to all users of the cooling tower for Owner's costs and expenses of
operating and maintaining the cooling tower, including, but not limited to,
chemical treatment, electrical usage and water consumption, and excluding
replacement of cooling towers.
S. ESSENTIAL POWER
Tenant shall have the right to the following amounts of "Essential Power"
(defined below):
(i) 9th Floor: 160 amperes of 480 volt Essential Power ("Minimum
9th Fl. Capacity") which shall be made available by Owner to
Tenant pursuant to the following schedule:
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MINIMUM AMT. OF ESSENTIAL
PHASE DATE POWER AVAILABLE TO TENANT
Lease March 1, 1998 None
Commencement
Phase 1 By March 15, 1998 60 amps of 480 volt
Phase 2 By June 15, 1998 120 amps of 480 volt
Phase 3 By October 1, 1998 160 amps of 480 volt
(ii) 34th Floor: Six (6) amperes of 480 or equivalent 208 volt, as
determined by Tenant, Essential Power AC circuits ("Minimum 34th Fl.
Capacity"). Owner shall make the Minimum 34th Fl. Capacity available to
Tenant within thirty (30) days of the Lease commencement date.
Owner shall configure the delivery of power to the Premises as shown in
Exhibit F attached hereto (as configured, "Essential Power").
At all times during the Term of this Lease (including any extension thereof
pursuant to Article 1(u)), Owner shall maintain the Essential Power system
to ensure that the then-current minimum level of Essential Power is
delivered by Owner to Tenant through The Westin Building electrical system.
Owner shall not be liable for damages, nor shall the rental herein reserved
be abated, for Owner's failure to furnish or delay in furnishing Essential
Power, when such failure or delay is caused by an event of Force Majeur (as
defined in Article 30) or by the making of necessary repairs to the
Premises or Building (provided that Owner has used reasonable efforts not
to interfere with or interrupt the conduct of Tenant's business at the
Premises), nor shall the temporary failure to furnish any of such services
due to such events be construed as an eviction of Tenant or relieve Tenant
from the Duty of observing and performing any of the provisions of this
Lease.
Tenant shall pay to Owner a connection charge of Five Hundred Dollars
($500.00) per ampere of minimum Essential Power based on the following
schedule. Payment for the first sixty-six amps totaling thirty-three
thousand dollars ($33,000) shall be made on or before March 15, 1998;
payment for the next sixty amps totaling thirty thousand dollars ($30,000)
shall be made on or before June 15, 1998; and payment for the last forty
amps totaling twenty thousand dollars ($20,000) shall be made on or before
October 31, 1998. Tenant shall pay all costs associated with wiring the
Essential Power system from the riser to Tenant's Premises, as well as its
pro rata share of any annual maintenance costs assessed on a per available
amp basis. By way of illustration, If Tenant has a minimum of 160 amps of
available Essential Power, and all Tenants of the Building have a total
minimum of 1000 amps of available Essential Power, Tenant's pro rata share
of any maintenance costs associated with the Building's Essential Power
systems shall equal 160/1000 of the total maintenance costs.
T. CLASS "A" ENTRY
The Premises shall have an entryway that is compatible with the Class "A"
image of the building. Tenant and Owner shall cooperate in developing an
entryway plan that satisfies Owner's Class "A" image requirement and
Tenant's need for privacy and control. The provisions of this Article 1(t)
shall not apply to the 9th Floor Premises.
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U. OPTION TO EXTEND:
Provided that Tenant is not in default beyond the applicable cure periods
as provided in Article 14 at the time of its exercise of the Option to
Extend, Tenant shall have the Option to Extend the term of this Lease
beyond the original Lease Term for one (1) additional period of three (3)
years (the "Extended Term"). Tenant's Option to Extend may be exercised
only by written notice to Owner not earlier than May 31, 2000, and not
later than June 30, 2000. The same terms and conditions applicable to the
original Lease Term shall apply during the Extended Term, except that the
Monthly Base Rent shall be increased to an amount equal to the product of
(i) the Total Agreed Floor Area of the Premises multiplied by (ii) the
monthly rent per square foot for renewal leases in the Building for
Premises of substantially equivalent use, size and location as of the date
of Tenant's exercise of its Option to Extend. In no event shall the Monthly
Base Rent during the Extended Term be less than the Monthly Base Rent as if
the date on which the Option to Extend is exercised.
Immediately upon Tenant's exercise of its Option to Extend, Tenant and
Owner shall enter into good faith negotiations to establish the Monthly
Base Rent for the Extended Term in accordance with the parameters set forth
above. If Tenant and Owner cannot agree on Monthly Base Rent for the
Extended Term within forty-five (45) days of the date Tenant exercises its
Option to Extend, then Tenant shall be deemed to have rescinded its
exercise of its Option to Extend, and this Article 1(u) shall be of no
further force and effect.
V. RIGHT OF OFFER OF NEIGHBORING SPACES:
In the event any space on the 10th, 33rd or 34th floors, or any space on
the 9th floor (subject only to North WestNet's existing right of first
refusal for 9th floor space), or any space on the 8th floor (subject only
to InterNap's right of first refusal for 8th floor space) (the "Adjoining
Spaces") becomes available for lease, and provided that (i) Tenant is not
then in default beyond the applicable cure periods as provided in Article
14 under this Lease; (ii) Tenant has within the six (6) months prior to the
applicable space becoming vacant, notified Owner in writing of an interest
in leasing any Adjoining Space; and (iii) that no less than one (1) year
remains on the Lease Term of this Lease, including the Extended Term
(provided that Tenant continues to have the right to extend the Lease
Term), then Owner shall offer to lease the available Adjoining Space to
Tenant in writing, which offer shall remain open for an exclusive period of
ten (10) days. Owner's written offer shall include the Monthly Base Rent to
be required for the available Adjoining Space (which shall be no more than
the rate then established by Owner, in its reasonable judgment, for renewal
leases in the Building for premises of substantially equivalent use, size
and location as the premises being offered), and scheduled rental increases
(which shall be at a frequency and amount established by Owner, in its
reasonable judgement, for other renewal leases in the Building). Tenant
shall have ten (10) days from its receipt of Owner's written offer to
execute a lease for the available Adjoining Space. The term of any lease
for any Adjoining Space shall terminate on the same date that this Lease
terminates.
If Tenant does not execute a lease for the available Adjoining Space within
ten (10) days from its receipt of Owner's written offer, then its right of
offer shall lapse and be of no further force and effect and Owner shall
have the right to lease the available Adjoining Space, or any portion
thereof, to any third party on any terms and conditions it sees fit,
whether or not such terms and conditions are more or less favorable than
those offered to Tenant.
Tenant's rights hereunder shall be recurring rights, and shall apply each
time any Adjoining Space becomes available for lease.
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W. ANTENNA PREMISES:
Tenant may, subject to Owner's approval and the payment of mutually agreed
rent, install antennae or other equipment on the roof of The Westin
Building. Tenant shall submit plans and specifications for the roof
installation to the Owner. Owner, in its absolute discretion, may approve
or disapprove of the proposed installation. Details of Tenant's equipment
installation shall be subject to the approval of Owner's architect, and
shall not adversely affect the appearance of the building, nor the water
tightness of the roof, nor otherwise, in the Owner's architect's reasonable
opinion, have adverse effects on the Building. All costs associated with
the installation and maintenance of equipment installed by Tenant pursuant
to this Article shall be paid by Tenant, including, without limitation,
cost of cleanup required to keep the roof clear and safe and periodic pro-
rata maintenance assessments for upkeep and painting of the rooftop antenna
facilities.
It is understood and agreed that Tenant's ability to use the rooftop
portion of the Building is contingent upon its obtaining all the
certificates, permits, and other approvals that may be required by federal,
state or local authorities. Owner shall cooperate with Tenant in its
efforts to obtain such approvals and shall take no action that would
adversely affect the status of the Premises, with respect to the proposed
use thereof by Tenant.
X. QUIET ENJOYMENT:
Tenant, upon material compliance with its obligations under the Lease,
shall have quiet enjoyment of the Premises during the term of the Lease.
Y. MEMO OF LEASE:
At the request of Tenant, Owner shall execute and record a short form of
this Lease setting forth the names of the parties, a description of the
Premises, the commencement and expiration dates of the Lease, and a
description of Tenant's extension and expansion options. Tenant shall pay
for all costs and expenses, including reasonable attorneys' fees, incurred
by Owner for the preparation, review and recordation of the memorandum of
lease.
Z. BROKERS:
Each party represents to the other that there are no individuals or
entities entitled to any brokerage commissions or finder's fees in
connection with this transaction, and that if any claims for brokerage
commissions or finder's fees or like payments arise out of or in connection
with this transaction, all such claims shall be defended by and, if
sustained, paid by the party whose alleged actions or commitments form the
basis of such claim.
AA. ENTIRE AGREEMENT:
This Lease together with the Exhibits hereto contains all the covenants and
agreements between Owner and Tenant relating in any way to the use and
occupancy of the Premises, and all other matters set forth in this Lease.
No prior agreements or understandings, whether oral or written, pertaining
to this Lease shall be valid or of any force or effect; and the covenants
and agreements of this Lease may not be altered, modified or added to
except in writing signed by both parties.
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2. EXHIBITS
The following Drawings and Special Provisions are attached hereto as
exhibits and made a part of this Lease:
Exhibit A - Floor plans of the Westin Building 34th and 9th floors,
herein called "Building."
Exhibit B - Site plan showing relation and location of Building and
Westin Building Garage.
Exhibit C - Details of both Premises Approved by Owner and Tenant.
Exhibit D - Survival Manual for Communication Companies in the Westin
Building
Exhibit E - Redundant HVAC
Exhibit F - Essential Power to the Ninth (9th) Floor and Thirty-Fourth
(34th) Premises
3. PREMISES
Owner hereby leases to Tenant, and Tenant hereby leases from Owner, upon
the terms and conditions herein set forth, those certain Premises described
in Article 1(a) and (b), and shown outlined in red on the standard floor
plan attached hereto as "Exhibit A", in that certain Building known as the
Westin Building situated in the City of Seattle, County of King, State of
Washington, at Sixth Avenue and Virginia Street, and located on the
following real property:
Lots 11 and 12 (less portion for street), Block 15 of Addition to town
of Seattle, as laid off by Heirs of Sarah A. Bell, deceased (commonly
known as Heirs of Sarah A. Bell's Addition to the City of Seattle), as
per plat recorded in Volume I of plats, page 103, records of King
County, Washington.
4 RENT
Tenant covenants and agrees to pay to Owner the Monthly Base Rent as set
forth in Article 1(d) to be adjusted as provided elsewhere in this Lease,
in United States currency in advance on or before the first day of each
calendar month during the Lease Term (or the Extended Term, if applicable),
at the office of Owner in Building or at such other place as Owner may from
time to time designate in writing. It is agreed that since collection of
any amount past due imposes an administrative cost on Owner, in addition to
all other sums that may be charged by Owner hereunder, Tenant shall pay to
Owner a sum equal to Five Cents ($0.05) for every Dollar not paid within 10
days of the date due.
5 USE
The Premises may be used only for the purposes set forth in Article 1(g)
and for no other purpose or purposes without the written consent of Owner.
No use shall be made of Premises, nor act done in or about Premises, which
is unlawful, or which may increase the existing rate of insurance upon the
Building. Owner warrants to Tenant that the permitted use for the Premises
set forth in Article 1(g) will not increase the rate of insurance on the
Building. Tenant shall not commit or allow to be committed any waste upon
Premises, or any public or private nuisance or other act or thing which
disturbs the quiet enjoyment of any other tenant in Building, nor shall
Tenant, without the written consent of Owner, use any apparatus, machinery
or device in or about Premises that shall cause any substantial noise or
vibration. If any of Tenant's office machines and equipment should disturb
the quiet enjoyment of any other tenant in Building, then Tenant shall
provide adequate insulation or take such other action as may be necessary
to eliminate the disturbance. Tenant shall observe such reasonable rules
and regulations as may be adopted in writing by Owner and provided to
Tenant for the safety, care and cleanliness of the Premises or Building and
the preservation of good order therein.
6 POSSESSION
In the event of Owner's inability to deliver possession of the Premises at
the commencement of the Lease Term, Owner shall not be liable for any
damage caused thereby, except as otherwise expressly stated herein, nor
shall this Lease become void or voidable, nor shall the Lease Term be
extended, but in such event, no rental shall be payable by Tenant to Owner
for the portion of the Lease Term prior to actual delivery of possession of
the Premises to Tenant.
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7 SERVICES PROVIDED BY OWNER
Owner shall, at its sole cost and expense, maintain the Premises and the
public and common areas of the Building, such as lobbies, stairs,
landscaping, corridors and restrooms, together with the Westin Building
Garage, and all structural portions of the Building, including, but not
limited to, roof and foundation as well as fire suppression systems,
heating, ventilation, air conditioning, electrical and mechanical systems,
in a first class order and condition, except for damage occasioned by the
act of Tenant. Owner's responsibility to maintain the fire suppression
systems, heating and ventilation, electrical and mechanical systems on the
9th floor Premises ends at the demarcation point where such systems enter
the 9th floor Premises. Tenant agrees to maintain the fire suppression
systems, heating and ventilation, electrical and mechanical systems within
the 9th floor Premises from the demarcation point.
Owner, at Owner's sole cost, shall furnish the 34th floor Premises from
7:00 a.m. to 6:00 p.m. Monday through Friday (exclusive of holidays),
hereinafter called the "Standard Work Week," with electricity for lighting
and the operating of office machines, heat and air conditioning, and hot
and cold running water, as may be reasonably required for the occupation of
the Premises. At Tenant's cost, Owner shall install a heating, ventilation
and air conditioning override to the 34th floor Premises to provide after
hours heating, ventilation and air conditioning to such Premises. Owner may
charge Tenant for such override services at a rate of $20 per hour, as
adjusted from time to time, payable by Tenant on a monthly basis as
additional rent.
Owner, at Tenant's cost, shall furnish the 9th floor Premises with
electricity for lighting and the operating of office machines, heat and air
conditioning as may be reasonably required for the occupation of the 9th
floor Premises on a 24 hour a day, seven day a week basis. Elevator service
shall be provided to both Premises on a 24 hour a day, seven day a week
basis.
Owner, at its sole cost, shall provide lighting replacement, toilet room
supplies, window washing with reasonable frequency, and daily janitorial
service to be provided to the 34th Premises only unless otherwise agreed
upon by the parties, during the times and in the manner that such services
are customarily furnished in general office buildings in the area.
Owner shall not be liable for damages, nor shall the rental herein reserved
be abated, for failure to furnish or delay in furnishing any of the
foregoing services, when such failure or delay is caused by an event of
Force Majeur (as defined in Article 30) or by the making of necessary
repairs to the Premises or Building (provided that Owner has used
reasonable efforts not to interfere with or interrupt the conduct of
Tenant's business at the Premises), nor shall the temporary failure to
furnish any of such services due to such events be construed as an eviction
of Tenant or relieve Tenant from the duty of observing and performing any
of the provisions of this Lease.
Tenant acknowledges that the 24-hour nature of its business exceeds the
Standard Work Week described above. Owner may at its option and at Tenant's
cost install a meter in the electrical system supplying Tenant, measure
usage and bill Tenant monthly at the same rate, including demand charges,
billed by Seattle City Light, plus a monthly billing fee of $10.00.
Additionally, Tenant shall pay for all other additional expenses, if any,
incurred by Owner arising out of Tenant's use of the Premises in excess of
the Standard Work Week.
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8 REPAIRS AND ALTERATIONS
Tenant accepts the Premises "as is," and agrees that the 34th floor
Premises are in a good and tenantable condition. Tenant shall take proper
care of the Premises.
Tenant shall not remove existing improvements, or alter or improve the
Premises in any way without the written approval and consent of Owner,
which shall not be unreasonably withheld, conditioned or delayed. Owner
acknowledges that Tenant desires to make substantial improvements and
alterations to the Premises, in particular to the 9th floor Premises. Any
and all such improvements shall be at Tenant's sole expense, and subject to
Owner's prior approval, which shall not be unreasonably withheld,
conditioned or delayed, and Owner's supervision. Tenant shall obtain, at
Tenant's sole expense, detailed plans and specifications for any
alterations and improvements to the Premises and submit the same to Owner
for approval, which approval shall be not be unreasonably withheld,
conditioned or delayed. Tenant shall have the right to select the
contractor for the performance of any approved alterations and
improvements, subject to Owner's approval which shall not be unreasonably
withheld, conditioned or delayed. In the event Tenant elects to hire Owner
to make the approved alterations and improvements, Tenant shall pay Owner
for such work within ten (10) days of invoice. In the event Tenant elects
to hire a contractor other than Owner to make the approved alterations and
improvements, Owner shall be paid a supervision fee equal to four percent
(4%) of the contract price of such approved alterations and improvements,
but no less than Five Hundred Dollars ($500.00), provided however that the
foregoing shall not be interpreted to apply to any purchase, installation
or configuration of trade fixtures within the Premises.
Tenant shall not make changes to locks on doors or add, disturb, or in any
way change any plumbing or wiring without first obtaining the written
consent of Owner, which consent shall not be unreasonably withheld,
conditioned or delayed; provided nothing contained in the foregoing is
intended to apply to any wiring work done by Tenant to or between its trade
fixtures. All damage or injury to the Premises caused by Tenant, or by any
persons who may be in or upon Premises with the consent of Tenant, shall be
paid for by Tenant (or, if applicable, Tenant's insurer). Subject to the
provisions of Article 12, Tenant shall pay for all damage or injury to the
Building or any other tenant of the Building caused by Tenant's negligence
or misuse of the Premises, the appurtenances thereto, or the Meet-Me Room.
All repairs to the Premises necessary to maintain Premises in a good and
tenantable condition shall be done by or under the direction and
supervision of Owner, and at Owner's expense, except as otherwise
specifically provided herein. Tenant shall pay for the repair or
replacement of Special Improvements as provided in Article 23 and the
repair or replacement of doors or windows of the Premises which are cracked
or broken by Tenant, its employees, agents, or invitees. Tenant shall not
put any curtains, draperies or other hangings on or beside the windows in
the Premises without first obtaining Owner's consent, which will not be
unreasonably withheld, conditioned or delayed. Owner may make any
alterations or improvements to the Premises and or the Building which Owner
may deem necessary for the preservation, safety or improvement of the
Premises or Building; provided that Owner shall use reasonable efforts not
to interfere with or interrupt the conduct of Tenant's business at the
Premises. All alterations, additions and improvements to the Premises,
except trade fixtures installed by Tenant which are removable without
damage to the Premises or Building, shall become the property of Owner.
Tenant shall, at the termination of this Lease by the expiration of time or
otherwise, surrender and deliver up Premises to Owner in as good condition
as when received by Tenant from Owner, normal wear and tear and damage by
fire or other casualty excepted.
Should Owner be required to make changes, alterations, improvements or
additions to the Building or the Westin Building Garage at any time during
the term of this Lease as a result of any law, rule, code or regulation
which becomes effective after the Commencement Date of this Lease, then
Tenant shall pay on demand by Owner, as additional rent, a monthly charge
equal to the total agreed floor area of the Premises as stated in Article
1(b) divided by 350,000 times 1 and 1/3 percent of the cost of the change,
alteration, improvement or addition. Such additional rent shall commence
upon substantial completion of each such change, alteration, improvement or
addition and shall continue through the end of the Lease Term. Tenant shall
not be responsible for any portion of the cost to correct any latent
construction defects in all or any portion of the Building, or any
condition that is, as of the date of this Lease, not in compliance with
existing laws, codes, rules or regulations.
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9 ENTRY AND INSPECTION
Provided Owner and its agents comply with Tenant's reasonable written
security rules (as modified from time to time and approved by Owner, which
approval shall not be unreasonably withheld, conditioned or delayed) (the
"Security Rules") regarding access to the Premises, Tenant will permit
Owner and its agents to enter into and upon the Premises at all reasonable
times for the purpose of inspecting the same or for the purpose of cleaning
(Suite 3425 only), repairing, altering or improving the Premises or
Building and when reasonably necessary may close entrances, doors,
corridors, elevators or other facilities without liability to Tenant by
reason of such closure and without such action by Owner being construed as
a constructive eviction of Tenant or relieving the Tenant from the duty of
observing and performing any of the provisions of this Lease.
If Tenant is not personally present to open and permit an entry into the
Premises at any time when for any reason an entry therein shall be urgently
necessary by reason of fire or other emergency, Owner or Owner's agents may
forcible enter the same without rendering Owner or such agents liable
therefor (if during such entry Owner or Owner's agents shall accord
reasonable care to Tenant's property) and without in any manner affecting
the obligations and covenants of this Lease. During the time period within
180 days prior to the expiration of the Lease Term, or if applicable, the
Extended Term, Owner shall have the right to enter the Premises pursuant to
the applicable Security Rules for the purpose of showing the Premises to
prospective tenants. Owner agrees that an escort designated by Tenant may
accompany Owner and any prospective tenant at all times during any said
showing of the Premises and that Owner and such prospective tenant must
comply with the Security Rules in connection with such access to the
Premises.
Owner acknowledges that the written Security Rules which are dated February
5, 1998 and have been provided to Owner are acceptable.
For purposes of this Article 9, Owner shall use reasonable efforts not to
interfere with or interrupt the conduct of Tenant's business at the
Premises.
10 DAMAGE OR DESTRUCTION
If the Premises or Building are damaged by fire, wind, or other such
casualty, the damage shall be repaired by and at the expense of Owner,
provided such repairs (to restore Premises to usable condition) can be made
within sixty (60) days after the occurrence of such damage without the
payment of overtime or other premiums, and until such repairs are
completed, the rent shall be abated in proportion to the part of Premises
which are unusable by Tenant in the conduct of its business.
Notwithstanding anything in this Article 10 to the contrary, there shall be
no abatement of rent by reason of any portion of the Premises being
unusable for a period equal to one day or less.
If such repairs cannot be made within sixty (60) days, Owner may, at its
option, make them within a reasonable time, and in such event this Lease
shall continue in effect and the rent shall be abated in the manner
provided above. Owner's election to make repairs must be evidenced by
written notice to Tenant within thirty (30) days after the occurrence of
the damage.
If such repairs cannot be made within sixty (60) days and Owner does not
elect to make such repairs, then either party may, by written notice to the
other, terminate this Lease. A total destruction of the Building shall
automatically terminate this Lease.
11 ADVERTISING
Tenant shall not inscribe any inscription, post, place, or in any manner
display any sign, notice, picture, placard or poster, or any advertising
matter whatsoever, anywhere in or about Premises or Building at places
visible (either directly or indirectly as an outline or shadow on a glass
pane) from any where outside Premises without first obtaining Owner's
written consent thereto.
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12 INDEMNITY, LOSS AND WAIVER OF SUBROGATION
Tenant shall defend and indemnify Owner and hold it harmless from and
against any and all liability, damages, costs, or expenses, including
attorney's fees, arising from any act, omission or negligence of Tenant or
the officers, contractors, licensees, agents, servants, employees, guests,
invitees, or visitors of Tenant in or about Building, or arising from any
accident, injury, or damage, howsoever and by whomsoever caused, to any
person or property, occurring in or about the Premises, provided that the
foregoing provision shall not be construed to make Tenant or any of its
successors, assigns, officer, directors, parent company or affiliates
responsible for loss, damage, liability, or expense resulting from damage
to property of and injuries to third parties (including Tenant's employees)
caused by the act, omission or negligence of Owner or of any officer,
contractor, licensee, agent, servant, or employee of Owner. Owner shall not
be responsible for providing security and Tenant hereby releases Owner from
any claim for damage or loss of property that may arise as a result of
vandalism or theft in Building or Westin Building Garage. Owner and Tenant
each release the other from responsibility for, and waive their entire
claim of recovery for (i) any loss or damage to the real or personal
property of either located anywhere in Building and Westin Building Garage,
arising out of or incident to the occurrence of any of the perils which may
be covered by a fire and lightning insurance policy, with extended coverage
endorsement in common use in the Seattle locality or (ii) loss resulting
from business interruption at Premises or loss of rental income from
Building, arising out of or incident to the occurrence of any of the perils
that may be covered by a business interruption insurance policy and by the
loss of rental income insurance policy in common use in the Seattle
locality. To the extent that such risks under (i) and (ii) are in fact
covered by insurance, each party shall cause its insurance carriers to
consent to such release and waiver and to waive all rights of subrogation
against the other party.
Without limiting the foregoing, Tenant shall at all times indemnify Owner
against any and all liability and damage arising out of or connected with
the operation of Tenant's antenna equipment, to include any and all effects
of electromagnetic radiation. Tenant shall fully insure its antenna
installation against all of the perils named in this Article 12, including,
without limitation, such additional perils as vandalism, malicious
mischief, and wind damage.
13 LIENS AND INSOLVENCY
Tenant shall keep Premises and Building free from any liens or encumbrances
arising out of any work performed by Tenant, materials furnished by Tenant,
or obligations incurred by Tenant. Owner may terminate this Lease by giving
Tenant notice of its election to do so, if: (i) Tenant files a voluntary
petition in bankruptcy, or for reorganization under the bankruptcy laws, or
is adjudged a bankrupt by a court of competent jurisdiction, and such
judgment or stay is not dismissed or relieved within sixty (60) days; (ii)
Tenant makes an assignment for the benefit of creditors, or a receiver is
appointed for Tenant's business, and such receiver is not dismissed within
sixty (60) days; or (iii) any proceeding is instituted by or against Tenant
under any State or Federal insolvency or bankruptcy act and any such
proceeding, if involuntary, is not stayed or dismissed within sixty (60)
days. No interest in this Lease or estate hereby created in favor of Tenant
shall pass by operation of law under any such bankruptcy or insolvency act
to any person whomsoever without the prior express written consent of
Owner. Any purported transfer in violation of this Article shall
constitute a default by Tenant.
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14 TENANT'S DEFAULT AND OWNER'S RE-ENTRY
Except for an uncured default under the preceding paragraph for which
immediate right of termination is given to Owner, if Tenant fails: (i) to
make any payment due hereunder, including but not limited to the payment of
Monthly Base Rent (plus interest on any past due amounts at the maximum
legal rate from the date due) and such failure continues for ten (10) days
after receipt of written notice of such default; or (ii) to perform any
other covenant under this Lease within thirty (30) days after receipt of
written notice from Owner stating the nature of the default, then Owner may
re-enter and take possession of the Premises using all reasonable force to
do so; provided, however, that if the nature of such default other than for
non-payment of rent is such that the same cannot reasonably be cured within
such thirty-day period, Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter
diligently prosecute the same to completion.
Notwithstanding such retaking of possession by Owner, Tenant's liability
for the rent provided herein shall not be extinguished for the balance of
the Lease Term, or, if applicable, the Extended Term. Upon such re-entry,
Owner may elect either (i) to terminate this Lease, in which event Tenant
shall immediately pay to Owner a sum equal to that by which the then cash
value of the total rent reserved under this Lease for the balance of the
Lease Term exceeds the reasonable rental value of the Premises for the
balance of the Lease Term plus reasonable costs incident to releasing the
Premises including, but not limited to remodeling expenses, attorney's fees
and real estate commissions; or (ii) without terminating this Lease, to
relet all or any part of the Premises as the agent of and for the account
of Tenant upon such terms and conditions as Owner may deem advisable, in
which event the rents received on such reletting shall be applied first to
the expenses of reletting and collection, including necessary renovation
and alteration of Premises, reasonable attorney's fees and real estate
commissions paid, and thereafter to payment of all sums due to or to become
due Owner hereunder, and if a sufficient sum shall not be thus realized to
pay such sums and other charges, Tenant shall pay Owner any deficiency
monthly, and Owner may bring an action therefor as such monthly deficiency
shall arise
In the event of any such retaking of possession of Premises by Owner as
herein provided, Tenant shall remove all personal property located thereon
and, upon failure to do so upon demand of Owner, Owner may, in addition to
any other remedies allowed by law, remove and store the same in any such
place selected by Owner, including but not limited to a public warehouse,
at the expense and risk of Tenant. If Tenant shall fail to pay any sums due
hereunder or the cost of storing any such property after it has been stored
for a period of thirty (30) days or more hereunder, Owner may sell any or
all of such property at public or private sale and shall apply the proceeds
of such sale first, to the cost of such sale; second, to the payment of the
charges for storage, if any; and third, to the payment of any other sums of
money which may be due from Tenant to Owner under the terms of this Lease,
and the balance, if any, to Tenant. If such property in Owner's reasonable
opinion has a resale value of $1,000 or less, Owner may donate the property
to charity or otherwise dispose of the property as Owner sees fit without
the necessity of a public or private sale.
Tenant hereby waives all claims for damages that may be caused by Owner's
lawfully re-entering and taking possession of Premises or lawfully removing
and storing or selling the property of Tenant as herein provided, and will
save Owner harmless from loss, costs, or damages occasioned thereby, and
such lawful re-entry shall not be considered or construed to be a forcible
entry.
15 SURRENDER OF POSSESSION
Upon expiration of the term of this Lease, whether by lapse of time or
otherwise, Tenant shall promptly and peacefully surrender Premises to Owner
broom clean and in good and tenantable condition, reasonable wear and tear
and damage by fire or other casualty excepted. Tenant shall completely
restore the antenna Premises to the condition existing at the time of
delivery of premises to Tenant, including without limitation, repair of all
holes, cuts, and other modifications which were made to permit
installation.
16 COSTS AND ATTORNEYS' FEES
If Tenant or Owner shall bring any action for any relief against the other,
declaratory or otherwise, arising out of this Lease, including any suit by
Owner for the recovery of rent or possession of Premises, the losing party
shall pay the successful party a reasonable sum for attorneys' fees in such
suit, including fees incurred in appeals and bankruptcy actions, and such
attorneys' fees shall be deemed to have accrued on the commencement of such
action.
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17 NON-WAIVER
Waiver by either party of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant,
or condition, or of any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Owner shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant, or condition of this Lease, other
than the failure of Tenant to pay the particular rental so accepted
regardless of Owner's knowledge of such preceding breach at the time of
acceptance of such rent.
18 ASSIGNMENT AND SUBLETTING
Tenant shall not assign this Lease or sublet Premises or any part thereof
without first obtaining Owner's written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. No such assignment or
subletting shall relieve Tenant of Tenant's liability under the Lease,
except, if at the time of such assignment or subletting, Tenant establishes
to the reasonable satisfaction of Owner that such assignee or sublessee is
of satisfactory financial responsibility at least equal to that of Tenant
at the time Tenant executed the Lease. Consent to any such assignment or
subletting shall not operate as a waiver of the necessity for a consent to
any subsequent assignment, and the terms of such consent shall be binding
upon any person holding by, under or through Tenant. In no event shall a
sublessee of Tenant sublet or assign any interest in this Lease.
In the event of an assignment or subletting that requires Owner's time
and/or expense, Tenant shall compensate Owner for its out-of-pocket
expenses, including reasonable attorney's fees and costs.
If Tenant is a corporation, then any transfer of this Lease by merger,
consolidation or liquidation or any change in the ownership of, or power to
vote, the majority of its outstanding voting stock shall constitute an
assignment for the purposes of this article. Notwithstanding the foregoing,
without the consent of Owner: (i) Tenant may assign the Lease to an
affiliate, parent or subsidiary of Tenant as a result of a merger or
consolidation; (ii) Tenant may assign this Lease to the Walt Disney Company
or any of its affiliates; (iii) Tenant may sell the majority of its
outstanding voting stock by public offering.
19 SUCCESSORS
All of the covenants, agreements, terms and conditions contained in this
Lease shall apply to and be binding upon Owner and Tenant and their
respective heirs, executors, administrators, successors and assigns.
20 TAX ON RENTAL
If any governmental authority or unit under any present or future law
effective at any time during the term of this Lease shall in any manner
levy a tax on rentals payable under this Lease or on rentals accruing from
use of Premises under this Lease, or a tax in any form against Owner
because of or measured by income derived from the leasing or rental of
Premises, the amount of the next succeeding month's rent following payment
of such tax by Owner shall be increased by an amount equal to such tax paid
by Owner, and for Tenant's default in paying the rent thus revised, Owner
shall have the same remedies as upon failure to pay rent. Tenant shall not
be liable to pay any amount because of income tax of a general nature
applicable to Owner's various interests or sources of income. In the event
that it shall not be lawful for Tenant to pay such tax, the rental payable
to Owner under this Lease shall be revised to net Owner the same net rental
after imposition of any such tax as would have been payable to Owner prior
to the imposition of any such tax.
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21 PRIORITY; ESTOPPEL
Subject to the provisions set forth below, this Lease shall automatically
be subordinate to any mortgage or deed of trust heretofore or hereafter
placed upon Building, to any and all advances made or to be made
thereunder, to the interest on the obligations secured thereby, and to all
renewals, replacements and extensions thereof; provided, however, that in
the event of foreclosure of any such mortgage or deed of trust or exercise
of the power of sale thereunder, Tenant shall attorn to the purchaser of
Building at such foreclosure or sale and recognize such purchaser as Owner
under this Lease if so requested by such purchaser. If any mortgagee or
beneficiary elects to have this Lease superior to its mortgage or deed of
trust and gives notice of its election to Tenant, then this Lease shall
thereupon become superior to the lien of such mortgage or deed of trust,
whether this Lease is dated or recorded before or after the mortgage or
deed of trust. Within fifteen days of presentation, and subject to the
provisions set forth below, Tenant shall execute, acknowledge, and deliver
to Owner any subordination or nondisturbance agreement or other instrument
that Owner may require to carry out the provisions of this Article.
Within fifteen (15) days after written request, either party shall furnish
to the other a statement certifying that this Lease is in full force and
effect and has not been modified (or if there have been modifications, that
the Lease is in full force and effect as modified and stating the
modifications); the commencement and expiration dates of the Lease and the
dates to which rent has been paid; that there are no defaults by either
party (or if there are such defaults, specifying the same); whether or not
there are then existing any defenses against the enforcement of or offsets
against any obligations of either party under this Lease (and if so
specifying the same).
22 CONDEMNATION
If the whole of Premises, or if such portion of either Premises or the
facilities in Building as may be required for the reasonable use of
Premises, shall be taken by virtue of any condemnation or eminent domain
proceeding, or by purchase in lieu thereof, or for public or quasipublic
use, directly or indirectly, this Lease shall automatically terminate as of
the date of such condemnation, or purchase in lieu of condemnation, or as
of the date possession is taken by the condemning authority, whichever is
earlier. Current rent shall be apportioned as of the date of such
termination. In case of a taking of a part of Premises or a portion of the
facilities in Building not required for the reasonable use of Premises,
then this Lease shall continue in full force and effect and the rental
shall be equitably reduced based on the proportion by which the rentable
area of Premises is reduced, such rent reduction to be effective on the
date of such partial taking. No award of any partial or entire taking shall
be apportioned, and Tenant hereby assigns to Owner any award which may be
made in such taking or condemnation together with any and all rights of
Tenant now or hereafter arising in or to the same or any part thereof,
provided, however, that nothing herein shall be deemed to give Owner any
interest in, or to require Tenant to assign to Owner, any award made to
Tenant for the taking of personal property or fixtures belonging to Tenant,
for the interruption of or damages to Tenant's business or for Tenant's
moving expenses.
23 SPECIAL IMPROVEMENTS
The term "Special Improvements" as used in this Lease refers to all
improvements to Premises, whether provided at the expense of Owner or
Tenant, other than acoustical ceilings, lighting fixtures, air conditioning
grilles, air ducts and temperature controls, draperies, corridor and
demising partitions, and concrete floor ready for pad and carpet. Tenant
shall reimburse Owner for Owner's reasonable expense of repairing or
replacing all Special Improvements to maintain such Special Improvements in
first-class condition; provided that Tenant shall be responsible for
maintaining all Special Improvements in the Premises
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24 REAL PROPERTY TAXES
Owner shall pay all real property taxes and assessments that may be levied
against Building and the underlying land. If the amount of such real
property taxes and the then current installments of assessments (excluding
penalties and default interest) shall, in any calendar year during the
Lease Term, exceed the amount of real property taxes and the installments
of assessments payable for the calendar year 1998, then on the tax payment
dates in 1999 and on these dates of each succeeding year, Tenant shall
reimburse Owner for Tenant's proportionate share of such increase based
upon the ratio which area of Premises, as set forth in Article 1(b), bears
to 350,000 square feet. Owner shall submit to Tenant, if so requested by
Tenant, a copy of the real property tax statement for the year in which
payment is requested. If any assessment is levied against the Westin
Building during the term of the Lease and Owner is legally entitled to pay
any assessment in installments, then whether or not Owner has elected to
pay such assessment in installments, Tenant shall only be responsible to
pay hereunder, in any calendar year, its pro rata share of such installment
that would have come due in such calendar year in accordance with the
taxing authority's installment payment schedule.
The foregoing charges constitute additional rent that shall be deemed to
have accrued uniformly during the calendar year in which payment is due.
The final payment under the provision of this Article shall be prorated
based on reasonable projections of the increase through the termination of
this Lease and shall be due thirty days before such termination.
25 ANNUAL RENT ADJUSTMENT
To partially compensate for the effect of inflation, a portion of the
rental rate (viz. $ 7.50 per square foot per year) shall be adjusted
annually to reflect reductions, if any, in the purchasing power of the
dollar. Three separate generic elements of cost (namely: labor, materials
and energy) shall be deemed to be representative of all operational costs.
Indices for measuring changes in the dollar value for each of these cost
elements shall be: janitorial hourly labor rate, Consumer Price Index, and
the average cost per kilowatt-hour of electricity (including without
limitation all demand charges), respectively. Changes in each of these
shall adjust rent as provided below:
<TABLE>
<CAPTION>
Generic Element's Cost
Element of Cost Index Share
--------------- ----- -----
<S> <C> <C>
1. Labor Janitorial rate $3.00
2. Material C.P.I. $3.00
3. Energy Average kWh cost $1.50
</TABLE>
The base index for each of these indices shall be established from data for
the month of September of the year preceding the year in which this Lease
commences. Indices for each succeeding year shall be calculated annually
using September experience data, and the ratio that these annual indices
bear to their respective base index shall be reduced by 1.00 then
multiplied by the individual element's cost share as specified in Items 1,
2 and 3 above, and by the area of Premises as set forth in Article 1(b).
Each January 1, following the calendar year in which the Lease becomes
effective, the Monthly Rent in Article 1(d) shall be increased by one-
twelfth (1/12) of the sum of the amounts so determined. No changes in the
rent as specified above shall take place during the calendar year in which
the Lease Term commences.
The janitorial hourly labor rate shall be that as established by the
Building Services Employees International Union Local No. 6 for journeymen
including all applicable taxes and fringe benefits payable by employers.
The labor rate to be used as a base index for this Lease shall be $12.81.
The Consumer Price Index to be used shall be the Revised Consumer Price
Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All-
Items Series (1982-1984 = 100), as published by the U.S. Department of
Labor, Bureau of Statistics. If this index is revised or changed (as, for
example, by taking the average index for different years as the base figure
of 100), the base index shall be adjusted accordingly. In the event such
index is discontinued, the index promulgated by the Department of Labor
most closely approximating the above referenced index shall be used as the
base index. The Consumer Price Index to be used as the base index for this
Lease shall be 158.3.
The cost per kilowatt-hour of electricity consumed in the Westin Building
(including seasonal factors and any tax or surcharge that may be imposed),
shall be determined by dividing the total amount billed to Account No.
171001453015 for the supply of electricity consumed primarily during the
month of September by the consumption shown in the billing column entitled
"Consumption kWh/kvarh." The cost to be used as a base index for this Lease
shall be $ .0401 per kilowatt-hour.
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26 NOTICES
- All notices under this Lease shall be in writing and delivered : (a) by
facsimile; (b) by private courier service which provides a receipt; or (c)
by registered or certified mail, postage prepaid, return receipt requested.
All notices shall be deemed to have been given upon the earlier of: (i)
receipt, as evidenced by courier's receipt, certified mail receipt, or
written evidence of completion of facsimile transmission; or (ii) if
mailed, as provided above, the third day following due deposit in the
United States mail. Notices shall be addressed to the other party at the
addresses set forth in Article 1(h), or at such other addresses as either
party may give to the other by notice in writing in accordance with this
Article.
27 NAME OF BUILDING
Owner reserves the right in its sole discretion to change the name of
Building from that specified in Article 3.
28 CONSTRUCTION
The titles to articles of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part thereof.
This Lease shall be construed and governed by the law of the State of
Washington.
29 TIME OF ESSENCE
Time is of the essence of this Lease.
30 FORCE MAJEUR
Except for Tenant's obligations of payments due under this Lease, the
executory obligations of parties hereunder shall be excused to the extent,
but only to the extent, delayed or prevented by reason of Essential Power
supply failure, or by labor disturbances or labor disputes of any
character, by the inability to secure fuel, supplies, machinery, equipment
or labor after reasonable efforts to do so, restrictive governmental laws
or regulations, riots, insurrection, war or any other causes beyond the
reasonable control of the affected party hereto and which such party could
not by reasonable diligence have avoided ("Force Majeurs"). The party
directly affected by a Force Majeur shall use all reasonable efforts to
minimize the effects of the same.
IN WITNESS WHEREOF, Owner and Tenant have signed this Lease on the dates noted
below.
OWNER: TENANT:
- ----- ------
SIXTH & VIRGINIA PROPERTIES, STARWAVE CORPORATION
A Washington General Partnership A Washington Corporation
By Clise Properties, Inc., a Partner
By /s/ A.M. Clise By /s/ Patrick J. Naughton
A.M. Clise
Its President Its President
--------- ----------
Date 2/27/98 Date 2/24/98
------- -------
CLISE COMPANY, a Partner
By Retail Realty, Inc.
By /s/ A.M. Clise
A.M. Clise
Its President
---------
Date 2/27/98
-------
18
<PAGE>
GUARANTEE N/A
For and in consideration of execution of this Lease, _______________________
guarantees the performance of all obligations of______________________________,
as said obligations exist under all terms and conditions of this Lease and any
modifications thereto.
State of Washington
County of King
I certify that I know or have satisfactory evidence that A.M.Clise is the person
who appeared before me and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the President of CLISE
PROPERTIES, INC., a partner of SIXTH & VIRGINIA PROPERTIES, a Washington general
partnership, to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated 2/27/98
[NOTARY PUBLIC SEAL]
/s/ Jennifer A. Richards
Print Name: JENNIFER A. RICHARDS
NOTARY PUBLIC in and for the State of
Washington, residing at ISSAQUAH
My commission expires: 2-7-99
State of Washington
County of King
I certify that I know or have satisfactory evidence that A.M. Clise is the
person who appeared before me and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the President of RETAIL REALTY, INC., a partner of CLISE
COMPANY, a partnership, for and on behalf of CLISE COMPANY, which in turn is a
partner of SIXTH & VIRGINIA PROPERTIES, a Washington general partnership, to be
the free and voluntary act of such party for the uses and purposes mentioned in
the instrument.
Dated 2/27/98
[NOTARY PUBLIC SEAL]
/s/ Signature Illegible
Print Name: JENNIFER A. RICHARDS
NOTARY PUBLIC in and for the State of
Washington, residing at ISSAQUAH
My commission expires: 2-7-99
19
<PAGE>
[FLOOR PLAN OMITTED]
EXHIBIT "A"
AS-BUILT FLOOR PLAN
- -------------------
SCALE: 1/8" = 1' - 0"
<PAGE>
[FLOOR PLAN OMITTED]
EXHIBIT "A"
AS BUILT FLOOR PLAN
SCALE: 1/8" = 1' - 0"
<PAGE>
[SITE PLAN OMITTED]
EXHIBIT B
Site Plan
<PAGE>
[CHART OMITTED]
[EXHIBIT "C"]
<PAGE>
[CHART OMITTED]
EXHIBIT "C"
<PAGE>
EXHIBIT 10.57
SUNSET CORPORATE CAMPUS
Bellevue, Washington
LEASE AGREEMENT
BETWEEN
SUNSET OFFICE LIMITED PARTNERSHIP
a Washington Limited Partnership
Landlord
and
VULCAN NORTHWEST, INC.
Tenant
<PAGE>
TABLE OF CONTENTS
1. LEASE DATA AND EXHIBITS 1
(a) Building 1
(b) Premises 1
(c) Rentable Area of the Premises 1
(d) Basic Plans Delivery Date 1
(e) Commencement Date 1
(f) Expiration Date 1
(g) Rent 1
(h) Security Deposit 1
(i) Parking 1
(j) Notice Addresses 1
(k) Exhibits 1
2. PREMISES 2
3. COMMENCEMENT AND EXPIRATION DATES 2
(a) Commencement Date 2
(b) Tenant Obligations 2
(c) Tenant Termination Rights 2
(d) Expiration Date 2
4. ACCEPTANCE OF PREMISES 3
5. RENT 3
6. SECURITY DEPOSIT 3
7. PARKING 3
8. USES 3
9. SERVICES AND UTILITIES 4
(a) Standard Services 4
(b) Interruption of Services 4
(c) Additional Services 4
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES 4
(a) Additional Rent 4
(b) Definitions 4
(c) Estimated Costs 5
(d) Actual Costs 5
(e) Records and Adjustments 5
(f) Personal Property Taxes 5
11. CARE OF PREMISES 6
(i)
<PAGE>
12. ACCESS 6
13. DAMAGE OR DESTRUCTION 6
(a) Damage and Repair 6
(b) Destruction During Last Year of Term 6
(c) Tenant Improvements 6
14. WAIVER OF SUBROGATION 7
15. INDEMNIFICATION 7
16. INSURANCE 7
(a) Tenant's Insurance 7
(b) Property Insurance 7
(c) Insurance Policy Requirements 7
17. ASSIGNMENT AND SUBLETTING 8
(a) Assignment or Sublease 8
(b) Assignee Obligations 8
(c) Sublessee Obligations 8
18. SIGNS 8
19. LIENS AND INSOLVENCY 8
(a) Liens 8
(b) Insolvency 9
(c) Financial Statements 9
20. DEFAULT 9
(a) Cumulative Remedies 9
(b) Tenant's Right to Cure 9
(c) Abandonment 9
(d) Landlord's Reentry 9
(e) Reletting the Premises 10
(f) Nonpayment of Additional Rent 10
21. PRIORITY 10
22. SURRENDER OF POSSESSION 10
23. REMOVAL OF PROPERTY 10
24. NON-WAIVER 10
25. HOLDOVER 11
26. CONDEMNATION 11
(a) Entire Taking 11
(b) Partial Taking 11
(c) Awards and Damages 11
(ii)
<PAGE>
27. NOTICES 11
28. COSTS AND ATTORNEYS FEES 11
29. LANDLORD'S LIABILITY 12
30. LANDLORD'S CONSENT 12
31. ESTOPPEL CERTIFICATES 12
32. TRANSFER OF LANDLORD'S INTEREST 12
33. RIGHT TO PERFORM 12
34. QUIET ENJOYMENT 12
35. HAZARDOUS WASTE 12
(a) Tenant Obligations 12
(b) Landlord Obligations 13
36. GENERAL 13
(a) Headings 13
(b) Heirs and Assigns 13
(c) No Brokers 13
(d) Entire Agreement 13
(e) Severability 13
(f) Overdue Payments 13
(g) Force Majeure 13
(h) Right to Change Public Spaces 14
(i) Governing Law 14
(j) Building Directory 14
(k) Building Name 14
(l) Recordations 14
(iii)
<PAGE>
LEASE AGREEMENT
Sunset Corporate Campus
THIS LEASE made this 4th day of March, 1992, between SUNSET OFFICE LIMITED
PARTNERSHIP, a Washington limited partnership ("Landlord"), and VULCAN
NORTHWEST, INC. a Washington corporation ("Tenant").
As parties hereto, Landlord and Tenant agree:
1. LEASE DATA AND EXHIBITS: The following terms as used herein shall have the
meanings provided in this Section 1, unless otherwise specifically modified by
provisions of this Lease:
(a) BUILDING: Located on the real property described in Section 2 hereof, with
an address of 13910 South East Eastgate Way, Bellevue, Washington 98005.
(b) PREMISES: Consisting of the area on the fourth floor(s) of the Building, as
outlined on the floor plan(s) attached hereto as Exhibit A, including tenant
improvements, if any, as described in Exhibit B. In the event the party
currently negotiating a lease for space on the fifth floor decides not to lease
such space prior to commencement of improvements for Tenant, Tenant shall have
the option to locate on the fifth floor of the Building upon the same terms and
conditions agreed on the fourth floor.
(c) RENTABLE AREA OF THE PREMISES: Approximately 10,513, net rentable square
feet. The exact number shall be determined upon completion of final space
planning.
(d) BASIC PLANS DELIVERY DATE: N/A.
FINAL PLANS DELIVERY DATE: April 2, 1992.
(e) COMMENCEMENT DATE: June 1, 1992 or such earlier or later date as provided
in Section 3 hereof.
(f) EXPIRATION DATE: May 31, 1997
(g) RENT: The amount specified in Paragraph 1 of Exhibit C hereto in accordance
with Section 5 hereof. Tenant has deposited with Landlord on the date herein $
19,000.00 to be applied to the first Rent payment due hereunder.
(h) SECURITY DEPOSIT: $ - 0 -.
(i) PARKING: Tenant shall have a right to lease parking spaces in or near the
Building as specified in Paragraph 2 of Exhibit C hereto and in accordance with
Section 7 hereof.
(j) NOTICE ADDRESSES:
Landlord: Sunset Office Limited Partnership
13910 S.E. Eastgate Way
Bellevue, Washington 98005
Tenant: Vulcan Northwest, Inc.
13910 S.E. Eastgate Way
Suite 400
Bellevue, Washington 98005
(k) EXHIBITS: The following exhibits or riders are made a part of this Lease:
Exhibit A - Floor Plan of Premises
Exhibit B - Tenant Improvements
Exhibit C - Addendum to Lease
<PAGE>
2. PREMISES: Landlord does hereby lease to Tenant, and Tenant does hereby
lease from Landlord, upon the terms and conditions herein set forth, the
Premises described in Section 1(b) hereof as shown on Exhibit A hereto, together
with rights of ingress and egress over common areas in the Building located on
the land ("Land") more particularly described as:
THAT PORTION OF THE SOUTHWEST 1/4 OF SECTION 10, TOWNSHIP 24 NORTH, RANGE 5
EAST, W.M., DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHWEST CORNER OF LOT 3, CITY OF BELLEVUE LOT LINE
ADJUSTMENT NO. 88-6830 AS RECORDED IN VOLUME 63 OF SURVEYS, PAGE 145 UNDER
RECORDING NO. 8811039001;
THENCE ALONG THE WEST LINE THEREOF NORTH 01 DEGREE 18'59' EAST 553.32 FEET;
THENCE SOUTH 88 DEGREES 41'28' EAST 736.91 FEET;
THENCE SOUTH 01 DEGREE 18'32" WEST 116.85 FEET TO THE BEGINNING OF A CURVE,
CONCAVE TO THE NORTHEAST, HAVING A RADIUS OF 35.00 FEET;
THENCE ALONG THE ARC OF SAID CURVE, PASSING THROUGH A CENTRAL ANGLE OF 90
DEGREES 00'00" A DISTANCE OF 54.98 FEET;
THENCE SOUTH 88 DEGREES 41'28" EAST 214.50 FEET TO THE WEST LINE OF THAT
CERTAIN TRACT OF LAND CONVEYED TO THE STATE OF WASHINGTON BY RECORDING NOS.
7806090313, 7806090314 AND 7806090315;
THENCE ALONG SAID WEST LINE SOUTH 01 DEGREE 18'32" WEST 425.60 FEET; THENCE
SOUTH 41 DEGREES 18'40" WEST 32.73 FEET TO THE NORTH MARGIN OF EASTGATE
WAY;
THENCE ALONG SAID MARGIN NORTH 85 DEGREES 46'25" WEST 966.69 FEET TO THE
POINT OF BEGINNING;
SITUATED IN THE CITY OF BELLEVUE, COUNTY OF KING, STATE OF WASHINGTON.
"Net rentable square feet" and "rentable area" as used herein shall mean
"Rentable Area" as defined in BOMA American National Standard Z65.1-1980
(reprinted May 1981).
3. COMMENCEMENT AND EXPIRATION DATES:
(a) COMMENCEMENT DATE. Provided that the Premises together with common
facilities for access and service thereto have been completed, the Commencement
Date shall be the date specified in Section 1(e), June 1, 1992, or such earlier
or later date upon which the Premises and common facilities shall be completed
as may be specified in a notice delivered to Tenant at least thirty (30) days
prior to the date specified in such notice; or any earlier date when the Tenant
occupies the Premises for Permitted Uses. In the event the Commencement Date is
established as a later or earlier date than the date provided in Section 1(e)
hereof, Landlord shall confirm the same to Tenant in writing.
(b) TENANT OBLIGATIONS. If completion of the Premises is delayed due to the
failure to Tenant to fulfill any obligation under this Lease or any exhibit
hereto, including without limitation Tenant's failure to comply with the Plan
Delivery Dates in Section 1(d) and Exhibit B, the Lease shall be deemed to have
commenced upon the date when the Premises would have been completed but for such
delay by Tenant.
(c) TENANT TERMINATION RIGHTS. In the event, due to delays from any cause
other than Tenant's failure to comply with the terms of this Lease, the Premises
are not available for occupancy by Tenant within six months following the date
specified in Section 1(e), Tenant may terminate this Lease by written notice;
provided, however, that such six-month period shall be extended for delays due
to causes beyond the reasonable control of Landlord. Termination under this
Section 3(c) shall be Tenant's sole remedy and Tenant shall have no other rights
or claims hereunder at law or in equity.
(d) EXPIRATION DATE. The Lease shall expire on the date specified in
Section 1(f).
<PAGE>
4. ACCEPTANCE OF PREMISES: If this Lease is entered into prior to the
completion of tenant improvements in the Premises, the acceptance of the
Premises by Tenant shall be deferred until Landlord informs Tenant of the
completion of such construction. Within five (5) working days ("Inspection
Period") after Landlord informs Tenant of such completion, Tenant shall make
such inspection of the Premises as Tenant deems appropriate. Except as otherwise
specified by Tenant in writing to Landlord within the Inspection Period and
except for latent defects not reasonably observable by Tenant, Tenant shall be
deemed to have accepted the Premises in their then condition. If, as a result of
such inspection, Tenant discovers minor deviations or variations from the plans
and specifications for Tenant's improvements which do not materially affect
Tenant's use of the Premises, Tenant shall, during the Inspection Period, notify
Landlord of such deviations. Landlord shall promptly repair all such items. The
existence of such items shall not postpone the Commencement Date of this Lease
or the obligation of Tenant to pay Rent.
5. RENT: Tenant shall pay without notice the Rent and Additional Rent (as
defined in Section 20(f)) without deduction or offset in lawful money of the
United States in advance on or before the first day of each month at Landlord's
Notice Address set forth in Section 1(j) hereof, or to such other party or at
such other place as Landlord may hereafter from time to time designate in
writing. Rent and Additional Rent for any partial month at the beginning or end
of the Lease term shall be prorated in proportion to the number of days in such
month.
6. [Deleted]
7. PARKING: All parking spaces are leased to Tenant subject to the rules of
Landlord and garage operator, and laws, codes and regulations set forth by
authorities having jurisdiction over the Building and Premises. In accordance
with state and city requirements to minimize the use of single occupant vehicles
and to generally reduce parking requirements, Tenant shall participate in
Landlord's transportation management program. Landlord's program shall include
providing information and referral service to Tenant and Tenant's employees
regarding bus schedules, carpooling, vanpooling, flex-time and job sharing and
may include other transportation management programs as are deemed appropriate
by Landlord from time-to-time. During Normal Business Hours as defined in
Section 9(a) herein, Landlord shall make available in or near the Building
transient parking for Tenant's clients and guests. If Landlord shall charge a
fee for such parking, Landlord shall make available to Tenant a parking
validation system such that Tenant may validate clients' and guests' parking at
Tenant's expense. Tenant assumes full financial responsibility for all parking
leased to Tenant or Tenant's employees.
8. USES: The Premises are to be used only for general office purposes
including computer hardware, software, and engineering research and development
("Permitted Uses"), and for no other business or purpose without the prior
written consent of Landlord, which consent may be withheld if Landlord
determines that any proposed use is inconsistent with or detrimental to the
maintenance and operation of the Building as a first-class office building in
Bellevue, Washington, or is inconsistent with any restriction on use of the
Premises, the Building or the Land contained in any lease, mortgage or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject. Tenant shall not commit any act that will increase the then
existing cost of insurance on the Building without Landlord's consent. Tenant
shall promptly pay upon demand the amount of any increase in insurance costs
caused by any act or acts of Tenant. Tenant shall not commit or allow to be
committed any waste upon the Premises, or any public or private nuisance or
other act which disturbs the quiet enjoyment of any other tenant in the Building
or which is unlawful or which will cause any substantial noise, vibration, smoke
or fumes. If Tenant should disturb the quiet enjoyment of any other tenant in
the Building, Tenant shall provide adequate insulation or take other action as
may be necessary to eliminate the disturbance. Tenant shall comply with all laws
relating to its use or occupancy of the Premises and shall observe such
reasonable rules and regulations (not inconsistent with the terms of this Lease)
as may be adopted and made available to Tenant by Landlord from time to time for
the safety, care and cleanliness of the Premises or the Building, and for the
preservation of good order therein.
3
<PAGE>
9. SERVICES AND UTILITIES:
(a) STANDARD SERVICES. Landlord shall maintain the Premises and the public
and common areas of the Building in good order and condition consistent with the
operation and maintenance of a first-class office building in Bellevue,
Washington. Landlord shall furnish the Premises with electricity for normal
office use, including lighting and operation of low power usage office machines,
water and elevator service at all times during the term of the Lease. Landlord
shall also provide lamp replacement service for building standard light
fixtures, toilet room supplies, window washing at reasonable intervals, and
customary building janitorial service. No janitorial service shall be provided
Saturdays, Sundays or legal holidays. The costs of any janitorial or other
service provided by Landlord to Tenant which are in addition to the services
ordinarily provided Building tenants shall be repaid by Tenant as Additional
Rent upon receipt of billings therefor.
From 7:00 a.m. to 6:00 p.m. on weekdays, excluding legal holidays ("Normal
Business Hours"), Landlord shall furnish to the Premises heat and air
conditioning. If requested by Tenant, Landlord shall furnish heat and air
conditioning at times other than Normal Business Hours and the cost of such
services, as established by Landlord, shall be paid by Tenant as Additional Rent
upon receipt of billings therefor. The current cost for after-hours heating and
air conditioning is $10.00 per hour. This rate shall be adjusted by Landlord
from time to time to reflect actual costs incurred in the provision of such
service. During other than Normal Business Hours, Landlord may restrict access
to the Building in accordance with the Building's security system, provided that
Tenant shall have at all times during the term of this Lease (24 hours of all
days) reasonable access to the Premises.
(b) INTERRUPTION OF SERVICES. Landlord shall not be liable for any loss,
injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever. No temporary interruption or failure of such services incident to
the making of repairs, alterations or improvements, or due to accident, strike
or conditions or events beyond Landlord's reasonable control shall be deemed an
eviction of Tenant or relieve Tenant from any of Tenant's obligations hereunder;
provided, however, if such interruption or failure shall continue for five (5)
business days, Tenant's Rent hereunder shall be thereafter abated to the extent
the Premises are thereby rendered untenantable for Tenant's normal business
operations until such services shall be restored.
(c) ADDITIONAL SERVICES. The Building Standard mechanical system is
designed to accommodate heating loads generated by lights using up to 1.7 watts
per square foot and equipment using up to 2.5 watts per square foot. Before
installing lights and equipment in the Premises which in the aggregate exceed
such amount, Tenant shall obtain the written permission of Landlord. Landlord
may refuse to grant such permission unless Tenant shall agree to pay the costs
of Landlord for installation of supplementary air conditioning or electrical
systems as necessitated by such equipment or lights.
In addition, Tenant shall in advance, as Additional Rent on the first day
of each month during the Lease term, pay Landlord the reasonable amount
estimated by Landlord as the cost of furnishing electricity for the operation of
such equipment or lights and the reasonable amount estimated by Landlord as the
cost of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. Landlord shall be
entitled to install and operate at Tenant's cost a monitoring/metering system in
the Premises to measure the added demands on electrical, heating, ventilation
and air conditioning systems resulting from such equipment and lights and from
Tenant's after-hours heating, ventilation and air conditioning service
requirements. Tenant shall comply with Landlord's instructions for the use of
drapes and thermostats in the Building.
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES:
(a) ADDITIONAL RENT. Tenant shall pay as Additional Rent its pro rata share
of increases in operating costs and taxes in excess of $5.00 per rentable square
foot ("base amount"):
(b) DEFINITIONS. For the purposes of this section, "taxes" shall mean taxes
and assessments on real and personal property payable during any calendar year
with respect to the Land, the Building and all property of Landlord, real or
personal, used directly in the operation of the Building and located in or on
the Building; and any assessments upon the Land or the Building for off-site
common area costs, together with any taxes levied or assessed in addition to or
in lieu of any such taxes or any tax upon leasing of the Building or the rents
collected (excluding any net income or franchise tax).
4
<PAGE>
"Operating costs" or "costs" shall mean all expenses of Landlord for
maintaining, operating and repairing the Land and Building and the personal
property used in connection therewith, including without limitation insurance
premiums, utilities, customary management fees and other expenses which in
accordance with generally accepted accounting and management practices would be
considered an expense of maintaining, operating or repairing the Building;
excluding, however: (i) costs of any special services rendered to individual
tenants for which a separate charge is collected; (ii) leasing commissions and
other leasing expenses; and (iii) costs of improvements required to be
capitalized in accordance with generally accepted accounting principles, except
operating costs shall include amortization of capital improvements (A) made
subsequent to initial development of the Building which are designed with a
reasonable probability of improving the operating efficiency of the Building,
provided that such amortization shall not exceed the reasonably expected savings
in operating costs; or (B) which are reasonably responsive to requirements
imposed with respect to the Building under any amendment to any applicable
building, health, safety, fire, nondiscrimination or similar law or regulation
("law"), or any new law, or any new interpretation of a law. In the event the
average occupancy level of the Building for the base year and/or any subsequent
year was or is not one hundred percent (100%) or more of full occupancy, then
the operating costs for such year shall be proportionately adjusted by Landlord
to reflect those costs which would have occurred had the Building been one
hundred percent (100%) occupied during such year.
"Tenant's pro rata share" shall mean a percentage determined by dividing
the rentable area of the Premises by the rentable area of the Building. If the
rentable area of the Premises or the Building shall change, Tenant's pro rata
share shall be adjusted accordingly.
"Year" shall mean the calendar year.
(c) ESTIMATED COSTS. At the beginning of each year, Landlord shall furnish
Tenant a written statement of estimated operating costs and taxes for such year;
a calculation of the amount, if any, by which such estimated costs and taxes
will exceed the base amount; and a calculation of Tenant's pro rata share of any
such amount. Tenant shall pay one-twelfth (1/12) of that amount as Additional
Rent for each month during the year. If at any time during the year Landlord
reasonably believes that the actual costs and taxes will vary from such
estimated costs and taxes by more than five percent (5%), Landlord may by
written notice to Tenant revise the estimate for such year, and Additional Rent
for the balance of such year shall be paid based upon such revised estimates.
(d) ACTUAL COSTS. Within ninety (90) days after the end of each year or as
soon thereafter as practicable, Landlord shall deliver to Tenant a written
statement setting forth Tenant's pro rata share of the actual operating costs
and taxes in excess of the base amount during the preceding year. If the actual
operating costs and taxes in excess of the base amount exceed the estimates for
such amounts paid by Tenant during the year, Tenant shall pay the amount of such
excess to Landlord as Additional Rent within thirty (30) days after receipt of
such statement. If the actual operating costs and taxes in excess of the base
amount are less than the amount paid by Tenant to Landlord, then the amount of
such overpayment by Tenant shall be credited against the next Rent payable by
Tenant hereunder.
(e) RECORDS AND ADJUSTMENTS. Landlord shall keep records showing all
expenditures made in connection with operating costs and taxes, and such records
shall be available for inspection by Tenant. Operating costs and taxes shall be
prorated for any portion of a year at the beginning or end of the term of this
Lease. Notwithstanding this Section 10, the Rent payable by Tenant shall in no
event be less than the Rent specified in Section 1(g) hereof.
(f) PERSONAL PROPERTY TAXES. Tenant shall pay all personal property taxes
with respect to property of Tenant located on the Premises or in the Building.
"Property of Tenant" shall include all improvements which are paid for by Tenant
and "personal property taxes" shall include all property taxes assessed against
the property of Tenant, whether assessed as real or personal property.
5
<PAGE>
11. CARE OF PREMISES: Landlord shall perform all normal maintenance and repairs
to the Premises which Landlord reasonably determines necessary to maintain the
Premises and the Building as a first-class office building; provided that
Landlord shall not be required to maintain or repair any Property of Tenant or
any appliances (such as water heaters, refrigerators, microwaves and the like)
which are part of the Premises. Tenant shall take good care of the Premises.
Tenant shall not make any alterations, additions or improvements ("Alterations")
in or to the Premises, or make changes to locks on doors, or add, disturb or in
any way change any plumbing or wiring ("Changes") without first obtaining the
written consent of Landlord and, where appropriate, in accordance with plans and
specifications approved by Landlord. Any Alterations or Changes required to be
made to the Premises by any amendment to any applicable building, health,
safety, fire, nondiscrimination, or similar law or regulation ("law"), or any
new law shall be made at Tenant's sole expense and shall be subject to the prior
written consent of Landlord. Tenant shall reimburse Landlord for any reasonable
sums expended for examination and approval of architectural or mechanical plans
and specifications of the Alterations and Changes and direct costs reasonably
incurred during any inspection or supervision of the Alterations or Changes. All
damages or injury done to the Premises or Building by Tenant or by any persons
who may be in or upon the Premises or Building with the express or implied
consent of Tenant, including but not limited to the cracking or breaking of any
glass of windows and doors, shall be paid for by Tenant.
12. ACCESS: Tenant shall permit Landlord and its agents to enter into and upon
the Premises at all reasonable times for the purpose of inspecting the same or
for the purpose of cleaning, repairing, altering or improving the Premises or
the Building. Upon reasonable notice, Landlord shall have the right to enter the
Premises for the purpose of showing the Premises to prospective tenants within
the period one hundred eighty (180) days prior to the expiration or sooner
termination of the Lease term. Landlord may enter the Premises without notice in
the event of an emergency.
13. DAMAGE OR DESTRUCTION:
(a) DAMAGE AND REPAIR. If the Building is damaged by fire or any other
cause to such extent that the cost of restoration, as reasonably estimated by
Landlord, will equal or exceed thirty percent (30%) of the replacement value of
the Building (exclusive of foundations) just prior to the occurrence of the
damage, or if insurance proceeds sufficient for restoration are for any reason
unavailable, then Landlord may no later than the sixtieth day following the
damage, give Tenant a notice of election to terminate this Lease. In the event
of such election, this Lease shall be deemed to terminate on the third day after
the giving of such notice, and Tenant shall surrender possession of the Premises
within a reasonable time thereafter, and the Rent and Additional Rent shall be
apportioned as of the date of Tenant's surrender and any Rent paid for any
period beyond such date shall be repaid to Tenant. If the cost of restoration as
estimated by Landlord shall amount to less than thirty percent (30%) of said
replacement value of the Building and insurance proceeds sufficient for
restoration are available, Landlord shall restore the Building and the Premises
(with improvements substantially comparable in quality to the improvements to
the Premises originally provided by Landlord hereunder) with reasonable
promptness, subject to delays beyond Landlord's control and delays in the making
of insurance adjustments by Landlord. To the extent that the Premises are
rendered untenantable, the Rent shall proportionately abate, except in the event
such damage resulted from or was contributed to, directly or indirectly, by the
act, fault or neglect of Tenant, Tenant's officers, contractors, agents,
employees, clients, customers or licensees, in which event Rent shall abate only
to the extent Landlord receives proceeds from any rental income insurance policy
to compensate Landlord for loss of Rent hereunder. No damages, compensation or
claim shall be payable by Landlord for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of the Premises
or the Building.
(b) DESTRUCTION DURING LAST YEAR OF TERM. In case the Building shall be
substantially destroyed by fire or other cause at any time during the last
twelve (12) months of the term of this Lease, either Landlord or Tenant may
terminate this Lease upon written notice to the other within sixty (60) days of
the date of such destruction.
(c) TENANT IMPROVEMENTS. Landlord will not carry insurance of any kind on
any improvements paid for by Tenant as provided in Exhibit B or on Tenant's
furniture, furnishings, fixtures, equipment or appurtenances of Tenant under
this Lease and Landlord shall not be obligated to repair any damage thereto or
replace the same.
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14. WAIVER OF SUBROGATION: Whether the loss or damage is due to the negligence
of either Landlord or Tenant or any other cause, Landlord and Tenant each hereby
release and relieve the other, its agents or employees, from responsibility for,
and waive its entire claim of recovery for (i) any loss or damage to its real or
personal property located anywhere in the Building, including the Building
itself, arising out of or incident to the occurrence of any of the perils which
are covered by its property and related insurance policies, and (ii) any loss
resulting from business interruption at the Premises or loss of rental income
from the Building, arising out of or incident to the occurrence of any of the
perils covered by any business interruption or loss of rental income insurance
policy held by it. Each party shall use best efforts to cause its insurance
carriers to consent to the foregoing waiver of rights of subrogation against the
other party. Notwithstanding the foregoing, no such release shall be effective
except to the extent the applicable insurance policy or policies shall expressly
permit such a release or contain a waiver of the carrier's right to be
subrogated.
15. INDEMNIFICATION: Tenant shall indemnify and hold Landlord harmless from and
against liabilities, damages, losses, claims and expenses, including attorneys
fees, arising from any act, omission, or negligence of Tenant or its officers,
contractors, licensees, agents, employees, clients or customers in or about the
Building or Premises or arising from any injury or damage to any person or
property, occurring in or about the Building or Premises or arising from any
breach or default under this Lease by Tenant. The foregoing provisions shall not
be construed to make Tenant responsible for loss, damage, liability or expense
resulting from injuries to third parties caused by the negligence of Landlord,
or its officers, contractors, licensees, agents, employees, clients or customers
or other tenants of the Building.
Landlord shall indemnify and hold Tenant harmless from and against all
liabilities, damages, losses, claims and expenses, including attorneys fees, due
to any injury or damage to any person or property, arising from any act,
omission or negligence of Landlord or its officers, contractors, licensees,
agents or employees in or about the Building or Premises, or from any breach or
default under this Lease by Landlord. Landlord shall not be liable for any loss
or damage to persons or property sustained by Tenant or other persons, which may
be caused by theft, or by any act or neglect of Tenant or any other tenant or
occupant of the Building or any third parties.
16. INSURANCE:
(a) LIABILITY INSURANCE. Tenant shall, throughout the term of this Lease
and any renewal hereof, at its own expense, keep and maintain in full force and
effect, a policy of commercial general liability (occurrence form) insurance
including contractual liability insuring Tenant's activities upon, in or about
the Premises or the Building against claims of bodily injury or death or
property damage or loss with a combined single limit of not less than One
Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000)
in the aggregate. Landlord and Wright Runstad & Company shall be additional
insureds.
(b) PROPERTY INSURANCE. Tenant shall, throughout the term of this Lease and
any renewal hereof, at its own expense, keep and maintain in full force and
effect, what is commonly referred to as "All Risk" or "Special" coverage
(excluding earthquake and flood) on Tenant's leasehold improvements for not less
than 100% of the replacement value.
(c) INSURANCE POLICY REQUIREMENTS. All insurance required under this
Section 16 shall be with companies reasonably approved by Landlord. No insurance
policy required under this Section 16 shall be cancelled or reduced in coverage
except after forty-five (45) days prior to written notice to Landlord, ten (10)
days notice for non-payment of premium.
Tenant shall deliver to Landlord prior to the Commencement Date, and from
time to time thereafter, copies of policies of such insurance or certificates
evidencing the existence and amounts of same and evidencing Landlord and Wright
Runstad & Company as additional insureds thereunder. In no event shall the
limits of any insurance policy required under this Section 16 be considered as
limiting the liability of Tenant under this Lease.
All policies required under this Section 16 shall be written as primary
policies and not contributing to or in excess of any coverage Landlord may
choose to maintain.
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17. ASSIGNMENT AND SUBLETTING:
See Exhibit C, Section 6 for additional terms and conditions.
(a) ASSIGNMENT OR SUBLEASE. Tenant shall not assign, mortgage, encumber or
otherwise transfer this Lease or sublet the whole or any part of the Premises
without in each case first obtaining Landlord's prior written consent. Such
consent shall not be unreasonably withheld except: (1) Landlord may withhold its
consent if in Landlord's judgment occupancy by any proposed assignee, subtenant
or other transferee: (i) is not consistent with the maintenance and operation of
a first-class office building due to the nature of the proposed occupant's
business or the manner of conducting its business or its experience or
reputation in the community, or (ii) is likely to cause disturbance to the
normal use and occupancy of the Building; (2) Landlord may withhold in its
absolute and sole discretion consent to any mortgage, hypothecation, pledge or
other encumbrance of any interest in this Lease or the Premises by Tenant or any
subtenant, whereby this Lease or any interest therein becomes collateral for any
obligation of Tenant; and (3) Landlord may withhold its consent to the extent
Landlord determines necessary to comply with a restriction on use of the
Premises, the Building or the Land contained in any lease, mortgage, or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject. No such assignment, subletting or other transfer shall
relieve Tenant of any liability under this Lease. Consent to any such
assignment, subletting or transfer shall not operate as a waiver of the
necessity for consent to any subsequent assignment, subletting or transfer. In
lieu of granting any such consent, Landlord reserves the right to terminate this
Lease or, in the case of a subletting of less than all the Premises, to
terminate this Lease with respect to such portion of the Premises, as of the
proposed effective date of such subletting or assignment, in which event
Landlord may enter into the relationship of landlord and tenant with such
proposed assignee or subtenant based upon the Rent and other compensation and
terms agreed to by such subtenant or assignee and otherwise upon the terms and
conditions of this Lease. In connection with each request for an assignment or
subletting, Tenant shall pay $300.00 for the cost of processing such assignment
or subletting, including attorneys fees, upon demand of Landlord. Tenant shall
provide Landlord with copies of all assignments, subleases and assumption
instruments.
If Tenant is a corporation or partnership, any transfer of this Lease by
merger, consolidation or liquidation, or any change in the ownership of, or
power to vote, a majority of its outstanding voting stock or partnership
interests shall constitute an assignment for the purpose of this Section 17.
(b) ASSIGNEE OBLIGATIONS. As a condition to Landlord's approval, any
potential assignee otherwise approved by Landlord shall assume in writing all
obligations of Tenant under this Lease and shall be jointly and severally liable
with Tenant for the payment of Rent and performance of all terms, covenants and
conditions of this Lease.
(c) SUBLESSEE OBLIGATIONS. Any sublessee shall assume all obligations of
Tenant as to that portion of the Premises which is subleased to such sublessee
and shall be jointly and severally liable with Tenant for rental and other
payments and performance of all terms, covenants, and conditions of this Lease
with respect to such portion of the Premises.
18. SIGNS: Tenant shall not place or in any manner display any sign, graphics,
or any advertising matter anywhere in or about the Premises or the Building at
places visible (either directly or indirectly) from anywhere outside the
Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Any such consent by Landlord shall
be upon the understanding and condition that Tenant shall remove the same at the
expiration or sooner termination of this Lease and Tenant shall repair any
damage to the Premises or the Building caused thereby. Landlord shall not
unreasonably withhold its consent to normal Tenant identification signs and
logos which are consistent with the Building signage and graphics program.
19. LIENS AND INSOLVENCY:
(a) LIENS. Tenant shall keep its interest in this Lease and any property of
Tenant (other than unattached personal property) and the Premises, the Land and
the Building free from any liens arising out of any work performed or materials
ordered or obligations incurred by or on behalf of Tenant and hereby indemnifies
and
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holds Landlord harmless from any liability from any such lien, including,
without limitation, liens arising from any work performed pursuant to Section V
of Exhibit B hereto. In the event any lien is filed against the Building, the
Land or the Premises by any person claiming by, through or under Tenant, Tenant
shall, upon request of Landlord, at Tenant's expense immediately either cause
such lien to be released of record or furnish to Landlord a bond in form and
amount and issued by a surety reasonably satisfactory to Landlord, indemnifying
Landlord, the Land and the Building against all liability, costs and expenses,
including attorneys fees, which Landlord may incur as a result thereof. Provided
that such bond has been furnished to Landlord, Tenant, at its sole cost and
expense and after written notice to Landlord, may contest, by appropriate
proceedings conducted in good faith and with due diligence, any lien,
encumbrance or charge against the Premises arising from work done or materials
provided to or for Tenant, if, and only if, such proceedings suspend the
collection thereof against Landlord, Tenant and the Premises and neither the
Premises, the Building nor the Land nor any part thereof or interest therein is
or will be in any danger of being sold, forfeited or lost.
(b) INSOLVENCY. If Tenant becomes insolvent or voluntarily or involuntarily
becomes a debtor or alleged debtor in a bankruptcy proceeding, or if a receiver,
assignee or other liquidating officer is appointed for the business of Tenant,
Landlord at its option may terminate this Lease and Tenant's right of possession
under this Lease and in no event shall this Lease or any rights or privileges
hereunder be an asset of Tenant in any bankruptcy, insolvency or reorganization
proceeding.
(c) FINANCIAL STATEMENTS. Tenant shall, from time to time during the term
of this Lease upon the request of Landlord, submit to Landlord such financial
statements or other financial information as Landlord may reasonably request in
connection with the prospective sale or refinancing of the Building. Landlord
agrees to use reasonable efforts to limit disclosure of Tenant's financial
information to persons who have a legitimate business interest in such
information.
20. DEFAULT:
(a) CUMULATIVE REMEDIES. All rights of Landlord herein enumerated shall be
cumulative, and none shall exclude any other right or remedy allowed by law. In
addition to the other remedies provided in this Lease, Landlord shall be
entitled to restrain by injunction the violation or attempted violation of any
of the covenants, agreements or conditions of this Lease.
(b) TENANT'S RIGHT TO CURE. Tenant shall have a period of five (5) business
days from the date of written notice from Landlord to Tenant within which to
cure any default in the payment of Rent, Additional Rent or other sums due
hereunder. Tenant shall have a period of fifteen (15) days from the date of
written notice from Landlord to Tenant within which to cure any other default
hereunder which is capable of being cured by Tenant; provided, however, that
with respect to any default capable of being cured by Tenant but which cannot be
cured within such fifteen (15) day period, the default shall not be deemed to be
uncured if Tenant commences to cure within fifteen (15) days and for so long as
Tenant is diligently prosecuting the cure thereof.
(c) ABANDONMENT. Abandonment means an absence from the Premises of five (5)
days or more while Tenant is in default or Landlord otherwise reasonably
determines that Tenant has abandoned the Premises and its interest under this
Lease. Abandonment by Tenant shall be considered a default with no right to
cure, allowing Landlord to reenter the Premises under Section 20(d).
(d) LANDLORD'S REENTRY. Upon a default under this Lease by Tenant and
expiration of any applicable cure period, Landlord, at its option, may enter the
Premises or any part thereof, and expel, remove or put out Tenant or any other
persons who may be thereon, together with all personal property found therein;
and Landlord may terminate this Lease, or it may from time to time, without
terminating this Lease and as agent of Tenant, relet the Premises or any part
thereof for such term or terms (which may be for a term less than or extending
beyond the term hereof) and at such rental or rentals and upon such other terms
and conditions as Landlord in its sole discretion may deem advisable, with the
right to repair, remodel and change the Premises, Tenant remaining liable for
any deficiency computed as provided in Section 20(e). In the case of any
default, reentry and/or dispossession by summary proceedings or otherwise, all
Rent and Additional Rent shall become due thereupon and be paid up to the time
of such reentry or dispossession, together with such expenses as Landlord may
reasonably incur for attorneys fees, advertising expenses, brokerage fees and/or
putting the Premises in good order or preparing the same for re-rental, together
with interest thereon as provided in Section 36(f) hereof, accruing from the
date of any such expenditure by Landlord.
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(e) RELETTING THE PREMISES. At the option of Landlord, rents received by
Landlord from such relating shall be applied first to the payment of any
indebtedness from Tenant to Landlord other than Rent and Additional Rent due
hereunder; second, to the payment of reasonable costs and expenses of such
reletting and including, but not limited to, attorneys fees, advertising fees
and brokerage fees, and to the payment of any repairs, remodeling and changes in
the Premises; third, to the payment of Rent and Additional Rent due and to
become due hereunder, and, if after so applying said Rents there is any
deficiency in the Rent or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein and any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. Subject to any applicable duty
to mitigate damages, the failure of Landlord to relet the Premises or any part
or parts thereof shall not release or affect Tenant's liability hereunder, nor
shall Landlord be liable for failure to relet, or in the event of reletting, for
failure to collect the Rent thereof, and in no event shall Tenant be entitled to
receive any excess of net Rents collected over sums payable by Tenant to
Landlord hereunder. No such reentry or taking possession of the Premises shall
be construed as an election on Landlord's part to terminate this Lease unless a
written notice of such intention be given to Tenant. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such provision breach and default. Should Landlord at
any time terminate this Lease by reason of any default, in addition to any other
remedy it may have, it may recover from Tenant the amount of Rent and Additional
Rent reserved in this Lease for the balance of the term, as it may have been
extended, in excess of the then fair market rental value of the Premises for the
same period, plus all court costs and reasonable attorneys fees incurred by
Landlord in the collection of the same.
(f) NONPAYMENT OF ADDITIONAL RENT. All costs and expenses which Tenant
assumes or agrees to pay to Landlord pursuant to this Lease shall be deemed
"Additional Rent" and, in the event of nonpayment thereof, Landlord shall have
all the rights and remedies herein provided for in case of nonpayment of Rent.
21. PRIORITY: This Lease shall be subordinate to any first mortgage or deed of
trust (and any other mortgage or deed of trust upon the written election of
Landlord) now existing or hereafter placed upon the Land, the Building or the
Premises, created by or at the instance of Landlord, and to any and all advances
to be made thereunder and to interest thereon and all modifications, renewals
and replacements or extensions thereof ("Landlord's Mortgage"). Upon request of
such holder, Tenant shall attorn to the holder of any Landlord's Mortgage or any
person or persons purchasing or otherwise acquiring the Land, Building or
Premises at any sale or other proceeding under any Landlord's Mortgage. Tenant
shall properly execute, acknowledge and deliver documents which the holder of
any holder of any Landlord's Mortgage may reasonably require to effectuate the
provisions of this Section 21.
Any subordination to future mortgage or deed of trust shall be subject to the
condition that so long as Tenant is not in default hereunder (or if in default
the applicable cure period has not expired), this Lease shall remain in full
force and effect for the full term hereof (including any extended term).
22. SURRENDER OF POSSESSION: Subject to the terms of Section 13 relating to
damage and destruction, upon expiration or sooner termination of this Lease,
Tenant shall promptly and peacefully surrender the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as thereafter
improved, reasonable use, wear and tear excepted.
23. REMOVAL OF PROPERTY: Tenant shall remove all of its moveable personal
property and trade fixtures paid for by Tenant which can be removed without
damage to the Premises at the expiration or sooner termination of this Lease,
and shall pay Landlord any damages for injury to the Premises or Building
resulting from such removal; and all other improvements and additions to the
Premises shall thereupon become the property of Landlord.
24. NON-WAIVER: Waiver by Landlord or Tenant of any term, covenant or condition
herein contained or any breach thereof shall not be deemed to be a waiver of
such term, covenant, or condition or of any subsequent breach of the same or any
other term, covenant, or condition herein contained. The subsequent acceptance
of Rent or Additional Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant or condition of
this Lease, other than the failure of Tenant to pay the particular Rent or
Additional Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent or Additional Rent.
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25. HOLDOVER: If Tenant shall, with the written consent of Landlord, hold over
after the expiration of the term of this Lease, such tenancy shall be deemed a
month-to-month tenancy which may be terminated as provided by applicable law.
During such tenancy, Tenant shall be bound by all of the terms, covenants and
conditions herein so far as applicable, except rental which shall be equivalent
to two hundred percent (200%) of the monthly Rent stated herein, together with
Additional Rent herein provided for.
26. CONDEMNATION:
(a) ENTIRE TAKING. If all of the Premises of such portions of the Building
as may be required for the reasonable use of the Premises are taken by eminent
domain, this Lease shall automatically terminate as of the date title vests in
the condemning authority. In the event of a taking of a material part of but
less than all of the Building, where Landlord shall determine that the remaining
portions of the Building cannot be economically and effectively used by it
(whether on account of physical, economic, aesthetic or other reasons) or where
Landlord determines the Building should be restored in such a way as to
materially alter the Premises, Landlord shall forward a written notice to Tenant
of such determination not more than sixty (60) days after the date of taking.
The term of this Lease shall expire upon such date as Landlord shall specify in
such notice but not earlier than sixty (60) days after the date of such notice.
(b) PARTIAL TAKING. Subject to the provisions of the preceding Section
26(a), in case of taking of a part of the Premises, or a portion of the Building
not required for the reasonable use of the Premises, then this Lease shall
continue in full force and effect and the Rent shall be equitably reduced based
on the proportion by which the floor area of the Premises is reduced, such Rent
reduction to be effective as of the date title to such portion vests in the
condemning authority. If a portion of the Premises shall be so taken which
renders the remainder of the Premises unsuitable for continued occupancy by
Tenant under this Lease, Tenant may terminate this Lease by written notice to
Landlord no later than sixty (60) days after the date of such taking and the
term of this Lease shall expire upon such date as Tenant shall specify in such
notice not later than sixty (60) days after the date of such notice.
(c) AWARDS AND DAMAGES. Landlord reserves all rights to damages to the
Premises for any partial, constructive, or entire taking by eminent domain, and
Tenant hereby assigns to Landlord any right Tenant may have to such damages or
award. Tenant shall make no claim against Landlord or the condemning authority
for damages for termination of the leasehold interest or interference with
Tenant's business. Tenant shall have the right, however, to claim and recover
from the condemning authority compensation for any loss to which Tenant may be
put for Tenant's moving expenses, business interruption or taking of Tenant's
personal property and leasehold improvements paid for by Tenant (not including
Tenant's leasehold interest) provided that such damages may be claimed only if
they are awarded separately in the eminent domain proceedings and not out of or
as part of the damages recoverable by Landlord.
27. NOTICES: All notices under this Lease shall be in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to Landlord and
to Tenant at the Notice Addresses provided in Section 1(j) (provided that after
the Commencement Date any such notice may be mailed or delivered by hand to
Tenant at the Premises and to Landlord's principal office in the Building) and
to the holder of any mortgage or deed of trust at such place as such holder
shall specify to Tenant in writing; or such other addresses as may from time to
time be designated by any such party in writing. Notices mailed as aforesaid
shall be deemed given on the date of such mailing.
28. COSTS AND ATTORNEYS FEES: If Tenant or Landlord shall bring any action for
any relief against the other, declaratory or otherwise, arising out of this
Lease, including any suit by Landlord for the recovery of Rent, Additional Rent
or other payments hereunder or possession of the Premises, each party shall, and
hereby does, to the extent permitted by law, waive trial by jury and the losing
party shall pay the prevailing party a reasonable sum for attorneys fees in such
suit, at trial and on appeal, and such attorneys fees shall be deemed to have
accrued on the commencement of such action.
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29. LANDLORD'S LIABILITY: Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of Landlord are made and intended not as personal covenants, undertakings and
agreements for the purpose of binding Landlord personally or the assets of
Landlord except Landlord's interest in the Premises and Building, but are made
and intended for the purpose of binding only the Landlord's interest in the
Premises and Building, as the same may from time to time be encumbered. No
personal liability or personal responsibility is assumed by, nor shall at any
time be asserted or enforceable against Landlord or its partners or their
respective heirs, legal representatives, successors or assigns on account of the
Lease or on account of any covenant, undertaking or agreement of Landlord in
this Lease contained.
30. LANDLORD'S CONSENT: Except as specified in other provisions of this Lease,
whenever Landlord's consent is required under the terms hereof, such consent
shall not be unreasonably withheld.
31. ESTOPPEL CERTIFICATES: Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating: The date this Lease was executed and the
date it expires; the date the term commenced and the date Tenant accepted the
Premises; the amount of minimum monthly Rent and the date to which such Rent has
been paid; and certifying to the extent true: That this Lease is in full force
and effect; that all conditions under this Lease to be performed by the Landlord
have been satisfied; that there are no claims, defenses or offsets which the
Tenant has against the enforcement of this Lease; that no Rent has been paid
more than one month in advance; and such other matters as Landlord may
reasonably request. Any such statement delivered pursuant to this paragraph may
be relied upon by a prospective purchaser of Landlord's interest or holder of
any mortgage upon Landlord's interest in the Building. If Tenant shall fail to
respond within ten (10) days of receipt by Tenant of a written request by
Landlord as herein provided, Tenant shall be deemed to have given such
certificate as above provided without modification and shall be deemed to have
admitted the accuracy of any information supplied by Landlord to a prospective
purchaser or mortgagee and to have certified that this Lease is in full force
and effect, that there are no uncured defaults in Landlord's performance, that
the security deposit is as stated in the Lease, and that not more than one
month's Rent has been paid in advance.
32. TRANSFER OF LANDLORD'S INTEREST: In the event of any transfers of
Landlord's interest in the Premises or in the Building, other than a transfer
for security purposes only, the transferor shall be automatically relieved of
any and all obligations and liabilities on the part of Landlord accruing from
and after the date of such transfer and such transferee shall have no obligation
or liability with respect to any matter occurring or arising prior to the date
of such transfer. Tenant agrees to attorn to the transferee.
33. RIGHT TO PERFORM: If Tenant shall fail to pay any sum of money required to
be paid by it hereunder of shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue for ten (10) days after
notice thereof by Landlord, Landlord may, but shall not be obligated so to do,
and without waiving or releasing Tenant from any obligations of Tenant, make
such payment or perform any such other act on Tenant's part to be made or
performed as provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
the nonpayment of sums due under this Section 33 as in the case of default by
Tenant in the payment of Rent.
34. QUIET ENJOYMENT: Tenant shall have the right to the peaceable and quiet use
and enjoyment of the Premises subject to the provisions of this Lease, as long
as Tenant is not in default hereunder.
35. HAZARDOUS MATERIALS:
(a) TENANT OBLIGATIONS. Tenant shall not dispose of or otherwise allow the
release of any hazardous waste or materials in, on or under the Premises or the
Building, or any adjacent property, or in any improvements placed on the
Premises. Tenant represents and warrants to Landlord that Tenant's intended use
of the Premises does not involve the use, production, disposal or bringing on to
the Premises of any hazardous waste
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or materials. As used in this Section 35, the term "hazardous waste or
materials" includes any substance, waste or material defined or designated as
hazardous, toxic or dangerous (or any similar term) by any, now or hereafter in
effect. Tenant shall promptly comply with all such statutes, regulations, rules
and ordinances, and if Tenant fails to so comply Landlord may, after reasonable
prior notice to Tenant (except in case of emergency) effect such compliance
itself. Tenant shall immediately reimburse Landlord for all costs incurred in
effecting such compliance.
Tenant agrees to indemnify and hold harmless Landlord against any and all
losses, liabilities, suits, obligations, fines, damages, judgements, penalties,
claims, charges, cleanup costs, remedial actions, costs and expenses (including,
without limitation, consultant fees, attorneys' fees and disbursements) which
may be imposed on, incurred or paid by, or asserted in connection with (i) any
misrepresentation, breach of warranty or other default by Tenant under this
Lease, or (ii) the acts or omissions of Tenant, or any subtenant or other person
for whom Tenant would otherwise be liable, resulting in the release of any
hazardous waste or materials.
(b) LANDLORD OBLIGATIONS. Landlord represents and warrants to Tenant that
no hazardous waste or materials have been generated, stored or disposed of on
the Premises other than in compliance with all applicable laws. Landlord will
hold Tenant harmless from and indemnify Tenant against and from any damage,
loss, expenses or liability resulting from any breach of this representation and
warranty including all attorneys' fees and costs incurred as a result of or
resulting from the release of hazardous waste or materials on the Premises.
36. GENERAL:
(a) HEADINGS. Titles to Sections of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
(b) HEIRS AND ASSIGNS. All of the covenants, agreements, terms and
conditions contained in this Lease shall inure to and be binding upon the
Landlord and Tenant and their respective heirs, executors, administrators,
successors and assigns.
(c) NO BROKERS. Tenant represents and warrants to Landlord that it has not
engaged any broker, except William Albright of Kidder Mathews & Segner, Inc.,
finder or other person who would be entitled to any commission or fees in
respect of the negotiation, execution or delivery of this Lease and shall
indemnify and hold harmless Landlord against any loss, cost, liability or
expense incurred by Landlord as a result of any claim asserted by any such
broker, except William Albright of Kidder Mathews & Segner, Inc., finder or
other person on the basis of any arrangements or agreements made or alleged to
have been made by or on behalf of Tenant. The provisions of this Section 36(c)
shall not apply to brokers with whom Landlord has an express written broker
agreement.
(d) ENTIRE AGREEMENT. This Lease contains all covenants and agreements
between Landlord and Tenant relating in any manner to the leasing, use and
occupancy of the Premises, to Tenant's use of the Building and other matters set
forth in this Lease. No prior agreements or understanding pertaining to the same
shall be valid or of any force or effect and the covenants and agreements of
this Lease shall not be altered, modified or added to except in writing signed
by Landlord and Tenant.
(e) SEVERABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and the remaining provisions hereof shall nevertheless remain
in full force and effect.
(f) OVERDUE PAYMENTS. Any Rent, Additional Rent or other sums payable by
Tenant under this Lease which shall not be paid upon the due date thereof, shall
bear interest at a rate equal to three percentage points above the prime rate of
interest published or announced from time to time by Security Pacific Bank
Washington, N.A. or its successor, or, in the absence of an established prime
rate, five percentage points over that bank's rate for one year certificates of
deposit, but not in excess of the highest lawful rate permitted under applicable
laws, calculated from the original due date thereof to the date of payment.
(g) FORCE MAJEURE. Except for the payment of Rent, Additional Rent or
other sums payable by Tenant, time periods for Tenant's or Landlord's
performance under any provisions of this Lease shall be extended for periods of
time during which Tenant's or Landlord's performance is prevented due to
circumstances beyond Tenant's or Landlord's reasonable control.
13
<PAGE>
(h) RIGHT TO CHANGE PUBLIC SPACES. Landlord shall have the right at any
time after the completion of the Building, without thereby creating an actual or
constructive eviction or incurring any liability to Tenant therefor, to change
the arrangement or location of such of the following as are not contained within
the Premises or any part thereof: entrances, passageways, doors and doorways,
corridors, stairs, toilets and other like public service portions of the
Building. Nevertheless, in no event shall Landlord diminish any service, change
the arrangement or location of the elevators serving the Premises, make any
change which shall diminish the area of the Premises, or make any change which
shall change the character of the Building from that of a first-class office
building in Bellevue, Washington.
(i) GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the state of Washington.
(j) BUILDING DIRECTORY. Landlord shall maintain in the lobby of the
Building a directory which shall include the name of Tenant and any other names
reasonably requested by Tenant in proportion to the number of listings given to
comparable tenants of the Building.
(k) BUILDING NAME. The Building will be known by such name as Landlord may
designate from time to time.
(l) RECORDATION. Neither Landlord nor Tenant shall record this Lease or
any memorandum or short form of this Lease.
IN WITNESS WHEREOF this Lease has been executed as of the day and year
first above set forth.
LANDLORD: SUNSET OFFICE LIMITED PARTNERSHIP
a Washington limited partnership
By: WRC Sunset Limited Partnership,
a Washington limited partnership,
Its General Partner
By: Wright Runstad Associates Limited Partnership,
a Washington limited partnership,
Its General Partner
By: Wright Runstad & Company,
a Washington corporation,
Its General Partner
By:/s/ H. Jon Runstad
Its: H. Jon Runstad President and Chief Executive Officer
TENANT: VULCAN NORTHWEST, INC.
By:/s/ William D. Savoy
Its: PRESIDENT
14
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 30th day of March, 1992, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad, to me known to be
the President and CEO, of WRIGHT RUNSTAD & COMPANY, a corporation, to me known
to be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of WRC SUNSET LIMITED
PARTNERSHIP, a limited partnership, to me known to be a general partner of
SUNSET OFFICE LIMITED PARTNERSHIP, the Washington limited partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and on oath stated
that was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate first
above written.
[NOTARY PUBLIC SEAL]
/s/ Corliss J. Perdaems
Notary public in and for the State of Washington, residing at
Seattle
My appointment expires March 29, 1996
15
<PAGE>
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 16 day of March, 1992, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared William D. Savoy and
___________________, to me known to be the and President, respectively, of
Volcan NW. the corporation that executed the within and foregoing instrument,
and acknowledged the said instrument to be the free and voluntary act and deed
of said corporation for the uses and purposes therein mentioned, and on oath
stated that they were authorized to execute said instrument, and that the seal
affixed, if any, is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
/s/ Signature Illegible
Notary public in and for the state of
Washington, residing at Kent, WA
My appointment expires 7-23-94
16
<PAGE>
EXHIBIT A
Addendum to Lease between
SUNSET OFFICE LIMITED PARTNERSHIP
and
VULCAN NORTHWEST, INC.
FLOOR PLAN OF PREMISES
[FLOOR PLAN OMITTED]
Exhibit A - Page 1 of 1
<PAGE>
EXHIBIT B
TO
SUNSET CORPORATE CAMPUS
LEASE AGREEMENT
TENANT IMPROVEMENTS
1. IMPROVEMENTS PROVIDED BY LANDLORD
Landlord agrees to provide the following improvements in the Premises:
A. COMPLETED PUBLIC AND/OR CORE AREAS AS OUTLINED IN EXHIBIT A, FINISHED
IN ACCORDANCE WITH PLANS AND SPECIFICATIONS FOR THE BUILDING.
(1) Plumbing: Men's restrooms, women's restrooms, and drinking
fountains installed in accordance with the plans and
specifications for the Building.
(2) Electrical: Total electrical service for each floor shall include
43 each 20 ampere, single pole, 120-volt, circuit breakers in the
two electrical closets (each 120-volt circuit is rated at 1,600
watts or 9 duplex outlets).
B. TENANT'S UNIMPROVED AREA AS OUTLINED IN EXHIBIT A SHALL BE COMPLETED
AS FOLLOWS:
(1) Walls: Core walls pre-taped to be finished under tenant
improvements. Columns covered with gypsum wallboard ready for
tape and paint.
(2) Floor: Prepared to receive floor covering. Floor loading
capacities: 80 pounds per square foot live load; 20 pounds per
square foot partition load.
(3) Mechanical - Primary Cooling Duct Loop: The building standard
mechanical system is designed to accommodate heating loads
generated by lights and equipment up to 4.2 watts per square
foot. If Tenant's design or use of the Premises results in
concentrated loads in excess of 2.5 watts per square foot (e.g.,
data processing areas, conference rooms and machine rooms), then
the cost of any additional engineering design and installation of
mechanical equipment and/or controls required to handle such
excess shall be part of the cost borne by Tenant pursuant to
Section II of this Exhibit B.
(4) Mechanical - Secondary System: Supplemental condenser water loop
using BAC closed circuit fluid coolers, risers stubbed out at
each floor. The system is sized at 15 tons per floor.
(5) Fire Sprinklers: Primary distribution loop to Tenant's Unimproved
Area.
(6) Ceiling: Building Standard suspended ceiling grid system
installed in a 4' x 4' pattern with perimeter angle grid
installed.
II. CONSTRUCTION OF IMPROVEMENTS PAID FOR BY TENANT/REIMBURSED BY LANDLORD
Design and construction of all improvements in the Premises beyond those
listed in Section I of this Exhibit B shall be provided at Tenant's
expense. Landlord shall pay the cost of such additional improvements up to
an amount equal to $27.00 per usable square foot of "Tenant's Unimproved
Area" as outlined on the floor plan(s) in Exhibit A, for a total payment by
Landlord of $ 258,039.00. The cost of design and construction of such
improvements shall include, but not be limited to: Architectural and
engineering design, partitions (including one-half (1/2) of the cost of any
public corridor or demising partitions enclosing the Tenant's Unimproved
Area), doors, door frames, hardware, paint, wall coverings, base, ceilings,
lights, mechanical distribution, diffusers, thermostats, sprinkler
distribution, sprinkler heads, emergency speakers, fire extinguishers and
cabinets, telephone and electrical outlets, light switches, window
coverings, floor coverings, all applicable permit fees and sales tax.
Reimbursement by Landlord will be made by crediting the amount to be
reimbursed against the last payment due from Tenant in accordance with
Section V(B) of this Exhibit B.
Exhibit B - Page 1 of 5
<PAGE>
III. BUILDING STANDARD IMPROVEMENTS
For work done by Landlord's contractors, Landlord shall make available to
tenants occupying the Building prior to July 1, 1992, the following
Building Standard items at prices which are obtained from subcontractors
and which reflect the buying advantage of quantity purchase: blinds
(required by Landlord); partitions, ceilings; carpet and base; doors and
frames with hardware; lighting fixtures; painting; electrical outlets;
telephone outlets; heating, ventilating, and air conditioning distribution
and controls; and sprinkler distribution and sprinkler heads.
IV. DESIGN OF TENANT IMPROVEMENTS
At Landlord's expense, Tenant shall retain the services of a qualified
office planner, approved by Landlord, to prepare the necessary drawings for
Basic Plans and supply the information necessary to complete the Working
Drawings and Engineering Drawings referred to in Section IV(B) of this
Exhibit B for construction of the tenant improvements in Tenant's
Unimproved Area. All Tenant's plans shall be subject to approval of
Landlord in accordance with Section IV(C) of this Exhibit B.
Tenant's office planner shall ensure that the work shown on Tenant's plans
is compatible with the basic Building plans and that necessary basic
Building modifications are included in Tenant's plans. Such modifications
shall be subject to the Landlord's approval and the cost thereof shall be
paid by Landlord.
On or before the indicated dates, Tenant shall supply Landlord with one (1)
reproducible copy and five (5) black line prints of the following Tenant
Plans:
A. BASIC PLANS DELIVERY DATE: N/A.
The Basic Plans due on this date shall be signed by Tenant and
include:
Architectural Floor Plans: These shall be fully dimensioned floor
plans showing partition layout and identifying each room with a number
and each door with a number. The Basic Plans must clearly identify and
locate equipment requiring plumbing or other special mechanical
systems, area(s) subject to above-normal floor loads, special openings
in the floor, and other major or special features.
B. WORKING DRAWINGS DELIVERY DATE: March 25, 1992.
On this date and at Landlord's expense, Tenant's office planner shall
produce four (4) sets of Full Working Drawings for construction from
the Basic Plans using the Pin Bar System, which system shall be
approved by Landlord for compatibility with the other Building
drawings. The four (4) sets of Working Drawings due on this date shall
be signed by the Tenant and include all items in the Basic Plans
referenced in Section IV(A) above plus the following additional
information:
(1) Electrical and Telephone Outlets: Locate all power and telephone
requirements: Dimension the position from a corner and give
height above concrete slab for all critically located outlets.
Identify all dedicated circuits and identify all power outlets
greater than 120 volts. For the equipment used in these outlets
which require dedicated circuits and/or which require greater
than 120 volts, identify the type of equipment, the
manufacturer's name and the manufacturer's model number, and
submit a brochure for each piece of equipment. Also identify the
manufacturer's name of the telephone system to be used and the
power requirements, size, and location of its processing
equipment.
(2) Reflected Ceiling Plan: Lighting layout showing location and type
of all Building Standard and special lighting fixtures.
(3) Furniture Layout: Layout showing furniture location so that
Landlord's engineer can review the location of all light
fixtures.
At Landlord's expense, Landlord's engineers shall prepare plumbing,
electrical, heating, air conditioning and structural plans
("Engineering Drawings") for Tenant's improvements based on the signed
Working Drawings.
Exhibit B - Page 2 of 5
<PAGE>
C. FINAL PLANS REVIEW DATE: March 27, 1992.
On this date, Tenant's office planner shall deliver to Landlord and
Tenant for review and approval four (4) complete sets of Final Plans
which will incorporate the Working Drawings referenced in Section
IV(B) above, plus the following additional information:
(1) Millwork Details: These drawings shall be in final form with
Tenant's office planner's title block in the lower right hand
corner of the drawing, and shall include construction details of
all cabinets, paneling, trim, bookcases, and door and jamb
details for non-Building Standard doors and jambs.
(2) Keying Schedules and Hardware Information: This information shall
be in final form and include a Keying Schedule indicating which
doors are locked and which key(s) open each lock, plus an "X" on
the side of the door where the key will be inserted if a keyed
door. Complete specifications for all non-Building Standard
hardware will also be provided.
(3) Room Finish and Color Schedule: This information shall be in
final form and include locations and specifications for all wall
finishes, floor covering and base for each room.
(4) Construction Notes and Specifications: Complete specifications
for every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: April 2, 1992.
The four (4) sets of Final Plans approved by Landlord and Tenant and
due on this date shall include all the Final Plans referenced in
Section IV(C) above. Final Plans are to be signed by Tenant and
delivered to Landlord by the Final Plans Delivery Date. Landlord shall
return one (1) signed set to Tenant for Tenant's records. Landlord
will incorporate Engineering Drawings with Tenant's Final Plans for
transmittal to the General Contractor.
Tenant shall be responsible for delays and additional costs in
completion of Tenant's work caused by changes made to any of Tenant's
Plans after the specified Plan Delivery Date or by delays in delivery
of special materials requiring long lead times. Tenant shall further
be responsible for such delays as provided in Section 3(b) of the
Lease.
V. CONSTRUCTION OF TENANT IMPROVEMENTS PAID FOR BY TENANT, IF ANY
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans,
Landlord shall provide to Tenant written notice of the price for such
improvements and a cost breakdown in sufficient detail that Tenant
will be able to make an informed judgement on savings that may be
realized from deletions. Within five (5) days of receipt of such
notice, Tenant shall give Landlord written authorization to complete
the Premises in accordance with such Final Plans. Tenant may in such
authorization delete any or all items of extra cost; however, if
Landlord deems these changes to be extensive, at its option. Landlord
may refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
acceptance of the revised price has been received by Landlord from
Tenant. In the absence of such written authorization to proceed,
Landlord shall not be obligated to commence work on the Premises and
Tenant shall be responsible for any costs due to any resulting delay
in completion of the Premises and as provided in Section 3(b) of the
Lease.
B. PAYMENTS. Landlord's contractor shall complete Tenant's improvements
in accordance with Tenant's approved Final Plans. Tenant shall pay,
within ten (10) days after receipt of monthly progress statements from
Landlord, the full amount of such progress billing. Tenant may retain
an amount equal to five percent (5%) of the estimated cost of such
improvements from the last payments due immediately prior to the
credit for Landlord's reimbursement. Final billing shall be rendered
and payable within ten (10) days after acceptance of the Premises by
Tenant in accordance with the terms of the Lease. Retainage pursuant
to the terms of this paragraph shall be payable with such final
billing. In the event acceptance of the Premises is subject to
punchlist items as provided in the Lease, a portion of the retainage
equal to the cost to complete each outstanding punchlist item may be
retained until such punchlist item is complete.
Exhibit B - Page 3 of 5
<PAGE>
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change, Tenant
shall request such change in writing to Landlord and such request shall be
accompanied by all plans and specifications necessary to show and explain
changes from the approved Final Plans. After receiving this information.
Landlord shall give Tenant a written price for the cost of engineering and
design services to incorporate the change in Tenant's Final Plans. If
Tenant approves such price in writing, Landlord shall have such Final Plans
changes made and Tenant shall promptly pay Landlord for this cost. Promptly
upon completion of such changes in the Final Plans, Landlord shall notify
Tenant in writing of the costs, if any, which shall be chargeable or
credited to Tenant for such change, addition or deletion. The cost for such
changes, whether chargeable or credited to Tenant, shall include a Landlord
coordination fee equal to fifteen percent (15%) of the amount of such
change, addition or deletion. In the absence of such notice, Landlord shall
proceed in accordance with the previously approved Final Plans before such
change, addition or deletion was requested. In accordance with Section 3(b)
of the Lease, Tenant shall be responsible for any resulting delay in
completion of the Premises due to modification of Final Plans. Tenant shall
also be responsible for any demolition work required as a result of the
change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT. If any work is to be performed in
connection with Tenant improvements on the Premises by Tenant or Tenant's
contractor:
(1) Such work shall proceed upon Landlord's written approval of (i)
Tenant's contractor, (ii) public liability and property damage
insurance carried by Tenant's contractor (such insurance shall be in
combined single limits not less that Five Hundred Thousand Dollars
($500,000) per occurrence and shall name Landlord and Wright Runstad &
Company as additional insureds), (iii) detailed plans and
specifications for such work, and (iv) amount of general conditions to
be paid by Tenant to Landlord for the services still provided by
Landlord's contractor.
(2) All work shall be done in conformity with a valid building permit when
required, a copy of which shall be furnished for Landlord before such
work is commenced, and in any case, all such work shall be performed
in accordance with all applicable governmental regulations.
Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility for Tenant's failure to meet all
applicable regulations.
(3) [Deleted]
(4) All work by Tenant or Tenant's contractor shall be scheduled through
Landlord.
(5) Tenant or Tenant's contractor shall arrange for necessary utility,
hoisting and elevator service with Landlord's contractor and shall pay
such reasonable charges for such services as may be charged by
Landlord's contractor. This will be included in the general conditions
of Subsection (1)(iv) above.
(6) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or by
reason of any delays caused by such work, or by reason of inadequate
clean-up.
(7) Prior to commencement of any work on the Premises by Tenant or
Tenant's contractor, Tenant or Tenant's contractor shall enter into an
indemnity agreement and a lien priority agreement satisfactory to
Landlord indemnifying and holding harmless Landlord and Landlord's
contractors for any liability, losses or damages directly or
indirectly from lien claims affecting the land, the Building or the
Premises arising out of Tenant's or Tenant's contractor's work or that
of subcontractors or suppliers, and subordinating any such liens to
the liens of construction and permanent financing for the Building.
(8) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises announcing its non-
responsibility for the work being performed therein.
Exhibit B - Page 4 of 5
<PAGE>
E. TENANT'S ENTRY TO PREMISES. Tenant's entry to the Premises for any purpose,
including without limitation, inspection or performance of Tenant
Construction by Tenant's agents, prior to the Commencement Date as
specified in Section 3(a) of the Lease shall be scheduled in advance with
Landlord and shall be subject to all the terms and conditions of the Lease,
except the payment of Rent. Tenant's entry shall mean entry by Tenant, its
officers, contractors, office planner, licensees, agents, servants,
employees, guests, invitees, or visitors.
F. TENANT'S TELEPHONE. Tenant is responsible for Tenant's telephone service.
Tenant shall select Tenant's telephone system and shall coordinate its
installation with Landlord.
Exhibit B - Page 5 of 5
<PAGE>
EXHIBIT C
Addendum to Lease between
SUNSET OFFICE LIMITED PARTNERSHIP
and
VULCAN NORTHWEST, INC.
ADDITIONAL LEASE TERMS
1. RENT.
The base rental rate for the Premises shall be Twenty One Dollars and Fifty
Cents ($21.50) per net rentable square foot per annum. Rent shall commence
six (6) months following the Commencement Date.
The total annual base rent (base rental rate per net rentable square foot
per year multiplied by net rentable area of the Premises) shall be paid in
12 equal monthly payments and shall be payable in accordance with Section 5
of this Lease. Rent shall be adjusted from time to time pursuant to the
terms of Sections 9 and 10 of this Lease.
2. PARKING.
Garage Parking. Tenant shall have the right to lease up to thirty-two (32)
unassigned parking spaces in the Building garage during the initial and any
extended Lease term, as follows:
A. Tenant shall have the right to lease up to eight (8) unassigned
parking spaces in the parking area located directly beneath the
Building. The monthly rate during the initial Lease term shall be
Thirty-Five Dollars ($35.00) per month per space plus applicable
sales tax.
B. Tenant shall have the right to lease up to twenty-four (24)
unassigned parking spaces in the structured below-grade parking
adjacent to the Building. The monthly rate during the initial Lease
term shall be Twenty Dollars ($20.00) per month per space plus
applicable sales tax.
Surface Lot. Tenant shall have the right to lease up to eleven (11)
unassigned parking spaces free of charge on the west surface lot adjacent
to the Building during the initial Lease term. In order to accommodate
construction of the second building at Sunset Corporate Campus, Landlord
may, at Landlord's option, temporarily substitute parking spaces on the
east surface lot for spaces on the west surface parking, on a one-for-one
basis.
3. OPTION TO EXTEND LEASE TERM.
Tenant shall have the right, to be exercised as hereinafter provided, to
extend the term of this Lease ("Extension Option") for the entire Premises
including any portion added by exercise of the Expansion Option for two (2)
successive periods of three (3) and two (2) years respectfully, under the
same terms and conditions as in this Lease, provided that:
A. Tenant shall not be in default in the performance of any term,
covenant, or condition herein contained.
B. The rental rate for each extended term shall be the fair market
renewal rate for comparable space in comparably located, first-class
office buildings in Bellevue at the commencement of the extended term,
provided that such rate shall not be less than the then current rental
rate for the leased Premises.
C. The parking rates shall be the market parking rates, which rates shall
be subject to change from time to time as determined by Landlord.
Exhibit C - Page 1 of 4
<PAGE>
Notice: Landlord shall notify Tenant in writing at least fourteen (14)
months prior to the expiration of the then current Lease term, of the
rental rate and parking rate which shall apply to said extended term.
Tenant's Dispute of Rental Rate: In the event Tenant disputes the rental
rate determined by Landlord, and the parties are unable to agree within
thirty (30) days of the date Landlord first gave notice of the rental rate
for the extended term, then each party shall designate in writing to the
other a real estate appraiser in King County, Washington, with an M.A.I.
designation and familiar with real estate and rental values of first-class
office buildings in Bellevue, Washington. If a party does not appoint an
appraiser within ten (10) days after the other party has given notice of
its appraiser, the single appraiser appointed shall be the sole appraiser
and shall set the rental rate. The appraiser(s) shall be directed to
determine the then fair market renewal rate including Section 10, "Costs of
Operations and Real Estate Taxes," of the Premises. Each appraiser shall be
compensated by the party designating it.
In the event such appraisers are unable to agree, or the matter is not
otherwise resolved within thirty (30) days after the designations have been
made, the appraisers shall have an additional ten (10) days within which to
agree upon a third appraiser with the same qualifications and having the
additional qualification that he or she has not previously acted in any
capacity for either party. If they have not agreed within said ten-day
period as to a third appraiser, then either Landlord or Tenant may apply to
the then Presiding Judge of the Superior Court of the State of Washington
in and for the County of King, for the appointment of such third appraiser,
which appraiser shall have the qualifications as specified above for such
third appraiser. The third appraiser shall be compensated in equal shares
by the parties.
The three appraisers shall each provide their appraisal of the rental rate
within one hundred and twenty (120) days of the date Landlord first gave
notice of the rental rate for the extended term. The three appraisals shall
be added together and their total divided by three, with the resulting
quotient being the rental rate for the extended term subject to the
following adjustment: If the low appraisal and/or the high appraisal is
more than 10% lower or higher than the middle appraisal, the low and/or
high appraisal shall be disregarded. If only one appraisal is disregarded,
the remaining two appraisals shall be added together and their total
divided by two. If both the low and the high appraisal are disregarded, the
middle appraisal shall be the rental rate for the extended term. After the
rental rate for the extended term has been set as provided in this Section,
the appraisers shall immediately notify the parties of the rental rate.
Exercise: Tenant shall exercise the Extension Option by written notice to
Landlord no later than nine (9) months prior to expiration of the then
current Lease term. If Tenant does not so exercise the Extension Option,
the Lease shall expire at the end of the current Lease term.
4. OPTION TO EXPAND.
Tenant shall have one (1) option to expand ("Expansion Option") as provided
herein.
A. EXPANSION SPACE: A single portion of the same floor as the Premises,
contiguous to and north of the Premises in a clockwise direction, of
not less than 6,200 net rentable square feet and not more than 10,000
net rentable square feet.
B. EFFECTIVE DATE: A date no later than six (6) months after the
Commencement Date.
C. RATE: The rental rate for the expansion space shall be the same as
Tenant's rental rate for the existing Premises.
D. IMPROVEMENTS: Landlord shall provide, at Landlord's cost, tenant
improvements consistent with those provided for the initial Premises,
but not to exceed $27.00 per usable square foot.
E. EXERCISE: Tenant shall exercise the Expansion Option by notice to
Landlord in writing, setting forth the location, square footage and
effective date for such expansion space. Failure by Tenant to exercise
the Expansion Option by the Effective Date stated herein shall cause
such Option to expire.
Exhibit C - Page 2 of 4
<PAGE>
F. PARKING: Tenant shall have the right to lease an additional four (4)
unassigned parking spaces per 1,000 rentable square feet of expansion
space rounded up to the nearest whole space, approximately 75% of
which shall be underground spaces and 25% of which shall be surface
spaces. The monthly rate shall be as stated in Section 2 and 3(C) of
this Exhibit C.
5. RIGHT OF FIRST OFFER.
During the term of this Lease and any renewals thereof, Tenant shall have a
right of first offer on all available space on the same floor as the
Premises. Prior to leasing such space to any other party, Landlord shall
first notify Tenant. Within ten (10) business days after receipt of such
notice, Tenant shall give Landlord written notice of its acceptance of the
offer to lease such space upon the same term, conditions (including tenant
improvements) and rental rate as set forth in this Lease. If, within such
ten (10) business days, Tenant shall either fail to give such notice or
give notice of its rejection of the offer, Landlord may, without further
notice to Tenant, lease such space. If Tenant shall lease space under this
right of first offer, and less than four (4) years remain on the Lease
term, then Tenant shall pay the costs of unamortized tenant improvements at
the end of the Lease term.
6. ASSIGNMENT AND SUBLETTING.
Notwithstanding anything in Section 17, "Assignment and Subletting," of the
Lease hereto:
A. Tenant shall be permitted to sublease or assign all or any portion of
its Premises during the Lease term to any tenant whose tenancy and use
of the Premises is consistent with Class A office space.
B. Any sublease or assignment of the Lease by Tenant shall not relieve
Tenant of any liability under this Lease.
C. Tenant shall be permitted to sublease or assign all or any portion of
the Premises during the Lease term to any affiliate of Tenant.
7. ROOFTOP INSTALLATIONS.
Tenant shall have the right to install communications equipment (including
satellite dish(es)) on the roof of the Building, up to Tenant's pro rata
share of currently unimproved rooftop space, and in no event less than
3,000 square feet, so long as such installation, size, bulk and location
meet all applicable building construction and other codes and governmental
laws and regulations. Tenant shall also operate and maintain such equipment
in accordance with all applicable laws and regulations so as not to cause
interference with any other radio, computer, telephone or telephone
transmitting or receiving facilities or other transmitting or receiving
facilities regardless of whether such are located on the Premises or
Building or elsewhere.
Tenant agrees that it will not penetrate or cause to be penetrated the roof
membrane of the Building at any time or in any way in connection with the
installation, operation, maintenance or removal of said equipment except
for necessary bolting of equipment. All work which involves penetration of
the roof membrane shall be done only after ten (10) days written notice to
Landlord and in cooperation with Landlord and Landlord's roofing
contractor.
Tenant shall pay all costs associated with such installation. There shall
be no additional rental charge beyond that specified in Section 1 of
Exhibit C hereto associated with such rooftop installation during the Lease
term.
Exhibit C - Page 3 of 4
<PAGE>
8. SECURITY SYSTEM.
The Building shall have a "Cardkey" security system which will require the
use of a card for after-hours access to the Building and garage. The
security system shall provide lock-off of floors and Tenant's suite at such
hours and days as Tenant shall designate to Landlord. A printout of use of
specified cards and/or card readers shall be available to Tenant upon
request. Such printout will show card number, name of person to whom card
has been assigned, reader accessed, and time and date of reader
transaction.
9. AMENITIES.
Amenities described in proposal submitted by Wright Runstad & Company,
dated February 13, 1992, shall be completed and available for Tenant's use
with Wright Runstad & Company's development of Sunset Corporate Campus.
Exhibit C - Page 4 of 4
<PAGE>
EXHIBIT D
Addendum to Lease between
OBAYASHI CORPORATION (LANDLORD)
and
STARWAVE CORPORATION (TENANT)
DEFINITION OF AREAS A AND B
I. Upon completion of the final space plan, Landlord and Tenant shall
designate those offices or areas in the Premises Added by Lease Amendment
No. 3 which shall be initially occupied, and which shall total not less
than 5,528 net rentable square feet, and which shall be collectively
referred to as Area A.
II. Upon completion of the final space plan, Landlord and Tenant shall
designate those offices or areas in the Premises Added by Lease Amendment
No. 3 for which Rent shall commence no later than June 1, 1995 (or earlier
for any portion of such offices or areas that is fully occupied), and which
shall total not more than 3,912 net rentable square feet, ("Space
Pockets"), and which shall be collectively referred to as Area B.
Space Plan Showing Area A and Designated Space Pockets (Area B)
(to be inserted in this Exhibit D upon completion)
Exhibit D, Page 1 of 1
<PAGE>
CONSENT
-------
Landlord hereby executes this agreement for the purpose of evidencing its
consent to the Assignment set forth herein.
Dated this 2nd day of September, 1993.
LANDLORD: Sunset Office Limited Partnership
a Washington limited partnership
By: WRC Sunset Limited Partnership
a Washington limited partnership,
Its General Partner
By: Wright Runstad Associates Limited Partnership,
a Washington limited partnership
Its General Partner
By: Wright Runstad & Company
a Washington corporation,
Its General Partner
By: /s/ Jon F. Nordby
Its: Exec. Vice President
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 30th day of September, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Jon F. Nordby, to me known to be the
Executive Vice President of WRIGHT RUNSTAD & COMPANY, a corporation, to me known
to be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of WRC SUNSET LIMITED
PARTNERSHIP, a limited partnership, to me known to be a general partner of
SUNSET OFFICE LIMITED PARTNERSHIP, the Washington limited partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and on oath stated
that he/she was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate first
above written.
/s/ Judith K. Hoyle signature
JUDITH K. HOYLE printed name
Notary public in and for the State of Washington,
residing at Seattle
My appointment expires 11-6-95
- 1 of 1 -
<PAGE>
CONSENT
-------
Landlord hereby executes this agreement for the purpose of evidencing its
consent to the Assignment set forth herein.
Dated this 2nd day of September, 1993.
LANDLORD: Sunset Office Limited Partnership
a Washington limited partnership
By: WRC Sunset Limited Partnership
a Washington limited partnership,
Its General Partner
By: Wright Runstad Associates Limited Partnership,
a Washington limited partnership
Its General Partner
By: Wright Runstad & Company
a Washington corporation,
Its General Partner
By: /s/ Jon F. Nordby
Its: Exec. Vice President
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 30th day of September, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Jon F. Nordby, to me known to be the
Executive Vice President of WRIGHT RUNSTAD & COMPANY, a corporation, to me known
to be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of WRC SUNSET LIMITED
PARTNERSHIP, a limited partnership, to me known to be a general partner of
SUNSET OFFICE LIMITED PARTNERSHIP, the Washington limited partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and on oath stated
that he/she was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate first
above written.
/s/ Judith K. Hoyle signature
JUDITH K. HOYLE printed name
Notary public in and for the State of Washington,
residing at Seattle
My appointment expires 11-6-95
- 1 of 1 -
<PAGE>
LEASE AMENDMENT NO. 1
This Amendment No. 1 is to that certain Lease Agreement dated March 4, 1992
between SUNSET OFFICE LIMITED PARTNERSHIP, a Washington limited partnership
("Landlord") and VULCAN NORTHWEST, INC., a Washington corporation ("Tenant"),
covering space on the fourth floor of Sunset Corporate Campus, Building 1, 13810
SE Eastgate Way, Bellevue, Washington. The terms used herein shall have the same
meaning as set forth in the Lease except as otherwise specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the Lease
as follows:
Section 1(c) of the Lease "Rentable Area of the Premises" shall be amended
to read:
"10,156 NET RENTABLE SQUARE FEET."
Section 1(e) of the Lease "Commencement Date" shall be amended to read:
"JUNE 8, 1992."
Section 1(k) of the Lease "Exhibits" shall be amended by the addition of:
"EXHIBIT A-1 - FINAL FLOOR PLAN OF THE PREMISES"
Exhibit A to the Lease shall be replaced by Exhibit A-1, attached hereto.
Exhibit C to the Lease, Section 2 "Parking," shall be amended to read:
"GARAGE PARKING: TENANT SHALL HAVE THE RIGHT TO LEASE UP TO THIRTY-ONE
(31) UNASSIGNED PARKING SPACES IN THE BUILDING GARAGE DURING THE
INITIAL AND ANY EXTENDED LEASE TERM, AS FOLLOWS:
A. "TENANT SHALL HAVE THE RIGHT TO LEASE UP TO EIGHT (8) UNASSIGNED
PARKING SPACES IN THE PARKING AREA LOCATED DIRECTLY BENEATH THE
BUILDING. THE MONTHLY RATE DURING THE INITIAL LEASE TERM SHALL BE
THIRTY-FIVE DOLLARS ($35.00) PER MONTH PER SPACE PLUS APPLICABLE
SALES TAX.
B. "TENANT SHALL HAVE THE RIGHT TO LEASE UP TO TWENTY-THREE (23)
UNASSIGNED PARKING SPACES IN THE STRUCTURED BELOW-GRADE PARKING
ADJACENT TO THE BUILDING. THE MONTHLY RATE DURING THE INITIAL
LEASE TERM SHALL BE TWENTY DOLLARS ($20.00) PER MONTH PER SPACE
PLUS APPLICABLE SALES TAX.
-1-
<PAGE>
"SURFACE LOT: TENANT SHALL HAVE THE RIGHT TO LEASE UP TO TEN (10)
UNASSIGNED PARKING SPACES FREE OF CHARGE ON THE WEST SURFACE LOT ADJACENT
TO THE BUILDING DURING THE INITIAL LEASE TERM. IN ORDER TO ACCOMMODATE
CONSTRUCTION OF THE SECOND BUILDING AT SUNSET CORPORATE CAMPUS, LANDLORD
MAY, AT LANDLORD'S OPTION, TEMPORARILY SUBSTITUTE PARKING SPACES ON THE
EAST SURFACE LOT FOR SPACES ON THE WEST SURFACE LOT, ON A ONE-FOR-ONE
BASIS."
All other terms and conditions of the original Lease shall remain in effect and
be applicable to the above Amendment.
This Amendment is effective June 8, 1992.
Dated this 21st day of August, 1992.
LANDLORD: SUNSET OFFICE LIMITED PARTNERSHIP
a Washington limited partnership
By: WRC Sunset Limited Partnership
a Washington limited partnership,
Its General Partner
By: Wright Runstad Associates Limited Partnership,
a Washington limited partnership
Its General Partner
By: Wright Runstad & Company
a Washington corporation,
Its General Partner
By: /s/ H. Jon Runstad
Its: H. Jon Runstad
President and
Chief Executive Officer
TENANT: VULCAN NORTHWEST, INC.
By:/s/ William D. Savoy
Its: PRESIDENT
-2-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 10th day of September, 1992, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H Jon Runstad, to me known to be the
President and Chief Executive Officer of WRIGHT RUNSTAD & COMPANY, a
corporation, to me known to be the general partner of WRIGHT RUNSTAD ASSOCIATES
LIMITED PARTNERSHIP, a limited partnership, to me known to be the general
partner of WRC SUNSET LIMITED PARTNERSHIP, a limited partnership, to me known to
be a general partner of SUNSET OFFICE LIMITED PARTNERSHIP, the Washington
limited partnership that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation and partnerships for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate first
above written.
/s/ Judith K. Hoyle
JUDITH K. HOYLE
Notary public in and for the State of Washington,
residing at Seattle
My appointment expires 11-6-95
TENANT CORPORATE ACKNOWLEDGEMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 27 day of AUGUST, 1992, before me, the
undersigned, a notary public in and for the state of WASHINGTON, duly
commissioned and sworn, personally appeared WILLIAM D. SAVOY, to me known to be
the PRESIDENT of VULCAN NORTHWEST, the corporation that executed the within and
foregoing instrument and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he/she was authorized to execute said
instrument, and that the seal affixed, if any, is the corporate seal of said
corporation.
WITNESS my hand and official seal the day and year in this certificate first
above written.
[NOTARY PUBLIC SEAL]
/s/ Sheila R. Christel
Notary public in and for the State of WASH,
residing at BELLEVUE
My appointment expires AUGUST 19, 1996
-3-
<PAGE>
EXHIBIT A-1
Addendum to Lease between
SUNSET OFFICE LIMITED PARTNERSHIP
and
VULCAN NORTHWEST, INC.
FLOOR PLAN OF THE PREMISES
[FLOOR PLAN OMITTED]
Exhibit A-1, Page 1 of 1
<PAGE>
LEASE AMENDMENT NO.2
This Amendment No. 2 is to that certain Lease Agreement dated March 4, 1992
("Lease") as amended June 8, 1992, between SUNSET OFFICE LIMITED PARTNERSHIP, a
Washington limited partnership ("Landlord") and VULCAN NORTHWEST, INC., a
Washington corporation ("Tenant"), covering space on the fourth floor of Sunset
Corporate Campus, Building 1, 13820 S.E. Eastgate Way, Bellevue, Washington. The
terms used herein shall have the same meaning as set forth in the Lease except
as otherwise specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the Lease
as follows:
Section 1(c) of the Lease "Rentable Area of the Premises" shall be amended
to read:
"29,973 NET RENTABLE SQUARE FEET, WHICH CONSISTS OF 10,156 ORIGINALLY
OCCUPIED NET RENTABLE SQUARE FEET ("ORIGINAL PREMISES") AND 19,817
ADDITIONAL NET RENTABLE SQUARE FEET ("FIRST ADDITION")."
Section 1(k) of the Lease "Exhibits" shall be amended by the addition of:
"EXHIBIT A-2 - FLOOR PLAN OF ORIGINAL PREMISES AND FIRST ADDITION"
"EXHIBIT B-3 - TENANT IMPROVEMENTS FOR FIRST ADDITION"
Section 10(a) of the Lease "Additional Rent" shall be amended to read:
"EFFECTIVE UPON EXECUTION OF THIS AMENDMENT NO. 2, TENANT SHALL PAY AS
ADDITIONAL RENT ITS PRO RATA SHARE OF INCREASES IN OPERATING COSTS AND
TAXES IN EXCESS OF $5.75 PER NET RENTABLE SQUARE FOOT ("BASE AMOUNT")
FOR THE RENTABLE AREA OF THE PREMISES".
Section 1 of Exhibit C to the Lease, "Rent," shall be amended to read:
"THE BASE RENTAL RATE FOR THE PREMISES SHALL BE TWENTY ONE DOLLARS AND
FIFTY CENTS ($21.50) PER NET RENTABLE SQUARE FOOT PER ANNUM, EXCEPT
DURING THAT PERIOD FROM COMMENCEMENT OF OCCUPANCY OF ANY PORTION OF
THE FIRST ADDITION THROUGH DECEMBER 31, 1993, THE BASE RENTAL RATE FOR
THE ENTIRE FIRST ADDITION SHALL BE THIRTEEN DOLLARS AND SEVENTY-FIVE
CENTS ($13.75) PER NET RENTABLE SQUARE FOOT PER ANNUM. EFFECTIVE
JANUARY 1, 1994, THE BASE RENTAL RATE FOR THE FIRST ADDITION SHALL
REVERT TO TWENTY ONE DOLLARS AND FIFTY CENTS ($21.50) PER NET RENTABLE
SQUARE FOOT PER ANNUM.
"RENT FOR THE ORIGINAL PREMISES SHALL COMMENCE SIX (6) MONTHS
FOLLOWING THE COMMENCEMENT DATE. RENT FOR THE ENTIRE FIRST ADDITION
SHALL COMMENCE UPON OCCUPANCY OF ANY PORTION OF THE FIRST ADDITION.
SUCH COMMENCEMENT OF OCCUPANCY OF THE FIRST ADDITION SHALL TAKE PLACE
UPON COMPLETION OF TENANT IMPROVEMENTS EXCEPTING PUNCH LIST ITEMS.
TENANT AND LANDLORD SHALL USE THEIR BEST EFFORTS TO ENSURE THAT THIS
COMMENCEMENT OF OCCUPANCY IS ON OR BEFORE NOVEMBER 1, 1993. TENANT
SHALL BE RESPONSIBLE FOR DELAYS IN COMPLETION IF SAID DELAYS WERE
CAUSED BY TENANT OR TENANT'S AGENTS.
-1-
<PAGE>
"THE TOTAL ANNUAL BASE RENT (BASE RENTAL RATE PER NET RENTABLE SQUARE FOOT
PER YEAR MULTIPLIED BY NET RENTABLE AREA OF THE PREMISES) SHALL BE PAID IN
12 EQUAL MONTHLY PAYMENTS AND SHALL BE PAYABLE IN ACCORDANCE WITH SECTION 5
OF THIS LEASE. RENT SHALL BE ADJUSTED FROM TIME TO TIME PURSUANT TO THE
TERMS OF SECTIONS 9 AND 10 OF THIS LEASE."
Section 2 of Exhibit C to the Lease, "Parking," shall be amended to read:
"GARAGE PARKING. UPON COMMENCEMENT OF OCCUPANCY OF THE FIRST ADDITION,
TENANT SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF NINETY (90)
UNASSIGNED PARKING SPACES IN THE BUILDING GARAGE DURING THE INITIAL AND ANY
EXTENDED LEASE TERM, AS FOLLOWS:
"A. TENANT SHALL HAVE THE RIGHT TO LEASE UP TO TWENTY-THREE (23)
UNASSIGNED PARKING SPACES IN THE PARKING AREA LOCATED DIRECTLY BELOW THE
BUILDING.
"THE MONTHLY PARKING RATES DURING THE NEXT SIX MONTHS SHALL BE SEVENTEEN
DOLLARS AND FIFTY CENTS ($17.50) PER MONTH PER SPACE PLUS APPLICABLE SALES
TAX FOR ALL SUCH TENANT SPACES, AND SHALL THEREAFTER BE THIRTY-FIVE DOLLARS
($35.00) PER MONTH PER SPACE PLUS APPLICABLE SALES TAX FOR ALL SUCH TENANT
SPACES.
"B. TENANT SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF SIXTY-SEVEN (67)
UNASSIGNED PARKING SPACES IN THE STRUCTURED BELOW-GRADE PARKING ADJACENT TO
THE BUILDING.
"THE MONTHLY PARKING RATES DURING THE NEXT SIX MONTHS SHALL BE TEN DOLLARS
($10.00) PER MONTH PER SPACE PLUS APPLICABLE SALES TAX FOR ALL SUCH TENANT
SPACES, AND SHALL THEREAFTER BE TWENTY DOLLARS ($20.00) PER MONTH PER SPACE
PLUS APPLICABLE SALES TAX FOR ALL SUCH TENANT SPACES.
"SURFACE LOT. UPON COMMENCEMENT OF OCCUPANCY OF THE FIRST ADDITION, TENANT
SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF THIRTY (30) UNASSIGNED
PARKING SPACES FREE OF CHARGE ON THE WEST SURFACE LOT ADJACENT TO THE
BUILDING DURING THE INITIAL LEASE TERM. IN ORDER TO ACCOMMODATE
CONSTRUCTION OF THE SECOND BUILDING AT SUNSET CORPORATE CAMPUS, LANDLORD
MAY, AT LANDLORD'S OPTION, TEMPORARILY SUBSTITUTE PARKING SPACES ON THE
EAST SURFACE LOT FOR SPACES ON THE WEST SURFACE PARKING LOT, ON A ONE-FOR-
ONE BASIS."
Section 4 of Exhibit C to the Lease, "Option to Expand," shall be deleted.
Section 5 of Exhibit C to the Lease, "Right of First Offer," shall be amended to
read:
"DURING THE TERM OF THIS LEASE AND ANY RENEWALS THEREOF, TENANT SHALL HAVE
A RIGHT OF FIRST OFFER ON APPROXIMATELY 11,000 NET RENTABLE SQUARE FEET OF
SPACE ON THE SECOND FLOOR. UPON PROPOSING SUCH SPACE TO AN INTERESTED PARTY
LANDLORD SHALL NOTIFY TENANT IN WRITING. WITHIN FIVE (5) BUSINESS DAYS
AFTER RECEIPT OF SUCH NOTICE, TENANT SHALL GIVE LANDLORD WRITTEN NOTICE OF
ITS ACCEPTANCE OF THE OFFER TO LEASE SUCH SPACE UPON THE FOLLOWING TERMS
AND CONDITIONS:
-2-
<PAGE>
"A. PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT IN THE ABOVE METHOD DURING
MONTHS ONE THROUGH TWELVE COMMENCING UPON THE EXECUTION OF THIS AMENDMENT NO. 2,
SHALL BE LEASED AT TWENTY-ONE DOLLARS AND FIFTY CENTS ($21.50) PER NET RENTABLE
SQUARE FOOT PER ANNUM AND PURSUANT TO THE SAME FIVE DOLLAR AND SEVENTY-FIVE CENT
($5.75) BASE AMOUNT AS PER AMENDED SECTION 10(A) OF THE LEASE.
"B. PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT IN THE ABOVE METHOD DURING
MONTHS THIRTEEN THROUGH TWENTY-FOUR COMMENCING UPON THE EXECUTION OF THIS
AMENDMENT NO. 2, SHALL BE LEASED AT TWENTY-TWO DOLLARS AND FIFTY CENTS ($22.50)
PER NET RENTABLE SQUARE FOOT PER ANNUM AND PURSUANT TO THE SAME FIVE DOLLAR AND
SEVENTY-FIVE CENT ($5.75) BASE AMOUNT AS PER AMENDED SECTION 10(A) OF THE LEASE.
"C. THE TENANT IMPROVEMENT ALLOWANCE SHALL BE THIRTY-ONE DOLLARS FOR FIRST
ADDITION AND/OR OTHER SPACES LEASED BY TENANT UNDER EXHIBIT C, SECTION 5(A)
AND/OR (B) ABOVE AND SUCH ALLOWANCE SHALL INCLUDE FOUR DOLLARS ($4.00) OF ITEMS
DONE EARLY PER EXHIBIT B-3, SECTION I.
"IF TENANT DOES NOT EXTEND LEASE TERM PURSUANT TO EXHIBIT C, SECTION 3, THEN
TENANT SHALL, ON OR BEFORE THE EXPIRATION DATE, REIMBURSE LANDLORD THE
UNAMORTIZED PORTION OF COST OF TENANT IMPROVEMENTS PROVIDED TENANT PURSUANT TO
THIS EXHIBIT C, SECTION 5(C) AND (D) IF APPLICABLE. CALCULATIONS SHALL BE BASED
UPON A SIXTY (60) MONTH AMORTIZATION SCHEDULE, WITH EIGHT AND ONE HALF PERCENT
(8 1/2%) INTEREST PER ANNUM COMPOUNDED MONTHLY FROM THE COMMENCEMENT OF
OCCUPANCY OF THE FIRST ADDITION AND/OR FROM THE COMMENCEMENT OF OCCUPANCY OF THE
ADDITIONAL SPACE LEASED UNDER EXHIBIT C, SECTION 5(A) AND/OR (B) ABOVE.
"D. REGARDLESS OF WHEN IT IS LEASED BY TENANT, PREVIOUSLY IMPROVED SPACE LEASED
BY TENANT, AND/OR PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT BY RIGHT OF FIRST
OFFER AFTER MONTH TWENTY-FOUR ABOVE, SHALL BE LEASED AT THE PREVAILING FAIR
MARKET RENTAL AND TENANT IMPROVEMENT RATES FOR COMPARABLE EXPANSION SPACE IN
COMPARABLE BUILDINGS IN THE AREA AT THE TIME THE EXPANSION SPACE IS LEASED, BUT
SUCH RENTAL RATE SHALL NOT BE LESS THAN THE WEIGHTED AVERAGE OF THE BASE FACE
RENTAL RATE OF THE TENANT'S SPACE THEN UNDER LEASE (I.E., WEIGHTED AVERAGE
CALCULATION:
<TABLE>
<S> <C> <C>
10,156 NET RENTABLE SQUARE FEET TIMES $21.50 $218,354.00
19,817 NET RENTABLE SQUARE FEET TIMES $21.50 426,065.50
5,000 NET RENTABLE SQUARE FEET TIMES $22.50 112,500.00
------ -----------
34,973 NET RENTABLE SQUARE FEET TOTAL $756,919.50
</TABLE>
$756,919.50 DIVIDED BY 34,973 NET RENTABLE SQUARE FEET EQUALS A WEIGHTED
AVERAGE OF $21.64).
"IF WITHIN SUCH FIVE (5) BUSINESS DAYS, TENANT SHALL EITHER FAIL TO GIVE SUCH
NOTICE OR GIVE NOTICE OF ITS REJECTION OF THE OFFER, LANDLORD MAY, WITHOUT
FURTHER NOTICE TO TENANT, LEASE SUCH SPACE TO OTHER INTERESTED PARTIES."
-3-
<PAGE>
Section 10 of Exhibit C to the Lease, "Right of Second Offer," shall be added as
follows:
"DURING THE TERM OF THIS LEASE AND ANY RENEWALS THEREOF, TENANT SHALL HAVE
A RIGHT OF SECOND OFFER ON APPROXIMATELY 9,000 NET RENTABLE SQUARE FEET OF
SPACE ON THE THIRD FLOOR. UPON PROPOSING SUCH SPACE TO AN INTERESTED PARTY
LANDLORD SHALL NOTIFY TENANT IN WRITING. WITHIN FIVE (5) BUSINESS DAYS
AFTER RECEIPT OF SUCH NOTICE, TENANT SHALL GIVE LANDLORD WRITTEN NOTICE OF
ITS ACCEPTANCE OF THE OFFER TO LEASE SUCH SPACE UPON THE FOLLOWING TERMS
AND CONDITIONS:
"A. PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT IN THE ABOVE METHOD
DURING MONTHS ONE THROUGH TWELVE COMMENCING UPON THE EXECUTION OF THIS
AMENDMENT NO. 2, SHALL BE LEASED AT TWENTY-ONE DOLLARS AND FIFTY CENTS
($21.50) PER NET RENTABLE SQUARE FOOT PER ANNUM AND PURSUANT TO THE SAME
FIVE DOLLAR AND SEVENTY-FIVE CENT ($5.75) BASE AMOUNT AS PER AMENDED
SECTION 10(A) OF THE LEASE.
"B. PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT IN THE ABOVE METHOD
DURING MONTHS THIRTEEN THROUGH TWENTY-FOUR COMMENCING UPON THE EXECUTION OF
THIS AMENDMENT NO.2, SHALL BE LEASED AT TWENTY-TWO DOLLARS AND FIFTY CENTS
($22.50) PER NET RENTABLE SQUARE FOOT PER ANNUM AND PURSUANT TO THE SAME
FIVE DOLLAR AND SEVENTY-FIVE CENT ($5.75) BASE AMOUNT AS PER AMENDED
SECTION 10(A) OF THE LEASE.
"C. THE TENANT IMPROVEMENT ALLOWANCE SHALL BE THIRTY-ONE DOLLARS FOR FIRST
ADDITION AND/OR OTHER SPACES LEASED BY TENANT UNDER EXHIBIT C, SECTION
10(A) AND/OR (B) ABOVE AND SUCH ALLOWANCE SHALL INCLUDE FOUR DOLLARS
($4.00) OF ITEMS DONE EARLY PER EXHIBIT B-3, SECTION I.
"IF TENANT DOES NOT EXTEND LEASE TERM PURSUANT TO EXHIBIT C, SECTION 3,
THEN TENANT SHALL, ON OR BEFORE THE EXPIRATION DATE, REIMBURSE LANDLORD THE
UNAMORTIZED PORTION OF COST OF TENANT IMPROVEMENTS PROVIDED TENANT PURSUANT
TO THIS EXHIBIT C, SECTION 10(C) AND (D) IF APPLICABLE. CALCULATIONS SHALL
BE BASED UPON A SIXTY (60) MONTH AMORTIZATION SCHEDULE, WITH EIGHT AND ONE
HALF PERCENT (8 1/2%) INTEREST PER ANNUM COMPOUNDED MONTHLY FROM THE
COMMENCEMENT OF OCCUPANCY OF THE FIRST ADDITION AND/OR FROM THE
COMMENCEMENT OF OCCUPANCY OF THE ADDITIONAL SPACE LEASED UNDER EXHIBIT C,
SECTION 10(A) AND/OR (B) ABOVE.
"D. REGARDLESS OF WHEN IT IS LEASED BY TENANT, PREVIOUSLY IMPROVED SPACE
LEASED BY TENANT, AND/OR PREVIOUSLY UNIMPROVED SPACE LEASED BY TENANT BY
RIGHT OF SECOND OFFER AFTER MONTH TWENTY-FOUR ABOVE, SHALL BE LEASED AT THE
PREVAILING FAIR MARKET RENTAL AND TENANT IMPROVEMENT RATES FOR COMPARABLE
EXPANSION SPACE IN COMPARABLE BUILDINGS IN THE AREA AT THE TIME THE
EXPANSION SPACE IS LEASED, BUT SUCH RENTAL RATE SHALL NOT BE LESS THAN THE
WEIGHTED AVERAGE OF THE BASE FACE RENTAL RATE OF THE TENANT'S SPACE THEN
UNDER LEASE (I.E., WEIGHTED AVERAGE CALCULATION:
<TABLE>
<S> <C> <C>
10,156 net rentable square feet times $21.50 $218,354.00
19,817 net rentable square feet times $21.50 426,065.50
5,000 net rentable square feet times $22.50 112,500.00
------ -----------
34,973 net rentable square feet total $756,919.50
</TABLE>
$756,919.50 DIVIDED BY 34,973 NET RENTABLE SQUARE FEET EQUALS A
WEIGHTED AVERAGE OF $21.64).
-4-
<PAGE>
"IF WITHIN SUCH FIVE (5) BUSINESS DAYS, TENANT SHALL EITHER FAIL TO
GIVE SUCH NOTICE OR GIVE NOTICE OF ITS REJECTION OF THE OFFER,
LANDLORD MAY, WITHOUT FURTHER NOTICE TO TENANT, LEASE SUCH SPACE TO
OTHER INTERESTED PARTIES."
Section 11 of Exhibit C to the Lease, "Early Occupancy," shall be added as
follows:
"LANDLORD WILL USE ITS BEST EFFORT TO PREPARE A NEW PERMANENT LOCATION
FOR THE MANAGEMENT OFFICE AND MOVE OUT OF THE CURRENT SPACE (1,777 NET
RENTABLE SQUARE FEET) IN AN EXPEDIENT MANNER. OPON COMPLETION OF
LANDLORD'S RELOCATION TENANT MAY OCCUPY THE VACATED MANAGEMENT OFFICE
AT A RENTAL RATE OF $13.75 PER NET RENTABLE SQUARE FOOT PER ANNUM.
SUCH EARLY OCCUPANCY OF THE VACATED MANAGEMENT OFFICE SHALL NOT EFFECT
THE DETERMINATION OF THE OFFICIAL OCCUPANCY DATE FOR THE FIRST
ADDITION."
All other terms and conditions of the original Lease as amended by Amendment No.
1 shall remain in effect and be applicable to the above Amendment.
This Amendment is effective August 4, 1993
LANDLORD: SUNSET OFFICE LIMITED PARTNERSHIP, a Washington limited partnership
By: WRC Sunset Limited Partnership,
a Washington limited partnership, Its General Partner
By: Wright Runstad Associates Limited Partnership,
a Washington limited partnership, Its General Partner
By: Wright Runstad & Company,
a Washington corporation, Its General Partner
By:/s/ H. Jon Runstad
Its H. Jon Runstad
President and
Chief Executive Officer
TENANT: VULCAN NORTHWEST, INC.
By:/s/ William D. Sevoy
Its: President
-5-
<PAGE>
LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 20th day of August, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared H. Jon Runstad, to me known to be
the President and CEO, of WRIGHT RUNSTAD & COMPANY, a corporation, to me known
to be the general partner of WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of WRC SUNSET LIMITED
PARTNERSHIP, a limited partnership, to me known to be a general partner of
SUNSET OFFICE LIMITED PARTNERSHIP, the Washington limited partnership that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation and
partnerships for the uses and purposes therein mentioned, and on oath stated
that he/she was authorized to execute said instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
[NOTARY PUBLIC SEAL]
/S/ Corliss J Perdaems signed
Corliss J Perdaems printed
Notary public in and for the state of Washington,
residing at Seattle
My appointment expires 3/29/96
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 5th day of August, 1993, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared William D. Savoy and
_____________________, to me known to be the President and ______________,
respectively, of Vulcan NW LLC corporation, the that executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said
instrument, and that the seal affixed, if any, is the corporate seal of said
corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
/s/ Sue Milestone signed
Sue Milestone printed
Notary public in and for the state of Washington,
residing at Renton WA
My appointment expires 1-29-97
-6-
<PAGE>
EXHIBIT A-2
ADDENDUM TO LEASE BETWEEN
SUNSET OFFICE LIMITED PARTNERSHIP
AND
VULCAN NORTHWEST, INC.
FLOOR PLAN OF ORIGINAL PREMISES AND FIRST ADDITION
[FLOOR PLAN OMITTED]
EXHIBIT A-2 PAGE 1 OF 1
<PAGE>
LEASE AMENDMENT NO.3
This Amendment No. 3 is to that certain Lease Agreement dated March 4, 1992, as
amended by Lease Amendment No. 1 dated August 21, 1992, as amended by Lease
Amendment No. 2 dated August 4, 1993, and assigned to STARWAVE CORPORATION by
Lease Assignment and Assumption Agreement dated August 31, 1993 ("Lease"),
between SUNSET OFFICE LIMITED PARTNERSHIP, a Washington limited partnership,
whose interest under the Lease has been assigned to OBAYASHI CORPORATION, a
Japan corporation ("Landlord"), and VULCAN NORTHWEST, INC., a Washington
corporation ("Tenant"), covering space on the fourth floor of Sunset Corporate
Campus, Building 1, 13810 S.E. Eastgate Way, Bellevue, Washington. The terms
used herein shall have the same meaning as set forth in the Lease except as
otherwise specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the Lease
as follows:
Section 1(b) of the Lease "Premises" shall be amended to read:
"CONSISTING OF THE AREA ON THE THIRD AND FOURTH FLOOR(S) OF THE
BUILDING,...."
Section 1(c) of the Lease "Rentable Area of the Premises" shall be amended
to read:
"39,413 NET RENTABLE SQUARE FEET."
Section 1(j) of the Lease "Notice Addresses" shall be amended to read:
"LANDLORD: OBAYASHI CORPORATION
C/O WRIGHT RUNSTAD & COMPANY
13810 S.E. EASTGATE WAY, SUITE 180
BELLEVUE, WASHINGTON 98005"
Section 1(k) of the Lease "Exhibits" shall be amended by the addition of:
"EXHIBIT A3 - FLOOR PLAN OF PREMISES ADDED BY LEASE AMENDMENT NO.3
EXHIBIT B4 - TENANT IMPROVEMENTS FOR PREMISES ADDED BY LEASE AMENDMENT
NO. 3
EXHIBIT D - DEFINITION OF AREAS A AND B"
Section 2 of the Lease "Premises" shall be amended to read:
"LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES HEREBY LEASE
FROM
LANDLORD, UPON THE TERMS AND CONDITIONS SET FORTH, THE PREMISES
DESCRIBED IN
SECTION 1(B) HEREOF AS SHOWN ON EXHIBIT A-2 AND EXHIBIT A3 ATTACHED
HERETO..."
-1-
<PAGE>
Exhibit C, Section 1 to the Lease "Rent" shall be amended by the addition of a
new paragraph:
RENT FOR THE PREMISES ON THE THIRD FLOOR OF THE BUILDING
- --------------------------------------------------------
THE BASE RENTAL RATE FOR AREAS A AND B AS SHOWN ON EXHIBIT D SHALL BE
TWENTY ONE DOLLARS AND FIFTY CENTS ($21.50) PER NET RENTABLE SQUARE FOOT
PER ANNUM.
THE TOTAL ANNUAL BASE RENT (BASE RENTAL RATE PER NET RENTABLE SQUARE FOOT
PER YEAR MULTIPLIED BY NET RENTABLE AREA OF THE PREMISES) SHALL BE PAID IN
12 EQUAL MONTHLY PAYMENTS AND SHALL BE PAYABLE IN ACCORDANCE WITH SECTION 5
OF THIS LEASE. RENT SHALL BE ADJUSTED FROM TIME TO TIME PURSUANT TO THE
TERMS OF SECTIONS 9 AND 10 OF THIS LEASE.
Area of Premises Initially Occupied ("Area A") as shown on Exhibit D:
---------------------------------------------------------------------
NET RENTABLE AREA: APPROXIMATELY 5,528 NET RENTABLE SQUARE FEET.
RENT COMMENCEMENT DATE: RENT SHALL COMMENCE UPON OCCUPANCY, BUT IN NO EVENT
LATER THAN JANUARY 31, 1995.
Area of Premises Not Initially Occupied ("Area B") as shown on Exhibit D:
-------------------------------------------------------------------------
NET RENTABLE AREA: APPROXIMATELY 3,912 NET RENTABLE SQUARE FEET.
RENT COMMENCEMENT DATE: RENT SHALL COMMENCE FOR ANY PORTION OF AREA B UPON
FULL OCCUPANCY OF THE PORTION, BUT IN NO EVENT SHALL RENT FOR AREA B
COMMENCE LATER THAN JUNE 1, 1995."
Exhibit C, Section 2 to the Lease "Parking: Garage Parking" shall be amended to
read:
"GARAGE PARKING. UPON COMMENCEMENT OF OCCUPANCY OF THE PREMISES ADDED BY
LEASE
AMENDMENT NO. 3, TENANT SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF ONE
HUNDRED TWENTY-EIGHT (128) UNASSIGNED PARKING SPACES IN THE BUILDING GARAGE
DURING THE INITIAL AND ANY EXTENDED LEASE TERM AS FOLLOWS:
A. TENANT SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF TWENTY-THREE (23)
UNASSIGNED PARKING SPACES IN THE PARKING AREA LOCATED DIRECTLY BELOW THE
BUILDING. THE MONTHLY RATE FOR SUCH SPACES SHALL BE THIRTY-FIVE DOLLARS
($35.00) PER MONTH PER SPACE PLUS APPLICABLE SALES TAX. SUCH RATE IS
SUBJECT TO CHANGE FROM TIME TO TIME AS DETERMINED BY LANDLORD.
B. TENANT SHALL HAVE THE RIGHT TO LEASE UP TO A TOTAL OF ONE HUNDRED FIVE
(105) UNASSIGNED PARKING SPACES IN THE STRUCTURED BELOW-GRADE PARKING
ADJACENT TO THE BUILDING. THE MONTHLY RATE FOR SUCH SPACES SHALL BE TWENTY
DOLLARS ($20.00) PER MONTH PER SPACE PLUS APPLICABLE SALES TAX. SUCH RATE
IS SUBJECT TO CHANGE FROM TIME TO TIME AS DETERMINED BY LANDLORD.
Exhibit C, Section 10 to the Lease "Right of Second Offer" shall be deleted.
Exhibit C to the Lease shall be amended by the addition of a new section,
Section 12 "Tenant Improvement Allowance for Premises Added by Lease Amendment
No. 3:"
"LANDLORD SHALL PROVIDE TENANT A TENANT IMPROVEMENT ALLOWANCE IN ACCORDANCE
WITH EXHIBIT B4, SECTION II., PARAGRAPH B. ATTACHED HERETO."
-2-
<PAGE>
All other terms and conditions of the original Lease shall remain in effect and
be applicable to the above Amendment.
This Amendment is effective January 1, 1995.
Dated this 30th day of October, 1994.
LANDLORD: OBAYASHI CORPORATION
By: /s/ Yukio Kanai
Its: Attorney-in Fact
TENANT: STARWAVE CORPORATION
By: /s/ Curt Blake
Its: V.P., Business & Legal
-3-
<PAGE>
LANDLORD ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November 2, 1994, before me, MARGARET LYNN TARCZYNSKI a Notary in and for
said State, personally appeared YUKIO KANAI, personally known to me to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he executed the same in his authorized capacity, and that by his signature
on the instrument, the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL]
/s/ Margaret Lynn Tarczynski
Notary Public in and for said State
TENANT CORPORATE ACKNOWLEDGEMENT
STATE OF Washington )
) ss.
COUNTY OF King )
THIS IS TO CERTIFY that on this 31st day of October, 1994, before me, the
undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Curt D. Blake, to me known to be the
Vice President, Business & Legal Affairs of Starwave Corporation, the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath stated that
he/she was authorized to execute said instrument, and that the seal affixed, if
any, is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate first
above written.
[NOTARY PUBLIC SEAL]
/s/ Janell L. Jennen signature
Janell L. Jennen printed name
Notary public in and for the State of Washington,
residing at Maple Valley, WA
My appointment expires 2/28/98
<PAGE>
EXHIBIT A
Addendum to Lease between
OBAYASHI CORPORATION (LANDLORD)
and
STARWAVE CORPORATION (TENANT)
FLOOR PLAN OF PREMISES ADDED BY LEASE AMENDMENT NO.3
FLOOR 3
9,440 Net Rentable Square Feet
[FLOOR PLAN OMITTED]
Exhibit A3, Page 1 of 1
<PAGE>
EXHIBIT B-3
TO
SUNSET CORPORATE CAMPUS
LEASE AGREEMENT
TENANT IMPROVEMENTS FOR FIRST ADDITION
I. IMPROVEMENTS PROVIDED BY LANDLORD
Landlord agrees to provide the following improvements in the First Addition
A. Completed Public and/or Core Areas as outlined in Exhibit A-2,
finished in accordance with plans and specifications for the Building.
(1) Plumbing: Men's restrooms, women's restrooms, and drinking
fountains installed in accordance with the plans and
specifications for the Building.
(2) Electrical: Total electrical service for each floor shall include
two electrical closets, each with 38, 20-ampere, single-pole,
120-volt circuits.
B. Tenant's Unimproved Area as outlined in Exhibit A-2 has been completed
as outlined in items (1) through (6) below:
(1) Walls: Core walls pre-taped to be finished under tenant
improvements. Columns and perimeter walls covered with gypsum
wallboard ready for tape and paint.
(2) Floor: Prepared to receive carpet. Floor loading capacities: 80
pounds per square foot live load; 20 pounds per square foot
partition load.
(3) Mechanical - Primary System: Includes cooling duct distribution
loop installed through terminal VAV boxes and thermostats in
ceiling plenum for building standard layout and quantities. The
building standard mechanical system is designed to accommodate
heating loads generated by lights (1.7 watts per square foot) and
electrical equipment (2.5 watts per square foot) up to 4.2 watts
per square foot. If Tenant's design or use of the First Addition
results in concentrated electrical loads in excess of 2.5 watts
per square foot (e.g., data processing areas, conference rooms
and machine rooms) and/or Tenant's design or use of the First
Addition extends beyond Normal Business Hours, then the cost of
any additional engineering design and installation of mechanical
equipment and/or controls required to handle such excess shall be
part of the cost borne by Tenant pursuant to Section II of this
Exhibit B-3.
(4) Mechanical - Secondary System: Supplemental condenser water loop
using closed circuit fluid coolers, risers stubbed out at each
floor. The system is sized at 15 tons per floor and shall be
allocated at 1/2 ton per each 1,000 square feet of Tenant's
Unimproved Area.
(5) Plumbing: Three waste and vent risers to accommodate waste from
sinks and dishwashers.
(6) Fire Sprinklers: Primary distribution loop with turned-down
finished heads to minimum code required. Building standard layout
and quantities on each floor.
(7) Electrical: Electrical conduit and junction boxes distributed
throughout using building standard layout and quantities.
(8) Ceiling: Building standard suspended ceiling grid system
installed in a 4' x 4' pattern.
The value of the tenant improvements portion of the work itemized in
this Section I.B. is $4.00 per square foot of Tenant's Unimproved
Area.
Exhibit B-3 Page 1 of 5
<PAGE>
II. OTHER TENANT IMPROVEMENTS AND LANDLORD'S ALLOWANCE
A. Design and construction of all improvements in the First Addition
beyond those listed in Section I of this Exhibit B-3 shall be provided
at Tenant's cost and shall include, but not be limited to: Any
modifications and/or additions to the tenant improvements itemized in
Section I.B. above, architectural and engineering design, partitions
(including one-half (1/2) the cost of any public corridor or demising
partition enclosing the Tenant's Unimproved Area), doors, door frames,
hardware, paint, wall coverings, base, ceilings, lights, mechanical
distribution, diffusers, thermostats, sprinkler distribution,
sprinkler heads, emergency speakers, fire extinguishers and cabinets,
telephone and electrical outlets, light switches, window coverings,
floor coverings, all applicable permit fees and sales tax.
B. In addition to the cost for improvements constructed during shell and
core as specified in Section I.B. above, Landlord shall provide Tenant
a tenant improvement allowance of up to $ 27.00 per square foot of
Tenant's Unimproved Area to be credited against the cost of
improvements provided pursuant to Section II.A. of this Exhibit B-3.
Landlord's reimbursement will be made by crediting the amount to be
reimbursed against the last payment due from Tenant in accordance with
Section IV.B. of this Exhibit B-3.
III. DESIGN OF TENANT IMPROVEMENTS
At Landlord's expense Tenant shall retain the services of a qualified
office planner, approved by Landlord, to prepare the necessary drawings for
Basic Plans and supply the information necessary to complete the Working
Drawings and Engineering Drawings referred to in Section III.B. of this
Exhibit B-3 for construction of the tenant improvements in Tenant's
Unimproved Area. All Tenant's plans shall be subject to approval of
Landlord in accordance with Section III.C. of this Exhibit B-3.
Tenant's office planner shall ensure that the work shown on Tenant's plans
is compatible with the basic Building plans and that necessary basic
Building modifications are included in Tenant's plans. Such modifications
shall be subject to the Landlord's approval.
On or before the indicated dates, Tenant shall supply Landlord with one (1)
reproducible copy and five (5) black line prints of the following Tenant
Plans:
Final Space Plans Date: 8/6/93
A. BASIC PLANS DELIVERY DATE: 8/11/93
The Basic Plans due on this date shall be signed by Tenant and
include:
Architectural Floor Plans: These shall be fully dimensioned floor
plans showing partition layout and identifying each room with a number
and each door with a number. The Basic Plans must clearly identify and
locate equipment requiring plumbing or other special mechanical
systems, area(s) subject to above-normal floor loads, special openings
in the floor, and other major or special features.
B. WORKING DRAWINGS DELIVERY DATE: 8/16/93.
On this date, Tenant's office planner shall produce four (4) sets of
Full Working Drawings for construction from the Basic Plans using the
Pin Bar System, which system shall be approved by Landlord for
compatibility with the other Building drawings. The four (4) sets of
Working Drawings due on this date shall be signed by the Tenant and
include all items in the Basic Plans referenced in Section III.A.
above plus the following additional information:
Exhibit B-3 Page 2 of 5
<PAGE>
(1) Electrical and Telephone Outlets: Locate all power and telephone
requirements: Dimension the position from a corner and give height
above concrete slab for all critically located outlets. Identify all
dedicated circuits and identify all power outlets greater than 120
volts. For the equipment used in these outlets which require dedicated
circuits and/or which require greater than 120 volts, identify the
type of equipment, the manufacturer's name and the manufacturer's
model number, and submit a brochure for each piece of equipment. Also
identify the manufacturer's name of the telephone system to be used
and the power requirements, size, and location of its processing
equipment.
(2) Reflected Ceiling Plan: Lighting layout showing location and type of
all Building Standard and special lighting fixtures.
(3) Furniture Layout: Layout showing furniture location so that Landlord's
engineer can review the location of all light fixtures.
Landlord's engineers shall prepare plumbing, electrical, heating, air
conditioning and structural plans ("Engineering Drawings") for Tenant's
improvements based on the signed Working Drawings.
C. FINAL PLANS REVIEW DATE: 8/18/93.
On this date, Tenant's office planner shall deliver to Landlord and Tenant
for review and approval four (4) complete sets of Final Plans which will
incorporate the Working Drawings referenced in Section III.B. above, plus
the following additional information:
(1) Millwork Details: These drawings shall be in final form with Tenant's
office planner's title block in the lower right hand corner of the
drawing, and shall include construction details of all cabinets,
paneling, trim, bookcases, and door and jamb details for non-Building
Standard doors and jambs.
(2) Keying Schedules and Hardware Information: This information shall be
in final form and include a Keying Schedule indicating which doors are
locked and which key(s) open each lock, plus an "X" on the side of the
door where the key will be inserted if a keyed door. Complete
specifications for all non-Building Standard hardware will also be
provided.
(3) Room Finish and Color Schedule: This information shall be in final
form and include locations and specifications for all wall finishes,
floor covering and base for each room.
(4) Construction Notes and Specifications: Complete specifications for
every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: 8/20/93.
The four (4) sets of Final Plans approved by Landlord and Tenant and due on
this date shall include all the Final Plans referenced in Section III.C.
above. Final Plans are to be signed by Tenant and delivered to Landlord by
the Final Plans Delivery Date. Landlord shall return one (1) signed set to
Tenant for Tenant's records. Landlord will incorporate Engineering Drawings
with Tenant's Final Plans for transmittal to the General Contractor.
Tenant shall be responsible for delays and additional costs in completion
of Tenant's work caused by changes made to any of Tenant's Plans after the
specified Plan Delivery Date or by delays in delivery of special materials
requiring long lead times. Tenant shall further be responsible for such
delays as provided in Section 3(b) of the Lease.
Exhibit B-3 Page 3 of 5
<PAGE>
IV. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans and
at the request of Tenant, Landlord shall provide to Tenant written
notice of the price for improvements beyond those listed in Section I
of this Exhibit B-3. Within five (5) days of receipt of such notice,
Tenant shall give Landlord written authorization to complete the First
Addition in accordance with such Final Plans. Tenant may in such
authorization delete any or all items of extra cost; however, if
Landlord deems these changes to be extensive, at its option, Landlord
may refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
acceptance of the revised price has been received by Landlord from
Tenant. In the absence of such written authorization to proceed,
Landlord shall not be obligated to commence work on the First Addition
and Tenant shall be responsible for any costs due to any resulting
delay in completion of the First Addition and as provided in Section
3(b) of the Lease.
B. PAYMENTS. Landlord's contractor shall complete Tenant's improvements
in accordance with Tenant's approved Final Plans. Within ten (10) days
after receipt of monthly progress statements from Landlord, Tenant
shall pay the full amount off such progress billings, for all
improvements beyond those listed in Section I of this Exhibit B-3.
Tenant may retain an amount equal to five percent (5%) of the
estimated cost of such improvements from the last payments due
immediately prior to the credit for Landlord's reimbursement. Final
billing shall be rendered and payable within ten (10) days after
acceptance of the First Addition by Tenant in accordance with the
terms of the Lease. Retainage pursuant to the terms of this paragraph
shall be payable with such final billing. In the event acceptance of
the First Addition is subject to punchlist items as provided in the
Lease, a portion of the retainage equal to the cost to complete each
outstanding punchlist item may be retained until such punchlist item
is complete.
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change,
Tenant shall request such change in writing to Landlord and such
request shall be accompanied by all plans and specifications necessary
to show and explain changes from the approved Final Plans. After
receiving this information. Landlord shall give Tenant a written price
for the cost of engineering and design services to incorporate the
change in Tenant's Final Plans. If Tenant approves such price in
writing, Landlord shall have such Final Plans changes made and Tenant
shall promptly pay Landlord for this cost. Promptly upon completion of
such changes in the Final Plans, Landlord shall notify Tenant in
writing of the costs, if any, which shall be chargeable or credited to
Tenant for such change, addition or deletion. The cost for such
changes, whether chargeable or credited to Tenant, shall include a
Landlord coordination fee equal to fifteen percent (15%) of the amount
of such charge, addition or deletion. In the absence of such notice,
Landlord shall proceed in accordance with the previously approved
Final Plans before such change, addition or deletion was requested. In
accordance with Section 3(b) of the Lease, Tenant shall be responsible
for any resulting delay in completion of the First Addition due to
modification of Final Plans. Tenant shall also be responsible for any
demolition work required as a result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT. If any work is to be performed in
connection with Tenant improvements on the First Addition by Tenant or
Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval of (i)
Tenant's contractor, (ii) public liability and property damage
insurance carried by Tenant's contractor (such insurance shall be
in combined single limits not less that Five Hundred Thousand
Dollars ($500,000) per occurrence and shall name Landlord and
Wright Runstad & Company as additional insureds), (iii) detailed
plans and specifications for such work, and (iv) amount of
general conditions to be paid by Tenant to Landlord for the
services still provided by Landlord's contractor.
Exhibit B-3 Page 4 of 5
<PAGE>
(2) All work shall be done in conformity with a valid building permit
when required, a copy of which shall be furnished for Landlord
before such work is commenced, and in any case, all such work
shall be performed in accordance with all applicable governmental
regulations. Notwithstanding any failure by Landlord to object to
any such work, Landlord shall have no responsibility for Tenant's
failure to meet all applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements
applicable to the trades being employed.
(4) All work by Tenant or Tenant's contractor shall be scheduled
through Landlord.
(5) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service with Landlord's contractor
and shall pay such reasonable charges for such services as may be
charged by Landlord's contractor. This will be included in the
general conditions of Subsection (1)(iv) above.
(6) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or
by reason of any delays caused by such work, or by reason of
inadequate clean-up.
(7) Prior to commencement of any work on the Premises by Tenant or
Tenant's contractor, Tenant or Tenant's contractor shall enter
into an indemnity agreement and a lien priority agreement
satisfactory to Landlord indemnifying and holding harmless
Landlord and Landlord's contractors for any liability, losses or
damages directly or indirectly from lien claims affecting the
land, the Building or the First Addition arising out of Tenant's
or Tenant's contractor's work or that of subcontractors or
suppliers, and subordinating any such liens to the liens of
construction and permanent financing for the Building.
(8) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the First Addition announcing its
non-responsibility for the work being performed therein.
E. TENANT'S ENTRY TO FIRST ADDITION. Tenant's entry to the First Addition
for any purpose, including without limitation, inspection or
performance of Tenant construction by Tenant's agents, prior to the
Commencement Date as specified in Section 3(a) of the Lease shall be
scheduled in advance with Landlord and shall be subject to all the
terms and conditions of the Lease, except the payment of Rent.
Tenant's entry shall mean entry by Tenant, its officers, contractors,
office planner, licensees, agents, servants, employees, guests,
invitees, or visitors.
F. TENANT'S TELEPHONE. Tenant is responsible for Tenant's telephone
service. Tenant shall select Tenant's telephone system and shall
coordinate its installation with Landlord.
TENANT AND LANDLORD SHALL USE THEIR BEST EFFORTS TO ENSURE THAT THIS
COMMENCEMENT OF OCCUPANCY IS ON OR BEFORE NOVEMBER 1, 1993, THEREFORE, THE
DEADLINES FOR PLANS PER THIS EXHIBIT B-3 AND SUBSEQUENT PROJECTED DEADLINES FOR
THE ACCOMPLISHMENT OF THE ENGINEERING, BIDDING PROCEDURE, AND AWARD OF BID ARE
SIGNIFICANT TO THAT END:
BIDS DUE FROM CONTRACTORS AT CLOSE OF BUSINESS: SEPTEMBER 2, 1993.
BID ANALYSIS AND AWARD: SEPTEMBER 3, 1993.
START OF CONSTRUCTION: SEPTEMBER 6, 1993.
CONSTRUCTION PERIOD: EIGHT WEEKS
COMMENCEMENT OF OCCUPANCY: NOVEMBER 1, 1993.
TENANT SHALL BE RESPONSIBLE FOR DELAYS IN COMPLETION IF SAID DELAYS WERE CAUSED
BY TENANT OR TENANT'S AGENTS.
Exhibit B-3 Page 5 of 5
<PAGE>
LEASE AMENDMENT NO. 4
This Amendment No. 4 is to that certain Lease Agreement dated March 4, 1992 as
amended by Lease Amendment No. 1 dated August 21, 1992, as amended by Lease
Amendment No. 2 dated August 4, 1993, and assigned to STARWAVE CORPORATION by
Lease Assignment and Assumption Agreement dated August 31, 1993, as amended by
Lease Amendment No. 3 dated October 30, 1994 ("Lease"), between SUNSET OFFICE
LIMITED PARTNERSHIP, a Washington limited partnership, whose interest under the
Lease has been assigned to OBAYASHI CORPORATION, a Japan corporation
("Landlord"), and VULCAN NORTHWEST, a Washington corporation ("Tenant"),
covering space on the third and fourth floors of Sunset Corporate Campus,
Building I, 13810 S.E. Eastgate Way, Bellevue, Washington. The terms used herein
shall have the same meaning as set forth in the Lease except as otherwise
specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the Lease
as follows:
Section 1(b) of the Lease "Premises" shall be amended to read:
"CONSISTING OF THE AREA ON THE THIRD, FOURTH AND FIFTH FLOORS OF THE
BUILDING, AS OUTLINED ON THE FLOOR PLANS ATTACHED HERETO AS EXHIBIT A
THROUGH EXHIBIT A5, INCLUDING TENANT IMPROVEMENTS, IF ANY, AS
DESCRIBED IN EXHIBIT B THROUGH EXHIBIT B5 ATTACHED HERETO."
Section 1(c) of the Lease "Rentable Area of the Premises" shall be amended
to read:
"12,855 NET RENTABLE SQUARE FEET ON THE THIRD FLOOR; 29,973 NET
RENTABLE SQUARE FEET ON THE FOURTH FLOOR; AND 16,244 NET RENTABLE
SQUARE FEET ON THE FIFTH FLOOR FOR A TOTAL OF 59,072 NET RENTABLE
SQUARE FEET, OF WHICH 2,455 NET RENTABLE SQUARE FEET ON THE THIRD
FLOOR AND 16,244 NET RENTABLE SQUARE FEET ON THE FIFTH FLOOR ARE
SUBJECT TO EXHIBIT C, SECTION 13 OF THIS LEASE, "CONTINGENCIES" (A NEW
SECTION ADDED BY THIS LEASE AMENDMENT NO. 4)."
Section 1(f) of the Lease "Expiration Date" shall be amended to read:
"PREMISES ON FLOOR 3: MAY 31, 2001
PREMISES ON FLOOR 4: MAY 31, 2000.
PREMISES ON FLOOR 5: MAY 31, 2001."
Section 1(k) of the Lease "Exhibits" shall be amended by the addition of:
"EXHIBIT A4 - REVISED FLOOR PLAN OF PREMISES ON THE THIRD FLOOR OF THE
BUILDING
"EXHIBIT A5 - FLOOR PLAN OF PREMISES ON THE FIFTH FLOOR OF THE BUILDING
EXHIBIT B5 - ADDITIONAL TENANT IMPROVEMENTS PROVIDED FOR IN LEASE
AMENDMENT NO. 4"
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<PAGE>
Section 10(a) of the Lease "Costs of Operations and Real Estate Taxes,
Additional Rent" shall be amended to read:
"COMMENCING JUNE 8, 1992 AND CONTINUING THROUGH AUGUST 3, 1993, TENANT
SHALL PAY AS ADDITIONAL RENT ITS PRO RATA SHARE OF INCREASES IN OPERATING
COSTS AND TAXES IN EXCESS OF $5.00 PER RENTABLE SQUARE FOOT ("BASE
AMOUNT").
"COMMENCING AUGUST 4, 1993 AND CONTINUING THROUGH MAY 31, 1997, TENANT
SHALL PAY AS ADDITIONAL RENT ITS PRO RATA SHARE OF INCREASES IN OPERATING
COSTS AND TAXES IN EXCESS OF $5.75 PER RENTABLE SQUARE FOOT ("BASE AMOUNT")
"COMMENCING JUNE 1, 1997 AND CONTINUING THROUGH THE EXPIRATION DATE OF THIS
LEASE, TENANT SHALL PAY AS ADDITIONAL RENT ITS PRORATA SHARE OF INCREASES
IN OPERATING COSTS AND TAXES IN EXCESS OF THE ACTUAL OPERATING COSTS
ALLOCABLE TO THE PREMISES IN CALENDAR YEAR 1997 ("BASE AMOUNT")."
Section 16(a) of the Lease "Insurance" shall be amended to read:
"(A) LIABILITY INSURANCE. TENANT SHALL, THROUGHOUT THE TERM OF THIS LEASE
AND ANY RENEWAL HEREOF, AT ITS OWN EXPENSE, KEEP AND MAINTAIN IN FULL FORCE
AND EFFECT, A POLICY OF COMMERCIAL GENERAL LIABILITY (OCCURRENCE FORM)
INSURANCE, INCLUDING CONTRACTUAL LIABILITY INSURING TENANT'S ACTIVITIES
UPON, IN OR ABOUT THE PREMISES OR THE BUILDING AGAINST CLAIMS OF BODILY
INJURY OR DEATH OR PROPERTY DAMAGE OR LOSS WITH A COMBINED SINGLE LIMIT OF
NOT LESS THAN THREE MILLION DOLLARS ($3,000,000) PER OCCURRENCE AND FIVE
MILLION DOLLARS ($5,000,000) IN THE AGGREGATE. LANDLORD AND WRIGHT RUNSTAD
& COMPANY SHALL BE ADDITIONAL INSUREDS."
The Lease shall be amended by the addition of a new Section, Section 37,
"Telecommunications Lines and Equipment:"
37. TELECOMMUNICATIONS LINES AND EQUIPMENT
"(A) LOCATION OF TENANT'S EQUIPMENT AND LANDLORD CONSENT:
(I) TENANT MAY INSTALL, MAINTAIN, REPLACE, REMOVE AND USE COMMUNICATIONS
OR COMPUTER WIRES, CABLES AND RELATED DEVICES (COLLECTIVELY, THE "LINES")
AT THE BUILDING IN OR SERVING THE PREMISES, ONLY WITH LANDLORD'S PRIOR
WRITTEN CONSENT, WHICH CONSENT MAY NOT BE UNREASONABLY WITHHELD AFTER
CONSIDERATION OF, BUT NOT LIMITED TO, THE FACTORS IN (II) BELOW. TENANT
SHALL LOCATE ALL ELECTRONIC TELECOMMUNICATIONS EQUIPMENT WITHIN THE
PREMISES. ANY REQUEST FOR CONSENT SHALL CONTAIN DETAILED PLANS, DRAWINGS
AND SPECIFICATIONS IDENTIFYING ALL WORK TO BE PERFORMED, THE TIME SCHEDULE
FOR COMPLETION OF THE WORK, THE IDENTITY OF THE ENTITY THAT WILL PROVIDE
SERVICE TO THE LINES AND THE IDENTITY OF THE ENTITY THAT WILL PERFORM THE
PROPOSED WORK (WHICH ENTITY SHALL BE SUBJECT TO LANDLORD'S APPROVAL).
LANDLORD SHALL HAVE A REASONABLE TIME IN WHICH TO EVALUATE THE REQUEST
AFTER IT IS SUBMITTED BY TENANT.
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<PAGE>
(II) WITHOUT IN ANY WAY LIMITING LANDLORD'S RIGHT TO WITHHOLD ITS CONSENT,
LANDLORD MAY CONSIDER THE FOLLOWING FACTORS, AMONG OTHERS, IN MAKING ITS
DETERMINATION: (A) THE EXPERIENCE, QUALIFICATIONS AND PRIOR WORK PRACTICE
OF THE PROPOSED CONTRACTOR AND ITS ABILITY TO PROVIDE SUFFICIENT
INSURANCE COVERAGE FOR ITS WORK AT THE BUILDING; (B) WHETHER OR NOT THE
PROPOSED WORK WILL INTERFERE WITH THE USE OF ANY THEN EXISTING LINES AT
THE BUILDING; (C) WHETHER OR NOT AN ACCEPTABLE NUMBER OF SPARE LINES AND
SPACE FOR ADDITIONAL LINES SHALL BE MAINTAINED FOR EXISTING AND FUTURE
OCCUPANTS OF THE BUILDING; (D) A REQUIREMENT THAT TENANT REMOVE EXISTING
ABANDONED LINES LOCATED IN OR SERVICING THE PREMISES, AS A CONDITION TO
PERMITTING THE INSTALLATION OF NEW LINES; (E) WHETHER OR NOT TENANT IS IN
DEFAULT OF ANY OF ITS OBLIGATIONS UNDER THE LEASE; (F) WHETHER THE
PROPOSED WORK OR RESULTING LINES WILL IMPOSE NEW OBLIGATIONS ON LANDLORD,
EXPOSE LANDLORD TO LIABILITY OF ANY NATURE OR DESCRIPTION, INCREASE
LANDLORD'S INSURANCE PREMIUMS FOR THE BUILDING, CREATE LIABILITIES FOR
WHICH LANDLORD IS UNABLE TO OBTAIN INSURANCE PROTECTION OR IMPERIL
LANDLORD'S INSURANCE COVERAGE; (G) WHETHER TENANT'S PROPOSED SERVICE
PROVIDER IS WILLING TO PAY REASONABLE MONETARY COMPENSATION FOR THE USE
AND OCCUPATION OF THE BUILDING; AND (H) WHETHER THE WORK OR RESULTING
LINES WOULD ADVERSELY AFFECT THE LAND, BUILDING OR ANY SPACE IN THE
BUILDING IN ANY MANNER.
(III) LANDLORD'S APPROVAL OF, OR REQUIREMENTS CONCERNING, THE LINES OR ANY
EQUIPMENT RELATED THERETO, THE PLANS, SPECIFICATIONS OR DESIGNS RELATED
THERETO, THE CONTRACTOR OR SUBCONTRACTOR, OR THE WORK PERFORMED
HEREUNDER, SHALL NOT BE DEEMED A WARRANTY AS TO THE ADEQUACY THEREOF, AND
LANDLORD HEREBY DISCLAIMS ANY RESPONSIBILITY OR LIABILITY FOR THE SAME.
LANDLORD DISCLAIMS ALL RESPONSIBILITY FOR THE CONDITION OR UTILITY OF THE
INTRA-BUILDING NETWORK CABLING ("INC") AND MAKES NO REPRESENTATION
REGARDING THE SUITABILITY OF THE INC FOR TENANT'S INTENDED USE.
(IV) IF LANDLORD CONSENTS TO TENANT'S PROPOSAL, TENANT SHALL (A) PAY ALL COSTS
IN CONNECTION THEREWITH (INCLUDING ALL COSTS RELATED TO NEW LINES); (B)
COMPLY WITH ALL REQUIREMENTS AND CONDITIONS OF THIS SECTION; (C) USE,
MAINTAIN AND OPERATE THE LINES AND RELATED EQUIPMENT IN ACCORDANCE WITH
AND SUBJECT TO ALL LAWS GOVERNING THE LINES AND EQUIPMENT. TENANT SHALL
FURTHER INSURE THAT (I) TENANT'S CONTRACTOR COMPLIES WITH THE PROVISIONS
OF THIS SECTION AND LANDLORD'S REASONABLE REQUIREMENTS GOVERNING ANY WORK
PERFORMED; (II) TENANT'S CONTRACTOR PROVIDES ALL INSURANCE REQUIRED BY
LANDLORD; (III) ANY WORK PERFORMED SHALL COMPLY WITH ALL LAWS; AND (IV)
AS SOON AS THE WORK IN COMPLETED, TENANT SHALL SUBMIT "AS-BUILT" DRAWINGS
TO LANDLORD.
(V) LANDLORD RESERVES THE RIGHT TO REQUIRE THAT TENANT REMOVE ANY LINES
LOCATED IN OR SERVING THE PREMISES WHICH ARE INSTALLED IN VIOLATION OF
THESE PROVISIONS, OR WHICH ARE AT ANY TIME IN VIOLATION OF ANY LAWS OR
PRESENT A DANGEROUS OR POTENTIALLY DANGEROUS CONDITION (WHETHER SUCH
LINES WERE INSTALLED BY TENANT OR ANY OTHER PARTY), WITHIN THREE (3) DAYS
AFTER WRITTEN NOTICE SPECIFYING THE CONDITION, PROVIDED THAT TENANT DOES
NOT FIRST CURE THE CONDITION WITHIN FIVE (5) DAYS AFTER SUCH NOTICE.
(B) LANDLORD'S RIGHTS:
LANDLORD MAY (BUT SHALL NOT HAVE THE OBLIGATION TO):
(I) INSTALL NEW LINES AT THE BUILDING;
(II) CREATE ADDITIONAL SPACE FOR LINES AT THE BUILDING; AND
(III) DIRECT, MONITOR AND/OR SUPERVISE THE INSTALLATION, MAINTENANCE,
REPLACEMENT AND REMOVAL OF, THE ALLOCATION AND PERIODIC RE-ALLOCATION OF
AVAILABLE SPACE (IF ANY) FOR, AND THE ALLOCATION OF EXCESS CAPACITY (IF
ANY) ON, ANY LINES NOW
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<PAGE>
OR HEREAFTER INSTALLED AT THE BUILDING BY LANDLORD, TENANT OR ANY OTHER PARTY
(BUT LANDLORD SHALL HAVE NO RIGHT TO MONITOR OR CONTROL THE INFORMATION
TRANSMITTED THROUGH SUCH LINES) PROVIDED SUCH ACTIVITY BY LANDLORD DOES NOT
DISRUPT OR OTHERWISE INTERFERE WITH TENANT'S ABILITY TO CONDUCT ITS BUSINESS.
(C) INDEMNIFICATION:
IN ADDITION TO ANY OTHER INDEMNIFICATION OBLIGATIONS UNDER THE LEASE,
TENANT SHALL INDEMNIFY AND HOLD HARMLESS LANDLORD AND ITS EMPLOYEES,
AGENTS, OFFICERS, AND CONTRACTORS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, PENALTIES, FINES, LIABILITIES, SETTLEMENTS, DAMAGES, COSTS OR
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR IN ANY
WAY RELATED TO THE ACTS AND OMISSIONS OF TENANT, TENANT'S OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS, SUBTENANTS, AND
INVITEES WITH RESPECT TO: (I) ANY LINES OR EQUIPMENT RELATED THERETO
SERVING TENANT IN THE BUILDING; (II) ANY PERSONAL INJURY (INCLUDING
WRONGFUL DEATH) OR PROPERTY DAMAGE ARISING OUT OF OR RELATED TO ANY LINES
OR EQUIPMENT RELATED THERETO SERVING TENANT IN THE BUILDING; (III) ANY
LAWSUIT BROUGHT OR THREATENED, SETTLEMENT REACHED, OR GOVERNMENTAL ORDER,
FINE OR PENALTY RELATING TO SUCH LINES OR EQUIPMENT RELATED THERETO; AND
(IV) ANY VIOLATIONS OR LAWS OR DEMANDS OF GOVERNMENTAL AUTHORITIES, OR ANY
REASONABLE POLICIES OR REQUIREMENT OF LANDLORD, WHICH ARE BASED UPON OR IN
ANY WAY RELATED TO SUCH LINES OR EQUIPMENT. THIS INDEMNIFICATION AND HOLD
HARMLESS AGREEMENT SHALL SURVIVE THE TERMINATION OF THE LEASE.
(D) LIMITATION OF LIABILITY:
EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF LANDLORD OR LANDLORD'S AGENTS OR EMPLOYEES, LANDLORD SHALL
HAVE NO LIABILITY FOR DAMAGES ARISING FROM, AND LANDLORD DOES NOT WARRANT
THAT THE TENANT'S USE OF ANY LINES WILL BE FREE FROM THE FOLLOWING
(COLLECTIVELY CALLED "LINE PROBLEMS"): (I) ANY SHORTAGES, FAILURES,
VARIATIONS, INTERRUPTIONS, DISCONNECTIONS, LOSS OR DAMAGE CAUSED BY THE
INSTALLATION, MAINTENANCE, OR REPLACEMENT, USE OR REMOVAL OF LINES BY OR
FOR OTHER TENANTS OR OCCUPANTS AT THE BUILDING, BY ANY FAILURE OF THE
ENVIRONMENTAL CONDITIONS OR THE POWER SUPPLY FOR THE BUILDING TO CONFORM TO
ANY REQUIREMENT OF THE LINES OR ANY ASSOCIATED EQUIPMENT, OR ANY OTHER
PROBLEMS ASSOCIATED WITH ANY LINES BY ANY OTHER CAUSE; (II) ANY FAILURE OF
ANY LINES TO SATISFY TENANT'S REQUIREMENTS; OR (III) ANY EAVESDROPPING OR
WIRE-TAPPING BY UNAUTHORIZED PARTIES. LANDLORD IN NO EVENT SHALL BE LIABLE
FOR DAMAGES BY REASON OF LOSS OF PROFITS, BUSINESS INTERRUPTION OR OTHER
CONSEQUENTIAL DAMAGE ARISING FROM ANY LINE PROBLEMS. UNDER NO CIRCUMSTANCES
SHALL ANY LINE PROBLEMS BE DEEMED AN ACTUAL OR CONSTRUCTIVE EVICTION OF
TENANT, RENDER LANDLORD LIABLE TO TENANT FOR ABATEMENT OF RENT, OR RELIEVE
TENANT FROM PERFORMANCE OF TENANT'S OBLIGATIONS UNDER THE LEASE.
(E) ELECTROMAGNETIC FIELDS:
IF TENANT AT ANY TIME USES ANY EQUIPMENT THAT MAY CREATE AN ELECTROMAGNETIC
FIELD EXCEEDING THE NORMAL INSULATION RATINGS OF ORDINARY TWISTED PAIR
RISER CABLE OR CAUSE RADIATION HIGHER THAN NORMAL BACKGROUND RADIATION,
LANDLORD RESERVES THE RIGHT TO REQUIRE TENANT TO APPROPRIATELY INSULATE THE
LINES THEREFORE (INCLUDING RISER CABLES) TO PREVENT SUCH EXCESSIVE
ELECTROMAGNETIC FIELDS OR RADIATION."
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<PAGE>
Exhibit C, Section 1 of the Lease "Rent" shall be amended by the addition of:
"COMMENCING JUNE 1, 1997, THE BASE RENTAL RATE FOR THE PREMISES SHALL BE
TWENTY-THREE DOLLARS AND FIFTY CENTS ($23.50) PER NET RENTABLE SQUARE FOOT
PER ANNUM."
Exhibit C, Section 3 of the Lease "Option to Extend Lease Term" shall be amended
to read:
"TENANT SHALL HAVE THE RIGHT, TO BE EXERCISED AS HEREINAFTER PROVIDED, TO
EXTEND THE TERM OF THIS LEASE ("EXTENSION OPTION") FOR THE ENTIRE PREMISES
INCLUDING ANY PORTIONS ADDED BY EXERCISE OF THE EXPANSION OPTION FOR ONE
(1) PERIOD OF TWO (2) YEARS ..."
Exhibit C, Section 5 of the Lease, "Right of First Offer" shall be amended as
follows:
TENANT SHALL HAVE THE FOLLOWING RIGHTS OF FIRST OFFER ON THE THIRD AND
FIFTH FLOORS OF THE BUILDING:
FLOOR THREE: 10,656 NRSF (CURRENTLY OCCUPIED BY SILICON GRAPHICS)
FLOOR THREE: 5,693 NRSF (CURRENTLY OCCUPIED BY MILLER BREWING
COMPANY)
FLOOR THREE: 768 NRSF (CURRENTLY OCCUPIED BY N. AMER. DENTAL
REFERRAL)
FLOOR FIVE: 7,550 NRSF (CURRENTLY OCCUPIED BY LOTUS DEVELOPMENT
CORP)
FLOOR FIVE: 3,147 NRSF (CURRENTLY OCCUPIED BY SILICON GRAPHICS,
INC.)
NOTE: TENANT'S RIGHT OF FIRST OFFER ON 3,147 NRSF ON FLOOR FIVE
(CURRENTLY OCCUPIED BY SILICON GRAPHICS INC.) IS SUBJECT TO AN
EXISTING RIGHT OF FIRST OFFER HELD BY LOTUS DEVELOPMENT
CORPORATION FOR THE SAME SPACE.
A. NOTICE: UPON PROPOSING SUCH SPACE TO AN INTERESTED PARTY LANDLORD
SHALL NOTIFY TENANT IN WRITING. WITHIN FIVE (5) BUSINESS DAYS AFTER
RECEIPT OF SUCH NOTICE, TENANT SHALL GIVE LANDLORD WRITTEN NOTICE OF
ITS ACCEPTANCE OF THE OFFER TO LEASE SUCH SPACE UPON THE TERMS AND
CONDITIONS STATED HEREIN. IF, WITHIN SUCH FIVE (5) BUSINESS DAYS,
TENANT SHALL EITHER FAIL TO GIVE SUCH NOTICE OR GIVE NOTICE OF ITS
REJECTION OF THE OFFER, LANDLORD MAY, WITHOUT FURTHER NOTICE TO
TENANT, LEASE SUCH SPACE TO OTHER INTERESTED PARTIES.
B. RENTAL RATE: TENANT'S THEN CURRENT RENTAL RATE (BASE RATE PLUS
ADDITIONAL RENT).
C. EXPIRATION DATE: MAY 31, 2001.
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<PAGE>
D. TENANT IMPROVEMENT ALLOWANCE:
1. FLOOR THREE - 10,656 NRSF (CURRENTLY OCCUPIED BY SILICON GRAPHICS)
-------------------------
I. TERM OF THREE OR MORE YEARS: $5.00 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(1)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
2. FLOOR THREE - 5,693 NRSF (CURRENTLY OCCUPIED BY MILLER BREWING CO.)
------------------------
I. TERM OF THREE OR MORE YEARS: $7.50 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(2)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
3. FLOOR THREE - 768 NRSF (CURRENTLY OCCUPIED BY N. AMER DENTAL REF.)
----------------------
I. TERM OF THREE OR MORE YEARS: $7.50 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(3)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
4. FLOOR THREE - 2,455 NRSF (CURRENTLY LEASED BY COMPUSERVE AND SUBLEASE
------------------------
TO TENANT)
I. TERM OF THREE OR MORE YEARS: $2.00 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(4)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
5. FLOOR FIVE - 7,550 NRSF (CURRENTLY OCCUPIED BY LOTUS DEVELOPMENT
-----------------------
CORPORATION)
I. TERM OF THREE OR MORE YEARS: $8.00 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(5)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
6. FLOOR FIVE - 3,147 NRSF (CURRENTLY OCCUPIED BY SILICON GRAPHICS, INC.)
-----------------------
I. TERM OF THREE OR MORE YEARS: $5.00 PER NET RENTABLE SQUARE FOOT.
II. TERM OF LESS THAN THREE YEARS: THE ALLOWANCE STATED IN D.(6)(I)
ABOVE MULTIPLIED BY THE NUMBER OF MONTHS IN THE LEASE TERM FOR
SUCH SPACE, THE PRODUCT OF WHICH SHALL BE DIVIDED BY 48.
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<PAGE>
Exhibit C, shall be amended by the addition of a new section, Section 13,
"Contingencies" as follows:
13. CONTINGENCIES
LANDLORD AND TENANT UNDERSTAND AND AGREE THAT THE PREMISES ON FLOOR THREE
INCLUDES 2,455 NET RENTABLE SQUARE FEET ("CONTINGENT PREMISES #1") AND THE
PREMISES ON FLOOR FIVE INCLUDES 16,244 NET RENTABLE SQUARE FEET
("CONTINGENT PREMISES #2") BOTH ADDED BY THIS LEASE AMENDMENT NO. 4, AND
UPON WHICH THERE ARE CERTAIN CONTINGENCIES, WHICH COULD AFFECT LANDLORD'S
ABILITY TO OFFER SUCH SPACES FOR LEASE TO TENANT. THEREFORE, THE ACTUAL
TOTAL NET RENTABLE SQUARE FOOTAGE ADDED BY THIS LEASE AMENDMENT NO. 4 IS
SUBJECT TO THE FOLLOWING CONTINGENCIES.
A. CONTINGENT PREMISES #1:
1. CONTINGENT PREMISES #1 IS CURRENTLY LEASED TO COMPUSERVE, WHO
HAS, IN TURN, SUBLEASED IT TO TENANT AT THIS TIME. THE CURRENT
LEASE ON THE CONTINGENT PREMISES EXPIRES SEPTEMBER 30, 1997.
CONTINGENT PREMISES 1 SHALL NOT BECOME A PART OF TENANT'S
PREMISES UNTIL OCTOBER 1, 1997, OR SUCH EARLIER DATE OF
TERMINATION OF THE COMPUSERVE LEASE, AT WHICH TIME IT SHALL BE
INCLUDED IN THE TOTAL NET RENTABLE SQUARE FEET INCLUDED UNDER
THIS LEASE, AND SHALL BE SUBJECT TO ALL THE TERMS AND CONDITIONS
OF THIS LEASE AMENDMENT NO. 4, INCLUDING TENANT IMPROVEMENTS AND
EXPIRATION DATE.
2. CONTINGENT PREMISES #1 IS ENCUMBERED BY AN EXPANSION OPTION HELD
BY ADJACENT TENANT, SILICON GRAPHICS. IF SILICON GRAPHICS CHOOSES
TO EXERCISE ITS EXPANSION OPTION FOR CONTINGENT PREMISES #1, THEN
CONTINGENT PREMISES #1 WILL NOT BECOME A PART OF THE PREMISES
CONTEMPLATED BY THIS LEASE. IN THAT EVENT, CONTINGENT PREMISES #1
WILL BECOME A PART OF THE FIRST RIGHT OF FIRST OFFER SPACE
SPECIFIED IN SECTION 5 OF THIS LEASE AMENDMENT NO. 4, AND SHALL
BE SUBJECT TO ALL THE TERMS AND CONDITIONS SPECIFIED IN SECTION
5, INCLUDING THE TENANT IMPROVEMENT ALLOWANCE SPECIFIED IN
SECTION 5(D)4.
B. CONTINGENT PREMISES #2: CONTINGENT PREMISES #2 IS ENCUMBERED BY A
RIGHT OF FIRST OFFER HELD BY ADJACENT TENANT, LOTUS DEVELOPMENT
CORPORATION. IF LOTUS DEVELOPMENT CORPORATION CHOOSES TO EXERCISE ITS
RIGHT OF FIRST OFFER FOR CONTINGENT PREMISES #2, THEN CONTINGENT
PREMISES #2 WILL NOT BECOME A PART OF THE PREMISES CONTEMPLATED BY
THIS LEASE. IN THAT EVENT CONTINGENT PREMISE #2 WILL BECOME A PART OF
THE FOURTH RIGHT OF FIRST OFFER SPACE SPECIFIED IN SECTION 5 OF THE
LEASE AMENDMENT NO. 4, AND SHALL BE SUBJECT TO ALL THE TERMS AND
CONDITIONS SPECIFIED IN SECTION 5, INCLUDING THE TENANT IMPROVEMENT
ALLOWANCE SPECIFIED IN SECTION 5 (D) 5.
THE OUTCOME OF THE CONTINGENCIES SPECIFIED HEREIN SHALL HAVE NO EFFECT ON
THE BALANCE OF THIS LEASE AMENDMENT NO. 4, EXCEPT AS STATED HEREIN.
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<PAGE>
All other terms and conditions of the original Lease shall remain in effect and
be applicable to the above Amendment.
This Amendment is effective June 1, 1997.
Dated this 23rd day of September, 1996.
LANDLORD: OBAYASHI CORPORATION
By: Yukio Kanai
--------------------------
Its: Attorney-in-Fact
-------------------------
TENANT: STARWAVE CORPORATION.
By:/s/ Ed Harris
Its: CFO
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On October 9, 1996, before me, S. Susy Alvarez, a Notary in and for said State,
personally appeared Yukio Kanai, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument, the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal
[NOTARY PUBLIC SEAL] /s/ S. Susy Alvarez
Notary Public in and for said State
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF KING )
On September 7, 1996, before me, Janell Jennen, a Notary in and for said State,
personally appeared Ed Harris, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument, the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL] /s/ Janell L. Jennen
Notary Public in and for said State
JANELL L. JENNEN
MY APPOINTMENT EXPIRES 2/28/98
<PAGE>
EXHIBIT A4
Addendum to Lease between
OBAYASHI CORPORATION (LANDLORD)
and
STARWAVE CORPORATION (TENANT)
REVISED FLOOR PLAN OF PREMISES ON THE THIRD FLOOR
OF THE BUILDING
Floor 3
12,855 Net Rentable Square Feet
[FLOOR PLAN OMITTED]
Exhibit A4, Page 1 of 1
<PAGE>
EXHIBIT B4
TO
SUNSET CORPORATE CAMPUS I
LEASE AGREEMENT
TENANT IMPROVEMENTS
I. IMPROVEMENTS PROVIDED BY LANDLORD
Landlord agrees to provide the following improvements in the Premises Added
by Lease Amendment No. 3:
A. Completed Public and/or Core Areas as outlined in Exhibit A3, finished
in accordance with plans and specifications for the Building.
(1) Plumbing: Men's restrooms, women's restrooms, and drinking
fountains installed in accordance with the plans and
specifications for the Building.
(2) Electrical: Total electrical service for each floor shall include
two electrical closets, each with 38, 20-ampere, single-pole,
120-volt circuits.
B. Tenant's Unimproved Area as outlined in Exhibit A3 has been completed
as outlined in items (1) through (8) below:
(1) Walls: Core walls pre-taped to be finished under tenant
improvements. Columns and perimeter walls covered with gypsum
wallboard ready for tape and paint.
(2) Floor: Prepared to receive carpet. Floor loading capacities: 80
pounds per square foot live load; 20 pounds per square foot
partition load.
(3) Mechanical - Primary System: Includes cooling duct distribution
loop installed through terminal VAV boxes and thermostats in
ceiling plenum for building standard layout and quantities. The
building standard mechanical system is designed to accommodate
heating loads generated by lights (1.7 watts per square foot) and
electrical equipment (2.5 watts per square foot) up to 4.2 watts
per square foot. If Tenant's design or use of the Premises Added
by Lease Amendment No. 3 results in concentrated electrical loads
in excess of 2.5 watts per square foot (e.g., data processing
areas, conference rooms and machine rooms) and/or Tenant's design
or use of the Premises Added by Lease Amendment No. 3 extends
beyond Normal Business Hours, then the cost of any additional
engineering design and installation of mechanical equipment
and/or controls required to handle such excess shall be part of
the cost borne by Tenant pursuant to Section II of this Exhibit
B4.
(4) Mechanical - Secondary System: Supplemental condenser water loop
using closed circuit fluid coolers, risers stubbed out at each
floor. The system is sized at 15 tons per floor and shall be
allocated at 1/2 ton per each 1,000 square feet of Tenant's
Unimproved Area.
(5) Plumbing: Three waste and vent risers to accommodate waste from
sinks and dishwashers.
(6) Fire Sprinklers: Primary distribution loop with turned-down
finished heads to minimum code required. Building standard layout
and quantities on each floor.
(7) Electrical: Electrical conduit and junction boxes distributed
throughout using building standard layout and quantities.
(8) Ceiling: Building standard suspended ceiling grid system
installed in a 4' x 4' pattern.
The value of the tenant improvements portion of the work itemized in
this Section I.B. is $4.00 per square foot of Tenant's Unimproved
Area.
Exhibit B4, Page 1 of 5
<PAGE>
II. OTHER TENANT IMPROVEMENTS AND LANDLORD'S ALLOWANCE
A. Design and construction of all improvements in the Premises Added by
Lease Amendment No. 3 beyond those listed in Section 1 of this Exhibit
B4 shall be provided at Tenant's cost and shall include, but not be
limited to: Any modifications and/or additions to the tenant
improvements itemized in Section I.B. above, architectural and
engineering design, tenant improvement coordination, partitions
(including one-half (1/2) the cost of any public corridor or demising
partition enclosing the Tenant's Unimproved Area), doors, door frames,
hardware, paint, wall coverings, base, ceilings, lights, mechanical
distribution, diffusers, thermostats, sprinkler distribution,
sprinkler heads, emergency speakers, fire extinguishers and cabinets,
telephone and electrical outlets, light switches, window coverings,
floor coverings, all applicable permit fees and sales tax, as well as
all costs related to design and installation of an interior stairwell,
and the cost of removing such stairwell and returning the stairwell
area to its original shell and core condition.
B. In addition to the cost for improvements constructed during shell and
core as specified in Section I.B. above, Landlord shall provide Tenant
a tenant improvement allowance of up to $16.00 per usable square foot
of Tenant's Unimproved Area (for a total of up to $136,611.07) to be
credited against the cost of improvements provided pursuant to Section
II.A. of this Exhibit B4. Landlord's reimbursement will be made by
crediting the amount to be reimbursed against the last payment due
from Tenant in accordance with Section IV.B. of this Exhibit B4.
III. DESIGN OF TENANT IMPROVEMENTS
Tenant shall retain the services of a qualified office planner, approved by
Landlord, to prepare the necessary drawings for Basic Plans and supply the
information necessary to complete the Working Drawings and Engineering
Drawings referred to in Section III.B. of this Exhibit B4 for construction
of the tenant improvements in Tenant's Unimproved Area. All Tenant's plans
shall be subject to approval of Landlord in accordance with Section III.C.
of this Exhibit B4.
Tenant's office planner shall ensure that the work shown on Tenant's plans
is compatible with the basic Building plans and that necessary basic
Building modifications are included in Tenant's plans. Such modifications
shall be subject to the Landlord's approval.
On or before the indicated dates, Tenant shall supply Landlord with one (1)
reproducible copy and five (5) black line prints of the following Tenant
Plans:
A. BASIC PLANS DELIVERY DATE: OCTOBER 25, 1994
The Basic Plans due on this date shall be signed by Tenant and
include:
Architectural Floor Plans: These shall be fully dimensioned floor
plans showing partition layout and identifying each room with a number
and each door with a number. The Basic Plans must clearly identify and
locate equipment requiring plumbing or other special mechanical
systems, area(s) subject to above-normal floor loads, special openings
in the floor, and other major or special features.
B. WORKING DRAWINGS DELIVERY DATE: NOVEMBER 1, 1994
On this date, Tenant's office planner shall produce four (4) sets of
Full Working Drawings for construction from the Basic Plans using the
Pin Bar System, which system shall be approved by Landlord for
compatibility with the other Building drawings. The four (4) sets of
Working Drawings due on this date shall be signed by the Tenant and
include all items in the Basic Plans referenced in Section III.A.
above plus the following additional information:
(1) Electrical and Telephone Outlets: Locate all power and telephone
requirements: Dimension the position from a corner and give
height above concrete slab for all critically located outlets.
Identify all dedicated circuits and identify all power outlets
greater than 120 volts. For the equipment used in these outlets
which require dedicated circuits and/or which require greater
than 120 volts, identify the type of equipment, the
manufacturer's name and the
Exhibit B4, Page 2 of 5
<PAGE>
manufacturer's model number, and submit a brochure for each piece
of equipment. Also identify the manufacturer's name of the
telephone system to be used and the power requirements, size, and
location of its processing equipment.
(2) Reflected Ceiling Plan: Lighting layout showing location and type
of all Building Standard and special lighting fixtures.
(3) Furniture Layout: Layout showing furniture location so that
Landlord's engineer can review the location of all light
fixtures.
At Tenant's cost (charged against the $16.00 allowance) Landlord's
engineers shall prepare plumbing, electrical, heating, air
conditioning and structural plans ("Engineering Drawings") for
Tenant's improvements based on the signed Working Drawings.
C. FINAL PLANS REVIEW DATE: NOVEMBER 4, 1994.
On this date, Tenant's office planner shall deliver to Landlord and
Tenant for review and approval four (4) complete sets of Final Plans
which will incorporate the Working Drawings referenced in Section
III.B. above, plus the following additional information:
(1) Millwork Details: These drawings shall be in final form with
Tenant's office planner's title block in the lower right hand
corner of the drawing, and shall include construction details of
all cabinets, paneling, trim, bookcases, and door and jamb
details for non-Building Standard doors and jambs.
(2) Keying Schedules and Hardware Information: This information shall
be in final form and include a Keying Schedule indicating which
doors are locked and which key(s) open each lock, plus an "X" on
the side of the door where the key will be inserted if a keyed
door. Complete specifications for all non-Building Standard
hardware will also be provided.
(3) Room Finish and Color Schedule: This information shall be in
final form and include locations and specifications for all wall
finishes, floor covering and base for each room.
(4) Construction Notes and Specifications: Complete specifications
for every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: NOVEMBER 8, 1994.
The four (4) sets of Final Plans approved by Landlord and Tenant and
due on this date shall include all the Final Plans referenced in
Section III.C. above. Final Plans are to be signed by Tenant and
delivered to Landlord by the Final Plans Delivery Date. Landlord shall
return one (1) signed set to Tenant for Tenant's records. Landlord
will incorporate Engineering Drawings with Tenant's Final Plans for
transmittal to the General Contractor.
Tenant shall be responsible for delays and additional costs in
completion of Tenant's work caused by changes made to any of Tenant's
Plans after the specified Plan Delivery Date or by delays in delivery
of special materials requiring long lead times. Tenant shall further
be responsible for such delays as provided in Section 3(b) of the
Lease.
IV. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans,
Landlord shall provide to Tenant written notice of the price for
improvements beyond those listed in Section I of this Exhibit B4.
Within five (5) days of receipt of such notice, Tenant shall give
Landlord written authorization to complete the Premises Added by Lease
Amendment No. 3 in accordance with such Final Plans. Tenant may in
such authorization delete any or all items of extra cost; however, if
Landlord deems these changes to be extensive, at its option, Landlord
may refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
Exhibit B4, Page 3 of 5
<PAGE>
acceptance of the revised price has been received by Landlord from Tenant.
In the absence of such written authorization to proceed, Landlord shall not
be obligated to commence work on the Premises Added by Lease Amendment No.
3 and Tenant shall be responsible for any costs due to any resulting delay
in completion of the Premises Added by Lease Amendment No. 3 and as
provided in Section 3(b) of the Lease.
B. PAYMENTS. Landlord's contractor shall complete Tenant's improvements in
accordance with Tenant's approved Final Plans. Within ten (10) days after
receipt of monthly progress statements from Landlord, Tenant shall pay the
full amount of such progress billings, for all improvements beyond those
listed in Section I of this Exhibit B4. Tenant may retain an amount equal
to five percent (5%) of the estimated cost of such improvements from the
last payments due immediately prior to the credit for Landlord's
reimbursement. Final billing shall be rendered and payable within ten (10)
days after acceptance of the Premises Added by Lease Amendment No. 3 by
Tenant in accordance with the terms of the Lease. Retainage pursuant to the
terms of this paragraph shall be payable with such final billing. In the
event acceptance of the Premises Added by Lease Amendment No. 3 is subject
to punchlist items as provided in the Lease, a portion of the retainage
equal to the cost to complete each outstanding punchlist item may be
retained until such punchlist item is complete.
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change, Tenant
shall request such change in writing to Landlord and such request shall be
accompanied by all plans and specifications necessary to show and explain
changes from the approved Final Plans. After receiving this information.
Landlord shall give Tenant a written price for the cost of engineering and
design services to incorporate the change in Tenant's Final Plans. If
Tenant approves such price in writing, Landlord shall have such Final Plans
changes made and Tenant shall promptly pay Landlord for this cost. Promptly
upon completion of such changes in the Final Plans, Landlord shall notify
Tenant in writing of the costs, if any, which shall be chargeable or
credited to Tenant for such change, addition or deletion. The cost for such
changes, whether chargeable or credited to Tenant, shall include a Landlord
coordination fee equal to fifteen percent (15%) of the amount of such
change, addition or deletion. In the absence of such notice, Landlord shall
proceed in accordance with the previously approved Final Plans before such
change, addition or deletion was requested. In accordance with Section 3(b)
of the Lease, Tenant shall be responsible for any resulting delay in
completion of the Premises Added by Lease Amendment No. 3 due to
modification of Final Plans. Tenant shall also be responsible for any
demolition work required as a result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT. If any work is to be performed in
connection with Tenant improvements on the Premises Added by Lease
Amendment No. 3 by Tenant or Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval of (i)
Tenant's contractor, (ii) public liability and property damage
insurance carried by Tenant's contractor (such insurance shall be in
combined single limits not less that Five Hundred Thousand Dollars
($500,000) per occurrence and shall name Landlord and Wright Runstad &
Company as additional insureds), (iii) detailed plans and
specifications for such work, and (iv) amount of general conditions to
be paid by Tenant to Landlord for the services still provided by
Landlord's contractor.
(2) All work shall be done in conformity with a valid building permit when
required, a copy of which shall be furnished for Landlord before such
work is commenced, and in any case, all such work shall be performed
in accordance with all applicable governmental regulations.
Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility for Tenant's failure to meet all
applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be scheduled through
Landlord.
(4) Tenant or Tenant's contractor shall arrange for necessary utility,
hoisting and elevator service with Landlord's contractor and shall pay
such reasonable charges for such services as may be charged by
Landlord's contractor. This will be included in the general conditions
of Subsection (1)(iv) above.
Exhibit B4, Page 4 of 5
<PAGE>
(5) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or by
reason of any delays caused by such work, or by reason of inadequate
clean-up.
(6) Prior to commencement of any work on the Premises Added by Lease
Amendment No. 3 by Tenant or Tenant's contractor, Tenant or Tenant's
contractor shall enter into an indemnity agreement and a lien priority
agreement satisfactory to Landlord indemnifying and holding harmless
Landlord and Landlord's contractors for any liability, losses or
damages directly or indirectly from lien claims affecting the land,
the Building or the Premises Added by Lease Amendment No. 3 arising
out of Tenant's or Tenant's contractor's work or that of
subcontractors or suppliers, and subordinating any such liens to the
liens of construction and permanent financing for the Building.
(7) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises Added by Lease Amendment
No. 3 announcing its non-responsibility for the work being performed
therein.
E. TENANT'S ENTRY TO PREMISES ADDED BY LEASE AMENDMENT NO. 3. Tenant's entry
to the Premises Added by Lease Amendment No. 3 for any purpose, including
without limitation, inspection or performance of Tenant construction by
Tenant's agents, prior to the Commencement Date as specified in Section
3(a) of the Lease shall be scheduled in advance with Landlord and shall be
subject to all the terms and conditions of the Lease, except the payment of
Rent. Tenant's entry shall mean entry by Tenant, its officers, contractors,
office planner, licensees, agents, servants, employees, guests, invitees,
or visitors.
F. TENANT'S TELEPHONE. Tenant is responsible for Tenant's telephone service.
Tenant shall select Tenant's telephone system and shall coordinate its
installation with Landlord.
Exhibit B4, Page 5 of 5
<PAGE>
LEASE AMENDMENT NO. 5
This Lease Amendment No. 5 amends that certain Lease Agreement dated March
4, 1992, as amended by Lease Amendment No. 1 dated August 21, 1992, Lease
Amendment No. 2 dated August 4, 1993, Lease Amendment No. 3 dated October 30,
1994, and Lease Amendment No. 4 dated June 1, 1997 (the "LEASE"), between
BELLEVUE GOLDWELL ASSOCIATES LLC, a Delaware limited liability company
("LANDLORD") as the successor in interest by assignment to Sunset Office Limited
Partnership, a Washington limited partnership, and Obayashi Corporation, a Japan
corporation, and STARWAVE CORPORATION, a Washington corporation ("TENANT"), the
successor in interest by assignment to VULCAN NORTHWEST, INC., a Washington
corporation, covering space on the third and fifth floors of Sunset Corporate
Campus, Building 1, 13810 S.E. Eastgate Way, Bellevue, Washington. The terms
used herein shall have the same meanings as set forth in the Lease except as
otherwise specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the
Lease as follows:
1. Effective as of July 28, 1998, (a) the Premises are hereby expanded to
include Suite 510 of the Building which contains approximately 1,620 net
rentable square feet of space (the "EXPANSION SPACE"), and (b) Section 1(b)
of the Lease "Premises" is, amended to read as follows:
Consisting of the area on the third, fourth and fifth floors of the
Building, as outlined on the floor plans attached hereto as Exhibit A5 -
Revised Plan of Premises.
2. Section 1(c) of the Lease "Rentable Area of the Premises" is amended to
read as follows:
60,692 net rentable square feet in the aggregate, consisting of 12,855 net
rentable square feet located on Floor 3 of Building One of Sunset Corporate
Campus and known as Suite 330; 29,973 net rentable square feet located on
Floor 4 of Building One of Sunset Corporate Campus and known as Suite 400;
and 17,864 net rentable square feet located on Floor 5 of Building One of
Sunset Corporate Campus and known as Suites 500 and 510.
3. Section 1(j) of the Lease "Notice Addresses" is amended to read as follows:
Landlord: Bellevue Goldwell Associates LLC
13810 S.E. Eastgate Way, Suite 180
Bellevue, Washington 98005.
4. Section 1(k) of the Lease "Exhibits" is amended by deleting all prior
versions of Exhibit A to the Lease and replacing the same with the attached
Exhibit A5 - Revised Plan of Premises.
5. Section 16(a) of the Lease "Insurance" is amended by replacing the
reference to "Wright Runstad & Company" with "Voit Management Company,
L.P." (or any successor property manager hereafter designated in writing by
Landlord)".
6. Section 17 of the Lease "Assignment and Subletting" and Section 6 of
Exhibit C of the Lease are amended to provide that Tenant may not sublet or
assign the Expansion Space and if it proposes to do so, in lieu of
consenting to a sublease or assignment for the Expansion Space, Landlord
may elect to terminate the Lease as it relates to the Expansion Space only
in accordance with the terms of Section 17 of the Lease.
7. The base rental payable by Tenant pursuant to Section 1 of Exhibit C of the
Lease with respect to the Expansion Space shall be Twenty Eight Dollars and
No Cents ($28.00) per
-1-
<PAGE>
rentable square foot per annum. Tenant shall commence paying Base Rent on the
Expansion Space on July 1, 1998.
8. Tenant has inspected the Expansion Space and is familiar with its
conditions and agrees to accept possesion of the Expansion Space in its current
condition, "as-is, where-is". Nothing in this Lease Amendment No. 5 or the Lease
shall obligate Landlord to make any improvements to the Expansion Space or the
any other part of the Premises as a result of Tenant expanding the Premises to
include the Expansion Space pursuant to this Lease Amendment No .5.
9. Tenant shall be liable for the payment of any broker's commission
related to this Lease Amendment No. 5 except for any broker's commission payable
to any broker engaged by Landlord. If any person or entity claims a real estate
fee or commission or other such fee in connection with the subject transaction,
and such claim is based on actual or alleged oral or written agreements or
understandings with Tenant, Tenant shall indemnify, defend and hold Landlord
harmless from any such claims or demands, including attorney's fees incurred by
Landlord as a result of any such claim or demand.
10. All other terms and conditions of the Lease shall remain in effect and
be applicable to the above agreement. This Lease Amendment No.5 is effective
July 26, 1998.
Dated this 29th day of July, 1998.
LANDLORD:
BELLEVUE GOLDWELL ASSOCIATES LLC,
a Delaware limited liability company
By: OC Real Estate Management, Inc., member
By ________________________________________
William H. Cunningham, Jr., Senior Vice
President
TENANT:
STARWAVE CORPORATION, a Washington corporation
By
--------------------------
Its President
--------------------
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On __________, 1998, before me, ____________________, a Notary in and
for said State, personally appeared __________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument, the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
_______________________________________
Notary Public in and for the said State
TENANT CORPORATE ACKNOWLEDGEMENT
STATE OF WASHINGTON )
) SS.
COUNTY OF KING )
On July 29, 1998, before me, Megan Verplank, a Notary in and for said
State, personally appeared Patrick J. Naughton, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the
instrument, the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
[NOTARY PUBLIC SEAL] /s/ Megan Verplank
---------------------------
<PAGE>
EXHIBIT A5
Addendum to Lease between
OBAYASHI CORPORATION (LANDLORD)
and
STARWAVE CORPORATION (TENANT)
FLOOR PLAN OF PREMISES ON THE FIFTH FLOOR OF THE BUILDING
FLOOR 5
16,244 NET RENTABLE SQUARE FEET
[FLOOR PLAN OMITTED]
Exhibit A5, Page 1 of 1
<PAGE>
Addendum to Lease between
Bellevue Caldwell Associates LLC (Landlord)
and
Starwave Corporation (Tenant)
FLOOR PLANS OF PREMISES ON THE THIRD, FOURTH AND FIFTH FLOORS
OF THE BUILDING
[FLOOR PLAN OMITTED]
[FLOOR 3]
[FLOOR 4]
[FLOOR 5]
<PAGE>
EXHIBIT B5
TO
SUNSET CORPORATE CAMPUS I
LEASE AGREEMENT
TENANT IMPROVEMENTS
I. IMPROVEMENTS PROVIDED BY LANDLORD
Landlord agrees to provide the following improvements in the Premises in
accordance with the terms of this Lease Amendment No. 4:
A. Completed Public and/or Core Areas as outlined in Exhibit A, finished
in accordance with plans and specifications for the Building.
(1) Plumbing: Men's restrooms, women's restrooms, and drinking
fountains installed in accordance with the plans and
specifications for the Building.
(2) Electrical: Total electrical service for each floor shall include
two electrical closets, each with 38, 20-ampere, single-pole,
120-volt circuits.
B. Tenant's Premises as outlined in Exhibits A through Exhibit A5 has
been completed, at a minimum, as outlined in items (1) through (6)
below:
(1) Walls: Core walls pre-taped to be finished under tenant
improvements. Columns and perimeter walls covered with gypsum
wallboard ready for tape and paint.
(2) Floor: Prepared to receive carpet. Floor loading capacities: 80
pounds per square foot live load; 20 pounds per square foot
partition load.
(3) Mechanical - Primary System: Includes cooling duct distribution
loop installed through terminal VAV boxes and thermostats in
ceiling plenum for building standard layout and quantities. The
building standard mechanical system is designed to accommodate
heating loads generated by lights (1.7 watts per square foot) and
electrical equipment (2.5 watts per square foot) up to 4.2 watts
per square foot. If Tenant's design or use of the Premises
results in concentrated electrical loads in excess of 2.5 watts
per square foot (e.g., data processing areas, conference rooms
and machine rooms) and/or Tenant's design or use of the Premises
extends beyond Normal Business Hours, then the cost of any
additional engineering design and installation of mechanical
equipment and/or controls required to handle such excess shall be
part of the cost borne by Tenant pursuant to Section II of this
Exhibit B.
(4) Mechanical - Secondary System: Supplemental condenser water loop
using closed circuit fluid coolers, risers stubbed out at each
floor. The system is sized at 15 tons per floor and shall be
allocated at 1/2 ton per each 1,000 square feet of usable square
feet of the Premises.
(5) Plumbing: Three waste and vent risers to accommodate waste from
sinks and dishwashers.
(6) Fire Sprinklers: Primary distribution loop with turned-down
finished heads to minimum code required. Building standard layout
and quantities on each floor.
Exhibit B5, Page 1 of 6
<PAGE>
(7) Electrical: Electrical conduit and junction boxes distributed
throughout using building standard layout and quantities.
(8) Ceiling: Building standard suspended ceiling grid system
installed in a 4' x 4' pattern.
II. OTHER TENANT IMPROVEMENTS AND LANDLORD'S ALLOWANCE
A. Design and construction of all improvements in the Premises provided
for by this Lease Amendment No. 4 beyond those listed in Section I of
this Exhibit B5 shall be provided at Tenant's cost and shall include,
but not be limited to: Any modifications and/or additions to the
tenant improvements itemized in Section I.B. above, architectural and
engineering design, partitions, doors, door frames, hardware, paint,
wall coverings, base, ceilings, lights, mechanical distribution,
diffusers, thermostats, sprinkler distribution, sprinkler heads,
emergency speakers, fire extinguishers and cabinets, telephone and
electrical outlets, light switches, window coverings, floor coverings,
cabling and all applicable permit fees and sales tax. The tenant
improvement allowance shall not be used for personalty, such as, but
not limited to, furniture and equipment.
B. In addition to the cost for improvements constructed during shell and
core as specified in Section I.B. above, Landlord shall provide Tenant
a tenant improvement allowance of $2.00 per rentable square foot of
Tenant's Premises on the third and fourth floors (12,855 net rentable
square feet on the third floor and 29,973 net rentable square feet on
the fourth floor), and $5.00 per rentable square foot of Tenant's
Premises on the fifth floor (16,244 net rentable square feet), subject
to the contingencies specified in Exhibit C, Section 13 added by this
Lease Amendment No. 4, for a total payment of up to $166,876.00. Such
tenant improvement allowance shall be credited against the cost of
improvements provided pursuant to Section II.A. of this Exhibit B5.
Landlord's reimbursement will be made by crediting the amount to be
reimbursed against the last payment due from Tenant in accordance with
Section IV.B. of this Exhibit B5. If Tenant has not used the tenant
improvement allowance provided for herein within six (6) months of the
Commencement Date of rent for any space, then Landlord shall offset
said balance against Tenant's rent.
III. DESIGN OF TENANT IMPROVEMENTS
Tenant shall retain the services of a qualified office planner, approved by
Landlord, to prepare the necessary drawings for Basic Plans and supply the
information necessary to complete the Working Drawings and Engineering
Drawings referred to in Section III.B. of this Exhibit B5 for construction
of the tenant improvements in the Premises. All Tenant's plans shall be
subject to approval of Landlord in accordance with Section III.C. of this
Exhibit B5.
Tenant's office planner shall ensure that the work shown on Tenant's plans
is compatible with the basic Building plans and that necessary basic
Building modifications are included in Tenant's plans. Such modifications
shall be subject to the Landlord's approval.
Exhibit B5, Page 2 of 6
<PAGE>
On or before the indicated dates, Tenant shall supply Landlord with one (1)
reproducible copy and five (5) black line prints of the following Tenant Plans:
A. BASIC PLANS DELIVERY DATE: To Be Determined.
The Basic Plans due on this date shall be signed by Tenant and include:
Architectural Floor Plans: These shall be fully dimensioned floor plans
showing partition layout and identifying each room with a number and each
door with a number. The Basic Plans must clearly identify and locate
equipment requiring plumbing or other special mechanical systems, area(s)
subject to above-normal floor loads, special openings in the floor, and
other major or special features.
B. WORKING DRAWINGS DELIVERY DATE: To Be Determined.
On this date, Tenant's office planner shall produce four (4) sets of Full
Working Drawings for construction from the Basic Plans using the Pin Bar
System, which system shall be approved by Landlord for compatibility with
the other Building drawings. The four (4) sets of Working Drawings due on
this date shall be signed by the Tenant and include all items in the Basic
Plans referenced in Section III.A. above plus the following additional
information:
(1) Electrical and Telephone Outlets: Locate all power and telephone
requirements: Dimension the position from a corner and give
height above concrete slab for all critically located outlets.
Identify all dedicated circuits and identify all power outlets
greater than 120 volts. For the equipment used in these outlets
which require dedicated circuits and/or which require greater
than 120 volts, identify the type of equipment, the
manufacturer's name and the manufacturer's model number, and
submit a brochure for each piece of equipment. Also identify the
manufacturer's name of the telephone system to be used and the
power requirements, size, and location of its processing
equipment.
(2) Reflected Ceiling Plan: Lighting layout showing location and type
of all Building Standard and special lighting fixtures.
(3) Furniture Layout: Layout showing furniture location so that
Landlord's engineer can review the location of all light
fixtures.
Landlord's engineers shall prepare plumbing, electrical, heating, air
conditioning and structural plans ("Engineering Drawings") for Tenant's
improvements based on the signed Working Drawings.
C. FINAL PLANS REVIEW DATE: To Be Determined.
On this date, Tenant's office planner shall deliver to Landlord and Tenant
for review and approval four (4) complete sets of Final Plans which will
incorporate the Working Drawings referenced in Section III.B. above, plus
the following additional information:
Exhibit B5, Page 3 of 6
<PAGE>
(1) Millwork Details: These drawings shall be in final form with
Tenant's office planner's title block in the lower right hand
corner of the drawing, and shall include construction details of
all cabinets, paneling, trim, bookcases, and door and jamb
details for non-Building Standard doors and jambs.
(2) Keying Schedules and Hardware Information: This information shall
be in final form and include a Keying Schedule indicating which
doors are locked and which key(s) open each lock, plus an "X" on
the side of the door where the key will be inserted if a keyed
door. Complete specifications for all non-Building Standard
hardware will also be provided.
(3) Room Finish and Color Schedule: This information shall be in
final form and include locations and specifications for all wall
finishes, floor covering and base for each room.
(4) Construction Notes and Specifications: Complete specifications
for every item included except those specified by the Landlord.
D. FINAL PLANS DELIVERY DATE: To Be Determined
----------------
The four (4) sets of Final Plans approved by Landlord and Tenant and
due on this date shall include all the Final Plans referenced in
Section III.C. above. Final Plans are to be signed by Tenant and
delivered to Landlord by the Final Plans Delivery Date. Landlord shall
return one (1) signed set to Tenant for Tenant's records. Landlord
will incorporate Engineering Drawings with Tenant's Final Plans for
transmittal to the General Contractor.
Tenant shall be responsible for delays and additional costs in
completion of Tenant's work caused by changes made to any of Tenant's
Plans after the specified Plan Delivery Date or by delays in delivery
of special materials requiring long lead times. Tenant shall further
be responsible for such delays as provided in Section 3(b) of the
Lease.
IV. CONSTRUCTION OF TENANT IMPROVEMENTS
A. AUTHORIZATION TO PROCEED. Upon completion of Tenant's Final Plans and
at the request of Tenant, Landlord shall provide to Tenant written
notice of the price for improvements beyond those listed in Section I
of this Exhibit B5. Within five (5) days of receipt of such notice,
Tenant shall give Landlord written authorization to complete the
Premises in accordance with such Final Plans. Tenant may in such
authorization delete any or all items of extra cost; however, if
Landlord deems these changes to be extensive, at its option, Landlord
may refuse to accept the authorization to proceed until all changes
have been incorporated in the Final Plans signed by Tenant and written
acceptance of the revised price has been received by Landlord from
Tenant. In the absence of such written authorization to proceed,
Landlord shall not be obligated to commence work on the Premises and
Tenant shall be responsible for any costs due to any resulting delay
in completion of the Premises and as provided in Section 3(b) of the
Lease.
Exhibit B5, Page 4 of 6
<PAGE>
B. PAYMENTS. Landlord's contractor shall complete Tenant's improvements
in accordance with Tenant's approved Final Plans. Within ten (10) days
after receipt of monthly progress statements from Landlord, Tenant
shall pay the full amount of such progress billings, for all
improvements beyond those listed in Section I of this Exhibit B5.
Tenant may retain an amount equal to five percent (5%) of the
estimated cost of such improvements from the last payments due
immediately prior to the credit for Landlord's reimbursement. Final
billing shall be rendered and payable within ten (10) days after
acceptance of the Premises by Tenant in accordance with the terms of
the Lease. Retainage pursuant to the terms of this paragraph shall be
payable with such final billing. In the event acceptance of the
Premises is subject to punchlist items as provided in the Lease, a
portion of the retainage equal to the cost to complete each
outstanding punchlist item may be retained until such punchlist item
is complete.
C. FINAL PLANS AND MODIFICATIONS. If Tenant shall request any change,
Tenant shall request such change in writing to Landlord and such
request shall be accompanied by all plans and specifications necessary
to show and explain changes from the approved Final Plans. After
receiving this information. Landlord shall give Tenant a written price
for the cost of engineering and design services to incorporate the
change in Tenant's Final Plans. If Tenant approves such price in
writing, Landlord shall have such Final Plans changes made and Tenant
shall promptly pay Landlord for this cost. Promptly upon completion of
such changes in the Final Plans, Landlord shall notify Tenant in
writing of the costs, if any, which shall be chargeable or credited to
Tenant for such change, addition or deletion. The cost for such
changes, whether chargeable or credited to Tenant, shall include a
Landlord coordination fee equal to fifteen percent (15%) of the amount
of such change, addition or deletion. In the absence of such notice,
Landlord shall proceed in accordance with the previously approved
Final Plans before such change, addition or deletion was requested. In
accordance with Section 3(b) of the Lease, Tenant shall be responsible
for any resulting delay in completion of the Premises due to
modification of Final Plans. Tenant shall also be responsible for any
demolition work required as a result of the change.
D. IMPROVEMENTS CONSTRUCTED BY TENANT. If any work is to be performed in
connection with Tenant improvements on the Premises by Tenant or
Tenant's contractor:
(1) Such work shall proceed upon Landlord's written approval of (i)
Tenant's contractor, (ii) public liability and property damage
insurance carried by Tenant's contractor (such insurance shall be
in combined single limits not less that Five Hundred Thousand
Dollars ($500,000) per occurrence and shall name Landlord and
Wright Runstad & Company as additional insureds), (iii) detailed
plans and specifications for such work, and (iv) amount of
general conditions to be paid by Tenant to Landlord for the
services still provided by Landlord's contractor.
Exhibit B5, Page 5 of 6
<PAGE>
(2) All work shall be done in conformity with a valid building permit
when required, a copy of which shall be furnished for Landlord
before such work is commenced, and in any case, all such work
shall be performed in accordance with all applicable governmental
regulations. Notwithstanding any failure by Landlord to object to
any such work, Landlord shall have no responsibility for Tenant's
failure to meet all applicable regulations.
(3) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements
applicable to the trades being employed.
(4) All work by Tenant or Tenant's contractor shall be scheduled
through Landlord.
(5) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service with Landlord's contractor
and shall pay such reasonable charges for such services as may be
charged by Landlord's contractor. This will be included in the
general conditions of Subsection (1)(iv) above.
(6) Tenant shall promptly reimburse Landlord for costs incurred by
Landlord due to faulty work done by Tenant or its contractors, or
by reason of any delays caused by such work, or by reason of
inadequate clean-up.
(7) Prior to commencement of any work on the Premises by Tenant or
Tenant's contractor, Tenant or Tenant's contractor shall enter
into an indemnity agreement and a lien priority agreement
satisfactory to Landlord indemnifying and holding harmless
Landlord and Landlord's contractors for any liability, losses or
damages directly or indirectly from lien claims affecting the
land, the Building or the Premises arising out of Tenant's or
Tenant's contractor's work or that of subcontractors or
suppliers, and subordinating any such liens to the liens of
construction and permanent financing for the Building.
(8) Landlord shall have the right to post a notice or notices in
conspicuous places in or about the Premises announcing its non-
responsibility for the work being performed therein.
E. TENANT'S TELEPHONE. Tenant is responsible for Tenant's telephone
service. Tenant shall select Tenant's telephone system and shall
coordinate its installation with Landlord.
Exhibit B5, Page 6 of 6
<PAGE>
LEASE AMENDMENT NO. 6
This Lease Amendment No. 6 amends that certain Lease Agreement dated March
4, 1992, as amended by Lease Amendment No. 1 dated August 21, 1992, Lease
Amendment No. 2 dated August 4, 1993, Lease Amendment No. 3 dated October 30,
1994, Lease Amendment No. 4 dated June 1, 1997, and Lease Amendment No. 5 dated
July 29 (the "LEASE"), between BELLEVUE GOLDWELL ASSOCIATES LLC, a Delaware
limited liability company ("LANDLORD") as the successor in interest by
assignment to Sunset Office Limited Partnership, a Washington limited
partnership, and Obayashi Corporation, a Japan corporation, and STARWAVE
CORPORATION, a Washington corporation ("TENANT"), the successor in interest by
assignment to VULCAN NORTHWEST, INC., a Washington corporation, covering space
on the third and fifth floors of Sunset Corporate Campus, Building I, 13810 S.E.
Eastgate Way, Bellevue, Washington. The terms used herein shall have the same
meanings as set forth in the Lease except as otherwise specified.
As parties hereto, Landlord and Tenant hereby agree to further amend the Lease
as follows:
1. Effective as of December 1, 1998, (a) the Premises are hereby expanded to
include Suite 530 of the Building which contains approximately 3,147 net
rentable square feet of space (the "EXPANSION SPACE"), and (b) Section 1(b)
of the Lease "Premises" is amended to read as follows:
Consisting of the area on the third, fourth and fifth floors of the
Building, as outlined on the floor plans attached hereto as Exhibit A6 -
Revised Plan of Premises.
2. Section 1(c) of the Lease "Rentable Area of the Premises" is amended to
read as follows:
63,839 net rentable square feet in the aggregate, consisting of 12,855 net
rentable square feet located on Floor 3 of Building One of Sunset Corporate
Campus and known as Suite 330; 29,973 net rentable square feet located on
Floor 4 of Building One of Sunset Corporate Campus and known as Suite 400;
and 21,011 net rentable square feet located on Floor 5 of Building One of
Sunset Corporate Campus and known as Suites 500, 510, and 530.
3. Section 1(k) of the Lease "Exhibits" is amended by deleting all prior
versions of Exhibit A to the Lease and replacing the same with the attached
Exhibit A6 - Revised Plan of Premises.
4. The base rental payable by Tenant pursuant to Section 1 of Exhibit C of the
Lease with respect to the Expansion Space shall be Twenty Three Dollars and
Fifty Cents ($23.50) per rentable square foot per annum. Tenant shall
commence paying Base Rent on the Expansion Space on December 1, 1998.
5. Tenant has inspected the Expansion Space and is familiar with its
condition, and agrees to accept possession of the Expansion Space in its
current condition, "as-is, where-is". Nothing in this Lease Amendment No. 6
or the Lease shall obligate Landlord to make any improvements to the
Expansion Space or the any other part of the Premises as a result of Tenant
expanding the Premises to include the Expansion Space pursuant to this
Lease Amendment No. 6.
6. Tenant shall have right to lease up to eleven (11) additional unassigned
parking spaces in the Building as follows:
(a) Tenant shall have the right to lease one (1) unassigned parking space
in the parking area located directly beneath the Building at current market
rate, which rate is currently Thirty-Five Dollars ($35.00) per month and is
subject to change from time to time as determined by Landlord.
-1-
<PAGE>
(b) Tenant shall have the right to lease up to eight (8) unassigned
parking spaces in the structured below-grade parking adjacent to the Building at
current market rate, which rate is currently Twenty Dollars ($20.00) per month
and subject to change from time to time.
(c) Tenant shall have the right to lease up to two (2) unassigned spaces
on one of the Building surface lots at no charge per month and subject to change
in rate to market rate from time to time.
7. Tenant shall be liable for the payment of any broker's commission related
to this Lease Amendment No. 6, except for any broker's commission payable
to any broker engaged by Landlord. If any person or entity claims a real
estate fee or commission or other such fee in connection with the subject
transaction, and such claim is based on actual or alleged oral or written
agreements or understandings with Tenant, Tenant shall indemnify, defend
and hold Landlord harmless from any such claims or demands, including
attorneys' fees incurred by Landlord as a result of any such claim or
demand.
8. All other terms and conditions of the Lease shall remain in effect and be
applicable to the above agreement. This Lease Amendment No. 6 is effective
December 1, 1998.
Dated this 30 day of September, 1998.
LANDLORD:
BELLEVUE GOLDWELL ASSOCIATES LLC,
a Delaware limited liability company
By: OC Real Estate Management, Inc., member
By: /s/ William H. Cunningham, Jr.
William H. Cunningham, Jr., Senior Vice
President
TENANT:
STARWAVE CORPORATION, a Washington corporation
By: /s/ Curt Blake
Its
-2-
<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On OCTOBER 16, 1998, before me, S. SUSY ALVAREZ, a Notary in and for said State,
personally appeared WILLIAM H. CUNNINGHAM, JR, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument,
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
[Notary Public Seal]
/s/ S. Susy Alvarez
Notary Public in and for the said State
TENANT CORPORATE ACKNOWLEDGEMENT
STATE OF WASHINGTON )
) SS. ###-##-####
COUNTY OF KING
On 9-30, 1998, before me, RICK DONKER, a Notary in and for said State,
personally appeared CURT BLAKE, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument, the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[Notary Public Seal]
/s/ Rick Donker
Notary Public in and for the said State
<PAGE>
EXHIBIT A6
ADDENDUM TO LEASE BETWEEN
BELLEVUE GOLDWELL ASSOCIATES LLC (LANDLORD)
and
STARWAVE CORPORATION (TENANT)
FLOOR PLANS OF PREMISES ON THE THIRD, FOURTH AND FIFTH FLOORS
OF THE BUILDING
[FLOOR PLAN OMITTED]
-3-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant has the following material subsidiaries:
1. Starware Corporation; and
2. Infoseek Corporation, a California corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 16, 1998, except for Note 8, as to which the
date is February 12, 1998 and Note 2, as to which the date is April 17, 1998,
in the Proxy Statement/Prospectus included in the Registration Statement (Form
S-4) of Infoseek Corporation for the registration of shares of its common
stock.
Our audits also included the financial statement schedule of Infoseek
Corporation included in the Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
-------------------------------
Ernst & Young LLP
San Jose, California
December 4, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Form S-4 of Infoseek Corporation of our
report dated November 18, 1998 relating to the financial statements of Starwave
Corporation, which appears in such Proxy Statement/Prospectus. We also consent
to the references to us under the headings "Experts" in such Proxy
Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
-------------------------------------
PricewaterhouseCoopers LLP
Seattle, Washington
December 4, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Form S-4 of Infoseek Corporation of our
report dated November 18, 1998 relating to the financial statements of
ESPN/Starwave Partners, which appears in such Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
-------------------------------------
PricewaterhouseCoopers LLP
Seattle, Washington
December 4, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement/Prospectus constituting
part of this Registration Statement on Form S-4 of Infoseek Corporation of our
report dated November 18, 1998 relating to the financial statements of ABC
News/Starwave Partners, which appears in such Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
December 4, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Starwave Corporation:
We consent to the use of our report dated February 7, 1997 included in the
Proxy Statement/Prospectus on Form S-4 filed on or about December 7, 1998 of
Infoseek Corporation relating to the balance sheet of Starwave Corporation as
of December 31, 1996, and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended and to the reference to our
firm under the heading "Experts" in the Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Seattle, Washington
December 4, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Quando, Inc.:
We consent to the use of our report dated August 18, 1998 included in the Proxy
Statement/Prospectus on Form S-4 filed on or about December 7, 1998 of Infoseek
Corporation relating to the balance sheets of Quando, Inc. as of December 31,
1997 and 1996, and the related statements of operations, shareholders' 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
Proxy Statement/Prospectus.
Our report dated August 18, 1998, contains an explanatory paragraph that states
that Quando, Inc. 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
December 7, 1998
<PAGE>
PROXY [EXHIBIT 99.1]
QUANDO, INC.
520 NW Davis Street
Portland, OR 97209
Proxy solicited by Board of Directors for Special Meeting of the Shareholders--
December 21, 1998
The undersigned hereby appoints David Billstrom and William Neuhauser, or
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Special Meeting of the Shareholders of QUANDO, INC.
on December 21, 1998, and any adjournments or postponements thereof, upon all
matters that may properly come before the meeting. Without otherwise limiting
the foregoing general authorization, the proxies are instructed to vote as
indicated herein.
This proxy, which is solicited on behalf of the Board of Directors, will be
voted FOR the matters described in paragraphs 1, 2 and 3 unless the shareholder
specifies otherwise, in which case it will be voted as specified. If you wish
to vote in accordance with the Board of Directors' recommendations, please sign
the proxy. You need not mark any boxes. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
meeting.
(Continued and to be signed on reverse side)
- -- -- -- -- -- -- -- -- -- FOLD AND DETACH HERE -- -- -- -- -- -- -- -- --
<PAGE>
The Board of Directors recommends a vote FOR the following matters to come
before the meeting:
1. To take the following actions:
A. To approve and adopt the Agreement and Plan of Reorganization, dated as
of July 24, 1998, as amended December 7, 1998, by and among Infoseek
Corporation, Steelhead Acquisition Corp., Quando, Inc.,
David Billstrom, William Neuhauser, Stanton R. Koch and U.S. Bank
Trust, N.A.
B. To appoint Stanton R. Koch as the Shareholder Representative in
connection with the escrow provisions and pursuant to the Agreement and
Plan of Reorganization.
C. To approve the merger of Steelhead Acquisition Corp., a wholly owned
subsidiary of Infoseek Corporation, with and into Quando, Inc. pursuant
to the Agreement and Plan of Reorganization by which Quando would become
a wholly owned subsidiary of Infoseek Corporation.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
[_] [_] [_]
</TABLE>
2. To convert immediately prior to the Merger each share of Quando Series A
preferred stock into 1.2685 shares of Quando common stock.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
[_] [_] [_]
</TABLE>
3. To convert immediately prior to the Merger each share of Quando Series B
preferred stock into 1.1462 shares of Quando common stock.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
[_] [_] [_]
</TABLE>
Dated: , 1998
----------------------------------------
Signature(s) of Shareholder or
Shareholders, (Executors,
Administrators, Trustees, etc. should
give full title).
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING OF THE SHAREHOLDERS, YOU
ARE URGED TO MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY, FIRST BY
FACSIMILE AND THEN BY USING THE ENCLOSED, POSTAGE-PAID ENVELOPE. ALL SHARES
HELD BY THE UNDERSIGNED, WHETHER COMMON OR PREFERRED, SHALL BE DEEMED VOTED AS
SET FORTH HEREIN.
- -- -- -- -- -- -- -- -- -- FOLD AND DETACH HERE -- -- -- -- -- -- -- -- --
<PAGE>
EXHIBIT 99.2
QUANDO, INC.
WRITTEN CONSENT
The undersigned shareholders of Quando, Inc. ("Quando") hereby consent to the
proposals set forth below in the manner indicated.
VOTING INSTRUCTION--ALL SHAREHOLDERS SHOULD VOTE ON ITEM 1.
IN ADDITION, HOLDERS OF QUANDO SERIES A PREFERRED STOCK SHOULD VOTE ON ITEM 4
AND HOLDERS OF QUANDO SERIES B PREFERRED STOCK SHOULD VOTE ON ITEM 5. WHERE A
SEPARATE VOTE OF ANY PARTICULAR CLASS OF STOCK IS REQUIRED, THIS CONSENT SHALL
BE TREATED AS A CLASS VOTE.
PLEASE RETURN YOUR COMPLETED WRITTEN CONSENT TO: QUANDO, INC.; ATTENTION: SUE
BIZNER (FACSIMILE: 503-225-1987) A POSTAGE-PAID RETURN ENVELOPE HAS BEEN
INCLUDED FOR YOUR CONVENIENCE.
TO ALL QUANDO SHAREHOLDERS, PLEASE MARK VOTES, AS IN THIS EXAMPLE [X]
1. To take the following actions:
A. To approve and adopt the Agreement and Plan of Merger (the
"Reorganization Agreement"), dated as of July 24, 1998, as amended
December 7, 1998, by and among Infoseek Corporation ("Infoseek"),
Steelhead Acquisition Corp. ("Merger Sub"), Quando, David Billstrom,
William Neuhauser and U.S. Bank Trust, N.A.
B. To appoint Stanton R. Koch as the Shareholder Representative in
connection with the escrow provisions and pursuant to the Reorganization
Agreement.
C. To approve the merger of Merger Sub, a wholly owned subsidiary of
Infoseek, with and into Quando pursuant to the Reorganization Agreement
by which Quando would become a wholly owned subsidiary of Infoseek.
[_] FOR [_] AGAINST
2. To convert immediately prior to the Merger each share of Quando Series A
preferred stock into 1.2685 shares of Quando common stock.
[_] FOR [_] AGAINST
3. To convert immediately prior to the Merger each share of Quando Series B
preferred stock into 1.1462 shares of Quando common stock.
[_] FOR [_] AGAINST
THE SHARES REPRESENTED BY THIS CONSENT WILL BE TREATED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN AND THIS CONSENT IS PROPERLY SIGNED AND DELIVERED TO QUANDO,
WILL BE TREATED AS CONSENTING "FOR" THE PROPOSALS IN ITEMS 1, 2 AND 3, AS
APPLICABLE. ALL SHARES HELD BY THE UNDERSIGNED, WHETHER COMMON OR PREFERRED,
SHALL BE DEEMED VOTED AS SET FORTH HEREIN.
[_] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
If signing as attorney, executor, trustee or guardian, please give your full
title as such. If stock is held jointly, each owner should sign.
Dated: December , 1998
<TABLE>
- ------------------------------------------- -------------------------------------------
<S> <C>
(Please Type or Print Name) (Please Type or Print Name)
- ------------------------------------------- -------------------------------------------
(Signature) (Signature)
</TABLE>
<PAGE>
EXHIBIT 99.3
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF PERIOD EXPENSES WRITE-OFFS END OF PERIOD
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995.. $-- $ 42 $ -- $ 42
Year ended December 31, 1996.. $ 42 $ 651 $(343) $ 350
Year ended December 31, 1997.. $350 $ 930 $(300) $ 980
Nine months ended September
30, 1998 (unaudited)......... $980 $1,045 $(350) $1,675
</TABLE>
